<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 20, 1998
FILE NO. 0-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12(g) OF THE
SECURITIES EXCHANGE ACT OF 1934
----------------
HARVEYS ACQUISITION CORPORATION
(Exact Name of Registrant as
Specified in Its Charter)
NEVADA [To be applied for]
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1999 AVENUE OF THE STARS, SUITE 1200
LOS ANGELES, CALIFORNIA 90067
(Address of Principal (Zip Code)
Executive Offices)
----------------
Registrant's telephone number, including area code:
310-282-8820
Copies to:
Richard Ekleberry, Esq. Jonathan H. Grunzweig, Esq.
Harveys Acquisition Corporation Skadden, Arps, Slate, Meagher & Flom LLP
201 Main Street, Suite 2420 300 South Grand Avenue
Ft. Worth, Texas 76102 Los Angeles, California 90071
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NOT APPLICABLE NOT APPLICABLE
Title of each class Name of each exchange on which
to be so registered each class to be registered
----------------
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
CLASS A COMMON STOCK, PAR VALUE $.01 PER SHARE
(Title of class)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
Item 1. Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Item 2. Financial Information.. . . . . . . . . . . . . . . . . . . . . . . . 20
Item 3. Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Item 4. Security Ownership of Certain Beneficial Owners and Management. . . . 36
Item 5. Directors and Executive Officers. . . . . . . . . . . . . . . . . . . 37
Item 6. Executive Compensation. . . . . . . . . . . . . . . . . . . . . . . . 39
Item 7. Certain Relationships and Related Transactions. . . . . . . . . . . . 47
Item 8. Legal Proceedings.. . . . . . . . . . . . . . . . . . . . . . . . . . 49
Item 9. Market Price of and Dividends on the Registrant's Common Equity and
Related Stockholder Matters.. . . . . . . . . . . . . . . . . . . . . 49
Item 10. Recent Sales of Unregistered Securities. . . . . . . . . . . . . . . 49
Item 11. Description of Registrant's Securities to be Registered. . . . . . . 50
Item 12. Indemnification of Directors and Officers. . . . . . . . . . . . . . 51
Item 13. Financial Statements and Supplementary Data. . . . . . . . . . . . . 51
Item 14. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.. . . . . . . . . . . . . . . . . . . . . . . . 51
Item 15. Financial Statements and Exhibits. . . . . . . . . . . . . . . . . . 51
Index to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . F-1
</TABLE>
i
<PAGE>
CERTAIN STATEMENTS IN THIS REGISTRATION STATEMENT (THE "REGISTRATION
STATEMENT") CONTAIN OR MAY CONTAIN INFORMATION THAT IS FORWARD-LOOKING WITHIN
THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED (THE "EXCHANGE ACT"). ACTUAL RESULTS MAY DIFFER MATERIALLY FROM
THOSE DESCRIBED IN THE FORWARD-LOOKING STATEMENTS AND WILL BE AFFECTED BY A
VARIETY OF RISKS AND FACTORS INCLUDING, WITHOUT LIMITATION, THE FAILURE OF
THE COMPANY (AS DEFINED HEREIN) TO SUCCESSFULLY CONSUMMATE THE MERGER (AS
DEFINED HEREIN); THE INABILITY OF HARVEYS (AS DEFINED HEREIN) AND CERTAIN
OFFICERS AND OTHER AFFILIATES OF HARVEYS AND THE COMPANY TO OBTAIN GAMING
LICENSES OR PERMITS IN JURISDICTIONS WHERE THE CURRENT OR PLANNED BUSINESS OF
HARVEYS REQUIRES SUCH LICENSES OR PERMITS; THE LIMITATION, CONDITIONING,
REVOCATION OR SUSPENSION OF ANY SUCH GAMING LICENSES OR PERMITS; A FINDING OF
UNSUITABILITY OR DENIAL BY REGULATORY AUTHORITIES WITH RESPECT TO ANY
OFFICERS, DIRECTORS OR KEY EMPLOYEES REQUIRED TO BE FOUND SUITABLE; LOSS OR
RETIREMENT OF KEY EXECUTIVES; INCREASED COMPETITION IN EXISTING MARKETS OR
THE OPENING OF NEW GAMING JURISDICTIONS (INCLUDING IN NATIVE AMERICAN LANDS);
A DECLINE IN THE PUBLIC ACCEPTANCE OF GAMING; INCREASES IN OR NEW TAXES OR
FEES IMPOSED ON GAMING REVENUES OR GAMING DEVICES; SIGNIFICANT INCREASES IN
FUEL OR TRANSPORTATION PRICES; ADVERSE ECONOMIC CONDITIONS IN HARVEYS' KEY
MARKETS; AND SEVERE OR UNUSUAL WEATHER IN HARVEYS' KEY MARKETS. IN ADDITION,
THE FINANCING REQUIRED FOR THE MERGER MAY SUBSTANTIALLY INCREASE THE LEVERAGE
AND OTHER FIXED CHARGE OBLIGATIONS OF HARVEYS. THE LEVEL OF HARVEYS'
INDEBTEDNESS AND OTHER FIXED CHARGE OBLIGATIONS COULD HAVE IMPORTANT
CONSEQUENCES, INCLUDING BUT NOT LIMITED TO THE FOLLOWING: (1) A SUBSTANTIAL
PORTION OF HARVEYS' CASH FLOW FROM OPERATIONS WOULD BE DEDICATED TO DEBT
SERVICE AND OTHER FIXED CHARGE OBLIGATIONS AND WOULD NOT BE AVAILABLE FOR
OTHER PURPOSES; (2) HARVEYS' ABILITY TO OBTAIN ADDITIONAL FINANCING IN THE
FUTURE FOR WORKING CAPITAL, CAPITAL EXPENDITURES OR ACQUISITIONS MAY BE
LIMITED; AND (3) HARVEYS' LEVEL OF INDEBTEDNESS COULD LIMIT ITS FLEXIBILITY
IN REACTING TO CHANGES IN ITS INDUSTRY AND ECONOMIC CONDITIONS GENERALLY.
READERS SHOULD CAREFULLY REVIEW THIS REGISTRATION STATEMENT IN ITS ENTIRETY,
INCLUDING BUT NOT LIMITED TO HARVEYS' AND THE COMPANY'S RESPECTIVE FINANCIAL
STATEMENTS AND THE NOTES THERETO. THE COMPANY UNDERTAKES NO OBLIGATION TO
PUBLICLY RELEASE ANY REVISIONS TO SUCH FORWARD-LOOKING STATEMENTS TO REFLECT
EVENTS OR CIRCUMSTANCES AFTER THE DATE HEREOF.
ITEM 1. BUSINESS.
THE COMPANY
Harveys Acquisition Corporation (the "Company") was formed at the
direction of Colony Investors III, L.P., a Delaware limited partnership
("Colony III") and an affiliate of Colony Capital, Inc. ("Colony
Capital") of Los Angeles, California, under the laws of the State of Nevada
on January 30, 1998. The Company has conducted no business other than in
connection with the Merger Agreement (as defined herein).
The Company and Harveys Casino Resorts, a Nevada corporation
("Harveys"), entered into an Agreement and Plan of Merger dated as of
February 1, 1998 (the "Merger Agreement"). Pursuant to the Merger Agreement,
subject to the satisfaction or waiver of certain conditions to the
obligations of the parties under the Merger Agreement, including the receipt
of certain approvals from the gaming authorities of the States of Nevada,
Colorado and Iowa, the Company will be merged (the "Merger") with and into
Harveys. In the Merger, each share of common stock ("Common Stock") of
Harveys outstanding at the time the Merger becomes effective (the "Effective
Time") (other than shares of Common Stock held in Harveys' treasury) will be
converted into the right to receive cash as provided in the Merger Agreement.
Harveys will be the surviving corporation in the Merger and continue its
current business operations.
1
<PAGE>
In connection with the Merger, the Company expects to issue shares of
its Class A Common Stock ("Class A Common") to Colony HCR Voteco, LLC, a
Delaware limited liability company ("Voteco") owned and managed solely by
Thomas J. Barrack, Jr., the Chairman and Chief Executive Officer of the
general partner of Colony III, and Kelvin L. Davis, the President and Chief
Operating Officer of the indirect general partner of Colony III, and shares
of its Class B Common Stock ("Class B Common") to Colony III. See "Item 2.
Financial Information -The Company." Holders of Class A Common are entitled
to one vote per share in all matters to be voted on by stockholders of the
Company. Holders of Class B Common have no vote, except as otherwise
expressly required by law.
Shares of Class A Common held by Voteco will be subject to a Transfer
Restriction Agreement (the "Transfer Restriction Agreement") by and among
Messrs. Barrack and Davis, Voteco and Colony III. The Transfer Restriction
Agreement will provide, among other things, that (1) Colony III has the
option to purchase shares of Class A Common from Voteco in connection with
sales of Class B Common by Colony III to a proposed purchaser who, in
connection with such proposed sale, has obtained all licenses, permits,
registrations, authorizations, consents, waivers, orders, findings of
suitability or other approvals required to be obtained from, and has made all
filings, notices or declarations required to be made with, all gaming
authorities under all applicable gaming laws, and (2) Voteco will not
transfer ownership of shares of Class A Common owned by it except pursuant
to such option of Colony III. See "Item 4. Security Ownership of Certain
Beneficial Owners and Management." In addition, the Articles of
Incorporation of the Company provide that no stock or other securities issued
by the Company and no interest, claim or charge therein or thereto may be
transferred, except in accordance with the provisions of the Nevada Gaming
Control Act and the regulations promulgated thereunder (collectively, the
"Nevada Act"). See "Item 11. Description of Registrant's Securities to be
Registered."
In addition, the Company has entered into a Memorandum of Understanding
dated February 1, 1998 (the "MOU") with three senior executive officers of
Harveys. The MOU provides, among other things, that the Company shall grant
to certain executive officers of Harveys the number of shares of Class A
Common and Class B Common that is equivalent in the aggregate to 3% of the
Class A Common and Class B Common, respectively, outstanding as of the
Effective Time.
It is expected that, following the Merger, Colony III will own
approximately 97% of the outstanding non-voting common stock of Harveys
through the ownership of 97% of the outstanding non-voting Class B Common,
Voteco will own 97% of the voting stock in Harveys through the ownership of
97% of the outstanding voting Class A Common, and certain executive officers
of Harveys will own 3% of the outstanding non-voting common stock and voting
stock of Harveys through the ownership of 3% of each of the outstanding Class
A Common and outstanding Class B Common. See "Item 4. Securities Ownership
of Certain Beneficial Owners and Management." As a result, Voteco will be
able to govern all matters of the Company that are subject to the vote of
stockholders, including the appointment of directors and the amendment of the
Company's Articles of Incorporation and Bylaws. Pursuant to the MOU, HAC has
agreed to appoint Charles W. Scharer, currently Chairman of the Board of
Directors, President and Chief Executive Officer of Harveys, to be a director
of the Company, and Stephen L. Cavallaro, currently Chief Operating Officer
(Subsidiary Properties) of Harveys, to serve as a non-voting observer of the
Board of Directors of the Company.
The Company currently intends to finance the Merger and pay related fees
and expenses with (1) proceeds from the issuance of Class B Common to Colony
III, (2) proceeds from the issuance of non-voting preferred stock (the
"Series A Preferred"), currently contemplated to be issued to affiliates of
Colony Capital and/or to third
2
<PAGE>
parties, (3) borrowings under a $185 million credit facility (the "Amended
and Restated Credit Facility") and (4) Harveys' available cash (collectively,
the "Proposed Financing"). The Company has no commitments from Colony
Capital or any other person to obtain the financing sources described above,
other than a commitment (the "Commitment") by Wells Fargo Bank, National
Association ("Wells Fargo"), to fund up to $150 million of a loan (the
"Loan") by Wells Fargo to the Company, which is expected to be refinanced
principally through the Amended and Restated Credit Facility, and the Amended
and Restated Credit Facility. Such commitment is subject to the satisfaction
of conditions precedent customary for facilities of this nature including,
without limitation, negotiation and execution of definitive documentation
relating to such facilities. Subsequent to providing the Commitment, Wells
Fargo agreed to utilize its best efforts to syndicate increases in the Loan
and the Amended and Restated Credit Facility to $185 million. Funding under
the $185 million loan and the Amended and Restated Credit Facility would be
subject to the satisfaction of customary conditions precedent. If the Merger
is consummated, the actual types and amounts of funds utilized to finance the
Merger and pay related fees and expenses may differ based on prevailing
circumstances at the time. In addition, use of the Proposed Financing is
subject to, among other matters, applicable gaming authority approvals and
the consent (the "Consent") of the holders of Harveys' 10-5/8% Senior
Subordinated Notes due 2006 (the "Notes") to proposed waivers of and
amendments to certain provisions of the indenture (as supplemented to date,
the "Indenture") governing the Notes. In the consent solicitation, Harveys
is seeking (1) the one-time waiver of the applicability of the Indenture to
the Merger, including the waivers of (a) the change of control covenant in
the Indenture and (b) the "Merger, Consolidation or Sale of Assets" provision
in the Indenture that may restrict the financing of the merger and related
transactions, and (2) to amend certain provisions in the indenture to be
consistent with the original intent of the initial purchasers of the Notes
and to provide the Company with certain additional flexibility in financing
following the Merger. There can be no assurance that Harveys will obtain the
Consent. If Harveys does not obtain the Consent, the Company may, in
compliance with the existing terms of the Indenture, pursue consummation of
the Merger utilizing an alternative financing arrangement that would permit
the Company to consummate the Merger without waiver or amendment of any
provisions of the Indenture. The Merger is subject to satisfaction or waiver
of certain conditions, including the receipt of gaming regulatory approvals,
and there can be no assurance that it will be consummated. See "-Harveys
Casino Resorts-Regulatory Matters."
The Company is filing this Form 10 Registration Statement (the
"Registration Statement") voluntarily. The Company is not required to file
this Registration Statement pursuant to the Exchange Act or the rules and
regulations of the Securities and Exchange Commission (the "SEC") promulgated
thereunder.
HARVEYS CASINO RESORTS
The following information about the business of Harveys, and the
financial information regarding Harveys and information derived therefrom
appearing elsewhere herein, is derived from the annual, quarterly and other
reports and proxy statement filed by Harveys with the SEC.
OVERVIEW
Harveys is an established owner, operator and developer of high-quality
hotel/casinos in Nevada and new gaming jurisdictions. Harveys, through its
wholly owned subsidiary Harveys Tahoe Management Company, Inc. ("HTMC"), owns
and operates Harveys Resort Hotel/Casino ("Harveys Resort"), the Lake Tahoe
area's largest hotel/casino. Harveys Resort, in operation since 1944, is
situated on the south shore of scenic Lake Tahoe on the Nevada/California
state line. Harveys, through its wholly owned subsidiary Harveys C.C.
Management Company, Inc. ("HCCMC"), owns and operates Harveys Wagon Wheel
Hotel/Casino ("Harveys Wagon Wheel") in Central City, Colorado, which opened
in December 1994 as the first major hotel/casino serving the greater Denver
area. Harveys, through its wholly owned subsidiary Harveys Iowa Management
Company, Inc. ("HIMC"), owns and operates a riverboat casino and
hotel/convention center in Council Bluffs, Iowa ("Harveys Casino Hotel")
across the Missouri River from Omaha, Nebraska. The Harveys Casino Hotel
riverboat casino opened on January 1, 1996 and is one of only three operators
in the Omaha/Council Bluffs gaming market, which includes one other riverboat
casino and a slot machine operator at the local dogtrack. The adjacent
land-based hotel and convention center facilities opened in May 1996.
3
<PAGE>
Until October 24, 1997, Harveys, through its wholly owned subsidiary, Harveys
L.V. Management Company, Inc. ("HLVMC"), owned 40% of the equity interest in
Hard Rock Hotel, Inc. ("HRHC"), which owns the Hard Rock Hotel and Casino in
Las Vegas, Nevada. HLVMC managed the Las Vegas hotel and casino pursuant to a
management contract with HRHC. On October 24, 1997, Harveys sold (the "Hard
Rock Sale") its 40% equity interest and its interest in the management
contract to HRHC.
Harveys Resort was originally founded on the south shore of Lake Tahoe
by Harvey and Llewellyn Gross in 1944 as a one-room saloon, cafe and casino.
Major additions to the property were made in 1955 and 1963, and since 1979
Harveys has pursued a master plan through which it has developed the property
into a major hotel/casino consisting of 740 hotel rooms, an 82,000-square
foot casino, 23,000 square feet of convention space, 2,946 parking spaces,
the 280-seat Emerald Theater and Cabaret, a wedding chapel, restaurants and
retail shops, a pool, a health club and a video arcade. Mr. Gross ran
Harveys Resort until the early 1980s, when he transferred responsibilities to
an experienced casino management team. Today, Harveys Resort offers its
customers high-quality hotel rooms, excellent dining facilities, an exciting
location, entertaining events and a lively gaming atmosphere.
Through Harveys Wagon Wheel, which opened in December 1994, Harveys
established the first major hotel/casino serving the greater Denver area,
Colorado's major population center of more than 2 million people. Harveys
Wagon Wheel includes 1,046 slot machines, 18 table games and a nine-table
poker area, a 118-room hotel and 730 on-site parking spaces. Other amenities
include a Tony Roma's Famous for Ribs restaurant and a Tony Roma's Express,
an entertainment lounge and a children's arcade.
The Harveys Casino Hotel riverboat casino accommodates 2,352 passengers
and is berthed on the Missouri River directly across from Omaha, Nebraska in
Council Bluffs, Iowa. The riverboat casino has 28,250 square feet of casino
space on three decks and contains 1,084 slot machines, 51 table games and a
seven-table poker area. The land-based amenities, which opened in May 1996,
include surface parking for approximately 2,300 cars and a 14-story, 251-room
hotel with a 21,000-square foot convention center.
BUSINESS STRATEGY
Harveys' business strategy is to develop premium hotel/casino facilities
in markets in which Harveys believes it can establish and maintain a
prominent position or niche. Each of Harveys' properties offers casino
gaming and a full range of amenities in a friendly atmosphere that caters to
middle- and upper middle-income customers. This strategy emphasizes the
following elements:
HIGH-QUALITY FACILITIES AND SUPERIOR CUSTOMER SERVICE. As part of its
commitment to providing a quality entertainment experience for its patrons,
Harveys is dedicated to ensuring a high level of customer satisfaction and
loyalty by providing distinctive and modern accommodations and attentive
customer service in a friendly atmosphere. Management recognizes that
consistent quality and a comfortable atmosphere can differentiate its
facilities from the competition in all of its markets. Harveys strives to
meet customer demand by furnishing each of its properties with a variety of
restaurants and non-gaming amenities. To foster a high level of customer
satisfaction through attentive customer service, management plays an active
role in the training of all of its employees at all levels. Harveys' goal of
becoming a truly customer-focused organization has been achieved at all
Harveys' properties through training programs, role playing and simulations.
Management believes that these programs have evolved to provide Harveys'
customers with a truly unique experience. Harveys has implemented attractive
employee benefit programs at all of its facilities to recruit and retain
friendly, professional employees.
4
<PAGE>
STRATEGIC LOCATIONS. Management believes that location is the key to
attracting customers. South Lake Tahoe, which draws approximately 2 million
visitors per year, is a unique gaming location because of its natural
surroundings and variety of outdoor attractions and activities. Harveys
Resort is strategically placed on a site adjacent to the California border in
close proximity to more than 6,500 hotel and motel rooms in non-gaming
facilities. Harveys Wagon Wheel is located on a highly visible site in
Central City, Colorado, a picturesque mountain town approximately 35 miles
west of Denver. Harveys Casino Hotel is within a ten-minute drive of the
Omaha/Council Bluffs metropolitan regional airport and is located directly
off Interstate 29, Interstate 80 and Interstate 480.
TARGETED CUSTOMER BASE. Harveys targets middle- to upper middle-income
customers who tend to have more disposable income for gaming and
entertainment. Harveys Resort seeks to attract these customers by offering
well-appointed rooms and a "party" atmosphere for those seeking nightlife and
entertainment. Harveys also has established extensive customer databases and
uses sophisticated player tracking systems to award cash rebates or
promotional allowances, such as complimentary rooms, food, beverage and
entertainment, when gaming play warrants. Management believes that by
continuing to focus its efforts on the maintenance of customer relationships
and the Harveys image, it will increase its share of higher-income customers
attracted to the South Lake Tahoe market. Harveys Wagon Wheel targets middle-
to upper middle-income customers from the greater Denver area who seek a
quality gaming experience, convenient parking and overnight accommodations.
By offering a facility with overnight accommodations and more amenities than
are offered by other casinos in the Central City/Black Hawk market, Harveys
Wagon Wheel has been successfully building a loyal customer base. Harveys
Wagon Wheel opened a 530 space parking garage in June 1997, providing a new
level of parking convenience for customers. Harveys Casino Hotel targets
frequent, mid-level players from Omaha, Council Bluffs and the surrounding
areas. Harveys believes that the hotel and convention facilities, opened in
mid-1996, attract new players by capturing overnight guests as well as
meetings and small conventions business. In addition, by promoting itself as
"Harveys, You Can Have It All!" management believes that Harveys Casino Hotel
attracts a large percentage of the gaming revenues generated by the
Omaha/Council Bluffs regional population and visitors to the Omaha/Council
Bluffs area.
EFFECTIVE MARKETING. In February 1997, Harveys announced that Bill
Cosby agreed to become a spokesperson for Harveys. Under a contractual
relationship with Harveys, Mr. Cosby is actively involved in promoting
Harveys through entertainment appearances at Harveys' properties and through
commercial messages, including television and radio. Harveys believes that
this association has been and will continue to be helpful in enhancing the
national visibility of Harveys.
Since 1989, Harveys has aggressively promoted Harveys Resort and a
lively image through television, radio, billboard and print advertising. The
current advertising, with Bill Cosby as the centerpiece of the campaign,
features Harveys Resort as the "Tahoe Players Club." Since 1989, Harveys has
increased its share of gaming revenues in South Lake Tahoe from approximately
24% to approximately 28% in 1997, due largely to its targeted marketing
strategy. Harveys attracts customers to Harveys Wagon Wheel by aggressively
promoting the facility's hotel rooms, on-site parking, quality dining
facilities and varied entertainment activities in a market in which such
amenities are a distinct competitive advantage. Harveys Casino Hotel is
marketed as "Harveys, You Can Have It All!" in the Omaha/Council Bluffs
market through the extensive use of television and newspaper advertisement,
billboards, regular promotions and sweepstakes as well as point-of-sale
materials located in local hotels, restaurants and other visitor attractions.
5
<PAGE>
EMPHASIS ON SLOT PLAY. Responding to the increased popularity of slot
machines over the past several years, Harveys has shifted its gaming mix
toward slot machines. The mix of slot machines is closely matched to the
demand of the customer base at each property. Harveys Resort, for instance,
now includes a greater percentage of $1 and higher denominated machines to
appeal to the higher-income gaming clientele of Harveys Resort, including $5,
$25 and $100 slot machines offered within a premium player section. This
increase in higher denominated machines increased win per unit at Harveys
Resort by approximately 28% between 1988 and 1997. Harveys Wagon Wheel
offers 1,046 slot machines, approximately 246 more machines than are
currently offered by any other gaming facility in the area, and Harveys Casino
Hotel offers 1,084 slot machines. Slot machines, which are less labor
intensive and require less square footage than table games, also generate
higher profit margins compared to table games. Harveys monitors payout
percentages closely and ensures that its slot machine payouts are competitive.
HARVEYS RESORT. Harveys Resort, the largest hotel/casino in the Lake
Tahoe area, is located on approximately 19.8 acres on U.S. Highway 50, the
main route through South Lake Tahoe. The hotel/casino, situated on the south
shore of Lake Tahoe with a panoramic view of the lake and surrounding
mountains, is among Lake Tahoe's most modern facilities. The main structure
is an all-glass 17-story tower which was completed in 1991, connected to a
12-story tower which was completely re-built in 1982. Harveys Resort
features 740 rooms, 36 of which are luxury suites, and an 82,000-square foot
casino containing approximately 2,060 slot machines, 95 table games, a
13-table poker area, a race and sports book and a keno lounge. Other
amenities include 23,000 square feet of convention space, 2,946 parking
spaces, the 280-seat Emerald Theater and Cabaret, a wedding chapel,
restaurants, retail shops, a pool, a health club and a video arcade. Harveys
Resort's eight restaurants offer a wide variety of high quality food and
consist of a coffee shop, a Mexican restaurant, a seafood and pasta
restaurant, a premier steakhouse, a buffet, a snack bar, Llewellyn's, Harveys
Resort's award-winning restaurant featuring top quality food and a
spectacular view of Lake Tahoe, and a Hard Rock Cafe, located on the casino
floor, which is owned and operated by Hard Rock Cafe International (USA),
Inc. In recognition of the outstanding quality of the facility and its
excellent service, Harveys Resort has received the AAA Four Diamond Award
every year for the last 17 years. Harveys has expended approximately $14.0
million and approximately $1.3 million remains reserved for capital
expenditures at Harveys Resort through 1997 and 1998 to date to increase
Harveys' market share and to position Harveys to benefit from the ongoing
South Lake Tahoe Redevelopment Project. In 1984, the City of South Lake
Tahoe, California, adopted a redevelopment plan and created the South Tahoe
Redevelopment Agency. The redevelopment plan has resulted in the removal of
numerous older motel and retail properties along Highway 50 through the City
of South Lake Tahoe. The properties were demolished, creating a scenic open
space corridor containing public facilities and wetlands. The redevelopment
plan resulted in a 400-room Embassy Suites hotel on the California-Nevada
state line, completed in 1991. It is anticipated that the next phase of
redevelopment will involve the condemnation of certain older motels and
retail establishments located within one mile of Harveys Resort and the
replacement thereof with a regional transit center including an aerial tram
to the Heavenly ski area, parking facilities, a theater complex, retail
space, upscale hotels and vacation interval units. It is anticipated that
the third phase, also to be located immediately adjacent to the
California-Nevada state line, will result in a regional convention facility,
hotel, retail space, regional parking facilities and various public amenities.
The Lake Tahoe area is a unique gaming location because of its natural
surroundings and variety of year-round outdoor recreational activities,
including skiing, boating, fishing and golfing. The South Lake
6
<PAGE>
Tahoe area draws tourists primarily from nearby Reno and Northern California.
There are four major casinos in this market to serve the approximately 2
million annual visitors.
HARVEYS WAGON WHEEL. Through Harveys Wagon Wheel, which opened in
December 1994, Harveys established the first major hotel/casino serving the
greater Denver area. Harveys Wagon Wheel is located on a highly visible site
in Central City, Colorado, a picturesque mountain town approximately 35 miles
west of Denver. Unlike most existing gaming facilities in the Central City
area, which offer no overnight accommodations, scarce on-site parking and few
non-gaming amenities, Harveys Wagon Wheel includes approximately 40,000
square feet of casino space, 1,046 slot machines, 18 table games, a
nine-table poker area, a 118-room hotel and 730 on-site parking spaces,
including 530 spaces in the market's first self-parking garage which was
completed in June of 1997. Other amenities include a Tony Roma's Famous for
Ribs restaurant and a Tony Roma's Express, an entertainment lounge and a
children's arcade. No other casino in Central City/Black Hawk currently
offers all of these amenities. HCCMC also owns approximately 40 acres of
undeveloped land adjacent to the Harveys Wagon Wheel facility.
HARVEYS CASINO HOTEL. On January 1, 1996, Harveys opened, as the first
phase of Harveys Casino Hotel, a 2,352-passenger riverboat casino berthed on
the Missouri River directly across from Omaha, Nebraska in Council Bluffs,
Iowa. The riverboat casino has 28,250 square feet of casino space on three
decks and contains 1,084 slot machines, 51 table games and a seven-table
poker area. On May 24, 1996, Harveys opened the second phase of Harveys
Casino Hotel, including surface parking for approximately 2,300 cars, and a
14-story, 251-room hotel with a 21,000-square foot convention center.
Harveys Casino Hotel is within a ten-minute drive of the Omaha/Council Bluffs
regional airport and is located directly off of Interstate 29, Interstate 80
and Interstate 480.
Harveys Casino Hotel is located on a 60-acre parcel of land which
Harveys acquired from the City of Council Bluffs. Approximately 20 acres of
the site are occupied by a municipal nine-hole golf course, which is leased
to the City of Council Bluffs for a nominal fee. This arrangement allows
Harveys the option of using this land for future expansion needs. In
addition, Harveys has acquired an adjacent 44-acre site to accommodate future
expansion or support facilities.
Harveys Casino Hotel's target market is the approximately 760,000
residents in the greater Omaha/ Council Bluffs metropolitan area and the
nearly 3 million residents within a three-hour drive of the facility. In
addition, the casino, hotel and convention facilities are marketed to the
estimated 2.7 million visitors and tourists who visit the Omaha metropolitan
area annually. Harveys Casino Hotel markets itself as "Harveys, You Can Have
It All!" in the Omaha/Council Bluffs market through the extensive use of
television and newspaper advertisement, billboards, regular promotions and
sweepstakes as well as point-of-sale materials located in local hotels,
restaurants and other visitor attractions. Harveys Casino Hotel targets
frequent, mid-level players from Omaha, Council Bluffs and the surrounding
area. Harveys believes that the hotel and convention facilities attracts new
players by capturing overnight guests and individuals attending meetings and
small conventions. In addition, management believes that promoting the
property as "Harveys, You Can Have It All!" has contributed to making Harveys
Casino Hotel the number one performing riverboat casino (based on gaming
revenues) in Iowa.
7
<PAGE>
COMPETITION
LAKE TAHOE. Harveys competes for customers primarily on the basis of
location, range and pricing of amenities and overall atmosphere. Several of
the competitors of Harveys Resort have substantially greater name recognition
and financial and marketing resources. Harveys Resort competes with a number
of other hotel/casinos at Lake Tahoe and, to a lesser extent, with
hotel/casino operations located in Reno, Las Vegas and Laughlin, Nevada and
Native American owned casinos in California. In South Lake Tahoe, Harveys
Resort competes primarily with three other major casino operations: Harrah's
Lake Tahoe, Caesars Tahoe and the Horizon Casino Resort.
In 1987, the Tahoe Regional Planning Agency, an entity approved by
Congress and established under a bi-state compact reached between the states
of California and Nevada, placed restrictions on additional commercial,
residential and tourist accommodation construction at Lake Tahoe in an effort
to curb development and to preserve the local environment. Under the
bi-state compact and community plan constraints, future tourist accommodation
units added to the market will be required to mitigate their environmental
impacts. Such measures may include replacing an imposed multiple of older
tourist accommodation units. The limited number of rooms available at Lake
Tahoe, however, allows Lake Tahoe hotel/casino operators to achieve much
higher nightly room rates than those in most other gaming jurisdictions. The
occupancy rate for the 2,250 upscale rooms in the four major south Lake Tahoe
casinos has historically been between 80% and 85%, while the occupancy rate
in the motels is typically between 40% and 50%. It is estimated that the
average day room rate for the Lake Tahoe hotel/casinos is over $100, compared
to average estimated rates of $25 to$65 for Las Vegas, Reno and Laughlin.
The Tahoe Regional Planning Agency has imposed significant restrictions on
construction as well as on expansion of gaming facilities. These restrictions
prohibit existing casinos from expanding cubic volume of structures housing
gaming and limit expansion of the gaming areas within such structures.
Harveys believes that because of such restrictions, it is unlikely that any
new hotel/casinos will commence operations at Lake Tahoe or that any of the
smaller existing casinos will expand to a size that could make them
competitive with the four major casinos; however, Harveys expects that the
four major hotel/casinos will continue to compete intensely.
In addition, as a result of the approval of state proposition 5 in
California in November 1998, additional competition could result from an
increase in the number of casinos on Native American lands in California,
including on lands that are between Harveys Resort and major population
centers and proximate to Highway 50, the primary road route to South Lake
Tahoe.
CENTRAL CITY/BLACK HAWK. Harveys Wagon Wheel competes primarily with
the six casinos with the largest number of gaming devices in Central City and
Black Hawk as well as the 24 smaller gaming establishments in operation as of
November 1, 1998, in Central City and Black Hawk. The six largest casinos,
together with Harveys Wagon Wheel, currently control more than 56% of all
gaming devices in the Central City/Black Hawk area. See "Harveys Wagon
Wheel" above. In addition, as of November 1, 1998, there were approximately
21 other gaming establishments operating within Cripple Creek, the third city
in the state of Colorado where gaming is legal, and two establishments
located on two Native American reservations in southwest Colorado. The
adjacent cities of Central City and Black Hawk form Colorado's primary gaming
market. In this market the majority of the existing gaming establishments
lack on-site parking, overnight accommodations and non-gaming amenities. One
new gaming establishment offering on-site parking and overnight
accommodations opened in Black Hawk in June 1998. A number of other projects
are either under construction or in the planning stages. Some or all of
these projects may include on-site parking, overnight accommodations or other
amenities that would increase competition with Harveys Wagon Wheel. Two
casinos currently under development in Black Hawk would be among the five
largest casinos in the area, based on proposed aggregate numbers of slot
machines and table games. Substantially all recent casino development in the
Central City/Black Hawk market has occurred in Black Hawk, which is closer to
Denver than Central City. There can be no assurance that the concentration
of casinos in Black Hawk and its proximity to Denver will not adversely
affect the number of gaming customers visiting Central City. Currently,
limited stakes gaming in Colorado is legal in Central City, Black Hawk,
Cripple Creek and two Native American reservations in southwest Colorado.
However, there can be no assurances that limited
8
<PAGE>
stakes gaming will not be approved in other Colorado communities in the
future, or that other forms of gaming will not be legalized in the Central
City/Black Hawk area or other Colorado communities. The legalization of
gaming closer to Denver, the major population center of Colorado, would
likely have a material adverse effect on Harveys' operation in Central City.
OMAHA/COUNCIL BLUFFS. Harveys Casino Hotel, with its riverboat casino
that opened on January 1, 1996 and the adjacent 251-room hotel and
21,000-square foot convention center that opened on May 24, 1996, provided
the first of only three major hotel products in the city. Harveys' target
markets are the residential population base (approximately 760,000) of the
greater Omaha/Council Bluffs area, and the nearly 3 million residents within
a three-hour drive of the facility. Additionally, Harveys' hotel and
convention facilities are marketed to an estimated 2.7 million visitors and
tourists who visit the Omaha metropolitan area annually, which now offers
approximately 7,000 hotel and motel units and is home to major tourist
attractions such as zoos, museums, pari-mutuel tracks and historic monuments.
Harveys' casino competes with Ameristar Casino Inc.'s riverboat casino in
Council Bluffs, which opened on January 19, 1996, as well as with the slot
machines installed at a dogtrack in the Council Bluffs area and other
amusement attractions. Should casino-style gaming be legalized in Nebraska,
and should gaming facilities be opened in Omaha, Nebraska, Harveys Casino
Hotel could be materially adversely affected.
EMPLOYEES
As of October 28, 1998, Harveys had approximately 4,125 employees.
Management believes that employee relations are good. Harveys has entered
into a collective bargaining agreement that covers approximately ten
employees. This agreement relates to stage-hand employees who provide
support to entertainment facilities at Harveys Resort. None of Harveys'
other employees are represented by labor unions.
REGULATORY MATTERS
NEVADA GAMING LAWS AND REGULATIONS. The ownership and operation of
casino gaming facilities in Nevada and the manufacture and distribution of
gaming devices and cashless wagering systems for use or play in Nevada or for
distribution outside of Nevada are subject to (1) the Nevada Act and (2)
various local ordinances and regulations. Harveys' gaming operations are
subject to the licensing and regulatory control of the Nevada State Gaming
Control Board (the "Nevada Board") and the Nevada Gaming Commission (the
"Nevada Commission"). The Nevada Board and the Nevada Commission are
collectively referred to hereinafter as the "Nevada Gaming Authorities."
The laws, regulations and supervisory procedures of the Nevada Gaming
Authorities are based upon declarations of public policy which are concerned
with, among other things: (1) the prevention of unsavory or unsuitable
persons from having a direct or indirect involvement with gaming at any time
or in any capacity; (2) the strict regulation of all persons, locations,
practices, associations and activities related to the operation of licensing
gaming establishments and the manufacture and distribution of gaming devices
and cashless wagering systems; (3) the establishment and maintenance of
responsible accounting practices and procedures; (4) the maintenance of
effective controls over the financial practices of licensees, including the
establishment of minimum procedures for internal fiscal affairs and the
safeguarding of assets and revenues, providing reliable record keeping and
requiring the filing of periodic reports with the Nevada Gaming Authorities;
(5) the prevention of cheating and fraudulent practices; and (6) providing a
source of state and
9
<PAGE>
local revenues through taxation and licensing fees. Changes in such laws,
regulations and procedures could have an adverse effect on Harveys' gaming
operations.
HTMC is required to be licensed by the Nevada Gaming Authorities. The
gaming license requires the periodic payment of fees and taxes and is not
transferable. HTMC is also licensed as a manufacturer and distributor of
gaming devices. Harveys is registered by the Nevada Commission as a publicly
traded corporation (a "Registered Corporation") and has been found suitable
to own the stock of HTMC. As a Registered Corporation, Harveys is required to
submit detailed financial and operating reports to the Nevada Commission and
Nevada Board and furnish any other information which the Nevada Commission or
Nevada Board may require. Harveys is expected to continue to qualify as a
Registered Corporation as defined in the Nevada Act upon the effectiveness of
this Registration Statement. No person may become a stockholder of, or
receive any percentage of the profits from, HTMC without first obtaining
licenses and approvals from the Nevada Gaming Authorities. Harveys and HTMC
have obtained from the Nevada Gaming Authorities the various registrations,
licenses, findings of suitability, approvals and permits (individually, a
"Gaming License" and, collectively, the "Gaming Licenses") required in order
to engage in gaming, manufacturing and distributing operations in Nevada.
The Nevada Gaming Authorities may investigate any individual who has a
material relationship to, or material involvement with, Harveys or HTMC in
order to determine whether such individual is suitable or should be licensed
as a business associate of a gaming licensee. Officers, directors and
certain key employees of Harveys and HTMC 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 unsuitable for licensing or unsuitable to continue having a
relationship with Harveys or HTMC, the companies involved would have to sever
all relationships with such person. In addition, the Nevada Commission may
require Harveys and HTMC 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.
Harveys and HTMC each are required to submit detailed financial and
operating reports to the Nevada Commission. Substantially all material
loans, leases, sales of securities and similar financing transactions by
Harveys and HTMC must be reported to, or approved by, the Nevada Commission.
If it were determined that the Nevada Act was violated by Harveys or
HTMC, the Gaming Licenses they hold could be limited, conditioned, suspended
or revoked, subject to compliance with certain statutory and regulatory
procedures. In addition, Harveys and HTMC, and the persons involved, could be
subject to substantial fines of up to $250,000 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 Harveys
Resort and, under certain circumstances, earnings generated during the
supervisor's appointment (except for the reasonable rental value of Harveys
Resort) could be forfeited to the State of Nevada.
10
<PAGE>
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 Harveys' gaming operations.
Any beneficial holder of Harveys' voting securities or other equity
securities such as the Class B Common and Series A Preferred, regardless of
the number of shares owned, may be required to file an application, be
investigated, and have such holder's suitability as a beneficial holder of
Harveys' voting securities or other equity 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 Harveys' voting securities to report the acquisition to the
Nevada Commission and may be required to be found suitable. The Nevada Act
requires that beneficial owners of more than 10% of Harveys' voting
securities apply to the Nevada Commission for a finding of suitability within
thirty days after the Chairman of the Nevada Board mails the written notice
requiring such filing. Under certain circumstances, an "institutional
investor," as defined in the Nevada Act, which acquires more than 10%, but
not more than 15%, of Harveys' voting securities may apply to the Nevada
Commission for a waiver of such finding of suitability if such institutional
investor holds the voting securities for investment purposes only. An
institutional investor shall not be deemed to hold voting securities for
investment purposes unless the voting securities were acquired and are held
in the ordinary course of business as an institutional investor and not for
the purpose of causing, directly or indirectly, the election of a majority of
the members of the board of directors of Harveys, any change in Harveys'
corporate charter, bylaws, management, policies or operations of Harveys, or
any of its gaming affiliates, or any other action which the Nevada Commission
finds to be inconsistent with holding Harveys' voting securities for
investment purposes only. Activities which are not deemed to be inconsistent
with holding voting securities for investment purposes only include: (1)
voting on all matters voted on by stockholders; (2) making financial and
other inquiries of management of the type normally made by securities
analysts for informational purposes and not to cause a change in its
management, policies or operations; and (3) such other activities as the
Nevada Commission may determine to be consistent with such investment intent.
If the beneficial holder of voting securities who must be found suitable is
a corporation, partnership or trust, it must submit detailed business and
financial information including a list of beneficial owners. The applicant
is required to pay all costs of investigation.
Any person who fails or refuses to apply for a finding of suitability or
a license within thirty days after being ordered to do so by the Nevada
Commission or the Chairman of the Nevada Board, may be found unsuitable. The
same restrictions apply to a record owner if the record owner, after request,
fails to identify the beneficial owner. Any stockholder found unsuitable and
who holds, directly or indirectly, any beneficial ownership of the common
stock of a Registered Corporation beyond such period of time as may be
prescribed by the Nevada Commission may be guilty of a criminal offense.
Harveys is subject to disciplinary action if, after it receives notice that a
person is unsuitable to be a stockholder or to have any other relationship
with Harveys, Harveys (1) pays that person any dividend or interest upon
voting securities of Harveys, (2) allows that person to exercise, directly or
indirectly, any voting right conferred through securities held by that
person, (3) pays remuneration in any form to that person for services
rendered or otherwise, or (4) fails to pursue all lawful efforts to require
such unsuitable person to relinquish his voting securities including, if
necessary, the immediate purchase of said voting securities for cash at fair
market value.
11
<PAGE>
The Nevada Commission may, in its discretion, require the holder of any
debt security of a Registered Corporation, such as the Notes, to file
applications, be investigated and be found suitable to own the debt security
of a Registered Corporation. If the Nevada Commission determines that a
person is unsuitable to own such security, then pursuant to the Nevada Act,
the Registered Corporation can be sanctioned, including the loss of its
approvals, if without the prior approval of the Nevada Commission, it: (1)
pays to the unsuitable person any dividend, interest, or any distribution
whatsoever; (2) recognizes any voting right by such unsuitable person in
connection with such securities; (3) pays the unsuitable person remuneration
in any form; or (4) makes any payment to the unsuitable person by way of
principal, redemption, conversion, exchange, liquidation, or similar
transaction.
Harveys is required to maintain a current stock ledger in Nevada which may
be examined by the Nevada Gaming Authorities at any time. If any securities are
held in trust by an agent or by a nominee, the record holder may be required to
disclose the identity of the beneficial owner to the Nevada Gaming Authorities.
A failure to make such disclosure may be grounds for finding the record holder
unsuitable. Harveys is also required to render maximum assistance in
determining the identity of the beneficial owner. The Nevada Commission has the
power to require Harveys' stock certificates to bear a legend indicating that
the securities are subject to the Nevada Act. However, to date, the Nevada
Commission has not imposed such a requirement on Harveys.
Harveys may not make a public offering of its securities without the
prior approval of the Nevada Commission if the securities or the proceeds
therefrom are intended to be used to construct, acquire or finance gaming
facilities in Nevada, or to retire or extend obligations incurred for such
purposes. On October 23, 1997, the Nevada Commission granted Harveys
approval to make public offerings for a period of two years, subject to
certain conditions (the "Shelf Approval"). The Shelf Approval may, however,
be rescinded for good cause without prior notice upon the issuance of an
interlocutory stop order by the Chairman of the Nevada Board and must be
renewed at the end of the two-year approval period. The Shelf Approval does
not constitute a finding, recommendation or approval by the Nevada Commission
or the Nevada Board as to the accuracy or adequacy of the prospectus or the
investment merits of the securities. Any representation to the contrary is
unlawful.
Changes in control of Harveys through merger, consolidation, stock or asset
acquisitions, management or consulting agreements, or any act or conduct by a
person whereby the person obtains control, may not occur without the prior
approval of the Nevada Gaming Authorities. Entities seeking to acquire control
of a Registered Corporation must satisfy the Nevada Board and Nevada Commission
in a variety of stringent standards prior to assuming control of such Registered
Corporation. The Nevada Commission may also require controlling stockholders,
officers, directors and other persons having a material relationship or
involvement with the entity proposing to acquire control to be investigated and
licensed as part of the approval process relating to the transaction. Voteco
has filed an application for approval of the Nevada Board and Nevada Commission
to acquire control of Harveys and for registration as a holding company. In
connection with Voteco's application, Messrs. Barrack and Davis have filed
applications for Gaming Licenses as members of Voteco, and as directors and
controlling persons of Harveys. No assurances can be given that such approval
and Gaming Licenses will be granted.
The Nevada legislature has declared that some corporate acquisitions
opposed by management, repurchases of voting securities and corporate defense
tactics affecting Nevada gaming licensees, and Registered Corporations that are
affiliated with those operations, may be injurious to stable and productive
corporate gaming. The Nevada Commission has established a regulatory scheme to
ameliorate the potentially
12
<PAGE>
adverse effects of these business practices upon Nevada's gaming industry and
to further Nevada's policy to: (1) assure the financial stability of
corporate gaming operators and their affiliates; (2) preserve the beneficial
aspects of conducting business in the corporate form; and (3) promote a
neutral environment for the orderly governance of corporate affairs.
Approvals are, in certain circumstances, required from the Nevada Commission
before Harveys can make exceptional repurchases of voting securities above
the current market price thereof and before a corporate acquisition opposed
by management can be consummated. The Nevada Act also requires prior
approval of a plan of recapitalization proposed by Harveys' Board of
Directors in response to a tender offer made directly to the Registered
Corporation's stockholders for the purposes of acquiring control of the
Registered Corporation.
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: (1) a percentage of the gross revenues received; (2) the number of
gaming devices operated; or (3) the number of table games operated. A casino
entertainment tax is also paid by casino operations where entertainment is
furnished in a cabaret, nightclub, cocktail lounge or casino showroom in
connection with the serving or selling of food or refreshments, or the selling
of any merchandise. Nevada licensees that hold a license as an operator of a
slot machine route, or a manufacturer's or distributor's license, also pay
certain fees and taxes to the State of Nevada.
Any person who is licensed, required to be licensed, registered, required
to be registered, or is under common control with such persons (collectively,
"Licensees"), and who proposes to become involved in a gaming venture outside of
Nevada is required to deposit with the Nevada Board, and thereafter maintain, a
revolving fund in the amount of $10,000 to pay the expenses of investigation of
the Nevada Board of their participation in such foreign gaming. The revolving
fund is subject to increase or decrease in the discretion of the Nevada
Commission. Thereafter, Licensees are required to comply with certain reporting
requirements imposed by the Nevada Act. A licensee is also subject to
disciplinary action by the Nevada Commission if it knowingly violates any laws
of the foreign jurisdiction pertaining to the foreign gaming operation, fails to
conduct the foreign gaming operation in accordance with the standards of honesty
and integrity required of Nevada gaming operations, engages in activities or
enters into associations that are harmful to the State of Nevada or its ability
to collect gaming taxes and fees, or employs, contracts with, or associates
with, a person in the foreign operation who has been denied a license or finding
of suitability in Nevada on the ground of personal unsuitability.
The sale of alcoholic beverages at Harveys Resort is subject to the
regulation and licensing by Douglas County. HTMC has received all required
liquor licenses. Such liquor licenses are revocable and are not transferable.
COLORADO GAMING LAWS AND REGULATIONS. The State of Colorado created the
Division of Gaming (the "Division") within the Department of Revenue to license,
implement, regulate and supervise the conduct of limited gaming under the
Colorado Limited Gaming Act. The Director of the Division, under the
supervision of a five-member Colorado Limited Gaming Control Commission (the
"Colorado Commission"), has been granted broad power to ensure compliance with
the Colorado gaming regulations (the "Colorado Regulations"). The Director may
inspect, without notice, impound or remove any gaming device. He may examine
and copy any licensee's records, may investigate the background and conduct of
licensees and their
13
<PAGE>
employees, and may bring disciplinary actions against licensees and their
employees. He may also conduct detailed background investigations of persons
who loan money to Harveys.
The Colorado Commission is empowered to issue five types of gaming and
gaming-related licenses. The licenses are revocable and non-transferable.
The failure or inability of Harveys, HCCMC, Voteco, Colony III, the general
partner of Colony III or others associated with Harveys Wagon Wheel, to
maintain necessary gaming licenses will have a material adverse effect on the
operations of Harveys. All persons employed by Harveys or HCCMC and
involved, directly or indirectly, in gaming operations in Colorado also are
required to obtain a Colorado gaming license. Licenses of key and support
employees are required to be renewed biennially, and all other licenses must
be renewed annually.
As a general rule, under the Colorado Regulations, it is a criminal
violation for any person to have an "ownership interest" in more than three
retail gaming licenses in Colorado. The Colorado Commission has ruled that a
person does not have an ownership interest in a licensee for purposes of the
multiple license prohibition if: (1) such person has less than a five percent
(5%) ownership interest in an institutional investor which has an ownership
interest in a publicly traded licensee or publicly traded company affiliated
with a licensee (such as Harveys); (2) a person has a five percent (5%) or
more ownership interest in an institutional investor, but the institutional
investor has less than a five percent (5%) ownership interest in a publicly
traded licensee or publicly traded company affiliated with a licensee; (3) an
institutional investor has less than a five percent (5%) ownership interest
in a publicly traded licensee or publicly traded company affiliated with a
licensee; (4) an institutional investor possesses voting securities in a
fiduciary capacity for another person, and does not exercise voting control
over five percent (5%) or more of the outstanding voting securities of a
publicly traded licensee or of a publicly traded company affiliated with a
licensee; (5) a registered broker or dealer retains possession of voting
securities of a publicly traded licensee or of a publicly traded company
affiliated with a licensee for its customers in street name or otherwise, and
exercises voting rights for less than five percent (5%) of the publicly
traded licensee's voting securities or of a publicly traded company
affiliated with a licensee; (6) a registered broker or dealer acts as a
market maker for the stock of a publicly traded licensee or of a publicly
traded company affiliated with a licensee and possesses a voting rights in
less than five percent (5%) of the stock of the publicly traded licensee or
of a publicly traded company affiliated with a licensee; (7) an underwriter
is holding voting securities of a publicly traded licensee or of a publicly
traded company affiliated with a licensee as part of an underwriting for no
more than 90 days if it exercises voting rights of less than five percent
(5%) of the outstanding voting securities of a publicly traded licensee or of
a publicly traded company affiliated with a licensee; (8) a book-entry
transfer facility holds voting securities for third parties, if it exercises
voting rights with respect to less than five percent (5%) of the outstanding
securities of a publicly traded licensee or of a publicly traded company
affiliated with a licensee; or (9) a person owns less than five percent (5%)
of the voting securities of the publicly traded licensee or publicly traded
company affiliated with a licensee. Hence, Harveys' and its stockholders'
business opportunities in Colorado are limited to such interests that comply
with the statute and the Colorado Commission's rules.
In addition, pursuant to the Colorado Regulations, no manufacturer or
distributor of slot machines may have an interest in any casino retailer or
operator, allow any of its officers or persons with a substantial interest in
it to have such an interest, employ any person if such person is employed by
a casino retailer or operator, or allow any casino retailer or operator or
person with a "substantial interest" therein to have an interest in a
manufacturer's or distributor's business. "Substantial interest" means the
lesser of as large an interest as that of any other shareholder, partner or
principal, or any financial or equity interest equal to or greater than five
percent (5%). But, with respect to a publicly traded licensee or publicly
traded affiliate of
14
<PAGE>
a licensee, the Colorado Commission has ruled that a person does not have a
"substantial interest" if such persons' ownership interest in the licensee is
through the ownership of less than five percent (5%) of such voting
securities of a licensee or an affiliated company.
Counsel for the Division has informed counsel for HCCMC that, for purposes
of the multiple-license statute and the vertical ownership statute described
above, the Division has taken the position that only a person deemed to have
"beneficial ownership" (as defined in the rules and regulations of the SEC under
Section 13(d) of the Exchange Act) of shares of Harveys will be deemed to have
an "ownership interest" in Harveys under the multiple license statute or an
"interest" in Harveys under the vertical ownership statute. HCCMC understands
that neither the Colorado Commission nor the Colorado legislature has addressed
this issue. As a result, there can be no assurance that the Colorado Commission
or the Colorado legislature will not apply a more restrictive interpretation.
Under the Colorado Regulations, any person or entity having any direct
or indirect legal, beneficial, financial or voting interest in a gaming
licensee or an applicant for a gaming license, including, but not limited to,
Harveys and stockholders of Harveys, persons or entities directly or
indirectly having an interest in a stockholder of Harveys, and lenders to and
preferred stockholders of Harveys may be required to supply the Colorado
Commission with substantial information, including, but not limited to,
background information, source of funding information, a sworn statement that
such person or entity is not holding his interest for any other party, and
fingerprints. Such information, investigation and licensing as an
"associated person" automatically will be required of all persons (other than
certain institutional investors discussed below) which directly or indirectly
beneficially own ten percent (10%) or more of any class of voting securities
of Harveys. Such persons must report their interest and file appropriate
applications within 45 days after acquiring such interest. Persons directly
or indirectly having a five percent (5%) or more (but less than 10%)
beneficial ownership of any class of voting securities of Harveys must report
their interest to the Colorado Commission within ten (10) days after
acquiring such interest and may be required to provide additional information
and to be found suitable. If certain institutional investors provide certain
information to the Colorado Commission, such investors, at the Colorado
Commission's discretion, may be permitted to beneficially own up to 14.99% of
any class of voting securities of Harveys before being required to be found
suitable. All licensing and investigation fees will have to be paid by the
person in question. The associated person investigation fee currently is $53
per hour.
The Colorado Commission also has the right to request information from
any person directly or indirectly interested in, or employed by, a licensee,
and to investigate the moral character, honesty, integrity, prior activities,
criminal record, reputation, habits and associations of (1) all persons
licensed pursuant to the Colorado Limited Gaming Act, (2) all officers,
directors and stockholders of a licensed privately held corporation, (3) all
officers, directors and stockholders holding either a five percent (5%) or
greater interest or a controlling interest in a licensed publicly traded
corporation, (4) all general partners and all limited partners of a licensed
partnership, (5) all persons which have a relationship similar to that of an
officer, director or stockholder of a corporation (such as members and
managers of a limited liability company), (6) all persons supplying financing
or loaning money to any licensee connected with the establishment or
operation of limited gaming (such as lenders and preferred stockholders), and
(7) all persons having a contract, lease or ongoing financial or business
arrangement with any licensee, where such contract, lease or arrangement
relates to limited gaming operations, equipment, devices or premises.
In addition, under the Colorado Regulations, every person who is a party
to a "gaming contract" (as defined below) with an applicant for a license, or
with a licensee, upon the request of the Colorado Commission or the Director,
must promptly provide to the Colorado Commission or Director all information
which may be requested
15
<PAGE>
concerning financial history, financial holdings, real and personal property
ownership, interests in other companies, criminal history, personal history
and associations, character, reputation in the community, and all other
information which might be relevant to a determination whether a person would
be suitable to be licensed by the Colorado Commission. Failure to provide
all information requested constitutes sufficient grounds for the Director or
the Colorado Commission to require a licensee or applicant to terminate its
"gaming contract" with any person who failed to provide the information
requested. In addition, the Director or the Colorado Commission may require
changes in "gaming contracts" before an application is approved or
participation in the contract is allowed. A "gaming contract" is defined as
an agreement in which a person does business with or on the premises of a
licensed entity.
An application for licensure or suitability may be denied for any cause
deemed reasonable by the Colorado Commission or the Director, as appropriate.
Specifically, the Colorado Commission and the Director must deny a license to
any applicant who (1) fails to prove by clear and convincing evidence that
the applicant is qualified; (2) fails to provide information and
documentation requested; (3) fails to reveal any fact material to
qualification, or supplies information which is untrue or misleading as to a
material fact pertaining to qualification; (4) has been, or has any director,
officer, general partner, stockholder, limited partner or other person who
has a financial or equity interest in the applicant who has been, convicted
of certain crimes, including the service of a sentence upon conviction of a
felony in a correctional facility, city or county jail, or community
correctional facility or under the state board of parole or any probation
department within ten years prior to the date of the application,
gambling-related offenses, theft by deception or crimes involving fraud or
misrepresentation, is under current prosecution for such crimes (during the
pendency of which license determination may be deferred), is a career
offender or a member or associate of a career offender cartel, or is a
professional gambler; or (5) has refused to cooperate with any state or
federal body investigating organized crime, official corruption or gaming
offenses.
If the Colorado Commission determines that a person or entity is
unsuitable to own interests in Harveys, then Harveys or HCCMC may be
sanctioned, which may include the loss by Harveys or HCCMC of their
respective approvals and licenses.
The Colorado Commission does not need to approve in advance a public
offering of securities but rather requires a filing of notice and additional
documents with regard to such public offering prior to such public offering.
Under the regulations, the Colorado Commission may, in its discretion,
require additional information and prior approval of such public offering.
In addition, the Colorado Regulations prohibit a licensee or affiliated
company thereof, such as Harveys, from paying dividends, interest or other
remuneration to any unsuitable person, or recognizing the exercise of any
voting rights by any unsuitable person. Further, Harveys may repurchase the
shares of anyone found unsuitable at the lesser of the cash equivalent of the
original investment in Harveys or the current market price. Further, the
regulations require anyone with a material involvement with a licensee,
including a director or officer of a holding company, such as Harveys, to
file for a finding of suitability if required by the Colorado Commission.
In addition to its authority to deny an application for a license or
suitability, the Colorado Commission has jurisdiction to disapprove a change
in corporate position of a licensee and may have such authority with respect
to any entity which is required to be found suitable by the Colorado
Commission. The Colorado Commission has the power to require Harveys and
HCCMC to suspend or dismiss managers, officers, directors and other key
employees or sever relationships with other persons who refuse to file
16
<PAGE>
appropriate applications or whom the authorities find unsuitable to act in
such capacities; and may have such power with respect to any entity which is
required to be found suitable.
A person or entity may not sell, lease, purchase, convey or acquire a
controlling interest in Harveys without the prior approval of the Colorado
Commission. Harveys may not sell any interest in HCCMC without the prior
approval of the Colorado Commission. Harveys Wagon Wheel must meet certain
architectural requirements, fire safety standards and standards for access
for disabled persons. Harveys Wagon Wheel also must not exceed certain
gaming square footage limits as a total of each floor and the full building.
The casino at Harveys Wagon Wheel may operate only between 8:00 a.m. and
2:00 a.m., and may permit only individuals 21 years or older to gamble. It
may permit slot machines, blackjack and poker, with a maximum single bet of
$5.00. Harveys Wagon Wheel may not provide credit to its gaming patrons.
The Colorado Regulations permit gaming only in a limited number of cities
and certain commercial districts.
The Colorado Constitution permits a gaming tax of up to 40% on adjusted
gross gaming proceeds. The Colorado Commission has set a gaming tax rate of 2%
on adjusted gross gaming proceeds of up to and including $2 million, 4% over $2
million up to and including $4 million, 14% over $4 million up to and including
$5 million, 18% over $5 million up to and including $10 million and 20% on
adjusted gross gaming proceeds in excess of $10 million. The Colorado
Commission also has imposed an annual device fee of $75 per gaming device. The
Colorado Commission may revise the gaming tax rate and device fee from time to
time. Central City has imposed an annual device fee of $1,265 per gaming device
and may revise the same from time to time.
The sale of alcoholic beverages is subject to licensing, control and
regulation by the Colorado Liquor Agencies. All persons who directly or
indirectly own 10% or more of Harveys Wagon Wheel, through their ownership of
Harveys, may be required to file applications and possibly be investigated by
the Colorado Liquor Agencies. The Colorado Liquor Agencies also may investigate
those persons who, directly or indirectly, loan money to or have any financial
interest in liquor licensees. All licenses are revocable and not transferable.
The Colorado Liquor Agencies have the full power to limit, condition, suspend or
revoke any such license and any such disciplinary action could (and revocation
would) have a material adverse effect upon the operations of Harveys. Harveys
Wagon Wheel holds a hotel and restaurant liquor license for its casino, hotel
and restaurant operations, rather than a gaming tavern license. Accordingly, no
person with an interest in Harveys can have an interest in a liquor licensee
which holds anything other than a hotel and restaurant liquor license, and
specifically cannot have an interest in an entity which holds a gaming tavern
license.
IOWA GAMING LAWS AND REGULATIONS. The State of Iowa first authorized
excursion gambling boat activities in 1989. The Iowa Racing and Gaming
Commission (the "Iowa Commission") has the authority to grant and review
licenses to owners and operators of excursion gambling boats and has the further
authority to adopt and enforce rules governing a broad range of subjects dealing
with excursion gambling boat facilities and operations. The Iowa Commission
consists of five members who are appointed by the governor and confirmed by the
state senate. Members serve a term not to exceed three years at the pleasure of
the governor.
17
<PAGE>
Under Iowa law, only non-profit organizations may receive a license to
own gambling game operations; for profit organizations may receive a license
for their management and operation. Harveys, through HIMC, together with
Iowa West, a qualified non-profit organization, have been granted the
necessary licenses to own and operate the current gambling facilities and
activities on the riverboat casino at Harveys Casino Hotel. The present
licenses have a term expiring March 31, 1999. The licenses are granted upon
the condition that the license holders accept, observe and enforce all
applicable laws, regulations, ordinances, rules and orders. Any violation by
a license holder, including violations by its officers, employees or agents,
may result in disciplinary action, including the suspension or revocation of
the license.
HIMC and Iowa West have entered into an excursion sponsorship and
operating agreement dated August 22, 1994 (the "Operating Agreement")
pursuant to which Iowa West authorizes HIMC to operate the excursion gambling
boat activities on the riverboat casino under Iowa West's gaming license.
The Operating Agreement's initial term continues through December 31, 2002
and during such term HIMC has agreed to pay Iowa West a fee equal to $1.50
for each adult passenger embarking upon the excursion gambling boat. HIMC
further agrees to pay, and hold Iowa West harmless from, the admission fees
payable to the Iowa Commission and the local municipality and the wagering
tax imposed by Iowa law. Following the expiration of the initial term of the
Operating Agreement, HIMC may extend its provisions for five successive
three-year periods, except that the admission fees payable by HIMC to Iowa
West for each such period shall be adjusted to reflect increases in the
consumer price index.
Excursion boat gambling licenses may be granted by the Iowa Commission
only in those counties that have approved the conduct of gambling games in a
county-wide referendum. Gambling has been approved by the county electorate
in Pottawattamie County, Iowa, the location of Harveys Casino Hotel, but
another referendum requested by petition can be held at any time and is
required to be held in 2002. There can be no assurance that gambling in
Pottawattamie County would be approved again in any referendum. If licenses
to conduct gambling games and to operate an excursion gambling boat are in
effect at the time gambling is disapproved by a referendum of the county
electorate, the licenses remain valid and may, at the discretion of the Iowa
Commission, be renewed for a total of nine years from the date of the
original issue.
Following the issuance of a gaming license, the Iowa Commission monitors
and supervises the activities of the excursion gambling boat and its
licenses. Material contracts to be entered into by the licensee, changes in
ownership of the licensee and acquisitions of interests in other gambling
activities by the licensee or its owners must all be reported to, and
approved by, the Iowa Commission. Further, the Iowa Commission has the
authority to determine the payouts from the gambling games, to set the payout
rate for all slot machines, to establish minimum charges for admission to
excursion gambling boats and regulate the number of free admissions and to
define the excursion season and the duration of an excursion.
Iowa law authorizes the imposition of an admission fee, set by and
payable to the Iowa State Treasurer, on each person embarking on an excursion
gambling boat. An additional admission fee may be imposed by the
municipality in which the gambling operation is located. In practice, the
Iowa Commission has not imposed a per-person admission fee, but rather
imposed a fee on each excursion gambling boat based upon the estimated costs
of supervision and enforcement to be incurred by the Iowa Commission for the
ensuing fiscal year. For the fiscal year beginning July 1, 1998, the fee is
$303,680, payable in weekly installments of $5,840. A $0.50 per person
admission fee is also payable to the City of Council Bluffs, Iowa. Further,
Iowa law imposes an annual wagering tax ranging from five percent on the
first million of adjusted gross receipts from gambling games to 20% on
adjusted gross receipts in excess of $3 million.
18
<PAGE>
Harveys' excursion gambling boat activities are also subject to safety and
inspection requirements of the State of Iowa and the U.S. Coast Guard. These
requirements set limits on the operation of the vessel; mandate that it must be
operated by a minimum complement of licensed personnel; establish periodic
inspections, including the physical inspection of the outside hull requiring the
vessel to be drydocked every five years; and establish other mechanical and
operational rules.
19
<PAGE>
ITEM 2. FINANCIAL INFORMATION.
THE COMPANY
The Company has conducted no business other than in connection with the
Merger Agreement and has no material assets or liabilities. See "Item 1.
Business--The Company" and the balance sheet of the Company as of November
15, 1998 included elsewhere herein.
SELECTED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected pro forma condensed consolidated
financial data of the Company as of and for the nine-month period ended
August 31, 1998 and for the year ended November 30, 1997. The pro forma
condensed consolidated financial statements of the Company as of August 31,
1998 and for the nine months ended August 31, 1998 and the year ended
November 30, 1997 give effect to (1) the consummation of the Merger and (2)
the Proposed Financing, assumed to be comprised of (a) gross proceeds of
$75.0 million from the issuance of Class B Common to Colony III, (b) gross
proceeds of $55.0 million from the issuance of non-voting Series A Preferred,
currently contemplated to be issued to affiliates of Colony Capital and/or to
third parties, (c) borrowings of $175.0 million under the Amended and
Restated Credit Facility and (d) Harveys' available cash. The selected pro
forma condensed consolidated financial statements give effect to the Merger
and the Proposed Financing as if they occurred, for balance sheet purposes,
on August 31, 1998 and, for income statement purposes, on December 1, 1996.
There can be no assurance that the Merger will be consummated or that the
Proposed Financing, which is conditioned on, among other matters, Harveys'
obtaining the Consents, will be utilized. See "Item 1. Business--The
Company." If the Merger is consummated, the actual types and amounts of funds
utilized to finance the Merger and pay related fees and expenses may differ
based on prevailing circumstances at the time. The selected pro forma
condensed consolidated financial statements are not necessarily indicative of
the results that would have been reported had such transactions actually
occurred on the date specified, nor are they indicative of the Company's or
Harveys' future results of operations or financial condition. The selected pro
forma condensed consolidated financial statements are based on and should be
read in conjunction with, and are qualified in their entirety by, the
historical and pro forma financial statements and notes thereto of the
Company, the historical financial statements and notes thereto of Harveys
(including "Management's Discussion and Analysis of Financial Condition and
Results of Operations" relating thereto) appearing elsewhere in this
Registration Statement.
<TABLE>
<CAPTION>
For the Nine Months Ended August 31, 1998 For the Year Ended November 30, 1997
----------------------------------------- ------------------------------------
Harveys Pro Forma Harveys Pro Forma
Historical As Adjusted Historical As Adjusted
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Revenues:
Casino-hotel operations $ 250,720 $ 250,720 $ 300,422 $300,422
Management fees and
joint venture -- -- 4,507 4,507
Less casino promotional
allowances (17,763) (17,763) (21,366) (21,366)
-------- -------- -------- -------
Total net revenues 232,957 232,957 283,563 283,563
-------- -------- -------- -------
Costs and expenses:
Casino-hotel operations 121,503 121,503 146,571 146,571
Selling, general
and administrative 58,766 57,544 73,945 72,802
Depreciation and
amortization 15,641 17,425 19,077 23,235
Merger-related costs 1,103 1,103 2,690 2,690
-------- -------- -------- -------
Total costs and expenses 197,013 197,575 242,283 245,298
-------- -------- -------- -------
Operating income 35,944 35,382 41,280 38,265
-------- -------- -------- -------
</TABLE>
20
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Other income (expense)
Interest income 1,495 1,495 509 509
Interest expense (13,390) (23,496) (19,401) (31,118)
Gain on sale of interests in 27,422 27,422
unconsolidated affiliate
Other, net (123) (123) (137) (137)
-------- -------- -------- -------
Total other income (12,018) (22,124) 8,393 (3,324)
-------- -------- -------- -------
(expense)
Income before income taxes 23,926 13,258 49,673 34,941
Income tax provision (9,571) (6,396) (18,898) (15,086)
-------- -------- -------- -------
Net income $14,355 $ 6,862 $ 30,775 $19,855
-------- -------- -------- -------
-------- -------- -------- -------
</TABLE>
<TABLE>
<CAPTION>
As of August 31, 1998
---------------------------------
Harveys Pro Forma
Historical As Adjusted
---------- -----------
<S> <C> <C>
Balance Sheet Data:
Cash and cash equivalents $ 78,245 $ 65,396
Goodwill -- 47,582
Total assets 426,645 545,897
Long-term debt, net 150,209 332,709(1)
Preferred stock - 55,000
Common stock 101 -
Additional paid-in capital 43,483 75,000
Total stockholders' equity 196,608 130,000
</TABLE>
Note to Selected Pro Forma Condensed Consolidated Financial Data
(1) Long-term debt, net, is adjusted to reflect borrowings of $175.0 million
under the Amended and Restated Credit Facility and the step-up of the
Notes by $7.5 million to fair market value.
21
<PAGE>
HARVEYS CASINO RESORTS
The following table sets forth selected consolidated financial data of
Harveys as of and for each of the years in the five-year period ended
November 30, 1997 and as of and for the nine-month periods ended August 31,
1998 and 1997. The statement of income and balance sheet data as of and for
each of the years in the five-year period ended November 30, 1997 are derived
from Harveys' audited Consolidated Financial Statements and related notes
thereto. The audited Consolidated Financial Statements of Harveys and
related notes thereto as of November 30, 1996 and 1997 and for the three
years ended November 30, 1995, 1996 and 1997 appear elsewhere herein.
Deloitte & Touche LLP's report with respect to the consolidated statements
for the fiscal years ended November 30, 1996 and 1997 is included elsewhere
in this Registration Statement. Grant Thornton LLP's report with respect to
the consolidated statements of income, stockholders' equity and cash flows for
the fiscal year ended November 30, 1995 is included elsewhere in this
Registration Statement. The statement of income and balance sheet data as of
and for each of the nine-month periods ended August 31, 1998 and 1997 are
unaudited; however, in the opinion of management, all adjustments, consisting
only of normal recurring adjustments necessary for a fair presentation of the
results for such periods, have been included. The results for such periods
should not be considered indicative of results for a full fiscal year. The
selected consolidated financial data is not necessarily indicative of the
Company's or Harveys' future results of operations or financial condition,
and should be read in conjunction with "Management's Discussion and Analysis
of Harveys' Financial Condition and Results of Operations" and Harveys'
Consolidated Financial Statements, including the notes thereto, appearing
elsewhere in this Registration Statement.
<TABLE>
<CAPTION>
SELECTED CONSOLIDATED FINANCIAL DATA
UNAUDITED NINE MONTHS
ENDED
YEAR ENDED NOVEMBER 30, AUGUST 31,
----------------------- ---------------------
1997 1996 1995 1994 1993 1998 1997
--------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES
Casino. . . . . . . . . . . . . . . . $ 216,564 $ 186,369 $ 121,369 $ 83,991 $ 87,523 $ 183,501 $ 162,397
Lodging . . . . . . . . . . . . . . . 32,175 28,746 25,499 21,870 22,292 26,157 24,659
Food and beverage . . . . . . . . . . 44,406 39,852 33,970 29,768 31,011 35,479 33,380
Other . . . . . . . . . . . . . . . . 7,277 6,402 6,287 5,599 5,866 5,583 5,267
Management fees and joint venture . . 4,507 5,023 1,669 - - - 3,920
Less casino promotional allowances. . (21,366) (18,643) (15,594) (12,942) (14,433) (17,763) (16,092)
------- ------- ------- ------- ------- ------- -------
Total net revenues. . . . . . . . . . 283,563 247,749 173,200 128,286 132,259 232,957 213,531
------- ------- ------- ------- ------- ------- -------
COSTS AND EXPENSES
Casino. . . . . . . . . . . . . . . . 100,500 86,732 57,520 40,999 43,235 86,310 75,168
Lodging . . . . . . . . . . . . . . . 13,374 11,677 9,458 7,429 6,534 10,299 10,051
Food and beverage . . . . . . . . . . 29,886 24,797 20,280 17,401 17,271 22,664 22,595
Other operating . . . . . . . . . . . 2,811 2,813 2,838 2,557 2,733 2,230 2,145
Selling, general and administrative . 73,945 67,128 50,270 39,813 38,159 58,766 55,432
Depreciation and amortization . . . . 19,077 16,482 12,333 9,704 10,300 15,641 13,987
Business development costs. . . . . . 2,690 - - - - - -
Pre-opening expenses. . . . . . . . . - 4,099 2,147 - - - -
Nonrecurring compensation charges . . - - - - 1,834 - -
Merger related costs. . . . . . . . . - - - - - 1,103 -
------- ------- ------- ------- ------- ------- -------
Total costs and expenses.. . . . . . . . 242,283 213,728 154,846 117,903 120,066 197,013 179,378
------- ------- ------- ------- ------- ------- -------
Operating income . . . . . . . . . . . . 41,280 34,021 18,354 10,383 12,193 35,944 34,153
Interest expense, net (1). . . . . . . . 18,892 14,195 7,960 2,886 4,256 11,895 14,531
</TABLE>
22
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Gain on sale of interests in
unconsolidated affiliate. . . . . . . . 27,422 - - - - - -
Life insurance benefits. . . . . . . . . - - 2,246 371 - - -
Other income (expense), net. . . . . . . (137) (221) 605 (230) (134) (123) 49
------- ------- ------- ------- ------- ------- -------
Income before income taxes and
extraordinary item. . . . . . . . . . 49,673 19,605 13,245 7,638 7,803 23,926 19,671
Income tax provision . . . . . . . . . . (18,898) (7,791) (3,900) (2,500) (2,994) (9,571) (7,965)
------- ------- ------- ------- ------- ------- -------
Income before extraordinary item . . . . 30,775 11,814 9,345 5,138 4,809 14,355 11,706
Loss on early retirement of debt,
net of taxes. . . . . . . . . . . . . - 522 - - - - -
------- ------- ------- ------- ------- ------- -------
Net income . . . . . . . . . . . . . . . $ 30,775 $ 11,292 $ 9,345 $ 5,138 $ 4,809 $ 14,355 $ 11,706
------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- -------
PER SHARE DATA
Net income (basic). . . . . . . . . . $ 3.13 $ 1.16 $ 0.99 $ 0.58 $ 0.67 $ 1.43 $ 1.19
Dividends on common stock . . . . . . $ 0.20 $ 0.18 $ 0.16 $ 0.13 $ 0.11 $ 0.15 $ 0.15
Weighted average common shares
outstanding (basic). . . . . . . . . 9,844 9,699 9,456 8,886 7,182 10,009 9,823
OTHER OPERATING DATA
Adjusted EBITDA (2) . . . . . . . . . $ 63,047 $ 54,602 $ 35,080 $ 20,458 $ 24,327 $ 52,688 $ 48,140
Net cash provided by operating
activities . . . . . . . . . . . . . 44,637 39,768 19,594 14,106 15,563 35,058 39,858
Net cash provided by (used in)
investing activities . . . . . . . . 24,428 (55,502) (70,433) (33,505) (25,592) (12,942) (18,485)
Net cash provided by (used in)
financing activities . . . . . . . . (35,151) 26,363 53,886 15,506 (730) 1,094 (16,446)
Capital expenditures (3). . . . . . . 22,532 72,395 74,418 35,593 10,648 13,040 22,114
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents . . . . . . $ 55,035 $ 21,121 $ 10,493 $ 7,446 $ 11,338 $ 78,245 $ 26,048
Total assets. . . . . . . . . . . . . 403,465 393,768 313,244 238,544 213,463 426,645 402,046
Long-term debt, net . . . . . . . . . 150,220 181,354 126,676 64,896 80,203 150,209 167,720
Stockholders' equity. . . . . . . . . 179,358 149,763 132,301 123,611 90,008 196,608 160,563
</TABLE>
Notes to Selected Consolidated Financial Data:
(1) Net of amounts capitalized and interest income.
(2) EBITDA (operating income plus depreciation and amortization) should not be
construed as an indicator of Harveys' operating performance, or as an
alternative to cash flows from operating activities as a measure of
liquidity. According to Harveys, it has presented Adjusted EBITDA solely
as supplemental disclosure because Harveys believes that it enhances the
understanding of the financial performance of companies with substantial
depreciation and amortization. For fiscal 1997, EBITDA has been adjusted
to exclude approximately $2.7 million of business development costs; for
fiscal 1996 and fiscal 1995, EBITDA has been adjusted to exclude
approximately $4.1 million and $2.1 million of pre-opening expenses,
respectively; for fiscal 1995 and fiscal 1994, EBITDA has been adjusted to
include approximately $2.2 million and $371,000 of life insurance benefits,
respectively; and for fiscal 1993, EBITDA has been adjusted to exclude
approximately $1.8 million of nonrecurring compensation charges. For the
nine months ended August 31, 1998, EBITDA has been adjusted to exclude
approximately $1.1 million of costs related to the Merger.
(3) Of amounts shown, approximately $11.6 million in fiscal 1997, $7.2 million
in fiscal 1996, $4.6 million in fiscal 1995, $4.4 million in fiscal 1994,
and $6.5 million in fiscal 1993 related to recurring capital expenditures
for maintenance of the current facilities. For the nine months ended
August 31, 1998 and 1997, approximately $6.8 million and $7.1 million,
respectively, related to recurring capital expenditures for maintenance of
the current facilities.
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW OF THE COMPANY
The Company has conducted no business or operations other than in
connection with the Merger. In the Merger, the Company will be merged into
Harveys, which will continue its existing business and operations. See "Item
2. Financial Information-The Company."
OVERVIEW OF HARVEYS
Harveys currently owns and operates: (a) Harveys Resort on the south
shore of Lake Tahoe, Nevada, (b) Harveys Wagon Wheel in Central City,
Colorado and (c) Harveys Casino Hotel in Council Bluffs, Iowa. Until October
24, 1997, Harveys, through its wholly owned subsidiary, HLVMC, owned 40% of
the equity interest in HRHC, which owns the Hard Rock Hotel and Casino in Las
Vegas, Nevada. HLVMC managed the Las Vegas hotel and casino pursuant to a
management contract with HRHC. On October 24, 1997, Harveys completed the
Hard Rock Sale.
RESULTS OF OPERATIONS - NINE MONTHS ENDED AUGUST 31, 1998 AND 1997 AND
YEARS ENDED NOVEMBER 30, 1997, 1996 AND 1995
The following table presents certain operating results for Harveys'
properties. The operating results for Harveys Resort, which, since June 1,
1997, has been owned and operated by Harveys' wholly owned subsidiary HTMC,
have been presented for all periods, excluding the effects of corporate and
future business development expenses. Those expenses have been presented
under the caption "Corporate and Development." On April 30, 1996, Harveys
acquired all of the 30% minority interest in Harveys Wagon Wheel Casino
Limited Liability Company ("HWW") which owned Harveys Wagon Wheel. Since
that time Harveys Wagon Wheel has been wholly owned by Harveys. The
riverboat casino portion of Harveys Casino Hotel opened on January 1, 1996
and the land-based facilities opened on May 24, 1996. The operating results
of HLVMC for the nine months ended August 31, 1997 and the years ended
November 30, 1997, 1996 and 1995 include the fees earned by HLVMC for
managing the operations of the Hard Rock Hotel and Casino and the 40% equity
interest in the income of the Hard Rock Hotel and Casino.
<TABLE>
<CAPTION>
Nine Months Ended
August 31, Year ended November 30,
1998 1997 1997 1996 1995
---------- ---------- ---------- --------- ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Net Revenues
Harveys Resort $ 101,739 $ 98,390 $ 129,970 $ 130,535 $ 130,615
Harveys Wagon Wheel 47,035 36,350 49,445 43,128 40,911
Harveys Casino Hotel 84,183 74,871 99,641 69,063 -
Harveys L.V. Management Company - 3,920 4,507 5,023 1,669
Corporate and Development - - - - 5
--------- --------- ---------- --------- ---------
Total Net Revenues $ 232,957 $ 213,531 $ 283,563 $ 247,749 $ 173,200
--------- --------- ---------- --------- ---------
--------- --------- ---------- --------- ---------
Operating Income (Loss)(1)
Harveys Resort $ 19,424 $ 18,298 $ 23,674 $ 23,585 $ 21,575
Harveys Wagon Wheel 11,002 7,215 9,848 8,652 5,031
Harveys Casino Hotel 15,928 13,423 17,630 8,016 -
Harveys L.V. Management Company - 3,754 4,308 4,800 1,469
Corporate and Development (10,410) (8,537) (14,180) (11,032) (9,721)
--------- --------- ---------- --------- ---------
Total Operating Income $ 35,944 $ 34,153 $ 41,280 $ 34,021 $ 18,354
--------- --------- ---------- --------- ---------
--------- --------- ---------- --------- ---------
Adjusted EBITDA (2)
Harveys Resort $ 26,529 $ 24,546 $ 32,125 $ 32,127 $ 30,886
Harveys Wagon Wheel 13,716 9,573 13,114 11,564 10,305
Harveys Casino Hotel 21,340 18,230 24,285 16,849 -
Harveys L.V. Management Company - 3,920 4,507 5,021 1,635
Corporate and Development (8,898) (8,129) (10,984) (10,959) (7,746)
--------- --------- ---------- --------- ---------
Total Adjusted EBITDA $ 52,687 $ 48,140 $ 63,047 $ 54,602 $ 35,080
--------- --------- ---------- --------- ---------
--------- --------- ---------- --------- ---------
</TABLE>
24
<PAGE>
- -------------------
(1) The operating loss for Corporate and Development for fiscal year 1997
includes a write-off of business development costs of approximately $2.7
million. For fiscal year 1996 and fiscal year 1995, operating income
includes approximately $4.1 million of pre-opening expenses relative to
Harveys Casino Hotel and approximately $2.1 million of pre-opening expenses
relative to Harveys Wagon Wheel, respectively.
(2) Adjusted EBITDA (operating income plus depreciation and amortization)
should not be construed as an indicator of Harveys' operating
performance, or as an alternative to cash flows from operating
activities as a measure of liquidity. According to Harveys, it has
presented Adjusted EBITDA solely as supplemental disclosure because
Harveys believes that it enhances the understanding of the financial
performance of companies with substantial depreciation and amortization.
For fiscal year 1997, EBITDA for Corporate and Development excludes the
write-off of approximately $2.7 million of business development costs.
For fiscal year 1996, Harveys Casino Hotel's Adjusted EBITDA excludes
approximately $4.1 million of pre-opening expenses. For fiscal year
1995, EBITDA for (a) Harveys Resort includes approximately $271,000 of
life insurance benefits, (b) Harveys Wagon Wheel excludes approximately
$2.1 million of pre-opening expenses, and (c) Corporate and Development
includes approximately $2.0 million in life insurance benefits. For the
nine-month period ended August 31, 1998, Adjusted EBITDA excludes
approximately $1.1 million of costs related to the Merger.
COMPARISON OF THE NINE MONTHS ENDED AUGUST 31, 1998 TO THE NINE MONTHS
ENDED AUGUST 31, 1997
Harveys' consolidated net revenues for the nine months ended August 31,
1998 amounted to approximately $233.0 million, an increase of $19.4 million,
or 9.1%, over net revenues recorded in the same period of fiscal 1997. The
improvement was attributable to an increase in net revenues at all of the
Company's properties. Harveys Wagon Wheel experienced an increase in net
revenues of $10.7 million. The increased net revenues from the Colorado
property demonstrated the value of additional on-site parking added by the
opening of the 530-space parking garage in June 1997. Net revenues at
Harveys Casino Hotel in Iowa improved by $9.3 million due, in part, to the
casino expansion. Net revenues from the Harveys Resort property increased
by approximately $3.3 million due, in part, to a decrease in weather related
road closures or controls in the first quarter of 1998 compared to 1997.
The revenue contribution from the management fees and equity in earnings from
the Hard Rock Hotel and Casino declined by approximately $3.9 million as a
result of the Hard Rock Sale in October 1997.
Casino revenues for the fiscal 1998 nine months amounted to
approximately $183.5 million, an improvement of $21.1 million, or 13.0%, over
the comparable prior year period. Harveys Wagon Wheel produced an increase
of approximately $10.8 million in casino revenues over the prior year
comparable period. Gaming activity in Iowa produced an increase of
approximately $9.1 million in casino revenues. Harveys Resort casino
revenues improved by approximately $1.3 million. Casino costs and expenses
increased for the comparable periods, up $11.1 million to $86.3 million for
the current year period. The Council Bluffs casino accounted for $6.7
million of the increase, while the Colorado operations accounted for
approximately $4.7 million of the increase. The Lake Tahoe operations
produced a $0.2 million savings in casino costs. The increase in casino
costs and expenses at the Iowa and Colorado properties was attributable to
increases in payroll and related costs, gaming taxes and licenses (a
consequence of increased casino revenues) and an increase in promotional
expenses at both of the properties.
25
<PAGE>
Lodging revenues for the fiscal 1998 nine month period improved by
approximately $1.5 million, or 6.1%, over the prior year comparable period
and amounted to $26.2 million. The hotel facility at Lake Tahoe contributed
$1.1 million of the lodging revenues improvement and the Council Bluffs hotel
contributed approximately $0.4 million of the lodging revenues improvement.
Lodging profits improved by approximately $1.2 million. The improvement in
lodging profit margins was the result of an increase in revenue per available
room at all properties.
Food and beverage revenues for the current fiscal year period amounted
to approximately $35.5 million, an improvement of $2.1 million, or 6.3%, over
the 1997 period. The Lake Tahoe property contributed an increase of
approximately $1.1 million and the Council Bluffs property contributed an
increase of approximately $0.9 million. The Central City property
contributed an increase of $0.1 million in beverage revenues. Food and
beverage profits and margins improved for the period-to-period comparison due
to increased revenues at all operating properties and the controlling of
related costs.
The combination of other revenues and the contribution from management
fees and equity in the earnings from the Hard Rock Hotel and Casino decreased
by approximately $3.6 million, or 39.2%, primarily as a result of the sale
of Harveys' interests in the Hard Rock Hotel and Casino.
Selling, general and administrative expenses increased by approximately
$3.3 million, or 6.0%, to $58.8 million for the current fiscal year period.
The operations in Central City experienced an increase of approximately $2.0
million in selling, general and administrative expenses, primarily as the
result of increased marketing expenses. The Lake Tahoe operations recognized
an increase in overall selling, general and administrative expenses of
approximately $0.6 million. Corporate expenses increased by $0.8 million.
Selling, general and administrative expenses in Council Bluffs remained level.
Depreciation and amortization expenses increased by $1.7 million, or
11.8%. The depreciation expense at the Lake Tahoe property included a charge
of approximately $0.4 million related to the disposal of assets necessary to
facilitate the construction of a Hard Rock Cafe on the casino floor which
opened early in the third quarter of fiscal 1998. The balance of the
increase was attributable to the completion of the parking garage in Central
City and replacements and improvements at the operating properties.
The current fiscal year nine month period included approximately $1.1
million of Merger-related expenses due to the third quarter recognition of
financial consulting, legal and accounting fees relative to the pending
Merger.
Interest expense, net of interest income and interest capitalized,
decreased by approximately $2.6 million to $11.9 million for the first nine
months of fiscal 1998. The decrease was attributable to the use of the
proceeds from the October 1997 Hard Rock Sale. A portion of the proceeds was
used to pay the outstanding balance under the Credit Facility, thereby
reducing interest expenses. The balance of the proceeds was invested in cash
equivalents, resulting in an increase in interest income. Approximately $0.4
million of interest expense was capitalized during the first nine months of
fiscal 1997 in connection with the construction of the parking facility in
Central City. No interest was capitalized during the first nine months of
fiscal 1998.
Net income for the first nine months of fiscal 1998 amounted to
approximately $14.4 million compared to $11.7 million for the prior fiscal
year period, an increase of 22.6%.
26
<PAGE>
COMPARISON OF FISCAL YEAR ENDED NOVEMBER 30, 1997 TO FISCAL YEAR ENDED
NOVEMBER 30, 1996
Harveys' consolidated net revenues for fiscal 1997 were $283.6 million,
an increase of $35.9 million, or 14.5%, from the $247.7 million recorded in
fiscal 1996. The improvement was substantially attributable to the $30.6
million increase in net revenues produced by Harveys Casino Hotel. Net
revenues for fiscal 1997 from the Iowa property included a full twelve months
of operations of the complete facility while fiscal 1996 included only eleven
months of revenues from the riverboat casino and six full months of revenues
from the land-based facilities. Net revenues from Harveys Resort declined by
approximately $0.5 million, the result of adverse first quarter weather
conditions and severe flooding in northern Nevada and in many of the northern
California communities that provide many of the Lake Tahoe property's
customers. Mud slides triggered by the inclement weather closed U.S. Highway
50, the major link between the south shore of Lake Tahoe and northern
California, for 42 days of the first quarter. Harveys Wagon Wheel
experienced an increase in net revenues of $6.3 million, a substantial
portion of which was recognized in the third and fourth quarters, after the
opening of that property's new parking garage. The revenue contribution from
the management fees and equity in earnings from the Hard Rock Hotel and
Casino decreased approximately $0.5 million, as a result of the Hard Rock
Sale on October 24, 1997.
CASINO. Fiscal 1997 casino revenues increased $30.2 million, up 16.2%
from fiscal 1996 casino revenues of $186.4 million to $216.6 million. The
twelve months of gaming activity in Iowa produced an increase of
approximately $23.6 million in casino revenues compared to those produced at
the Council Bluffs property during the initial eleven months of operations in
fiscal 1996. Harveys Resort suffered a decline in casino revenues of
approximately $0.8 million as a result of the adverse weather and road
conditions experienced in the first quarter. Harveys Wagon Wheel produced an
increase of approximately $7.4 million in casino revenues over the prior year
comparable period. Casino costs and expenses increased for the comparable
periods, up $13.8 million to $100.5 million for the current year period. The
Council Bluffs casino accounted for $10.6 million of the increase while the
Colorado operations accounted for approximately $4.3 million of the increase.
The Lake Tahoe operations produced a $1.1 million improvement in casino costs
due to lower payroll and related costs and the reduction of other operating
costs in reaction to the lower casino volume resulting from the impact of the
first quarter's adverse weather conditions.
LODGING. Lodging revenues of $32.2 million for fiscal 1997 were up $3.5
million, or 11.9%, from fiscal 1996. The hotel facility in Council Bluffs,
which opened at the end of May 1996, contributed an increase of $2.8 million
in lodging revenues during 1997, accounting for the majority of the lodging
revenues improvement. Lodging profits improved by approximately $1.7
million. The decline in lodging profit
27
<PAGE>
margins was the result of the contribution from the Council Bluffs hotel,
which has a lower profit margin than the Lake Tahoe hotel, becoming a more
significant part of lodging profits and of the increase in promotional costs
at the Lake Tahoe hotel.
FOOD AND BEVERAGE. Food and beverage revenues improved by 11.4%, up $4.5
million to $44.4 million. Food and beverage revenues from the Council Bluffs
property, which included revenues from the land-based facilities for all of
1997, compared to six full months of the 1996 period, contributed an increase of
approximately $6.3 million. That increase was offset by declines at Lake Tahoe,
precipitated by the effects of adverse weather, and declines at Central City as
the result of outsourcing, commencing the second quarter of fiscal 1996, the
food service and a portion of the beverage service. Food and beverage profits
and margins declined for the period-to-period comparison primarily as a result
of the decision to attractively price the food and beverage offerings at the
Council Bluffs property to attract local customers.
OTHER REVENUES. Other revenues amounted to $11.8 million in fiscal 1997,
including $4.5 million in management fees and Harveys' 40% equity interest in
the earnings from the Hard Rock Hotel and Casino, an improvement of $0.4 million
from fiscal 1996. The improvement in other revenues was achieved despite the
fact that the contribution from the Hard Rock Hotel and Casino was recognized
for approximately 11 months of fiscal 1997 compared to a full year's
contribution in fiscal 1996.
SG&A, DEPRECIATION AND AMORTIZATION, NET INTEREST EXPENSE. Consolidated
selling, general and administrative expense increased 10.2%, up $6.8 million
to $73.9 million for fiscal 1997. The operations in Council Bluffs
experienced an increase of approximately $5.0 million in selling, general and
administrative expenses. The increase was attributable, in part, to the fact
that the entire Council Bluffs facility was in operation for all of fiscal
1997 compared to eleven months and approximately six months of operations for
the riverboat casino and land based facilities, respectively, in fiscal 1996.
Additionally, the assessed value of the property was increased resulting in
an increase in property taxes of approximately $0.9 million. Certain fees
required to be paid on the basis of customer headcounts increased by
approximately $1.8 million as the result of increases in the number of
customers visiting the Council Bluffs property. The Lake Tahoe operations
recognized an improvement in overall selling, general and administrative
expenses of approximately $0.1 million from the fiscal 1996 period to the
fiscal 1997 period. Selling, general and administrative expenses increased
by $1.8 million at the Central City property as a result of an increase in
promotional costs and a grand opening event promoting the new parking garage.
Depreciation and amortization expenses increased by $2.6 million. The
increase in depreciation was associated with the expanded facilities in
Council Bluffs and the opening of the Central City parking garage. Interest
expense, net of interest income and interest capitalized, increased by
approximately $4.7 million to $18.9 million for fiscal 1997. The increase
was attributable to the Notes which were issued in May 1996, and to the
effect of capitalizing approximately $2.6 million of interest in fiscal 1996
in connection with the construction of the Council Bluffs facilities compared
to the effect of capitalizing approximately $0.4 million of interest in the
current year in connection with the construction of the parking facility in
Central City.
BUSINESS DEVELOPMENT COSTS. In the fourth quarter of fiscal 1997,
Harveys reviewed and evaluated certain capitalized costs relative to business
development efforts in specific geographical areas where there was a
potential for approval of casino gaming. As a result of the review process,
amounts previously capitalized with respect to real estate options, joint
ventures, legal and other costs were written off or revalued. The amount
expensed in the fourth quarter was approximately $2.7 million. The amount of
such costs that continued to be deferred at November 30, 1997 was
approximately $0.9 million.
28
<PAGE>
SALE OF INTERESTS IN UNCONSOLIDATED AFFILIATE. In the fourth quarter of
fiscal 1997, Harveys sold its 40% equity interest in HRHC and all of Harveys'
rights under a management agreement to manage the operations of the Hard Rock
Hotel and Casino. Harveys received $45.0 million cash for its equity
interest and the rights under the management agreement and an additional $1.2
million cash in satisfaction of a note and other amounts due Harveys at the
time of the sale. Harveys recognized a gain of approximately $27.4 million
on the transaction.
NET INCOME. Net income for fiscal 1997 amounted to approximately $30.8
million, including the after-tax gain of approximately $17.4 million
attributable to the sale of Harveys' interests in the Hard Rock Hotel and
Casino and the after-tax write-down of approximately $1.7 million related to
certain business development costs, compared to $11.3 million of net income
for fiscal 1996.
COMPARISON OF FISCAL YEAR ENDED NOVEMBER 30, 1996 TO FISCAL YEAR ENDED
NOVEMBER 30, 1995
Harveys' net revenues for fiscal 1996 were $247.7 million, an increase
of $74.5 million, or 43.0%, from the $173.2 million recorded in fiscal 1995.
Of the increase, $69.1 million, or 92.6% of the total increase, was
attributable to the first year of operations of Harveys Casino Hotel in
Council Bluffs. Approximately $3.4 million of the net revenue increase was
attributable to an increase in the combination of the management fees earned
for the management of the Hard Rock Hotel and Casino in Las Vegas and
Harveys' 40% equity interest in the income of HRHC. The balance of the
increase in net revenues was provided by operations of Harveys Wagon Wheel.
CASINO. Fiscal 1996 casino revenues increased $65.0 million, up 53.6%
from fiscal 1995 casino revenues of $121.4 million, to $186.4 million. The
first year operations of Harveys Casino Hotel provided $62.6 million of the
increase. While the Lake Tahoe operations accounted for $84.4 million, or
45.3% of consolidated casino revenues, the contribution to casino revenues
from the northern Nevada property declined by 1.6%. The contribution from
Harveys' casino operations in the Colorado market improved by $3.7 million
over the prior year. Casino costs and expenses also increased with the
opening of Harveys Casino Hotel. While the Council Bluffs property accounted
for 96.3% of the casino revenue growth, it also accounted for 86.8% of the
growth in casino costs and expenses, up in total from $57.5 million in fiscal
1995 to $86.7 million in fiscal 1996.
LODGING. Lodging revenues of $28.7 million for fiscal 1996 were up $3.2
million, or 12.7%, from fiscal 1995. Revenues from the 251-room Council
Bluffs hotel operation provided nearly $2.3 million of the increase with an
occupancy rate of 80.0% since its opening in late May 1996 through the end of
fiscal 1996. Management's decision to price the Council Bluffs hotel rooms at
an attractive rate was successful in attracting initial customers to the
property. The 740-room hotel at the Lake Tahoe facility provided the balance
of the lodging revenue increase due to an increase in occupancy from 76.9% in
fiscal 1995 to 80.5% in fiscal 1996. As expected, due to the promotional
pricing in Council Bluffs, total lodging costs and expenses increased at a
higher rate than lodging revenue growth. The 740-room Lake Tahoe hotel
operates at a greater economy of scale than the 251-room Council Bluffs hotel
or the 118-room Central City hotel and commands a higher average daily rate
while spreading necessary costs over a more extensive room base.
FOOD AND BEVERAGE. Food and beverage revenues improved by 17.3%, up
$5.9 million to $39.9 million. Approximately $6.5 million was provided by
the new operations in Council Bluffs where the decision had been made to
attractively price the food service to entice local customers to the
property. The Lake Tahoe property experienced a 5.3% decline in the number
of meals served but recognized an increase
29
<PAGE>
in the average guest check which resulted in flat food revenues at the
property. Beverage revenues at Lake Tahoe improved by approximately
$425,000. Food and beverage revenues at the Central City property declined
approximately $1.1 million, primarily as the result of outsourcing the food
service during the second half of fiscal 1996. As expected, food and beverage
profit margins declined due to promotional pricing and the attendant higher
cost-of-goods-sold percentage experienced in Council Bluffs.
OTHER REVENUES. Other revenues amounted to $11.4 million in fiscal
1996, including $5.0 million from the combination of management fees and a
40% equity interest in the income from the Hard Rock Hotel and Casino. Other
revenues in fiscal 1995 amounted to $8.0 million, including $1.7 million
attributable to the Hard Rock Hotel and Casino, net of Harveys' pro rata
share of pre-opening expenses. Other expenses remained relatively flat in
absolute dollars.
SG&A, DEPRECIATION AND AMORTIZATION, NET INTEREST EXPENSE. Consolidated
selling, general and administrative expenses increased 33.5%, up $16.9
million to $67.1 million for fiscal 1996. Approximately $17.7 million was
attributable to the new operations in Council Bluffs. The offsetting savings
of approximately $0.8 million represented a 5.1% decrease from comparable
expenses in fiscal 1995 primarily as a result of reduced marketing costs at
the Lake Tahoe property. Depreciation and amortization increased $4.1
million from fiscal 1995 to fiscal 1996. The 1996 depreciation charges
associated with Harveys Casino Hotel amounted to $4.7 million. All other
operations recorded a decrease of nearly $0.6 million as a result of the
value of fully depreciated and retired assets in fiscal 1996 exceeding the
value of depreciable assets acquired. Interest expense, net of interest
capitalized, increased $6.2 million, or 78.3%, from fiscal 1995 to fiscal
1996. This increase was attributable to Harveys Casino Hotel financing and
the issuance of the Notes. In fiscal 1995, $1.1 million of interest was
capitalized, primarily in conjunction with the construction of Harveys Casino
Hotel. In fiscal 1996, an additional $2.6 million was capitalized in
conjunction with that construction.
PRE-OPENING EXPENSES. As a result of the opening of Harveys Casino
Hotel in fiscal 1996, Harveys recognized $4.1 million of pre-opening
expenses. These charges had previously been incurred in connection with the
development of that property and deferred until the facility opened.
Approximately $2.1 million of such costs had been deferred through fiscal
1995 year end. In fiscal 1995 Harveys recognized approximately $2.1 million
of pre-opening expenses with the opening of Harveys Wagon Wheel.
EXTRAORDINARY ITEM. In May 1996, Harveys expensed the remaining
unamortized debt issuance costs related to a $10 million note payable that
was retired before maturity. In June 1996, Harveys applied a portion of the
net proceeds from the sale of the Notes to retire the note payable under a
riverboat financing agreement and expensed the unamortized debt issuance cost
related to that agreement. In July 1996, Harveys retired subordinated notes
issued in exchange for notes payable by HWW and recognized expense as the
result of writing off the related debt issuance costs. These items are
reflected in operating results as an extraordinary loss of approximately $0.5
million, net of income tax benefit.
INCOME TAX PROVISION. The income tax provision for fiscal 1996 was
unfavorably affected by the state income taxes applicable to the expansion of
Harveys' operations outside of the state of Nevada.
NET INCOME. As a result of the above, net income for fiscal 1996 improved
to $11.3 million from $9.3 million in fiscal 1995.
30
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Set forth below is a description of Harveys' historical liquidity and
capital resources. Assuming consummation of the Merger, at the Effective Time
the leverage and fixed charge obligations of the Company will be
substantially increased. See "Item 2. Financial Information-The Company."
NINE MONTHS ENDED AUGUST 31, 1998. Harveys' primary sources of liquidity
and capital resources during the first nine months of fiscal 1998 have been
cash flow from operations of approximately $35.1 million and the proceeds of
approximately $3.4 million from the exercise of options to purchase shares of
Harveys' common stock.
During the first nine months of fiscal 1998, Harveys expended approximately
$9.8 million in cash for income taxes. Additionally, Harveys made cash payments
for dividends of approximately $1.5 million during the period and incurred
additional cash expenditures of approximately $13.0 million in connection with
capital improvements and replacements, approximately $5.0 million of which was
related to casino expansion and remodeling in Council Bluffs, which was
completed near the end of the first quarter of fiscal 1998.
At August 31, 1998, Harveys had approximately $78.2 million of cash and
cash equivalents and a maximum of approximately $113.0 million available under
the Credit Facility, subject to compliance with certain financial covenants.
Harveys expects that its primary capital needs for the remainder of fiscal
year 1998 will include approximately $6.4 million of capital expenditures at
Harveys' current facilities, dividend payments and debt service.
Harveys' debt at August 31, 1998 amounted to $150.2 million and
consisted of $150 million of Notes and approximately $0.2 million of other
debt.
The maximum available principal balance under the Credit Facility at August
31, 1998 was $115 million, reduced by outstanding borrowings and letter of
credit exposure. At August 31, 1998 there were no outstanding borrowings under
the Credit Facility, letter of credit exposure was $2.0 million and the maximum
amount available was approximately $113.0 million, subject to compliance with
financial covenants. The maximum available principal balance reduces on October
1 of each year beginning in 1998 and continuing through 2001. The maximum
available principal balance outstanding under the Credit Facility reduces to
$103.5 million in 1998, $92 million in 1999, $74.75 million in 2000 and $57.5
million in 2001. Harveys is required to make payments reducing the principal
balance outstanding under the Credit Facility to the applicable maximum
permitted principal balance on October 1 of each of 1998, 1999, 2000 and 2001.
The Credit Facility is secured by all of the real and personal property of : (a)
HTMC, (b) HIMC, (c) HCCMC, and (d) HCR Services Company, Inc. ("HCRSC"), a
wholly-owned subsidiary of Harveys, as well as all of the contracts Harveys has
entered into in connection with its ownership and operation of: (i) HTMC, (ii)
HIMC, (iii) HCCMC, and (iv) HCRSC. Additional security is provided by a pledge
of the stock of the following subsidiaries of Harveys: HLVMC, HCCMC, HIMC, HTMC,
HCRSC and Reno Projects, Inc., a wholly-owned subsidiary of Harveys. Interest
on borrowings outstanding under the Credit Facility is payable, at Harveys'
option, at either the London Inter-Bank Offering Rate ("LIBOR") or the prime
rate of Wells Fargo, in each case plus an applicable margin. The applicable
margins as of August 31, 1998 were 1.50% with respect to the LIBOR based
interest rate, and 0.00%, with respect to the Wells Fargo prime rate based
interest rate.
The Credit Facility contains certain financial and other covenants. The
financial covenants prevent Harveys from making any investments in or advances
to affiliates without the prior written consent of the lenders under the Credit
Facility. The covenants allow the declaration and payment of dividends without
31
<PAGE>
prior written consent of the lenders if certain fixed charge coverage ratios
are maintained. The covenants require Harveys to maintain certain set
standards with respect to: (a) minimum tangible net worth, (b) fixed charge
coverage ratios, and (c) minimum annual capital expenditures. The financial
covenants also limit Harveys' ability to incur additional indebtedness.
Harveys was in compliance with these covenants at August 31, 1998.
The Notes are governed by the Indenture and are general unsecured
obligations of Harveys, subordinated in right of payment to all existing and
future Senior Debt of Harveys (as defined in the Indenture). The Notes are
guaranteed by each of the Restricted Subsidiaries of Harveys (as defined in
the Indenture). Each guarantee is a general unsecured obligation of the
guaranteeing Restricted Subsidiary, subordinated in right of payment to all
existing and future Senior Debt of each guaranteeing Restricted Subsidiary.
At August 31, 1998, the guaranteeing Restricted Subsidiaries were HCCMC,
HIMC, HLVMC and HTMC.
Interest on the Notes is payable semi-annually on June 1 and December 1
of each year. The Notes will mature on June 1, 2006. The Notes are
redeemable at the option of Harveys, in whole or in part, at any time on or
after June 1, 2001 at prices ranging from 105.313% of the principal amount
plus accrued and unpaid interest, to 100% of the principal amount plus
accrued and unpaid interest beginning June 1, 2004 and thereafter. Upon a
Change of Control (as defined in the Indenture) each holder of the Notes will
have the right to require Harveys to repurchase such holder's Notes at 101%
of the principal amount plus accrued and unpaid interest to the repurchase
date. If the Merger is consummated, a Change of Control will be deemed to
have occurred and the holders of the Notes would be able to require Harveys to
effect such a repurchase. Harveys is currently soliciting the Consent, which
includes waiver of such repurchase requirement. See "Item 1. Business - The
Company."
The Indenture contains certain covenants that impose limitations on,
among other things, (a) the incurrence of additional indebtedness by Harveys
or any Restricted Subsidiary, (b) the payment of dividends, (c) the
repurchase of capital stock and the making of certain other Restricted
Payments and Restricted Investments (as defined in the Indenture) by Harveys
or any Restricted Subsidiary, (d) mergers, consolidations and sales of assets
by Harveys or any Restricted Subsidiary, (e) the creation or incurrence of
liens on the assets of Harveys or any Restricted Subsidiary, and (f)
transactions by Harveys or any of its subsidiaries with Affiliates (as
defined in the Indenture). These limitations are subject to a number of
qualifications and exceptions as described in the Indenture. Harveys was in
compliance with these covenants at August 31, 1998.
Harveys believes that its existing cash and cash equivalents, cash flows
from operations and its borrowing capacity under the Credit Facility are
sufficient to meet the cash requirements of its existing operations during at
least the next twelve months, including capital improvements and replacements
at the operating properties, dividends and debt service requirements.
Unless a significant number of holders of the Notes exercise their
rights to effect a repurchase of the Notes upon the consummation of the
Merger, the existing sources of cash also provide Harveys some flexibility in
potential expansion of current operations or in its pursuit of new gaming
opportunities in existing and emerging jurisdictions. The realization of
such expansion opportunities may require capital investments in excess of
current resources and additional financing may be required. Harveys believes
that additional funds could be obtained through additional debt or equity
financing. However, any such financing would require the consent
32
<PAGE>
of the Company under the terms of the Merger Agreement and no assurance can
be made that such consent would be granted or that such financing would be
available at terms acceptable to Harveys, if at all.
YEARS ENDED NOVEMBER 30, 1997, 1996 AND 1995. In addition to cash flows
from operations and borrowings under the Credit Facility, in fiscal year
1997, Harveys received $46.2 million when it sold its interests in an
unconsolidated affiliate and approximately $3.7 million from the sale of
other assets.
Cash flow from operations for fiscal year 1997 was approximately $44.6
million. On October 24, 1997 Harveys received $45.0 million cash when it
sold: (a) all of the capital stock of HRHC held by Harveys, representing 40%
of the then outstanding capital stock of HRHC, and (b) all of Harveys' rights
under a management agreement between HRHC and HLVMC relating to the
management and operations of the Hard Rock Hotel and Casino. Harveys also
received approximately $1.2 million cash in satisfaction of a note and other
amounts due Harveys from HRHC as of October 24, 1997. Additionally, Harveys
sold, in separate transactions in fiscal year 1997, a note receivable from an
unrelated party and Harveys' airplane, realizing net proceeds of
approximately $3.7 million from these transactions.
During fiscal year 1997, Harveys expended approximately $1.5 million in
cash relative to construction payables and retentions associated with the
construction of the hotel and convention center portion of Harveys Casino
Hotel in Council Bluffs and expended approximately $7.6 million in cash
relative to the construction of a parking garage at Harveys Wagon Wheel in
Central City, Colorado. Additionally, Harveys made cash payments for
dividends of approximately $2.0 million during the period, incurred
additional cash expenditures of approximately $16.9 million in connection
with capital improvements and replacements and made net cash payments of
approximately $33.3 million reducing Harveys' outstanding borrowings.
During fiscal year 1996, Harveys completed the construction of the
Council Bluffs project, expending $36.8 million in cash and financing the
acquisition of the riverboat and equipment through a $20 million riverboat
financing agreement. Additionally, Harveys made cash payments for dividends
of approximately $1.7 million during the year and incurred additional cash
expenditures of approximately $11.6 million in connection with capital
improvements and replacements at the operating properties and corporate
offices.
On April 30, 1996, Harveys paid the holders of approximately $11.9
million of 12% subordinated notes payable by HWW (the "HWW Notes") $6 million
in cash and issued an aggregate of $8 million in subordinated notes in
exchange for all of the outstanding HWW Notes and unpaid interest accrued
thereon (the "Debt Exchange"). On such date, Harveys also exchanged 382,500
shares of Harveys' common stock for: (a) 30% of the equity interests of HWW,
(b) the rights to an approximately $3 million priority return from HWW, and
(c) an option to acquire an additional 5% of the equity interests in HWW (the
"Equity Exchange").
On May 22, 1996, Harveys completed its public debt offering of $150
million of the Notes. The proceeds, $145.5 million net of underwriting
discounts and commissions, were used to: (a) pay off a $10 million note
payable to a private investor, (b) retire the $19 million principal balance
of the note payable under a riverboat financing agreement, (c) redeem, for
$7.8 million plus accrued and unpaid interest, the $8 million aggregate
principal amount of subordinated notes issued in the Debt Exchange, and (d)
reduce the outstanding principal balance under the Credit Facility.
33
<PAGE>
In September 1996, the Credit Facility was amended. Among other things
the amendment: (a) extended the maturity date from August 16, 2000 to
February 15, 2002, (b) extended the due dates of required repayments of
principal, (c) modified the terms of certain financial covenants, and (d)
reduced the maximum available principal balance to $115 million. In
connection with the financing for the Merger, it is expected that the Credit
Facility will be amended and restated. See "Item 1. Business - The Company."
During fiscal 1995, Harveys' principal uses of funds were: (a) advances
and investments of approximately $49.6 million to fund the development and
construction of Harveys Casino Hotel in Council Bluffs, (b) investment of an
additional $4.0 million in HRHC, (c) advances of an additional $7.3 million
to complete the funding for the construction of Harveys Wagon Wheel, (d)
dividend payments of approximately $1.5 million, and (e) pursuing additional
expansion opportunities.
YEAR 2000 ISSUE
Many technological systems (including those that employ embedded
technology such as microcontrollers) rely on hardware, software and
components that were originally designed to recognize a date by using the
last two digits of a four digit year. Tasks performed using these truncated
fields may not work properly for dates from 2000 and beyond. This could
result in system failures or miscalculations causing disruptions of, or the
inability to engage in, normal business operations. This is generally known
as the "Year 2000 Problem."
Harveys has completed an inventory and evaluation of the hardware,
software and components (the "Systems") that it utilizes in order to identify
those Systems that may not be Year 2000 compliant. The evaluation included
reviews and testing of the Systems as well as inquiries of third parties that
supplied or that maintain the Systems.
As a result of the evaluation, Harveys has developed a corrective action
plan including prioritized timelines and estimated costs. The corrective
action plan includes modifications, upgrades or replacements of the
non-compliant Systems.
Harveys has also initiated a more limited review of the Year 2000
Problem as it relates to business associates of Harveys including material
vendors, suppliers, financial institutions and utility and communications
providers. The scope of the review has generally been limited to inquiries
of such business associates. Harveys expects that the review will be
completed by December 31, 1998. Based on the information received to date,
Harveys is not aware of any Year 2000 Problem impact on a material business
associate that would have a material adverse affect on Harveys' business
operations. However, there can be no assurances that all of Harveys'
material business associates will be Year 2000 compliant in a timely manner.
Harveys is in the process of implementing its corrective action plan.
Harveys is utilizing internal resources and external resources to achieve the
plan objectives. Harveys anticipates that the required modifications,
upgrades and replacements of Systems will most likely be completed in the
second quarter of fiscal year 1999 allowing for additional testing and
revisions, if necessary, before year end. Harveys believes that its
corrective action plan, including the timelines, is adequate and realistic.
Nevertheless, if one or more of Harveys' Systems has been overlooked or if
implementation of the corrective action plan fails to achieve Year 2000
compliance for one or more Systems, there could be a material adverse impact
on Harveys' business operations or financial performance.
34
<PAGE>
Harveys relies on Systems in many areas of its business operations
including casino operations, retail outlets, hotel operations, accounting and
finance, facilities and environmental, communications and administration.
Harveys has not developed a comprehensive contingency plan, although a number
of Systems, including the Casino System, are "backed up" by manual procedures
that have been employed during times of Systems being unavailable. Harveys
will continue to assess the need for a comprehensive contingency plan as
implementation of the corrective action plan continues and as the review of
business associates' readiness progresses.
Harveys estimates that the costs to achieve Year 2000 compliance,
including those costs that are capitalizable, will be approximately $4.1
million and will be expended through 2000. Harveys has incurred costs of
approximately $1.0 million to date in fiscal year 1998, including
approximately $0.7 million that has been capitalized. Harveys believes it
will expend an additional $0.1 million during the remainder of fiscal 1998,
none of which will be capitalized. Harveys expects to incur an additional
cost of approximately $3.0 million in fiscal 1999, approximately $2.6 million
of which will be for capital acquisitions. Harveys believes that its
expenditures in fiscal 2000 will not be material. These estimates are based
on Harveys' evaluation and experience to date and are subject to modification
as implementation of the corrective action plan progresses. There can be no
assurances that the estimated costs are adequate or achievable and it is
possible that actual costs could materially differ from the estimate.
ITEM 3. PROPERTIES.
THE COMPANY
Prior to the Merger, the Company will own no property. In the Merger, the
Company will be merged into Harveys, which will be the surviving corporation
and will continue to own the properties it currently owns.
HARVEYS CASINO RESORTS
Harveys Resort comprises approximately 1,020,000 square feet on
approximately 19.8 acres, of which HTMC owns approximately 5.4 acres and
leases approximately 14.4 acres pursuant to several ground leases that expire
in 2045. A 973,000-square foot parking garage and certain other amenities
are located on the leased property.
The Harveys Wagon Wheel hotel and casino facility encompasses
approximately 200,000 square feet on approximately 1.1 acres and a 530-space
self-parking garage on a contiguous 8 acre parcel. Additionally, HCCMC owns
approximately 40 acres of undeveloped land adjacent to the Harveys Wagon
Wheel facility.
Harveys Casino Hotel is located on approximately 36 acres of land owned
by HIMC. The land-based amenities, including a covered "skywalk" to the
riverboat casino, are comprised of a hotel, convention center, and passenger
staging area, totaling nearly 300,000 square feet. Contiguous thereto is a
24-acre leasehold parcel which contains the boat docking facility and
additional parking. This parcel is subject to a long term lease with the
City of Council Bluffs for a nominal annual sum. Additionally, HIMC owns an
adjacent 44-acre parcel suitable for expansion or support facilities.
35
<PAGE>
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth expected beneficial ownership of the
Company's Class A Common (the only class of voting securities of the Company) at
the Effective Time by (1) all persons who are expected to be beneficial owners
of more than five percent of the Class A Common, (2) each expected director, (3)
the Company's expected Chief Executive Officer and four most highly compensated
executive officers other than the Chief Executive Officer, in each case who were
serving in such capacity on behalf of Harveys at the end of the last fiscal
year, and (4) all persons expected to be directors and executive officers, as a
group. Except as otherwise indicated, the Company believes that the beneficial
owners of the Class A Common listed below, based on information furnished by
such owners, will have sole investment and voting power with respect to such
shares, subject to community property laws where applicable. Unless otherwise
indicated, the business address of such persons is Highway 50 and Stateline
Avenue, P.O. Box 128, Lake Tahoe, Nevada 89449. Approximately ____ shares of
Class A Common are expected to be outstanding as of the Effective Time.
<TABLE>
<CAPTION>
Shares
beneficially Percent of
Name of beneficial owner owned class
- --------------------------------------------------------------------------------
<S> <C>
Colony HCR Voteco, LLC
1999 Avenue of the Stars, Suite 1200
Los Angeles, California 90067 . . . . . . . . . . 97.0%(1)
Thomas J. Barrack, Jr. (2). . . . . . . . . . . . . 97.0
Kelvin L. Davis (2) . . . . . . . . . . . . . . . . 97.0
Charles W. Scharer (3). . . . . . . . . . . . . . .
Stephen L. Cavallaro (3). . . . . . . . . . . . . .
John J. McLaughlin (3). . . . . . . . . . . . . . .
Gary D. Armentrout (3). . . . . . . . . . . . . . . *
Kevin O. Servatius (3). . . . . . . . . . . . . . . *
All directors and executive officers
as a group ( persons). . . . . . . . . . . . . . 100.0%
- ---------------
* Less than one percent
</TABLE>
(1) Pursuant to the Transfer Restrictions Agreement, Colony III has the right
to acquire such shares on each occasion that Colony III proposes to
transfer any of shares of Class B Common held by it to a proposed purchaser
who, in connection with such proposed transfer, has obtained all licenses,
permits, registrations, authorizations, consents, waivers, orders, findings
or suitability or other approvals required to be obtained from, and has
made all filings, notices or declarations required to be made with, all
gaming authorities under all applicable gaming laws (an "Approved Sale").
In such event, Colony III shall have an option to purchase from Voteco the
number of shares of Class A Common equal to the product of (a) the number
of shares of Class A Common held by Voteco and (b) the fraction whose
numerator is the number of shares of Class B Common proposed to be sold by
Colony III in the Approved Sale and whose denominator is the number of
shares of Class B Common held by Colony III.
(2) Messrs. Barrack and Davis are the Managers of Voteco, and thereby each may
be deemed to have beneficial ownership of the Class A Common owned of
record by Voteco. Messrs. Barrack and Davis each disclaim beneficial
ownership of such shares of Class A Common.
36
<PAGE>
(3) The Company and Messrs. Scharer, Cavallaro and McLaughlin have entered into
the MOU, which provides, among other things, that Company shall grant to
Messrs. Armentrout, Cavallaro, McLaughlin and Scharer and Edward Barraco,
John R. Belloti, James J. Rafferty, Kevin O. Servatius and such others as
are mutually determined by Mr. Scharer and the Board of Directors
(collectively, the "Key Managers") the number of shares of Class A
Common and Class B Common that is equivalent in the aggregate to three
percent of the Class A Common and Class B Common outstanding as of the
Effective Time (the "Base Stock Grant Shares"). Twenty percent of the
Base Stock Grant Shares granted to each Key Manager shall vest on each
of the first through fifth anniversaries of the Effective Time, except
as otherwise provided in the MOU.
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS.
The directors and executive officers of Harveys as of the Effective Time
are expected to be as follows:
<TABLE>
<CAPTION>
Name Age Position
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Thomas J. Barrack, Jr. 51 Chairman of the Board of Directors
Kelvin L. Davis 35 Director
Charles W. Scharer 42 Director; President and Chief Executive Officer
Jessica L. Ledbetter 41 Director Emeritus
Stephen L. Cavallaro 40 Chief Operating Officer - Subsidiary Properties
John J. McLaughlin 43 Senior Vice President, Chief Financial Officer and Treasurer
Gary D. Armentrout 50 Senior Vice President - Business Development and Government Relations
James J. Rafferty 42 Senior Vice President - Corporate Marketing
Edward B. Barraco 53 Senior Vice President and General Manager - Harveys Wagon Wheel
Kevin O. Servatius 45 Senior Vice President and General Manager - Harveys Resort
Verne H. Welch, Jr. 60 Senior Vice President and General Manager - Harveys Casino Hotel
John R. Bellotti 40 Corporate Vice President of Human Resources
</TABLE>
THOMAS J. BARRACK, JR. is expected to serve as a Director. He was
appointed upon the formation of the Company, and currently serves, as
Treasurer and a Director. He is expected to resign as Treasurer at the
Effective Time. Mr. Barrack also holds a minority membership interest in
Voteco. Mr. Barrack has served as Chairman and Chief Executive Officer of
each of Colony Capital and Colony Advisors, Inc. ("Colony Advisors"), since
August 1997. Colony Capital and Colony Advisors are international real estate
investment and management firms. Mr. Barrack served as President of Colony
Capital and Colony Advisors from August 1992 and September 1991,
respectively, until August 1997. Mr. Barrack is a Director of Continental
Airlines, Inc., a commercial airline, Public Storage, Inc., a developer,
owner and operator of self-storage facilities, and Kennedy-Wilson, Inc., a
worldwide real estate marketing, brokerage and investment services company.
37
<PAGE>
KELVIN L. DAVIS is expected to serve as a Director. He was appointed
upon the formation of the Company, and currently serves, as President and
Secretary and a Director. He is expected to resign as President and
Secretary at the Effective Time. Mr. Davis also holds a majority membership
interest in Voteco. Mr. Davis has served as President and Chief Operating
Officer of each of Colony Capital and Colony Advisors, since August 1997. He
served as Executive Vice President of Colony Capital and Colony Advisors from
August 1992 and September 1991, respectively, to August 1997. Mr. Davis is a
director of Franchise Finance Corporation of America, a specialty real estate
financing company.
CHARLES W. SCHARER is expected to serve as President and Chief Executive
Officer. He was appointed President and Chief Executive Officer of Harveys
effective December 1, 1995, He was elected Chairman of the Board of Directors
of Harveys on May 1, 1997 and has served as a director of Harveys since April
1995. Prior to becoming President and Chief Executive Officer of Harveys, Mr.
Scharer served as Executive Vice President from August 1995. He was appointed
Chief Financial Officer in July 1993 and Treasurer in September 1993.
JESSICA L. LEDBETTER is expected to serve as a non-voting Director
Emeritus. She served as Executive Assistant of Harveys from 1988 to 1993 and
has served as a Director of Harveys since 1987. Ms. Ledbetter has been
employed by the Harveys in a variety of capacities, including internal audit,
accounting and cashier functions, Director of Planning, games and slot
operations and food and beverage service. She currently serves as a member
of the Board of Directors of Barton Memorial Hospital, Lake Tahoe Community
Trust and the Lake Tahoe Education Foundation. Ms. Ledbetter presently owns
and operates the Thunderbird Ranch in northern Nevada.
STEPHEN L. CAVALLARO is expected to serve as Chief Operating Officer of
Subsidiary Properties. He has served as Chief Operating Officer of Subsidiary
Properties of Harveys in February 1996. In this position he has had operational
responsibility for Harveys Wagon Wheel in Central City, Colorado and Harveys
Casino Hotel in Council Bluffs, Iowa. Until October 24, 1997, when the Hard
Rock Sale was consummated, Mr Cavallaro also had operational responsibility for
the Hard Rock Hotel and Casino in Las Vegas, Nevada. Mr. Cavallaro joined
Harveys in February 1994 to direct and develop the Hard Rock Hotel and Casino as
Senior Vice President and General Manager-Hard Rock Hotel. From 1992 to 1994,
he served as Vice President and General Manager of the Palace Station.
JOHN J. MCLAUGHLIN is expected to serve as Senior Vice President, Chief
Financial Officer and Treasurer. He was appointed Senior Vice President, Chief
Financial Officer and Treasurer of Harveys in March 1996. He joined Harveys in
September 1995 as Chief Financial Officer. From January 1993 until September
1995, he was Chief Financial Officer of President Riverboat Casinos, Inc. Mr.
McLaughlin is a Certified Public Accountant.
GARY D. ARMENTROUT is expected to serve as Senior Vice President - Business
Development and Government Relations. He has served as Senior Vice President -
Business Development and Government Relations of Harveys since May 1995. In
this position he has been responsible for identifying and pursuing the
development of new projects for Harveys. Prior to joining Harveys, Mr.
Armentrout was employed by President Riverboat Casinos, Inc. where he served as
Vice President - Gaming from May 1990 until June 1994 when he was appointed Vice
President-Gaming Development.
JAMES J. RAFFERTY is expected to serve as Corporate Vice President of
Marketing. He was appointed Corporate Vice President of Marketing of Harveys in
December 1995 and was promoted to Senior Vice
38
<PAGE>
President of Corporate Marketing in 1997. Mr. Rafferty served as Vice
President, Marketing-Lake Tahoe from 1992 to 1995.
EDWARD B. BARRACO is expected to serve as Senior Vice President and
General Manager - Harveys Wagon Wheel . He has served as Harveys' Senior
Vice President and General Manager - Harveys Wagon Wheel since July 1995.
From 1985 to 1995, Mr. Barraco served as Assistant General Manager - Lake
Tahoe, where he was responsible for overseeing all aspects of the operation
on an assigned shift.
KEVIN O. SERVATIUS is expected to serve as Senior Vice President and
General Manager - Harveys Resort . He was appointed Senior Vice President and
General Manager - Harveys Resort in August 1995. From March 1993 to August
1995, Mr. Servatius was Senior Vice President and General Manager of Harrah's -
Lake Tahoe in March 1993. He serves as Vice Chairman of the Board of the Tahoe
Douglas Visitors Authority and serves as President and board member of the Lake
Tahoe Gaming Alliance.
VERNE H. WELCH, JR. is expected to serve as Senior Vice President and
General Manager - Harveys Casino Hotel. He has served as Senior Vice President
and General Manager - Harveys Casino Hotel since September 1995. Prior to
moving to the Council Bluffs property, Mr. Welch served as Senior Vice President
and General Manager-Lake Tahoe from December 1993. From 1988 to December 1993,
he served as Vice President - Casino Operations.
JOHN R. BELLOTTI is expected to serve as Corporate Vice President of Human
Resources. He was appointed Corporate Vice President of Human Resources of
Harveys in August 1997. Prior to joining Harveys in August 1997, Mr. Bellotti
was employed by Hyatt Hotels Corporation, serving most recently as Assistant
Vice President of Human Resources from 1993 to 1997.
In addition, Mark Hedstrom, Chief Financial Officer of Colony Capital,
and Mr. Cavallaro are expected to serve as non-voting observers on the Board
of Directors.
ITEM 6. EXECUTIVE COMPENSATION.
The Company currently pays no compensation to any of its executive
officers.
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation paid by Harveys during
the three fiscal years ended November 30, 1997 to the Chief Executive Officer
of Harveys, each of the four other most highly compensated executive officers
of Harveys, and a former executive officer of Harveys who would have been one
of Harveys' four other most highly compensated executive officers had he
continued to be an executive officer through the end of the fiscal year ended
November 30, 1997 (the "Named Executive Officers"). Messrs. Scharer,
Cavallaro, McLaughlin, Armentrout and Servatius are expected to serve in
identical positions with the Company as of the Effective Time, in certain
cases pursuant to new employment agreements and new benefit plans, except
that Mr. Cavallaro is not expected to serve as a director of the Company
following the Effective Time. See "Item 7. Certain Relationships and Related
Transactions."
39
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Awards
-------------------------------------------------- ----------------------------------
Re- Securi- All
Year stricted ties Un- Other
ended Other An- Stock derlying LTIP Compen-
Novem- nual Com- Awards Options Payouts sation
Name and Principal Position ber 30, Salary ($) Bonus ($) pensation($) ($)(1) (#) ($) ($)(2)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Charles W. Scharer (3) 1997 428,462 360,000 - - 183,500 81,384 11,067
Director; President and Chief 1996 347,400 168,000 - - 135,000 - 8,845
Executive Officer 1995 240,507 125,000 - - - - 6,439
Stephen L. Cavallaro (4) 1997 333,462 240,000 - - 48,800 61,718 500 (2)
Director; Chief Operating 1996 267,785 120,000 - - 28,000 - 500 (2)
Officer - Subsidiary Properties 1995 242,135 124,020 - - - - 500 (2)
John J. McLaughlin (5) 1997 221,346 165,000 - - 41,000 - 6,735
Senior Vice President, Chief 1996 175,000 70,000 - - 10,000 - 808
Financial Officer and Treasurer 1995 30,288 7,500 21,586 (6) 190,000 20,000 - -
Gary D. Armentrout (7) 1997 234,598 130,000 - - 41,000 - 5,512
Senior Vice President - 1996 210,384 67,735 - - 10,000 - 3,081
Business Development and 1995 107,692 11,000 - 198,750 20,000 - -
Government Relations
Kevin O. Servatius (8) 1997 268,846 105,000 - - 51,000 - 8,037
Senior Vice President and 1996 231,538 100,000 - - 10,000 - 1,828
General Manager - Harveys Resort 1995 60,577 7,500 - 285,000 30,000 - -
Thomas M. Yturbide (9) 1997 400,000 - - - 100,000 148,350 59,116
Consultant to the President and 1996 400,000 - - - 100,000 - 45,896
Chief Executive Officer 1995 400,000 148,000 (10) - - - - 38,694
</TABLE>
- --------------------
(1) In the case of Mr. McLaughlin, represents the market value ($19.00 per
share) of 10,000 shares of restricted stock awarded to Mr. McLaughlin on
August 14, 1995. The value as of November 30, 1997 was $199,063. In the
case of Mr. Armentrout, represents the market value ($19.875 per share)
of 10,000 shares of restricted stock awarded to Mr. Armentrout on May 9,
1995. The value as of November 30, 1997 was $199,063. In the case of
Mr. Servatius, represents the market value ($19.00 per share) of 15,000
shares of restricted stock awarded to Mr. Servatius on August 14, 1995.
The value as of November 30, 1997 was $298,595. All of the awards were
made pursuant to Harvey's Omnibus Incentive Plans and vested immediately
as to 25% of the award on the date of grant and vested, or were to vest,
as to 25% on each of the next three anniversaries of the date of grant.
In addition, as of November 30, 1997, Messrs. Scharer and Cavallaro held
18,000 and 15,000 shares of restricted stock having a value of $358,313
and $298,595, respectively. The Named Executive Officers receive
dividends on all of their shares. All such shares would vest upon
closing of the Merger and would be cashed out for an amount per share
equal to the consideration paid per share of Common Stock in the Merger.
(2) Amounts include Harveys' 401(k) Plan contributions, payments of term life
insurance premiums and above-market rate interest earned on deferred
compensation. In fiscal 1997, Harveys' 401(k) Plan contributions were
$4,750 for each of Mr. Scharer, Mr. Cavallaro and Mr. Yturbide and $6,735,
$5,512 and $7,477, respectively, for Mr. McLaughlin, Mr. Armentrout and Mr.
Servatius. In fiscal 1997, Harveys paid term life insurance premiums of
$1,130 and $7,093 for policies insuring the lives of Mr. Scharer and Mr.
Yturbide, respectively. In fiscal 1997, the above-market rate interest
earned by Mr. Scharer, Mr. Cavallaro, Mr. Servatius and Mr. Yturbide on
deferred compensation amounted to $5,187, $4,365, $560 and $47,273,
respectively.
(3) On December 1, 1995, Mr. Scharer became Harveys' President and Chief
Executive Officer and on May 1, 1997 was elected Chairman of the Board of
Directors.
(4) On February 1, 1996, Mr. Cavallaro became Chief Operating Officer of
Subsidiary Operations.
(5) Mr. McLaughlin was appointed Chief Financial Officer on September 18, 1995,
and was elected Senior Vice President, Chief Financial Officer and
Treasurer in March 1996.
(6) Includes $20,120 of relocation expense reimbursement, $1,312 of
compensation related to the personal use of an automobile provided by
Harveys and $154 of medical expense payments in excess of Harveys' group
medical insurance coverage.
(7) Mr. Armentrout was appointed Senior Vice President of Business Development
and Government Relations on May 9, 1995.
40
<PAGE>
(8) On August 14, 1995, Mr. Servatius became Senior Vice President and General
Manager-Harveys Resort .
(9) From December 1, 1995 to May 1, 1997, Mr. Yturbide served as Harveys'
Chairman of the Board of Directors. Since May 1, 1997, Mr. Yturbide
has served as Consultant to the President and Chief Executive Officer.
(10) Includes a $100,000 signing bonus paid by Harveys in connection with Mr.
Yturbide's employment contract.
OPTION GRANTS
The tables below set forth certain information regarding options granted to
the Named Executive Officers during fiscal year 1997.
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
Individual Grants
---------------------------------------------------------------- Potential Realizable Value at
% of Total Assumed Annual Rates of
Number of Se- Options Stock Price Appreciation for
curities Under- Granted to Exercise Option Term (2)
lying Options Employees in Price Expiration -------------------------------
Name Granted (1) Fiscal Year ($/Share) Date 5% ($) 10% ($)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Charles W. Scharer 183,500 26.82 $16.4375 05/22/07 1,896,923 4,807,176
Stephen L. Cavallaro 48,800 7.13 $16.4375 05/22/07 504,468 1,278,420
John J. McLaughlin 41,000 5.99 $16.4375 05/22/07 423,836 1,074,083
Gary D. Armentrout 41,000 5.99 $16.4375 05/22/07 423,836 1,074,083
Kevin O. Servatius 51,000 7.45 $16.4375 05/22/07 527,210 1,336,054
Thomas M. Yturbide 100,000 14.62 $16.4375 05/22/07 1,103,720 2,840,086
- ------------------------
(1) The Named Executive Officers received options pursuant to Harveys'
incentive plans. The options granted during the fiscal year include
options granted in previous years that were repriced May 22, 1997.
Options to purchase a total of 498,880 shares were repriced on that
date. Of that total, the Named Executive Officers received the following
repriced options: Mr. Scharer, 135,000; Mr. Cavallaro, 28,000; Mr.
McLaughlin, 30,000; Mr. Armentrout, 30,000; Mr. Servatius, 40,000; and
Mr. Yturbide, 100,000. The MOU provides that options to acquire Common
Stock held by Mr. Scharer, Mr. Cavallaro and Mr. McLaughlin will be
cancelled in the Merger, and Mr. Scharer, Mr. Cavallaro and Mr.
McLaughlin will receive lump sum payments in consideration therefor. See
"Item 7 Certain Relationships and Related Transactions." The Merger
Agreement similarly provides that each outstanding option to acquire
Common Stock will be cancelled immediately prior to the Effective Time
in exchange for a cash payment equal to the product of the number of
shares of Common Stock subject to such option and the excess of the
consideration payable per share of Common Stock in the Merger over the
per share exercise price of such option, and such provisions will apply
to each of the Named Executive Officers.
(2) The entries in these columns are provided pursuant to requirements of
the SEC and do not represent a prediction by the Company or Harveys as
to the actual performance of the Common Stock. As noted above, upon
consummation of the Merger, each option referred to in the table will
terminate.
</TABLE>
41
<PAGE>
OPTION EXERCISES AND HOLDINGS
The table below sets forth information concerning the exercise of
options during the fiscal year ended November 30, 1997 and unexercised
options held at the end of such year by the Named Executive Officers.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Shares Ac- Number of Securities Underlying Value of Unexercised In-the-
quired on Aggregate Unexercised Options at Fiscal Money Options at Fiscal Year
Exercise Value Real- Year End End ($)(1)
Name (#) ized ($) Exercisable Unexercisable Exercisable Unexercisable
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Charles W. Scharer - - 32,000 183,500 189,002 636,525
Stephen L. Cavallaro - - 30,000 48,800 177,189 169,277
John J. McLaughlin - - - 41,000 - 142,221
Gary D. Armentrout - - - 41,000 - 142,221
Kevin O. Servatius - - - 51,000 - 176,909
Thomas Yturbide - - 110,000 100,000 649,693 346,880
- ----------------
(1) Options are in-the-money if the fair market value of the underlying
securities exceeds the exercise price of the options.
</TABLE>
The MOU provides that options to acquire Common Stock held by Mr.
Scharer, Mr. Cavallaro and Mr. McLaughlin will be cancelled in the Merger,
and Mr. Scharer, Mr. Cavallaro and Mr. McLaughlin will receive lump sum
payments in consideration therefor. See "Item 7. Certain Relationships and
Related Transactions." The Merger Agreement similarly provides that each
outstanding option to acquire Common Stock will be cancelled immediately
prior to the Effective Time in exchange for a cash payment equal to the
product of the number of shares of Common Stock subject to such option and
the excess of the consideration payable per share of Common Stock in the
Merger over the per share exercise price of such option, and such provisions
will apply to each of the Named Executive Officers.
42
<PAGE>
LONG-TERM INCENTIVE PLAN
In fiscal year 1994, Harveys adopted a Long-Term Incentive Plan. The
table below sets forth awards made to Named Executive Officers in the last
fiscal year under Harveys' Long-Term Incentive Plan.
LONG-TERM INCENTIVE PLANS-AWARDS IN FISCAL YEAR 1997
<TABLE>
<CAPTION>
Estimated Future Payouts under
Number of Non-Stock Price-Based Plans
Shares Units or Performance or Other Period until --------------------------------
Name Other Rights Maturation or Payout Threshold Target Maximum
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Charles W. Scharer -- Three years ending November 30, 1997 $ 32,135 $ 64,269 $ 96,404
-- Three years ending November 30, 1998 32,135 64,269 96,404
-- Three years ending November 30, 1999 32,135 64,269 96,404
Stephen L. Cavallaro -- Three years ending November 30, 1997 19,452 38,904 58,356
-- Three years ending November 30, 1998 19,452 38,904 58,356
-- Three years ending November 30, 1999 19,452 38,904 58,356
John J. McLaughlin -- Three years ending November 30, 1997 - - -
-- Three years ending November 30, 1998 11,067 22,135 33,202
-- Three years ending November 30, 1999 11,067 22,135 33,202
Gary D. Armentrout -- Three years ending November 30, 1997 - - -
-- Three years ending November 30, 1998 11,730 23,460 35,190
-- Three years ending November 30, 1999 11,730 23,460 35,190
Kevin O. Servatius -- Three years ending November 30, 1997 - - -
-- Three years ending November 30, 1998 13,442 26,885 40,327
-- Three years ending November 30, 1999 13,442 26,885 40,327
Thomas M. Yturbide -- Three years ending November 30, 1997 30,000 60,000 90,000
-- Three years ending November 30, 1998 - - -
-- Three years ending November 30, 1999 - - -
</TABLE>
Mr. Yturbide does not participate in Harveys' Long-Term Incentive Plan
beyond the three-year cycle ending November 30, 1997. Benefits received by
participants under this plan are based on Harveys' achieving specified levels
of cash flow and return on equity over three-year periods. The target amount
of the incentive is earned if the average of the percentage of achievement of
the two goals equals 100%. The threshold amount is earned if the average of
the percentage of achievement of the two goals equals 80% and the maximum
amount is earned if the average of the percentage of achievement of the two
goals equals or exceeds 120%.
The MOU provides that, upon consummation of the Merger, the Long-Term
Incentive Plan will be terminated, and Messrs. Scharer, Cavallaro and
McLaughlin each will receive lump sum payments at maximum in connection
therewith. See "Item 7. Certain Relationships and Related Transactions."
Pursuant to the Harveys Change of Control Plan (the "Change of Control
Plan"), Messrs. Armentrout, Servatius and Yturbide will similarly receive
lump sum payments at maximum.
COMPENSATION OF DIRECTORS
In fiscal 1997, non-employee directors received an annual retainer of
$30,000 and an additional $1,000 for each board meeting attended. During
such period, non-employee committee members received $1,000 for each
committee meeting attended, and the non-employee chairs of each of the Audit
Committee and the Compensation Committee received $1,200 for each meeting
attended. Non-employee directors are reimbursed for expenses incurred in
connection with attending meetings of Harveys' Board of Directors and
Committees thereof.
Harveys established an Outside Directors' Retirement Plan pursuant to
which each outside director and any employee-director who is not covered
under the Harveys' Supplemental Executive Retirement Plan or Senior
Supplemental Executive Retirement Plan and who has served five or more years,
or his or her beneficiaries as applicable, shall be entitled to receive
$25,000 per year for up to ten years upon such director's retirement, death
or disability. The plan also provides for continuing medical insurance
coverage under Harveys' executive health plan for a period of up to 10 years.
The Change of Control Plan provides that (1) all options granted to
directors under the 1993 Non-Employee Director Stock Option Plan will vest
upon Consummation of the Merger, and (2) members of the Board who are asked
to resign as a result of a Change of Control will be paid their annual
compensation for the balance of the term for which they were elected and will
be entitled to a lump sum payment of the compensation due under the Outside
Directors' Retirement Plan.
It is expected that new director compensation arrangements will be
instituted upon consummation of the Merger.
Directors who are also employees may be elegible to participate in
Harveys' employee incentive plans.
43
<PAGE>
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
The tables below set forth total benefits payable to executive
employees, including the Named Executive Officers, who participate in
Harveys' Supplemental Executive Retirement Plan (the "SERP"). Amounts shown
represent the aggregate amounts to which such employees are entitled under
the SERP.
<TABLE>
<CAPTION>
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN TABLE
(SEVEN YEAR VESTING)
Estimated Annual Benefits at Age 65 for
Representative Years of Service ($)
-------------------------------------------------------------
Remuneration ($) 3 4 5 6 7
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
125,000 . . . . . . . . . . . . . . . . . . . . . . . . . . 12,500 25,000 37,500 50,000 62,500
150,000 . . . . . . . . . . . . . . . . . . . . . . . . . . 15,000 30,000 45,000 60,000 75,000
175,000 . . . . . . . . . . . . . . . . . . . . . . . . . . 17,500 35,000 52,500 70,000 87,500
200,000 . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000 40,000 60,000 80,000 100,000
225,000 . . . . . . . . . . . . . . . . . . . . . . . . . . 22,500 45,000 67,500 90,000 112,500
250,000 . . . . . . . . . . . . . . . . . . . . . . . . . . 25,000 50,000 75,000 100,000 125,000
300,000 . . . . . . . . . . . . . . . . . . . . . . . . . . 30,000 60,000 90,000 120,000 150,000
400,000 . . . . . . . . . . . . . . . . . . . . . . . . . . 40,000 80,000 120,000 160,000 200,000
450,000 . . . . . . . . . . . . . . . . . . . . . . . . . . 45,000 90,000 135,000 180,000 225,000
500,000 . . . . . . . . . . . . . . . . . . . . . . . . . . 50,000 100,000 150,000 200,000 250,000
</TABLE>
<TABLE>
<CAPTION>
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN TABLE
(20 YEAR VESTING)
Estimated Annual Benefits at Age 65 for
Representative Years of Service ($)
-----------------------------------------------------
Remuneration ($) 5 10 15 20
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
125,000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,625 31,250 46,875 62,500
150,000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,750 37,500 56,250 75,000
175,000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,875 43,750 65,625 87,500
200,000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,000 50,000 75,000 100,000
225,000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,125 56,250 84,375 112,500
250,000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,250 62,500 93,750 125,000
300,000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,500 75,000 112,500 150,000
400,000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,000 100,000 150,000 200,000
450,000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56,250 112,500 168,750 225,000
500,000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62,500 125,000 187,500 250,000
</TABLE>
On November 20, 1997 the SERP was amended by the Board of Directors to,
among other things, limit participation to employees, (a) whose positions are
classified as members of the Executive Committee of Harveys, (b) whose
participation has been recommended by the President and Chief Executive
Officer, (c) whose participation has been approved and confirmed by the
Committee, and (d) who do not participate
44
<PAGE>
in the Senior Supplemental Retirement Plan. Those employees who were
participating in the SERP prior to November 20, 1997, and had partially or
fully vested but do not meet the amended participation requirements after
November 20, 1997 will continue to participate in the SERP.
The seven year vesting SERP presently covers approximately 21 current or
former executive employees. The 20 year vesting SERP, for those who began
participation after October 1, 1994, covers approximately 8 executive
employees. SERP benefits are based on a percentage of average base
compensation earned during the participant's last five years of service.
Base compensation is the participant's annual salary (but not bonuses or
incentive compensation), which is the same as compensation depicted as salary
in the Summary Compensation Table. Benefits are generally computed as a
straight-life annuity, and are not subject to any deduction for social
security benefits. Participants are entitled to receive SERP benefits upon
attaining age 65 (age 63 for Mr. Yturbide) and having become vested in the
SERP. Participants in the seven year vesting SERP become 20% vested after
having accumulated at least three years of service with Harveys and vesting
continues in 20% increments each year thereafter, with 100% vesting occurring
upon completion of seven years of service. Participants in the 20 year
vesting SERP become 25% vested after having accumulated at least five years
of service with Harveys and vesting continues in 5% increments each year
thereafter, with 100% vesting occurring upon completion of 20 years of
service. Amounts shown for seven years or 20 years of service in the
respective tables above represent the maximum annual payments a participant
may receive under the SERP. Benefits under the SERP are payable for a period
of 15 years.
Messrs. Scharer and Yturbide are fully vested under the terms of the seven
year vesting plan. Mr. Cavallaro has approximately five years of credited
service under the terms of the seven year vesting plan. Mr. Armentrout has
approximately three and one-half years of credited service under the terms of
the twenty year vesting plan. Mr. McLaughlin and Mr. Servatius each have
approximately three years of credited service under the terms of the twenty year
vesting plan.
The MOU provides that, upon consummation of the Merger, the rights of Mr.
Scharer, Mr. Cavallaro and Mr. McLaughlin to participate in the SERP will be
terminated, and they will receive lump sum payments in connection therewith.
See "Item 7. Certain Relationships and Related Transactions." In accordance
with the Change of Control Plan, upon consummation of the Merger Messrs.
Armentrout and Servatius will receive two additional years of vesting credit
under the SERP.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The following individuals served on the Compensation Committee during
fiscal year 1997: Eugene R. White (Chair), Jessica L. Ledbetter, Luther Mack,
Jr., William B. Ledbetter and Franklin K. Rahbeck. Charles W. Scharer and John
J. McLaughlin participated as non-voting members. During fiscal year 1997,
Charles W. Scharer served as Harveys' Chairman of the Board, President and Chief
Executive Officer. John J. McLaughlin served as Senior Vice President, Chief
Financial Officer and Treasurer of Harveys during fiscal year 1997.
EMPLOYMENT CONTRACTS AND CHANGE OF CONTROL ARRANGEMENTS
Mr. Scharer serves as President and Chief Executive Officer under an
employment contract with Harveys. The term of the contract began on December 1,
1995 and was extended in fiscal year 1997 to run through November 30, 2002. The
agreement provides that Mr. Scharer's salary during the term of the agreement
will be subject to annual review by the Compensation Committee of the Board of
Directors. Mr.
45
<PAGE>
Scharer's salary was increased to $467,500 per year beginning December 1,
1997. The agreement also provided for the award of options to purchase
shares of Harveys' Common Stock. The contract is terminable at any time
(upon ninety days notice) by Mr. Scharer or Harveys. If the agreement is
terminated by Harveys for reason other than cause, Mr. Scharer is entitled to
receive the full value of his salary and other benefits for the remainder of
the agreement. The MOU provides that Mr. Scharer's current employment
contract will be terminated at the Effective Time of the Merger, and that Mr.
Scharer will enter into a new employment contract with the Company. See
"Item 7. Certain Relationships and Related Transactions."
Mr. Cavallaro serves as Chief Operating Officer of Subsidiary Operations
under an employment contract with Harveys effective as of February 1, 1996. The
term of the contract was extended on February 10, 1997 and terminates on January
31, 2000. Mr. Cavallaro's annual salary established by the contract is subject
to annual review and adjustment. Mr. Cavallaro's current salary is $360,000 per
year. The contract also provided for the award of options to purchase shares of
Harveys' Common Stock. The contract is terminable at any time (upon ninety days
notice) by Mr. Cavallaro or Harveys. If the contract is terminated by Harveys
for reasons other than cause, Mr. Cavallaro is entitled to receive the full
value of his salary and other benefits for the remainder of the contract term.
The MOU provides that Mr. Cavallaro's current employment contract will be
terminated at the Effective Time of the Merger, and that Mr. Cavallaro will
enter into a new employment contract with the Company. See "Item 7. Certain
Relationships and Related Transactions."
Mr. McLaughlin serves as Senior Vice President, Chief Financial Officer and
Treasurer under an employment contract with Harveys effective as of August 14,
1995 and extending to September 17, 2000. Mr. McLaughlin's annual salary
established by the contract is subject to annual review and adjustment. Mr.
McLaughlin's current salary is $250,000 per year. The contract also provided
for the award of options to purchase shares of Harveys' Common Stock and the
award of restricted shares of Harveys' Common Stock. The contract is terminable
at any time (upon ninety days notice) by Mr. McLaughlin or Harveys. If the
contract is terminated by Harveys for reasons other than cause, Mr. McLaughlin
is entitled to receive the full value of his salary and other benefits for the
remainder of the contract term. The MOU provides that Mr. McLaughlin's current
employment contract will be terminated at the Effective Time of the Merger, and
that Mr. McLaughlin will enter into a new employment contract with the Company.
See "Item 7. Certain Relationships and Related Transactions."
Mr. Armentrout serves as Senior Vice President of Business Development and
Government Relations under an employment contract with Harveys effective as of
May 9, 1995 and extending to May 9, 2000. Mr. Armentrout's annual salary under
the contract is currently $240,000. The contract also provided for the award of
options to purchase shares of Harveys' Common Stock and the award of restricted
shares of Harveys' Common Stock. The contract is terminable at any time (upon
ninety days notice) by Mr. Armentrout or Harveys. If the contract is terminated
by Harveys for reasons other than cause, Mr. Armentrout is entitled to receive
the full value of his salary and other benefits for the remainder of the
contract term.
Mr. Servatius serves as Senior Vice President and General Manager-Harveys
Resort under an employment contract with Harveys effective as of August 14,
1995. The term of the contract runs for five years, terminating on August 13,
2000. Mr. Servatius' annual salary is currently $280,000. The contract also
provided for the award of restricted shares of Harveys' Common Stock and options
to purchase shares of Harveys' Common Stock. The contract is terminable at
anytime (upon ninety days notice) by Mr. Servatius or Harveys. If the
contract is terminated by Harveys for reasons other than cause, Mr. Servatius
is entitled to receive the full value of his salary and other benefits for
the remainder of the contract term.
In addition to the change of control benefits described above with
respect to the cash-out of stock options, the payment of long-term incentive
bonuses and additional vesting and payout of accrued benefits under the SERP,
the Change of Control Plan also provides that the Named Executive Officers
are entitled to receive (1) continuation of annual salary and certain welfare
benefits for the greater of (a) a period ranging from 24 to 36 months
depending on position within the Company, and (b) the remaining term of their
employment contract term, and (2) a lump sum payment at maximum under
Harveys' Management Incentive Plan (the "MIP") if their employment is
terminated. For a discussion of the benefits that Messrs. Scharer, Cavallaro
and McLaughlin will receive in connection with the Merger, see "Item 7.
Certain Relationships and Related Transactions."
46
<PAGE>
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Company has entered into the MOU with Messrs. Scharer, Cavallaro and
McLaughlin (the "Executives"). The MOU provides that each of the Executives will
remain in the offices they now hold, Mr. Scharer will continue to serve as a
director and Mr. Cavallaro will be appointed to the Company's Board of Directors
in a non-voting capacity. After the Merger Mr. Scharer, Mr. McLaughlin, Mr.
Cavallaro, the general managers of Harveys' Nevada, Iowa and Colorado
facilities, the vice president of human resources, the vice president of
marketing, the vice president of business development and such other employees
as are determined by Mr. Scharer and the Board of Directors will be granted a
number of shares of Common Stock of the Company in the aggregate amount of
shares representing three percent of the outstanding Common Stock, plus an
additional two percent if the Company achieves certain performance goals before
the fifth anniversary of the Effective Time, and options to purchase the number
of shares of Common Stock of the Company that is equivalent in the aggregate to
five percent of the outstanding Common Stock. Under the MOU each of Mr.
Scharer, Mr. McLaughlin and Mr. Cavallaro have agreed to support the Merger,
including voting shares of Common Stock held by him in favor of the Merger.
In addition, the MOU provides, among other things, as follows:
- - Each option to purchase Common Stock held by the Executives will be
cancelled in exchange for payments equal to the product of (a) the
number of shares of Common Stock subject to such option and (b) the
excess, if any, of (i) the price per share of Common Stock to be paid
by the Company in the Merger for a share of Common Stock over (ii) the
exercise price per share of Common Stock of such option. Assuming a
price to be paid per share of Common Stock of $28, Messrs. Scharer,
Cavallaro and McLaughlin would receive payments of $2,569,719, $984,250
and $474,063, respectively, in consideration for cancellation of such
options. The Merger Agreement provides that the consideration to be
paid per share of Common Stock in the Merger will be adjusted upward to
include an additional amount of cash, without interest, equal to the
difference, if positive, of (1) the product of (x) $1.96 and (y) a
fraction the numerator of which shall be the number of days elapsed
from and including September 1, 1998 to and excluding the closing date
of the Merger and the denominator of which shall be 365, minus (2) (x)
the aggregate amount of all cash dividends on the Common Stock paid
during the period from and including September 1, 1998 to and excluding
the closing date of the Merger, divided by (y) the number of shares of
Common Stock upon which the consideration for the Merger is paid plus
the number of shares of Common Stock underlying any stock options,
warrants and other rights to acquire Common Stock canceled in
connection with the Merger.
47
<PAGE>
- - The Long-Term Incentive Plan and the rights of Messrs. Scharer,
Cavallaro and McLaughlin to participate therein, shall be terminated in
exchange for lump sum payments pursuant to the terms of the LTIP of
$1,081,988, $531,018 and $332,063, respectively.
- - The rights of the Executives to participate in the SERP will be
terminated, and the accrued SERP benefits for Messrs. Scharer,
Cavallaro and McLaughlin as of the consummation of the Merger shall be
$1,261,435, $701,454 and $450,000, respectively. One-half of each such
amount is to be paid in a lump sum to Messrs. Scharer, Cavallaro and
McLaughlin, and the remaining amounts, rather than being distributed,
will be distributed and invested in the common stock of the Company, or
deemed to be so distributed and invested under certain tax deferral
arrangements.
- - The rights of Messrs. Scharer, Cavallaro and McLaughlin to participate
in the MIP as in effect on the date hereof, shall be terminated in
exchange for lump sum payments pursuant to the terms of the MIP of
$467,500, $232,500 and $187,500, respectively. The MIP provides key
employees with cash awards, computed as a variable percentage of base
salary. Such cash awards are contingent on the meeting of certain
corporate, business unit and individual performance objectives which
are established at the beginning of the year by the compensation
committee, the participant and the participant's manager.
- - The current employment contracts of Messrs. Scharer, Cavallaro and
McLaughlin shall be terminated at the Effective Time, and Messrs.
Scharer, Cavallaro and McLaughlin shall enter into new employment
contracts with the Company. The new employment contracts are expected
to have terms of five years from the Effective Time and provide for,
without limitation, (1) annual base salaries of $500,000, $400,000 and
$300,000 for Messrs. Scharer, Cavallaro and McLaughlin, (2) annual
year-end incentive payments under the MIP or other equivalent plan, (3)
the continuation of perquisites in effect with respect to Messrs.
Scharer, Cavallaro and McLaughlin as of the date hereof, (4) the
immediate vesting of all options and restricted stock grants upon a
change of control, and (5) the vesting of that portion of options and
restricted stock grants due to vest over the lesser of (1)(a) eighteen
months (with respect to Messrs. Cavallaro and McLaughlin) or (b) two
years (with
48
<PAGE>
respect to Mr. Scharer) or (2) the remainder of the employment
agreement term (in each case, the "Period"), and the provision of
severance for the applicable Period (in each case consisting of the
terminated Executive's then-applicable base salary, bonus and benefits,
which severance shall be the exclusive severance payable to such
Executive and shall supersede and replace any severance that might
otherwise be due under the Company's Change of Control Plan) upon a
termination of the Executives other than for cause.
The Merger Agreement provides that the Company will provide directors and
officers liability insurance coverage to the current directors and officers of
the Company for a term of six years following the Effective Time.
ITEM 8. LEGAL PROCEEDINGS.
The Company is not a party to any litigation and to its knowledge, no
action, suit or proceedings against it has been threatened by any person.
Harveys is a defendant in various lawsuits relating to routine matters
incidental to its business. Management of Harveys does not believe that the
outcome of any such litigation, in the aggregate, will have a material adverse
effect on Harveys.
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.
No established public trading market exists for the Company's common
equity. There are no plans, proposals, arrangements or understandings with any
person with regard to the development of a trading market in any of the
Company's common equity.
There are no outstanding options or warrants to purchase, or securities
convertible into, the Company's common equity. All shares of the Company's
common equity are subject to sale pursuant to Rule 144 under the Securities Act,
subject to the limitations set forth therein. The Company has not agreed with
any security holder to register any of its common equity for sale by any
security holder. The Company does not currently propose to publicly offer any
shares of its common equity.
As of the Effective Time, the Company will have ______ holders of record of
each of its Class A Common and Class B Common.
The Company does not pay, and does not anticipate paying in the foreseeable
future, any dividends on its common equity.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES.
If the Company utilizes the Proposed Financing, it expects to issue
immediately prior to the Effective Time (1)___ shares of Class B Common to
Colony III for aggregate consideration of $75 million in cash and (2) ___ shares
of Series A Preferred to affiliates of Colony and/or to third parties for
aggregate consideration of $55 million in cash. Such issuances are subject to
certain conditions. See "Item 1. Business - The Company."
49
<PAGE>
Pursuant to the MOU, the Company expects to grant to the Key Managers the
number of shares of Class A Common and Class B Common that is equivalent in the
aggregate to three percent of the Class A Common and Class B Common,
respectively, outstanding as of the Effective Time. Twenty percent of such Base
Stock Grant Shares granted to each Key Manager shall vest on each of the first
through fifth anniversaries of the Effective Time, except as otherwise provided
in the MOU.
Each of the foregoing issuances is expected to be exempt from registration
under the Securities Act, pursuant to Section 4(2) thereof or Regulation D
thereunder, including, in the case of certain resales to third parties, Rule
144A thereunder.
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED.
GENERAL
The authorized capital stock of the Company consists of 10,000,000 shares
of common stock, of which 5,000,000 shares have been designated Class A Common,
par value $.01 per share, and 5,000,000 shares have been designated Class B
Common, par value $.01 per share and 1,000,000 shares of preferred stock, par
value $.01 per share, none of which are designated. It is expected that ___
shares of preferred stock will be designated as Series A Preferred. At the
Effective Time, ____ shares of Class A Common, ____ shares of Class B Common and
____ shares of Series A Preferred are expected to be outstanding. The Class A
Common is the only class of the Company's capital stock being registered
pursuant to this Registration Statement.
COMMON STOCK
Holders of Class A Common are entitled to one vote per share on all
matters to be voted on by the stockholders of the Company and are not
entitled to cumulative voting for the election of directors. Except as
otherwise expressly required by law, holders of Class B Common have no right
to vote on any matters to be voted on by the stockholders of the Company.
Holders of Class A Common and Class B Common have no preemptive rights, no
other rights to subscribe for additional shares of the Company, no conversion
rights and no redemption rights. Subject to preferences that may apply to
shares of preferred stock at the time, holders of Class A Common and Class B
Common are entitled to share ratably, share for share, in dividends when, as
and if declared on the common stock of the Company, provided that dividends
or distributions that are declared that are payable in shares of, or in
subscription or other rights to acquire Class A Common or Class B Common,
dividends or distributions payable in shares of, or in subscription or other
rights to acquire shares of, any particular class of common stock shall be
payable only to holders of such class of common stock.
The shares of Class A Common are subject to substantial dilution.
Colony III will hold approximately 97 percent of the Class B Common to be
issued. The Company's Articles of Incorporation provide Colony III and its
successors entities and affiliates (as such term is defined in Rule 501(b)
under the Securities Act) with the right to convert at any time any of their
shares of Class B Common into an equal number of shares of Class A Common,
subject to compliance with all gaming and other statutes, laws, rules and
regulations applicable to the Company at the time of such exercise.
No stock or other securities issued by the Company and no interest, claim
or charge therein or thereto may be transferred, except in accordance with the
provisions of the Nevada Gaming Control Act and the regulations promulgated
thereunder. Any transfer in violation thereof is ineffective until the Company
ceases to be subject to the jurisdiction of the Nevada Commission or the Nevada
Commission, by affirmative action, validates, or waives any defect in, such
transfer.
PREFERRED STOCK
The Board of Directors of the Company is authorized to provide for the
issuance of the preferred stock in one or more classes or series, and to fix
for each such class or series such voting powers, full or limited, or no
voting powers, and such distinctive designations, preferences and relative,
participating, optional or other special rights and such qualifications,
limitations or restrictions thereof, as shall be stated and expressed in the
resolution or resolutions adopted by the Board providing for the issuance of
such class or series and as may be permitted by the Nevada Private
Corporation Law. The Board may authorize the issuance of preferred stock with
voting or conversion rights that could adversely affect the voting power or
other rights of the holders of the Class A Common and Class B Common. The
issuance of preferred stock, while providing flexibility in connection with
possible acquisitions and other corporate purposes, could, among other
things, have the effect of delaying, deferring or preventing a change in
control of the Company and may adversely affect the voting and other rights
of the holders of Class A Common and Class B Common. If the Proposed
Financing is applied, the Company currently plans to designate certain shares
of preferred stock as Series A Preferred Stock and expects that such stock
would neither be required to be redeemed prior to June 1, 2006 (the maturity
date of the Notes) nor otherwise constitute Disqualified Stock (as defined in
the Indenture). The Series A Preferred may be issued to affiliates of Colony
Capital and/or to third parties.
RESTRICTIONS ON BUSINESS COMBINATIONS AND CORPORATE CONTROL
Chapter 78 of the Nevada Revised Statutes ("NRS") contains provisions
restricting the ability of a corporation to engage in business combinations
with an "interested shareholder." Under the NRS, except under certain
circumstances, business combinations are not permitted for a period of three
years following the date such shareholder became an interested shareholder.
The NRS defines an "interested shareholder," generally, as a person who
beneficially owns 10% or more of the outstanding shares of a corporation's
voting stock.
In addition the NRS generally disallows the exercise of voting rights
with respect to "control shares" of an "issuing corporation" (as defined in
the NRS). "Control shares" are the voting shares of an issuing corporation
acquired in connection with the acquisition of a "controlling interest."
"Controlling interest" is defined in terms of threshold levels of voting
share ownership, which, when crossed, trigger application of the voting bar
with respect to the newly acquired shares. The NRS also permits directors to
resist a change or potential change in control of the corporation if the
directors determine that such a change is opposed to or not in the best
interest of the corporation.
50
<PAGE>
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Articles of Incorporation contain, pursuant to Nevada law,
provisions for indemnification of officers and directors of the Company and in
certain cases employees and other persons. In addition, the Company's Bylaws
require the Company to indemnify such persons to the full extent permitted by
Nevada law. Each such person will be indemnified in any proceeding if he or she
acted in good faith and in a manner which he or she reasonably believed to be
in, or not opposed to, the best interests of the Company. Indemnification would
cover expenses, including attorneys' fees, judgments, fines and amounts paid in
settlement. The Company's Bylaws also provide that the Company's Board of
Directors may cause the Company to purchase and maintain insurance on behalf of
any present or past director or officer insuring against any liability asserted
against such person incurred in the capacity of director or officer or arising
out of such status, whether or not the Company would have the power to indemnify
such person. The Company is expected to maintain directors' and officers'
liability insurance.
The Company also expects to enter into separate indemnification
agreements with its directors and officers and certain key employees. Each
indemnification agreement is expected to provide for, among other things (1)
indemnification against any and all expenses, judgments, fines, penalties and
amounts paid in settlement of any claim against an indemnified party unless
it is determined, as provided in the indemnification agreement, that
indemnification is not permitted under law and (2) prompt advancement of
expenses to any indemnitee in connection with his or her defense against any
claim.
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements and supplementary data are as set
forth in the "Index to Consolidated Financial Statements" on page F-1.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS.
(a) List separately all financial statements filed.
See "Index to Consolidated Financial Statements."
(b) Exhibits.
Exhibit
Number
2.1 Agreement and Plan of Merger dated as of February 1, 1998 by and between
Harveys Acquisition Corporation, a Nevada corporation, and Harveys
Casino Resorts, a Nevada corporation
3.1 Articles of Incorporation of Harveys Acquisition Corporation
3.2 Bylaws of Harveys Acquisition Corporation
51
<PAGE>
4.1 Form of stock certificate
10.1 Memorandum of Understanding dated February 1, 1998 among Harveys
Acquisition Corporation, a Nevada corporation, Charles W. Scharer,
Stephen L. Cavallaro and John L. McLaughlin
10.2 Voting and Profit Sharing Agreement dated as of February 1, 1998 by and
among Harveys Acquisition Corporation and the individuals and entities
signatory thereto
10.3 Noncompetition and Trade Secret Agreement dated as of February 1, 1998
by and among Harveys Acquisition Corporation and the individuals
signatory thereto
10.4 Form of Director and Officer Indemnification Agreement*
27.1 Financial Data Schedule
- ----------------------------
* To be filed by amendment
52
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized.
HARVEYS ACQUISITION CORPORATION
Date: November 19, 1998 By: /s/ KELVIN L. DAVIS
-----------------------------------
Name: Kelvin L. Davis
Title: President
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
The following audited and unaudited, and consolidated financial
statements of Harveys Casino Resorts and its subsidiaries and the audited
balance sheet and pro forma financial statements of Harveys Acquisition
Corporation are presented herein on the page indicated:
<TABLE>
HARVEYS ACQUISITION CORPORATION
<S> <C>
AUDITED FINANCIAL STATEMENTS:
Report of Ernst & Young LLP, Independent Auditors . . . . . . . . . . . . . . . F-2
Balance Sheet as of November 15, 1998 . . . . . . . . . . . . . . . . . . . . . F-3
UNAUDITED PRO FORMA FINANCIAL STATEMENTS:
Pro Forma Condensed Consolidated Balance Sheet as of August 31, 1998. . . . . . F-6
Pro Forma Condensed Consolidated Statement of Income for the Year
Ended November 30, 1997. . . . . . . . . . . . . . . . . . . . . . . . . . . F-7
Pro Forma Condensed Consolidated Statement of Income for the Nine-Month
Period Ended August 31, 1998 . . . . . . . . . . . . . . . . . . . . . . . . F-8
HARVEYS CASINO RESORTS
AUDITED FINANCIAL STATEMENTS:
Report of Deloitte & Touche LLP, Independent Auditors . . . . . . . . . . . . . F-12
Report of Grant Thornton LLP, Independent Auditors. . . . . . . . . . . . . . . F-13
Consolidated Balance Sheets as of November 30, 1997 and 1996. . . . . . . . . . F-14
Consolidated Statements of Income for the Years Ended November 30, 1997, 1996
and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-15
Consolidated Statements of Stockholders' Equity for the Years Ended
November 30, 1997, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . F-16
Consolidated Statements of Cash Flows for the Years Ended November 30, 1997,
1996 and 1995. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-17
Notes to Consolidated Financial Statements. . . . . . . . . . . . . . . . . . . F-18
UNAUDITED FINANCIAL STATEMENTS:
Condensed Consolidated Balance Sheets as of November 30, 1997 and
August 31, 1998. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-41
Condensed Consolidated Statements of Income for the Nine Month Periods Ended
August 31, 1998 and 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . F-42
Condensed Consolidated Statements of Cash Flows for the Nine Month Periods
Ended August 31, 1998 and 1997 . . . . . . . . . . . . . . . . . . . . . . . F-43
Notes to Unaudited Condensed Consolidated Financial Statements. . . . . . . . . F-44
</TABLE>
F-1
<PAGE>
Report of Independent Auditors
Board of Directors
Harveys Acquisition Corporation
We have audited the accompanying balance sheet of Harveys Acquisition
Corporation as of November 15, 1998. The balance sheet is the responsibility of
the Company's management. Our responsibility is to express an opinion on the
balance sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the balance sheet is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the balance sheet. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall balance sheet
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Harveys Acquisition Corporation at
November 15, 1998 in conformity with generally accepted accounting principles.
Ernst & Young LLP
Los Angeles, California
November 16, 1998
F-2
<PAGE>
Harveys Acquisition Corporation
Balance Sheet
November 15, 1998
<TABLE>
<S> <C>
ASSETS
Cash and cash equivalents $1,000
------
$1,000
------
------
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES $ -
SHAREHOLDERS' EQUITY
Preferred Stock, $.01 par value - authorized 1,000,000 shares;
0 shares outstanding -
Common stock, $.01 par value:
Class A - authorized, 5,000,000 shares; 1 share outstanding -
Class B - authorized, 5,000,000 shares; 999 shares outstanding 10
Additional paid-in capital 990
------
1,000
------
$1,000
------
------
</TABLE>
See accompanying notes.
F-3
<PAGE>
Harveys Acquisition Corporation
Notes to Balance Sheet
November 15, 1998
1. ORGANIZATION AND CAPITAL STRUCTURE
Harveys Acquisition Corporation (the Company) was formed by affiliates of
Colony Capital, Inc., under the laws of the State of Nevada on January 30,
1998. The Company was formed for the purpose of entering into an Agreement
and Plan of Merger dated as of February 1, 1998 (the Merger Agreement) by and
between the Company and Harveys Casino Resorts, a Nevada corporation
(Harveys) and merging with and into Harveys.
Pursuant to the Merger Agreement, subject to the satisfaction or waiver of
certain conditions to the obligations of the parties under the Merger Agreement,
including the receipt of certain approvals from the gaming authorities of the
States of Nevada, Colorado and Iowa, the Company will be merged (the Merger)
with and into Harveys. In the Merger, each share of common stock (Common Stock)
of Harveys outstanding at the time the Merger becomes effective (the Effective
Time) (other than shares of Common Stock held in Harveys' treasury) will be
converted into the right to receive cash as provided in the Merger Agreement.
Harveys will be the surviving corporation in the Merger and continue its current
business operations.
Merger-related costs incurred by an affiliate of Colony Capital, Inc. are not
reflected in the accompanying balance sheet.
Holders of Class A Common are entitled to one vote per share in all matters
to be voted on by stockholders of the Company. Holders of Class B Common have
no vote, except as otherwise expressly required by law.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of 90 days
or less when purchased to be cash equivalents.
USE OF ESTIMATES
The preparation of the balance sheet in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent asset and liabilities at the date of the balance sheet. Actual
results could differ from these estimates.
F-4
<PAGE>
HARVEYS ACQUISITION CORPORATION
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The pro forma condensed consolidated financial statements of Harveys
Acquisition Corporation (the "Company") as of August 31, 1998 and for the
nine months ended August 31, 1998 and the year ended November 30, 1997 give
effect to: (a) the consummation of a merger (the "Merger") pursuant to an
Agreement and Plan of Merger dated as of February 1, 1998 (the "Merger
Agreement") by and between the Company and Harveys Casino Resorts
("Harveys"), and (b) a proposed plan of financing (the "Proposed Financing")
for the Merger, assumed to consist of the application of (1) gross proceeds
of $75.0 million from the issuance of shares of Class B Common Stock, (2)
gross proceeds of $55.0 million from the issuance of shares of Series A
Preferred Stock, (3) borrowings of $175.0 million under an Amended and
Restated Credit Facility (the "Amended and Restated Credit Facility") and (4)
Harveys' available cash. Pursuant to the Merger Agreement, the Company would
be merged with and into Harveys. The Merger is subject to the satisfaction
or waiver of certain conditions to the obligations of the parties under the
Merger Agreement, including the receipt of certain approvals from the gaming
authorities of the States of Nevada, Colorado and Iowa. There can be no
assurances that the Merger will be consummated. The application of the
Proposed Financing is subject to the receipt by Harveys of consents to
certain waivers of and amendments to provisions of the Indenture governing
the Harveys' Senior Subordinated Notes due 2006 (the "Notes") from holders of
the Notes, and the actual types and amounts of funds utilized to finance the
Merger may differ based on prevailing circumstances at the time. These pro
forma condensed consolidated financial statements give effect to the
transactions as if they occurred, for balance sheet purposes, on August 31,
1998 and, for income statement purposes, on December 1, 1996. The pro forma
condensed consolidated financial statements should be read in conjunction
with the Company's audited balance sheet, and notes thereto, and the
financial statements, and the notes thereto, of Harveys appearing elsewhere
in this Registration Statement. The pro forma condensed consolidated
financial statements are not necessarily indicative of the results that would
have been reported had such transactions actually occurred on the date
specified, nor are they indicative of the Company's future results.
The pro forma adjustments are based upon available information and upon
certain assumptions that the Company believes are reasonable under the
circumstances.
F-5
<PAGE>
HARVEYS ACQUISITION CORPORATION
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF AUGUST 31, 1998
(Dollars in thousands)
<TABLE>
<CAPTION>
Adjustments for
Payment of Merger
Consideration,
Transaction Fees and
Harveys Adjustments for Purchase Method Pro Forma
Historical Proposed Financing Accounting As Adjusted
---------- ------------------- --------------------- -----------
<S> <C> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 78,245 $305,000 (a) $(317,849)(c) $ 65,396
Accounts and notes receivable, net 5,652 5,652
Other current assets 8,550 8,550
-------- -------- -------- --------
Total current assets 92,447 305,000 (317,849) 79,598
Property and equipment 316,658 85,984 (d) 402,642
Deferred financing costs 5,946 (1,882)(b) 2,200 (c) 6,264
Other assets 11,594 (1,783)(c)(d) 9,811
Goodwill 47,582 (c)(d) 47,582
-------- -------- -------- --------
Total assets $426,645 $303,118 $(183,866) $545,897
-------- -------- -------- --------
-------- -------- -------- --------
LIABILITIES AND STOCKHOLDERS EQUITY
Current liabilities
Current portion of long-term debt $ 11 $ 11
Accounts and contracts payable 6,044 6,044
Accrued expenses and other 32,619 32,619
-------- -------- -------- --------
Total current liabilities 38,674 38,674
Long-term debt, net 150,209 $175,000 (a) $ 7,500 (d) 332,709
Other liabilities 41,154 3,360 (d) 44,514
-------- -------- -------- --------
Total liabilities 230,037 175,000 10,860 415,897
-------- -------- -------- --------
Stockholders' equity
Preferred stock - 55,000 (a) 55,000
Common stock 101 (101)(c) -
Additional paid-in capital 43,483 75,000 (a) (43,483)(c) 75,000
Retained earnings 153,267 (1,882)(b) (24,300)(c) -
(127,085)(c)
Treasury stock (243) 243 (c) -
-------- -------- -------- --------
Total stockholders' equity 196,608 128,118 (194,726) 130,000
-------- -------- -------- --------
Total liabilities and stockholders'
equity $426,645 $303,118 $(183,866) $545,897
-------- -------- -------- --------
-------- -------- -------- --------
See accompanying notes to pro forma condensed consolidated financial statements
</TABLE>
F-6
<PAGE>
HARVEYS ACQUISITION CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED AUGUST 31, 1998
(Dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
Adjustments for
Harveys the Effect Pro Forma
Historical of the Merger As Adjusted
---------- --------------- -----------
<S> <C> <C> <C>
Revenues
Casino $ 183,501 $ 183,501
Lodging 26,157 26,157
Food and beverage 35,479 35,479
Other 5,583 5,583
Less: Casino promotional allowances (17,763) (17,763)
-------- ---------- ---------
Total net revenues 232,957 232,957
-------- ---------- ---------
Costs and expenses
Casino 86,310 86,310
Lodging 10,299 10,299
Food and beverage 22,664 22,664
Other operating 2,230 2,230
Selling, general and administrative 58,766 $ (1,222)(e) 57,544
Depreciation and amortization 15,641 1,784 (f) 17,425
Merger related costs 1,103 1,103
-------- ---------- ---------
Total costs and expenses 197,013 562 197,575
-------- ---------- ---------
Operating income 35,944 (562) 35,382
-------- ---------- ---------
Other income (expense)
Interest income 1,495 1,495
Interest expense (13,390) (10,106)(g) (23,496)
Other, net (123) (123)
-------- ---------- ---------
Total other income (expense) (12,018) (10,106) (22,124)
-------- ---------- ---------
Income before income taxes 23,926 (10,668) 13,258
Income tax provision (9,571) 3,175 (h) (6,396)
-------- ---------- ---------
Net income $ 14,355 $ (7,493) $ 6,862
-------- ---------- ---------
-------- ---------- ---------
Income per common share
Basic $ 1.43 $ (0.75) $ 0.68
-------- ---------- ---------
-------- ---------- ---------
Diluted $ 1.41 $ (0.73) $ 0.68
-------- ---------- ---------
-------- ---------- ---------
Weighted average common shares used in
calculating income per common share
Basic 10,009,086 10,009,086 10,009,086
---------- ---------- ----------
---------- ---------- ----------
Diluted 10,213,456 10,213,456 10,213,456
---------- ---------- ----------
---------- ---------- ----------
See accompanying notes to pro forma condensed consolidated financial statements
</TABLE>
F-7
<PAGE>
HARVEYS ACQUISITION CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED NOVEMBER 30, 1997
(Dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
Adjustments for
Harveys the effect Pro Forma
Historical of the Merger as adjusted
---------- --------------- -----------
<S> <C> <C> <C>
Revenues
Casino $ 216,564 $ 216,564
Lodging 32,175 32,175
Food and beverage 44,406 44,406
Other 7,277 7,277
Management fees and joint venture 4,507 4,507
Less: Casino promotional allowances (21,366) (21,366)
------- ---------
Total net revenues 283,563 283,563
------- ---------
Costs and expenses
Casino 100,500 100,500
Lodging 13,374 13,374
Food and beverage 29,886 29,886
Other operating 2,811 2,811
Selling, general and administrative 73,945 $ (1,143)(i) 72,802
Depreciation and amortization 19,077 4,158 (j) 23,235
Business development costs 2,690 2,690
------- --------- ---------
Total costs and expenses 242,283 3,015 245,298
------- --------- ---------
Operating income 41,280 (3,015) 38,265
------- --------- ---------
Other income (expense)
Interest income 509 509
Interest expense (19,401) (11,717)(k) (31,118)
Gain on sale of interests in
unconsolidated affiliate 27,422 27,422
Other, net (137) (137)
------- --------- ---------
Total other income (expense) 8,393 (11,717) (3,324)
------- --------- ---------
Income before income taxes and
extraordinary item 49,673 (14,732) 34,741
Income tax provision (18,898) 3,812 (l) (15,086)
------- --------- ---------
Income before extraordinary item $ 30,775 $ (10,920) $ 19,855
------- --------- ---------
Income before extraordinary item
per common share
Basic $ 3.13 $ (1.11) $ 2.02
Diluted $ 3.13 $ (1.11) $ 2.02
------- --------- ---------
Weighted average common shares outstanding
used in calculating income before
extraordinary item per common share
Basic 9,826,636 9,826,636 9,826,636
--------- --------- ---------
--------- --------- ---------
Diluted 9,843,871 9,843,871 9,843,871
--------- --------- ---------
--------- --------- ---------
See accompanying notes to pro forma condensed consolidated financial statements
</TABLE>
F-8
<PAGE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Company was formed under the laws of the State of Nevada on January 30,
1998 by affiliates of Colony Capital, Inc. The Company has conducted no
business other than in connection with the Merger Agreement. Harveys is
engaged in the ownership and operation of hotel/casinos in Nevada, Colorado
and Iowa. Upon the consummation of the Merger, the Company will be merged
with and into Harveys. Each share of common stock of Harveys ("Common Stock")
outstanding at the time the Merger becomes effective (other than shares of
common stock held in Harveys' treasury) will be converted into the right to
receive cash as provided in the Merger Agreement. Harveys will be the
surviving corporation in the Merger and continue its current business
operations.
The pro forma condensed consolidated balance sheet as of August 31, 1998
presents adjustments relative to the Proposed Financing, the cancellation of
an existing reducing, revolving credit agreement of Harveys (the "Credit
Facility"), the payment of the consideration for Common Stock (including
shares underlying outstanding options to purchase Common Stock) in the Merger
(the "Merger Consideration"), the payment of fees, expenses and other
transaction costs relating to the Merger and the Proposed Financing,
including the consent fee proposed to be paid to holders of the Notes in
connection with the solicitation of the Consents, and the preliminary
application of purchase method accounting allocating the purchase price to
the assets and liabilities acquired. The preliminary allocation results in
the recording of approximately $47.6 million of goodwill. The final
allocation of the purchase price will depend upon an appraisal. The Merger
Consideration to be paid is $28 in cash for each of the approximately 10.1
million outstanding shares of Common Stock and a cash amount equal to $28
less the option exercise price per share for each of the approximately 0.7
million shares of Common Stock underlying outstanding options. Additional
consideration will be payable in cash, without interest, in an amount equal
to the difference, if positive, of (a) the product of (i) $1.96 times (ii) a
fraction the numerator of which shall be the number of days elapsed from and
including September 1, 1998 to and excluding the date the Merger is
consummated (the "Effective Time") and the denominator of which shall be 365,
minus (b) the quotient of (i) the aggregated amount of all cash dividends
paid on Common Stock during the period from and including September 1, 1998
to and excluding the Effective Time divided by (ii) the number of shares of
Common Stock upon which the cash consideration is to be paid plus the number
of shares of Common Stock underlying the options to acquire Common Stock
upon which the cash consideration is to be paid.
The pro forma condensed consolidated statements of income for the nine months
ended August 31, 1998 and for the year ended November 30, 1997 present
adjustments relative to contractual changes to certain compensation
arrangements pursuant to the Merger, additional depreciation and amortization
expense as the result of the recognition of the fair market value of
property and equipment and the recognition of goodwill, changes to interest
expense as a result of the Proposed Financing and the related effect of the
foregoing adjustments on the provision for income taxes. The changes in
compensation arrangements include: (a) the one-time payment of benefits due
to three senior executive officers of Harveys under a supplemental executive
retirement plan and the subsequent cessation of such officers' participation
in the plan, (b) the one-time payment of amounts due to senior executive
officers of Harveys under a long-term incentive plan and the subsequent
cancellation of such plan, (c) the elimination of compensation paid to
outside directors of Harveys who will resign from the board of Harveys upon
the consummation of the Merger and (d) the granting to certain executive
officers of Harveys a number of shares of common stock of the Company
equivalent in the aggregate to 3% of the common stock of the Company
outstanding upon the consummation of the Merger. The changes in interest
expense include: (a) additional interest expense on the Amended and Restated
Credit Facility, (b) elimination of interest expense on the existing Credit
Facility, (c) amortization of deferred financing costs associated with the
Amended and Restated Credit Facility, (d) elimination of amortization of
deferred financing costs associated with the existing Credit Facility, and
(e) the reduction in interest expense due to the amortization of a premium
recognized on the Notes as a result of applying purchase method accounting.
The pro forma condensed consolidated statement of income for the year ended
November 30, 1998 also includes an adjustment to recognize, as an
extraordinary item, the loss, net of taxes, relative to the expensing of
unamortized deferred financing costs associated with the existing Credit
Facility which is to be terminated. The pro
F-9
<PAGE>
forma condensed consolidated statements of income do not include the one-time
payments due as a result of the contemplated changes in compensation
agreements nor other one-time fees and expenses contemplated to be paid in
connection with the Merger.
Adjustments to the Pro Forma Condensed Consolidated Balance Sheet as of
August 31, 1998
(a) To record proceeds of stock issuances and borrowings in connection with
the Proposed Financing including: (1) gross proceeds of $75.0 million from
the issuance of shares of non-voting Class B Common Stock, (2) gross
proceeds of $55.0 million from the issuance of shares of non-voting
Series A Preferred Stock and (3) borrowings of $175.0 million
under an Amended and Restated Credit Facility.
(b) To eliminate approximately $1.9 million of unamortized loan fees and
deferred financing costs related to the existing Credit Facility, which
will be terminated.
(c) To record the payment of the Merger Consideration of approximately $291.3
million and the retirement and cancellation of Harveys' Common Stock. To
record the payment of estimated loan fees and deferred financing costs of
$2.2 million related to the Amended and Restated Credit Facility and
estimated fees and expenses of $24.3 million related to the Merger.
(d) To record the preliminary allocation of the purchase price applied to the
assets and liabilities acquired including: (1) the elimination of
approximately $2.4 million of intangible assets and the recognition of
approximately $3.4 million of projected benefit obligations in excess of
plan assets related to supplemental executive retirement plans and a post
retirement medical benefit plan, (2) the step-up of the Notes by $7.5
million to fair market value, (3) the recognition of a step-up of
approximately $86.0 million in value of property and equipment to
reflect fair market value, (4) an increase of approximately $0.7 million
in the fair market value of other assets and (5) the recognition of
goodwill.
Adjustments to the Pro Forma Condensed Consolidated Statement of Income for
the Nine Months Ended August 31, 1998.
(e) To eliminate expenses of approximately $336,000 related to certain
executives ceasing to participate in a supplemental executive retirement
plan. To eliminate compensation of approximately $336,000 paid to outside
directors of Harveys. To eliminate compensation of approximately $753,000
for amounts accrued and expensed related to a long-term incentive plan
which is to be canceled. To eliminate expenses of approximately $135,000
related to the amortization of the value of restricted stock granted to
Harveys' management. To recognize additional expense of approximately
$338,000 related to the vesting in Harveys' Common Stock to be awarded to
certain executives.
(f) To recognize additional depreciation and amortization expense of
approximately $1.8 million related to the step-up in value of property
and equipment to reflect fair market value and the recognition of goodwill
to be amortized over 40 years.
(g) To recognize additional interest expense of approximately $10.9 million
related to the anticipated borrowing of $175.0 million under the Amended
and Restated Credit Facility. To recognize a reduction in interest expense
of approximately $592,000 related to the amortization of the premium
recorded on the Notes as a result of applying purchase method accounting.
To recognize additional interest expense of approximately $330,000 related
to the amortization of deferred financing costs incurred with the Amended
and Restated Credit Facility. To eliminate interest expense of
approximately $580,000 related to the existing Credit Facility.
(h) To recognize the effect of the foregoing adjustments (excluding the
adjustments which the Company believes will have no effect on income
taxes) on the provision for income taxes.
F-10
<PAGE>
Adjustments to the Pro Forma Condensed Consolidated Statement of Income for
the Year Ended November 30, 1997.
(i) To eliminate expenses of approximately $364,000 related to certain
executives ceasing to participate in a supplemental executive
retirement plan. To eliminate compensation of approximately $515,000
paid to outside directors of Harveys. To eliminate compensation of
approximately $477,000 for amounts accrued and expensed related to a
long-term incentive plan which is to be canceled. To eliminate
expenses of approximately $237,000 related to the amortization of the
value of restricted stock granted to Harveys' management. To
recognize additional expense of approximately $450,000 related to the
vesting in Harveys' Common Stock to be awarded to certain executives.
(j) To recognize additional depreciation and amortization expense of
approximately $4.2 million related to the step-up in value of property
and equipment to reflect fair market value and the recognition of
goodwill to be amortized over 40 years.
(k) To recognize additional interest expense of approximately $14.6 million
related to the anticipated borrowing of $175.0 million under the Amended
and Restated Credit Facility. To recognize a reduction in interest
expense of approximately $789,000 related to the amortization of the
premium recorded on the Notes as a result of applying purchase method
accounting. To recognize additional interest expense of approximately
$440,000 related to the amortization of deferred financing costs incurred
with the Amended and Restated Credit Facility. To eliminate interest
expense of approximately $2.5 million related to the existing Credit
Facility.
(l) To recognize the effect of the foregoing adjustments (excluding the
adjustments which the Company believes will have no effect on income
taxes) on the provision for income taxes.
F-11
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Harveys Casino Resorts:
We have audited the accompanying consolidated balance sheets of Harveys
Casino Resorts and subsidiaries as of November 30, 1997 and 1996, and the
related consolidated statements of income, stockholders' equity and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of November 30,
1997 and 1996, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Reno, Nevada
January 9, 1998
(except for Note 2, as to which
the date is November 19, 1998)
F-12
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors Harveys Casino Resorts:
We have audited the accompanying consolidated statement of income,
stockholders' equity, and cash flows of Harveys Casino Resorts for the year
ended November 30, 1995. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit 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 audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated results of Harveys Casino Resorts'
operations and its consolidated cash flows for the year ended November 30,
1995, in conformity with generally accepted accounting principles.
GRANT THORNTON LLP
Reno, Nevada
January 12, 1996
F-13
<PAGE>
HARVEYS CASINO RESORTS
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
November 30,
------------
1997 1996
---- ----
<S> <C> <C>
Current assets
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 55,034,861 $ 21,121,376
Accounts receivable, net of allowances for doubtful accounts of $100,724 and $288,093. . 5,263,837 8,760,106
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,658,746 3,320,897
Prepaid expenses and other current assets. . . . . . . . . . . . . . . . . . . . . . . . 3,446,870 4,461,531
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 651,965 3,483,912
------------- -------------
Total current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68,056,279 41,147,822
------------- -------------
Property and equipment
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,717,863 20,670,975
Buildings and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 260,327,007 247,968,009
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,191,721 20,802,147
Equipment, furniture and fixtures. . . . . . . . . . . . . . . . . . . . . . . . . . . . 144,126,256 135,535,533
Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,791 2,908,129
------------- -------------
446,379,638 427,884,793
Less: Accumulated depreciation and amortization. . . . . . . . . . . . . . . . . . . . . (128,109,637) (112,976,595)
------------- -------------
318,270,001 314,908,198
------------- -------------
Notes receivable-related parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,875,765 2,071,163
------------- -------------
Notes receivable-other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 2,796,715
------------- -------------
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,263,376 17,606,509
------------- -------------
Investment in unconsolidated affiliate . . . . . . . . . . . . . . . . . . . . . . . . . - 15,237,480
------------- -------------
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $403,465,421 $393,767,887
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 633,354 $ 2,752,799
Accounts and contracts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,990,363 9,542,590
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,056,237 -
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,945,046 17,139,810
------------- -------------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,625,000 29,435,199
Long-term debt, net of current portion . . . . . . . . . . . . . . . . . . . . . . . . . . 150,220,304 181,353,658
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,022,615 19,339,319
Other liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,239,952 13,876,639
------------- -------------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 224,107,871 244,004,815
------------- -------------
Commitments and contingencies (see note 8)
Stockholders' equity
Preferred stock, $.01 par value; 5,000,000 shares authorized; none issued. . . . . . . . - -
Common stock, $.01 par value; 30,000,000 shares authorized; issued 9,853,488
and 9,818,322. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98,535 98,183
Additional paid-in capital and other . . . . . . . . . . . . . . . . . . . . . . . . . . . 39,191,390 38,634,439
Treasury stock, at cost; 12,516 shares and 10,036 shares. . . . . . . . . . . . . . . . . (199,672) (151,276)
Deferred compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (148,069) (425,187)
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140,415,366 111,606,913
------------- -------------
Total stockholders' equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179,357,550 149,763,072
------------- -------------
Total liabilities and stockholders' equity. . . . . . . . . . . . . . . . . . . . . . $403,465,421 $393,767,887
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-14
<PAGE>
HARVEYS CASINO RESORTS
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended November 30,
------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Revenues
Casino. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $216,564,140 $186,368,776 $121,368,981
Lodging . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,175,206 28,745,686 25,499,036
Food and beverage . . . . . . . . . . . . . . . . . . . . . . . . 44,405,880 39,851,616 33,969,834
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,276,772 6,402,770 6,287,024
Management fees and joint venture . . . . . . . . . . . . . . . . 4,507,159 5,023,381 1,668,934
Less: Casino promotional allowances . . . . . . . . . . . . . . . (21,365,746) (18,643,497) (15,593,778)
------------ ------------ ------------
Total net revenues. . . . . . . . . . . . . . . . . . . . . . . 283,563,411 247,748,732 173,200,031
------------ ------------ ------------
Costs and expenses
Casino. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,500,468 86,732,228 57,519,779
Lodging . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,373,681 11,677,166 9,458,539
Food and beverage . . . . . . . . . . . . . . . . . . . . . . . . 29,886,093 24,796,962 20,280,268
Other operating . . . . . . . . . . . . . . . . . . . . . . . . . 2,811,332 2,812,983 2,837,956
Selling, general and administrative . . . . . . . . . . . . . . . 73,945,020 67,126,744 50,269,869
Depreciation and amortization . . . . . . . . . . . . . . . . . . 19,077,058 16,482,145 12,332,956
Business development costs. . . . . . . . . . . . . . . . . . . . 2,689,875 - -
Pre-opening expenses. . . . . . . . . . . . . . . . . . . . . . . - 4,099,490 2,146,667
------------ ------------ ------------
Total costs and expenses. . . . . . . . . . . . . . . . . . . . 242,283,527 213,727,718 154,846,034
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . 41,279,884 34,021,014 18,353,997
------------ ------------ ------------
Other income (expense)
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . 509,620 903,975 950,525
Interest expense. . . . . . . . . . . . . . . . . . . . . . . . . (19,401,110) (15,098,509) (8,910,714)
Gain on sale of interests in unconsolidated affiliate . . . . . . 27,422,228 - -
Life insurance benefits . . . . . . . . . . . . . . . . . . . . . - - 2,245,520
Other, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . (137,448) (221,048) 605,933
------------ ------------ ------------
Total other income (expense). . . . . . . . . . . . . . . . . . . 8,393,290 (14,415,582) (5,108,736)
------------ ------------ ------------
Income before income taxes and extraordinary item. . . . . . . . . . 49,673,174 19,605,432 13,245,261
Income tax provision . . . . . . . . . . . . . . . . . . . . . . . . (18,898,553) (7,791,497) (3,900,000)
------------ ------------ ------------
Income before extraordinary item . . . . . . . . . . . . . . . . . . 30,774,621 11,813,935 9,345,261
Loss on early retirement of debt, net of taxes . . . . . . . . . . . - (521,705) -
------------ ------------ ------------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 30,774,621 $ 11,292,230 $ 9,345,261
------------ ------------ ------------
------------ ------------ ------------
Net income per common share-basic
Income before extraordinary item. . . . . . . . . . . . . . . . . . $ 3.13 $ 1.22 $ 1.00
Extraordinary item. . . . . . . . . . . . . . . . . . . . . . . . . - (0.06) -
------------ ------------ ------------
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3.13 $ 1.16 $ 1.00
------------ ------------ ------------
------------ ------------ ------------
Net income per common share-diluted
Income before extraordinary item. . . . . . . . . . . . . . . . . . $ 3.13 $ 1.22 $ 0.99
Extraordinary item. . . . . . . . . . . . . . . . . . . . . . . . . - (0.06) -
------------ ------------ ------------
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3.13 $ 1.16 $ 0.99
------------ ------------ ------------
------------ ------------ ------------
Weighted average common shares used in calculating
income per common share . . . . . . . . . . . . . . . . . . . . . .
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,826,636 9,645,708 9,364,520
------------ ------------ ------------
------------ ------------ ------------
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,843,871 9,698,500 9,456,051
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-15
<PAGE>
HARVEYS CASINO RESORTS
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Years Ended November 30,
------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Common stock
Balance at beginning of year
Shares: 9,818,322 in 1997, 9,402,657 in 1996, and 9,348,823 in 1995 $ 98,183 $ 94,026 $ 93,488
Issuance of restricted stock, Shares: 1,500 in 1996 and 50,500 in 1995 - 15 505
Issuance of stock in acquisition of minority interest of subsidiary
Shares: 382,500 in 1996. . . . . . . . . . . . . . . . . . . . . . - 3,825 -
Stock options exercised, Shares: 35,166 in 1997, 31,665 in 1996
and 3,334 in 1995. . . . . . . . . . . . . . . . . . . . . . . . . 352 317 33
------------ ------------ ------------
Balance at end of year, Shares: 9,853,488 in 1997, 9,818,322 in 1996
and 9,402,657 in 1995 . . . . . . . . . . . . . . . . . . . . . . 98,535 98,183 94,026
------------ ------------ ------------
Additional Paid-in capital and other
Balance at beginning of year . . . . . . . . . . . . . . . . . . . . 38,634,439 31,419,882 30,511,349
Issuance of restricted stock . . . . . . . . . . . . . . . . . . . - 26,798 969,245
Issuance of stock in acquisition of minority interest of subsidiary,
net of issuance costs of $507,098 . . . . . . . . . . . . . . . . - 6,660,952 -
Stock options exercised. . . . . . . . . . . . . . . . . . . . . . . 531,920 447,568 43,558
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,031 79,239 (104,270)
------------ ------------ ------------
Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . 39,191,390 38,634,439 31,419,882
------------ ------------ ------------
Treasury Stock
Balance at beginning of year . . . . . . . . . . . . . . . . . . . . (151,276) (79,733) (28,765)
Forfeiture of restricted stock . . . . . . . . . . . . . . . . . . . (40,250) (49,000) (24,500)
Acquisition of treasury stock. . . . . . . . . . . . . . . . . . . . (8,146) (22,543) (26,468)
------------ ------------ ------------
Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . (199,672) (151,276) (79,733)
------------ ------------ ------------
Deferred Compensation
Balance at beginning of year . . . . . . . . . . . . . . . . . . . . (425,187) (1,196,828) (1,181,719)
Issuance of restricted stock . . . . . . . . . . . . . . . . . . . . - (26,814) (969,750)
Amortization of deferred compensation. . . . . . . . . . . . . . . . 236,868 749,455 930,141
Forfeiture of restricted stock . . . . . . . . . . . . . . . . . . . 40,250 49,000 24,500
------------ ------------ ------------
Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . (148,069) (425,187) (1,196,828)
------------ ------------ ------------
Retained Earnings
Balance at beginning of year . . . . . . . . . . . . . . . . . . . . 111,606,913 102,063,739 94,216,595
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,774,621 11,292,230 9,345,261
Cash dividends declared. . . . . . . . . . . . . . . . . . . . . . . (1,966,168) (1,749,056) (1,498,117)
------------ ------------ ------------
Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . 140,415,366 111,606,913 102,063,739
------------ ------------ ------------
Total Stockholders' Equity . . . . . . . . . . . . . . . . . . . . . $179,357,550 $149,763,072 $132,301,086
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-16
<PAGE>
HARVEYS CASINO RESORTS
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended November 30,
------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $30,774,621 $11,292,230 $ 9,345,261
Adjustments to reconcile net income to net cash provided
by operating activities
Depreciation and amortization . . . . . . . . . . . . . . . . . . . 19,077,058 16,482,145 12,332,956
Gain on sale of interests in unconsolidated affiliate . . . . . . . (27,422,228) -- --
Equity in (income) loss of unconsolidated affiliate . . . . . . . . (1,665,880) (1,720,710) 731,724
Amortization of deferred compensation . . . . . . . . . . . . . . . 236,868 749,455 930,141
Amortization of debt issuance costs . . . . . . . . . . . . . . . . 1,042,668 1,719,218 331,417
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . 6,515,243 2,439,759 352,320
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162,369 126,726 (588,078)
(Increase) decrease in assets
Accounts receivable, net. . . . . . . . . . . . . . . . . . . . . 2,984,090 (1,020,290) (5,111,091)
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . (369,346) (750,456) 116,986
Prepaid expenses and other current assets . . . . . . . . . . . . (235,227) 1,388,880 (289,594)
Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . 74,573 (315,760) (4,816,950)
Increase (decrease) in liabilities
Accounts and contracts payable. . . . . . . . . . . . . . . . . . 236,936 2,897,695 1,014,726
Accrued expenses. . . . . . . . . . . . . . . . . . . . . . . . . 4,433,595 5,285,369 4,808,098
Income taxes payable. . . . . . . . . . . . . . . . . . . . . . . 7,056,237 -- (259,510)
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . 1,734,973 1,193,685 695,705
----------- ----------- -----------
Net cash provided by operating activities. . . . . . . . . . . 44,636,550 39,767,946 19,594,111
----------- ----------- -----------
Cash flows from investing activities
Proceeds from disposition of assets . . . . . . . . . . . . . . . . 3,716,157 198,920 220,455
Capital expenditures. . . . . . . . . . . . . . . . . . . . . . . . (22,531,641) (51,395,297) (66,897,927)
Proceeds from sale of marketable securities . . . . . . . . . . . . 498,032 1,833,202 300,000
Purchase of marketable securities . . . . . . . . . . . . . . . . . (27,751) (132,592) (159,498)
Purchase of notes and accrued interest of consolidated subsidiary . -- (6,000,000) --
Investment in unconsolidated affiliate. . . . . . . . . . . . . . . -- -- (4,000,500)
Loan to unconsolidated affiliate. . . . . . . . . . . . . . . . . . -- (200,000) --
Advances to employees . . . . . . . . . . . . . . . . . . . . . . . (173,510) -- (184,949)
Proceeds from notes receivable. . . . . . . . . . . . . . . . . . . 168,910 193,608 289,482
Proceeds from sale of interests in unconsolidated affiliate . . . . 46,226,920 -- --
Decrease in construction payables . . . . . . . . . . . . . . . . . (3,448,828) -- --
----------- ----------- -----------
Net cash provided by (used in) investing activities. . . . . . 24,428,289 (55,502,159) (70,432,937)
----------- ----------- -----------
Cash flows from financing activities
Net borrowings under short-term credit agreements . . . . . . . . . (340,335) (335,019) 281,099
Proceeds from long-term debt. . . . . . . . . . . . . . . . . . . . 11,013,876 245,900,000 181,436,932
Principal payments on long-term debt. . . . . . . . . . . . . . . . (44,266,675) (210,835,153) (124,736,101)
Dividends paid. . . . . . . . . . . . . . . . . . . . . . . . . . . (1,966,168) (1,749,056) (1,498,117)
Debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . . (116,178) (7,043,342) (1,615,419)
Stock options exercised . . . . . . . . . . . . . . . . . . . . . . 532,272 447,885 43,591
Acquisition of treasury stock . . . . . . . . . . . . . . . . . . . (8,146) (22,543) (26,468)
----------- ----------- -----------
Net cash provided by (used in) financing activities. . . . . . (35,151,354) 26,362,772 53,885,517
----------- ----------- -----------
Increase in cash and cash equivalents. . . . . . . . . . . . . . . . . 33,913,485 10,628,559 3,046,691
Cash and cash equivalents at beginning of year . . . . . . . . . . . . 21,121,376 10,492,817 7,446,126
----------- ----------- -----------
Cash and cash equivalents at end of year . . . . . . . . . . . . . . . $55,034,861 $21,121,376 $10,492,817
----------- ----------- -----------
----------- ----------- -----------
Supplemental disclosure of cash flows information
Cash paid for interest, net of amounts capitalized. . . . . . . . . $18,426,216 $15,775,000 $ 6,602,000
Cash paid for income taxes. . . . . . . . . . . . . . . . . . . . . 3,429,087 6,068,000 4,600,000
Supplemental schedule of non-cash investing and financing activities
Property and equipment acquired on contracts and trade payables . . -- 22,303,908 7,520,305
Acquisition of minority interest in subsidiary
Fair value of net assets acquired . . . . . . . . . . . . . . . . -- 5,480,971 --
Minority interest . . . . . . . . . . . . . . . . . . . . . . . . -- 1,690,904 --
Common stock issued . . . . . . . . . . . . . . . . . . . . . . . -- (7,171,875) --
Subordinated notes issued in acquisition of notes
and accrued interest of subsidiary. . . . . . . . . . . . . . . . -- 8,000,000 --
</TABLE>
The accompanying notes are an integral part of these statements.
F-17
<PAGE>
HARVEYS CASINO RESORTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION AND CONSOLIDATION
Harveys Casino Resorts and subsidiaries (the "Company") is engaged
in the casino entertainment industry. In 1996, the Company formed a
wholly-owned subsidiary, Harveys Tahoe Management Company, Inc. ("HTMC"), to
own and operate the Company's resort on the south shore of Lake Tahoe,
Nevada. On May 22, 1997, HTMC was licensed by the Nevada gaming authorities
and, on June 1, 1997, the Company transferred the ownership of Harveys Resort
Hotel/Casino to HTMC. The Company, through its wholly-owned subsidiary,
Harveys C. C. Management Company, Inc. ("HCCMC"), owns and operates Harveys
Wagon Wheel Hotel/Casino in Central City, Colorado. Until April 30, 1996,
the Company, through HCCMC, owned 70% of the equity interest in Harveys Wagon
Wheel Casino Limited Liability Company ("HWW") which owned Harveys Wagon
Wheel Hotel/Casino. On April 30, 1996, the Company acquired all of the 30%
minority interest in HWW in exchange for common stock of the Company. On
June 1, 1997, the Company contributed its 30% interest in HWW to HCCMC.
Subsequently, HWW was liquidated and HCCMC became the sole owner and operator
of Harveys Wagon Wheel Hotel/Casino. Until October 24, 1997, the Company,
through its wholly-owned subsidiary, Harveys L.V. Management Company, Inc.
("HLVMC"), owned 40% of the equity interest in Hard Rock Hotel, Inc.
("HRHC"), which owns the Hard Rock Hotel and Casino in Las Vegas, Nevada.
HLVMC had a contract to manage the Las Vegas hotel and casino. On October
24, 1997 the Company sold its 40% equity interest and its interest in the
management contract to HRHC (see Note 10). Additionally, the Company's
wholly-owned subsidiary, Harveys Iowa Management Company, Inc. ("HIMC"), is
the owner and operator of Harveys Casino Hotel, a riverboat casino, hotel and
convention center complex in Council Bluffs, Iowa. The riverboat casino
portion of the complex opened for business on January 1, 1996 and the
land-based hotel opened for business on May 24, 1996.
The consolidated financial statements include the accounts of Harveys
Casino Resorts and its majority and wholly-owned subsidiaries. In
consolidating, all significant intercompany accounts and transactions have been
eliminated. Investments in an unconsolidated affiliate are stated at cost
adjusted by the Company's equity in undistributed earnings or losses of the
affiliate.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting
F-18
<PAGE>
principles requires management to make estimates and assumptions that affect
the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash on hand and in banks,
interest bearing deposits and highly liquid debt instruments purchased with
initial maturities of three months or less. Cash equivalents are carried at cost
which approximates market value.
INVENTORIES
Inventories consist primarily of operating supplies and food and
beverage stock and are stated at the lower of weighted-average cost or market.
PROPERTY, EQUIPMENT AND DEPRECIATION
Property and equipment are stated at cost. Interest incurred during
construction is capitalized and amortized over the life of the asset. Costs of
improvements are capitalized. Costs of normal repairs and maintenance are
charged to expense as incurred. Upon the sale or retirement of property and
equipment, the cost and related accumulated depreciation are removed from the
respective accounts, and the resulting gain or loss, if any, is included in
income. Depreciation of property and equipment is provided on the straight-line
method over the estimated useful lives of the respective assets. Leasehold
improvements are amortized over the shorter of the asset life or lease term.
Depreciable lives are as follows:
Buildings and improvement................................. 15 to 45 years
Riverboat................................................. 20 years
Leasehold improvement..................................... 5 to 30 years
Equipment, furniture and fixture.......................... 5 to 10 years
UNAMORTIZED LOAN COSTS AND DEBT ISSUANCE COSTS
Loan costs incurred in connection with a reducing revolving credit
agreement are amortized to interest expense over the term of the loan on a
straight-line method. Debt issuance costs associated with the Company's senior
subordinated notes are amortized to interest expense over the term of the notes
on the interest method.
F-19
<PAGE>
FUTURE DEVELOPMENT COSTS
The Company capitalizes costs associated with new gaming projects until (a)
the project is no longer considered viable and the costs are expensed, or (b)
the likelihood of the project is relatively certain and the costs are
reclassified to pre-opening and expensed when operations commence. Capitalized
future development costs, relating to potential new gaming projects, of
approximately $907,000 and $1,427,000 as of November 30, 1997 and 1996,
respectively, are included on the accompanying balance sheet as other assets.
During the fourth quarter of 1997, the Company expensed approximately $2.7
million of future business development costs.
PRE-OPENING EXPENSES
Pre-opening expenses are associated with the acquisition, development and
opening of the Company's new casino resorts. These amounts are expensed when
the casino commences operations and include items that were capitalized as
incurred prior to opening and items that are directly related to the opening of
the property and are nonrecurring in nature. In 1996, approximately $4.1 million
was expensed in conjunction with the Company's opening of the Harveys Casino
Hotel project in Council Bluffs, Iowa.
Approximately $2.1 million was expensed in fiscal 1995 in conjunction with
the Company's opening of Harveys Wagon Wheel Hotel/Casino in Central City,
Colorado. Additionally, the Company's equity in the loss of the Hard Rock
Hotel and Casino for fiscal year 1995 included the Company's share of
approximately $4.5 million in pre-opening expenses.
CASINO REVENUES AND PROMOTIONAL ALLOWANCES
In accordance with industry practice, the Company recognizes as casino
revenues the net win from gaming activities, which is the difference between
gaming wins and losses. Promotional allowances consist principally of the retail
value of complimentary rooms, food, beverage, and other promotional allowances
provided to customers without charge. The estimated costs of providing such
complimentary services have been classified as casino operating expenses through
interdepartmental allocations as follows:
<TABLE>
<CAPTION>
Years Ended November 30,
------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Hotel.................................... $ 2,743,124 $ 2,454,401 $ 1,707,465
Food and beverage........................ 10,871,776 9,805,175 8,566,136
Other.................................... 63,505 51,782 53,527
----------- ----------- -----------
$13,678,405 $12,311,358 $10,327,128
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
INCOME TAXES
The Company and its subsidiaries file a consolidated federal income tax
return. Income taxes are recorded in accordance with the liability method
specified by Statement of Financial Accounting Standards ("SFAS") No. 109 -
ACCOUNTING FOR INCOME TAXES. The following basic principles are
F-20
<PAGE>
applied in accounting for income taxes: (a) a current liability or asset is
recognized for the estimated taxes payable or refundable for the current
year; (b) a deferred tax liability or asset is recognized for the estimated
future tax effects attributable to temporary differences and carryforwards;
(c) the measurement of current and deferred tax liabilities and assets is
based on the provisions of the enacted tax law, the effects of future changes
in tax laws or rates are not anticipated; and (d) the measurement of deferred
taxes is reduced, if necessary, by the amount of any tax benefits that, based
upon available evidence, are not expected to be realized.
FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107-DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS requires
the determination of fair value for certain of the Company's assets, liabilities
and contingent liabilities. When practicable, the following methods and
assumptions were used to estimate the fair value of those financial instruments
included in the following categories:
Notes receivable: The fair value of notes receivable is based upon
projected cash flows discounted at estimated current market rates of interest.
It is not practicable to estimate the fair value of notes receivable-related
parties due to the related party nature of those instruments.
Long-term debt: The fair value of long-term debt is estimated based on the
current borrowing rates offered to the Company for debt of the same remaining
maturities.
It is estimated that the carrying amounts of the Company's financial
instruments approximate fair value at November 30, 1997.
CONCENTRATIONS OF CREDIT RISK
The Company maintains its cash in bank deposit accounts which, at times,
may exceed federally insured limits. The Company has not experienced any losses
in such accounts. The Company believes it is not exposed to any significant
credit risk on cash and cash equivalents.
F-21
<PAGE>
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Company is a party to financial instruments with off-balance-sheet risk
in the normal course of business. These financial instruments consist of standby
letters of credit.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the standby letters of credit is represented by the contractual
amount of those instruments. The Company uses the same credit policies in making
commitments and conditional obligations as it does for on-balance-sheet
instruments. The Company does not have collateral or other security to support
financial instruments with off-balance-sheet credit risk.
LONG-LIVED ASSETS
In accordance with the provisions of SFAS No. 121- ACCOUNTING FOR THE
IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, the
Company reviews the carrying amount of long-lived assets and certain
identifiable intangibles whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Such reviews have
not had a material effect on the Company's results of operations or financial
position.
RECENTLY ISSUED ACCOUNTING STANDARDS
The FASB has issued SFAS No. 131 - DISCLOSURES ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION, which establishes new standards for
determining a reportable segment and for disclosing information regarding
each such segment. A reportable segment is an operating segment: (a) that
engages in business activities from which it earns revenues and incurs
expenses, (b) whose operating results are regularly reviewed by the
enterprise's chief operating decision maker in deciding how to allocate
resources and in assessing performance, (c) for which discrete financial
information is available, and (d) that exceeds specific quantitative
thresholds. SFAS No. 131 will be effective for the Company beginning
December 1, 1998. On adoption, and to the extent practicable, segment
information for earlier comparative years will be restated. The Company
F-22
<PAGE>
anticipates, with the adoption of SFAS No. 131, it will expand its segment
disclosures relative to its Nevada, Colorado and Iowa operations. The
Company believes the segment information required to be disclosed under SFAS
No. 131 will have no effect on the Company's consolidated results of
operations, financial position or cash flows, but will be more comprehensive
than previously provided, including expanded disclosure of income statement
and balance sheet items for each of its reportable operating segments.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior years' consolidated
financial statements to conform to the current year presentation. These
reclassifications have no effect on net income.
2. NET INCOME PER COMMON SHARE
As of December 1, 1997, the Company adopted the provisions of SFAS No.
128, Earnings Per Share. The Company has restated the prior periods net
income per common share to conform with the provisions of SFAS No. 128. Basic
net income per common share is calculated by dividing net income by the
weighted average number of common shares outstanding during the period.
Diluted net income per common share is calculated by dividing net income by
the weighted average number of common and common equivalent shares
outstanding during the period. Common equivalent shares include restricted
stock and stock options outstanding and exercisable for the purpose of
calculating diluted net income per common share. The Company has no other
potentially dilutive securities.
A reconciliation of net income and shares for basic and diluted net
income per common share follows:
<TABLE>
<CAPTION>
Year Ended November 30, 1997
-------------------------------------
Per Share
Income Shares Amount
----------- --------- ---------
<S> <C> <C> <C>
Basic net income per common share. . . . $30,774,621 9,826,636 $ 3.13
---------
---------
Effect of dilutive securities. . . . . . 17,235
----------- ---------
Diluted net income per common share. . . $30,774,621 9,843,871 $ 3.13
----------- --------- ---------
----------- --------- ---------
<CAPTION>
Year Ended November 30, 1996
-------------------------------------
Per Share
Income Shares Amount
----------- --------- ---------
<S> <C> <C> <C>
Basic net income before extraordinary
item. . . . . . . . . . . . . . . . . . $11,813,935 9,645,708 $ 1.22
Effect of dilutive securities. . . . . . 52,792 ---------
----------- --------- ---------
Diluted net income before extraordinary
item. . . . . . . . . . . . . . . . . . $11,813,935 9,698,500 $ 1.22
----------- --------- ---------
----------- --------- ---------
Extraordinary item, basic. . . . . . . . $ (521,705) 9,645,708 $(0.06)
---------
---------
Effect of dilutive securities. . . . . . 52,792
----------- ---------
Extraordinary item, diluted. . . . . . . $ (521,705) 9,698,500 $(0.06)
----------- --------- ---------
----------- --------- ---------
Basic net income per common share. . . . $11,292,230 9,645,708 $ 1.16
---------
---------
Effect of dilutive securities. . . . . . 52,792
----------- ---------
Diluted net income per common share. . . $11,292,230 9,698,500 $ 1.16
----------- --------- ---------
----------- --------- ---------
<CAPTION>
Year Ended November 30, 1995
-------------------------------------
Per Share
Income Shares Amount
----------- --------- ---------
<S> <C> <C> <C>
Basic net income per common share. . . . $ 9,345,261 9,364,520 $ 1.00
---------
---------
Effect of dilutive securities. . . . . . 91,531
----------- ---------
Diluted net income per common share. . . $ 9,345,261 9,456,051 $ 0.99
----------- --------- ---------
----------- --------- ---------
</TABLE>
3. ACCRUED EXPENSES
Accrued expenses consist of the following as of:
<TABLE>
<CAPTION>
November 30,
------------
1997 1996
---- ----
<S> <C> <C>
Provision for progressive jackpot payouts............ $ 1,458,571 $ 1,355,382
Accrued interest..................................... 174,706 242,480
Accrued salaries, wages and other employee benefits.. 8,301,094 7,131,230
Accrued taxes other than income taxes................ 4,462,947 2,066,110
Self-funded workers' compensation and medical
claims accrual..................................... 2,368,755 1,640,617
Outstanding gaming chips and tokens.................. 870,159 1,613,158
Race and sports book futures and unclaimed winners... 808,903 754,279
Other accrued liabilities............................ 2,499,911 2,336,554
----------- -----------
$20,945,046 $17,139,810
----------- -----------
----------- -----------
</TABLE>
4. LONG-TERM DEBT
Long-term debt consists of the following as of:
<TABLE>
<CAPTION>
November 30,
------------
1997 1996
---- ----
<S> <C> <C>
10 5/8% senior subordinated notes, due 2006........ $150,000,000 $150,000,000
Banks and others -
Note payable to banks.......................... - 30,500,000
Notes payable to financing company............. 623,387 3,367,226
Other.......................................... 230,271 239,231
------------ ------------
150,853,658 184,106,457
Less current portion........................... 633,354 2,752,799
------------ ------------
$150,220,304 $181,353,658
------------ ------------
------------ ------------
</TABLE>
F-23
<PAGE>
Aggregate annual maturities of long-term debt, based on amounts borrowed as
of November 30, 1997, are as follows:
<TABLE>
<CAPTION>
YEARS ENDING NOVEMBER 30,
-------------------------
<S> <C>
1998..................................................... $ 633,354
1999..................................................... 11,089
2000..................................................... 12,336
2001..................................................... 13,724
2002..................................................... 15,268
2003 and thereafter...................................... 150,167,887
------------
$150,853,658
------------
------------
</TABLE>
10 5/8 % SENIOR SUBORDINATED NOTES, DUE 2006
On May 22, 1996 the Company issued and sold, pursuant to an underwritten
public offering, $150 million in aggregate principal amount of 10 5/8% senior
subordinated notes due 2006 (the "Senior Subordinated Notes").
The Senior Subordinated Notes are governed by an indenture (the
"Indenture") and are general unsecured obligations of the Company, subordinated
in right of payment to all existing and future Senior Debt of the Company (as
defined in the Indenture). The Senior Subordinated Notes are guaranteed by each
of the Restricted Subsidiaries of the Company (as defined in the Indenture).
Each guarantee is a general unsecured obligation of the guaranteeing Restricted
Subsidiary, subordinated in right of payment to all existing and future Senior
Debt of each guaranteeing Restricted Subsidiary. The guaranteeing Restricted
Subsidiaries are HCCMC, HIMC, HLVMC and HTMC. Separate financial statements of
the guaranteeing Restricted Subsidiaries have not been included because
management has determined that they are not material to investors.
Interest on the Senior Subordinated Notes is payable semi-annually on June
1 and December 1 of each year. The Senior Subordinated Notes will mature on
June 1, 2006. The Senior Subordinated Notes are redeemable at the option of the
Company, in whole or in part, at any time on or after June 1, 2001 at prices
ranging from 105.313% of the principal amount plus accrued and unpaid interest
to 100% of the principal amount plus accrued and unpaid interest beginning June
1, 2004 and thereafter. Upon a Change of Control (as defined in the Indenture)
each holder of the Senior Subordinated Notes will have the right to require the
Company to repurchase such holder's Senior Subordinated Notes at 101% of the
principal amount plus accrued and unpaid interest to the repurchase date.
The Indenture contains certain covenants that impose limitations on, among
other things: (a) the incurrence of additional indebtedness by the Company or
any Restricted Subsidiary, (b) the payment of dividends in excess of regular
quarterly dividends which are not to exceed $500,000 per
F-24
<PAGE>
quarter, (c) the repurchase of capital stock and the making of certain other
Restricted Payments and Restricted Investments (each as defined in the
Indenture) by the Company or any Restricted Subsidiary, (d) mergers,
consolidations and sales of assets by the Company or any Restricted
Subsidiary, (e) the creation or incurrence of liens on the assets of the
Company or any Restricted Subsidiary, and (f) transactions by the Company or
any of its subsidiaries with Affiliates (as defined in the Indenture).
These limitations are subject to a number of qualifications and exceptions as
described in the Indenture. The Company was in compliance with these
covenants at November 30, 1997.
NOTE PAYABLE TO BANKS
The Company is party to a reducing revolving credit agreement with a
consortium of banks (the "Credit Facility"). As of November 30, 1997, under the
Credit Facility, the Company could borrow up to a maximum available principal
balance of $115 million. The maximum available under the Credit Facility is
reduced by the advanced but unpaid principal balance and by any letter of credit
exposure. The advanced but unpaid principal balance at November 30, 1997 and
1996 was zero and $30.5 million, respectively. Outstanding letters of credit
amounted to approximately $1.2 million at November 30, 1997. The note payable
under the Credit Facility matures in February 2002. Until then, the annual
year-end maximum principal balances are as follows:
<TABLE>
<CAPTION>
November 30,
------------
<S> <C>
1998. . . . . . . . . . . . . . . . . . . . . . . $103,500,000
1999. . . . . . . . . . . . . . . . . . . . . . . 92,000,000
2000. . . . . . . . . . . . . . . . . . . . . . . 74,750,000
2001. . . . . . . . . . . . . . . . . . . . . . . 57,500,000
</TABLE>
The Company pays quarterly fees at an annual rate varying from three-eights
of one percent (0.375%) to one-half of one percent (0.5%) on the unborrowed
maximum principal balance depending on the Company's ratio of funded debt to
earnings before interest, taxes, depreciation and amortization. The rate in
effect at November 30, 1997 was 0.425%.
Interest is due and payable monthly and is provided at the higher of the
prime rate or the Federal Funds Rate plus one-half of one percent (0.5%), plus
an applicable margin. However, in accordance with the terms of the Credit
Facility, the Company has the option to cause a portion, or all, of the
outstanding principal balance to accrue interest at a rate equal to the London
Inter-Bank Offering Rate ("LIBOR") plus an applicable margin. In each case, the
applicable margin is determined by reference to the Company's ratio of funded
debt to earnings before interest, taxes, depreciation and amortization. The
applicable margins at November 30, 1997 were 2.0%, with respect to LIBOR-based
borrowings, and 0.5%, with respect to prime rate borrowings.
The Credit Facility is secured by all of the real and personal property of:
(a) HTMC, (b) HIMC, (c) HCCMC, and (d) HCR Services Company, Inc. ("HCRSC"), a
Nevada corporation, which is wholly owned by the Company, as well as all of the
contracts the Company has entered into in connection with its ownership and
operation of: (i) HTMC, (ii) HIMC, (iii) HCCMC, and (iv) HCRSC. Additional
security is provided by a pledge of the stock of the following subsidiaries of
F-25
<PAGE>
the Company: HLVMC, HCCMC, HIMC, HTMC, HCRSC, and Reno Projects, Inc., a
Nevada corporation, which is wholly owned by the Company.
The Credit Facility contains certain financial and other covenants. The
financial covenants prevent the Company from making any investments in or
advances to affiliates without the prior written consent of the lenders under
the Credit Facility. The covenants allow the declaration and payment of
dividends without the prior written consent of the lenders if certain fixed
charge coverage ratios are maintained. The covenants require the Company to
maintain certain set standards with respect to: (a) minimum tangible net worth,
(b) fixed charge coverage ratios, and (c) minimum annual capital expenditures.
The financial covenants also limit the Company's ability to incur additional
indebtedness. The Company was in compliance with these covenants at November
30, 1997.
NOTES PAYABLE TO FINANCING COMPANY
HWW entered into an equipment financing agreement with a financing company
to finance the acquisition of up to $7.5 million of gaming and associated
equipment. The obligations to repay the outstanding principal balances of the
secured notes under the equipment financing agreement have been assumed by HCCMC
and, as of November 30, 1997 were approximately $191,000 and $432,000. The
notes are secured by the equipment acquired and are payable in monthly payments
of approximately $194,000 and $56,000 including interest that accrues at a rate
of 12.15% per annum. The notes will mature in December 1997 and July 1998,
respectively.
5. OPERATING LEASE COMMITMENTS
The Company's future minimum lease commitments under noncancellable
operating leases (principally for land) as of November 30, 1997 are as
follows:
<TABLE>
<CAPTION>
YEARS ENDING NOVEMBER 30,
-------------------------
<S> <C>
1998.................................................... $ 2,668,801
1999.................................................... 2,603,438
2000.................................................... 2,515,615
2001.................................................... 2,358,919
2002.................................................... 2,296,670
2003 and thereafter..................................... 94,717,473
</TABLE>
Certain leases included above have provisions which require periodic
increases in the rental payments based upon the consumer price index as of
certain dates. In addition, annual lease payments under an obligation on a land
lease are based upon an escalating percentage of gross gaming revenues or all
net revenues, whichever calculation is greater, of Harveys Resort Hotel/Casino.
The percentages applicable to gross gaming revenues and all net revenues in
fiscal 1998 will be 3.25% and 2.15%, respectively. In fiscal 1999 the
percentages increase to 3.35% and 2.25%, respectively, and in fiscal 2000 and
years thereafter the percentages are 3.5% and 2.35%, respectively. The actual
rent paid is the greater of the rent calculated as a percentage or a minimum
F-26
<PAGE>
rent, as adjusted for the consumer price index. In 1997, the expiration of this
land lease was extended to the year 2045. For 1997, 1996 and 1995, the Company
recognized rental expense in connection with the land lease of approximately
$3.0 million, $3.1 million and $3.1 million, respectively, which includes
approximately $789,000, $655,000 and $740,000, respectively, above the minimum
rental amounts. Total rental expense recognized for 1997, 1996 and 1995 amounted
to approximately $3.7 million, $3.7 million and $3.6 million, respectively.
The Company is also a lessor on several noncancellable lease agreements. Of
the rental income recognized for the years ended November 30, 1997, 1996 and
1995, approximately $118,000, $77,000 and $85,000, respectively, represents
rents received as a percentage of gross receipts. The remaining amounts are
attributable to specified minimum rent. Future minimum payments due to the
Company under these noncancellable lease agreements are as follows:
<TABLE>
<CAPTION>
YEARS ENDING NOVEMBER 30,
-------------------------
<S> <C>
1998.................................................. $ 1,315,441
1999.................................................. 437,656
2000.................................................. 395,493
2001.................................................. 310,143
2002.................................................. 78,525
</TABLE>
6. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
Years Ended November 30,
------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Current................................... $12,383,310 $5,484,923 $3,547,680
Deferred.................................. 6,515,243 2,306,574 352,320
----------- ---------- ----------
Income tax provision before extraordinary
item................................... 18,898,553 7,791,497 3,900,000
Income tax benefit of extraordinary item.. - (334,497) -
----------- ---------- ----------
Income tax provision...................... $18,898,553 $7,457,000 $3,900,000
----------- ---------- ----------
----------- ---------- ----------
</TABLE>
The difference between the Company's provision for income taxes as
presented in the accompanying consolidated statements of income, and the
provision for income taxes computed at the statutory rate is comprised of the
items shown in the following table as a percent of pre-tax earnings.
<TABLE>
<CAPTION>
Years Ended November 30,
------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Federal income tax at the statutory rate...... 35.0% 35.0% 35.0%
Non-deductible expenses....................... 1.2 0.8 0.7
Tax credits................................... (0.5) (1.1) (1.2)
Nontaxable life insurance benefits............ - - (5.3)
State income tax, net of federal benefit...... 1.7 1.9 -
Other, net.................................... 0.6 3.1 0.2
----- ----- -----
38.0% 39.7% 29.4%
----- ----- -----
----- ----- -----
</TABLE>
F-27
<PAGE>
The components of the deferred income tax assets and liabilities as
presented in the consolidated balance sheets, are as follows at November 30:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
DEFERRED TAX ASSET
Accrued compensation............................. $ 5,025,651 $ 4,513,769
Other accrued expenses........................... 702,304 2,401,454
------------ -------------
5,727,955 6,915,223
DEFERRED TAX LIABILITY
Property and equipment........................... (28,098,605) (22,770,630)
------------ -------------
Net deferred tax liability....................... $(22,370,650) $(15,855,407)
------------ -------------
------------ -------------
Current deferred asset........................... $ 651,965 $ 3,483,912
Noncurrent deferred liability.................... (23,022,615) (19,339,319)
------------ -------------
Net deferred tax liability....................... $(22,370,650) $(15,855,407)
------------ -------------
------------ -------------
</TABLE>
In 1997 the Internal Revenue Service completed examinations of the
Company's federal income tax returns for fiscal years 1995 and 1994. No
significant adjustments were made to the Company's income tax liability or
income tax provision as a result of the examinations.
7. STOCK-BASED COMPENSATION
OMNIBUS INCENTIVE PLANS
In November 1993, the Company adopted the 1993 Omnibus Incentive
Plan (the "1993 Plan") and in March 1996, the Company adopted the 1996 Omnibus
Incentive Plan (the "1996 Plan" and together with the 1993 Plan, collectively
referred to as the "Plans"). Under the Plans, shares of the Company's common
stock may be granted to employees or prospective employees of the Company and/or
its subsidiaries who are responsible for the management, growth and protection
of the business of the Company. Issuance of shares of common stock under the
Plans may consist of stock options, stock appreciation rights, restricted stock
grants, performance units and dividend equivalents. The Plans are administered
by a committee of the Board of Directors (the "Committee") whose members
determine who will be awarded stock options, stock appreciation rights,
restricted stock grants, performance units and dividend equivalents.
Under the 1993 Plan, 915,219 shares of the Company's common stock
were reserved for potential awards and under the 1996 Plan, an additional
500,000 shares of the Company's common stock were reserved.
F-28
<PAGE>
Stock options may be granted alone or in addition to other awards
or in tandem with stock appreciation rights. The exercise price of stock options
granted under the Plans is established by the Committee, but the exercise price
may not be less than the market price of the Company's common stock on the date
the option is granted. The term of each stock option will be fixed by the
Committee. However, the term of any stock option may not exceed ten years.
Stock options granted under the Plans generally vest ratably over a three year
period from the date of grant.
In May 1997, the Board of Directors of the Company authorized the
repricing of certain stock options. The repricing resulted in the cancellation
of stock options to purchase 498,880 shares and the issuance of stock options to
purchase 498,880 shares. The stock options were issued with an exercise price
equal to the market value of the common stock on the date of repricing. The
repriced options will vest 33 1/3% on each of the next three anniversaries of
the grant.
Stock appreciation rights entitle the holder to receive in cash an amount
equal to the excess of the fair market value of common stock on the date of
exercise over the fair market value of common stock on the date of grant. A
stock appreciation right may be exercised at any time following the date which
is six months after the date of grant, but not prior to the exercisability of
any stock option with which it is granted in tandem. As of November 30, 1997,
no stock appreciation rights had been granted.
Restricted stock grants are awards of shares of common stock granted
subject to such restrictions, terms and conditions as the Committee deems
appropriate. The Committee determines the number of restricted shares to be
granted and may impose different terms and conditions on any particular
restricted share grant made to any employee. The Company has granted a total of
228,500 shares of restricted common stock. Of the restricted shares granted,
in each case, 25% of the shares vested immediately as of the date of the grant
and vest an additional 25% on each of the next three anniversaries of the grant.
As of November 30,1997, grantees of the restricted shares had forfeited 8,375
shares pursuant to terms of the Plans. The Company has recognized approximately
$237,000, $750,000, and $930,000 as compensation expense in 1997, 1996, and
1995, respectively.
At November 30, 1997, 177,469 shares of the Company's common stock were
available for grant under the Plans.
1993 NON-EMPLOYEE DIRECTORS' STOCK OPTION PROGRAM
In November 1993, the Company adopted the 1993 Non-Employee Directors'
Stock Option Program (the "Program") whereby each currently serving non-employee
director was granted an option to purchase 4,500 shares of the Company's common
stock, and will be granted an option to purchase 1,500 shares of common stock
immediately following each annual meeting. Each new non-employee director
receives a grant of an option to purchase 4,500 shares of the Company's common
F-29
<PAGE>
stock immediately after the first annual meeting of shareholders after any such
director is elected or appointed to the Board of Directors and will receive an
option to purchase 1,500 shares of common stock immediately following each
subsequent annual meeting. The options granted will vest 33 1/3% on the date of
grant and 33 1/3% on each of the next two anniversaries of grant. The exercise
price will be the fair market value of the common stock on the date of grant. A
total of 60,000 shares have been reserved for issuance under this plan.
STOCK OPTIONS PURSUANT TO EMPLOYMENT CONTRACTS
Two of the Company's directors, who are also employees, have been granted
options, outside of the Plans or the Program, to purchase 15,000 and 12,500
shares of the Company's common stock, respectively. The stock options were
granted in November 1993 pursuant to employment contracts and in anticipation of
the Company's initial public offering in February 1994. The stock options have
an exercise price of $14.00 per share. None of the stock options have been
exercised. All of the stock options are currently exercisable and expire ten
years from the date of grant.
F-30
<PAGE>
The following table summarizes information relative to stock options
granted, exercised, canceled, outstanding and exercisable under the various
plans discussed above:
<TABLE>
<CAPTION>
Weighted-Average
Options Exercise Price
------- --------------
<S> <C> <C>
Options outstanding at December 1, 1994............ 413,000 $14.00
Options granted.................................... 125,200 19.21
Options canceled................................... 15,434 13.74
Options exercised.................................. 3,334 13.07
--------- ------
Options outstanding at November 30, 1995........... 519,432 $15.32
Options granted.................................... 413,580 18.90
Options canceled................................... 21,834 13.81
Options exercised.................................. 31,665 14.14
--------- ------
Options outstanding at November 30, 1996........... 879,513 $16.96
Options granted.................................... 684,193 16.48
Options canceled................................... 513,080 19.04
Options exercised.................................. 35,166 13.77
--------- ------
Options outstanding at November 30, 1997........... 1,015,460 $15.69
---------
---------
Options exercisable at November 30, 1995........... 274,166 $14.00
Options exercisable at November 30, 1996........... 476,042 15.13
Options exercisable at November 30, 1997........... 377,583 14.35
</TABLE>
The following table provides additional information relative to stock
options outstanding at November 30, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------- -------------------
Weighted-Average
Remaining
Range of Number Contractual Weighted-Average Number Weighted-Average
Exercise Prices Outstanding Life in Years Exercisable Price Exercisable Exercisable Price
- --------------- ----------- ------------- ----------------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
$12.44 - $16.25 339,367 6.17 $14.04 328,533 $14.00
$16.44 638,693 9.50 $16.44 38,150 $16.44
$17.16 - $19.25 37,400 9.17 $17.96 10,900 $17.57
--------- ---- ------ ------- ------
1,015,460 8.16 $15.69 377,583 $14.35
--------- -------
--------- -------
</TABLE>
The FASB has issued SFAS No. 123 - ACCOUNTING FOR STOCK-BASED COMPENSATION.
SFAS No. 123 provides, among other things, that companies may elect to either
record expense based on the fair value of stock-based compensation upon issuance
or continue to apply the methods prescribed by Accounting Principles Board
Opinion No. 25 ("APB No. 25") whereby no compensation cost is recognized upon
grant if certain requirements are met. The Company has elected to continue to
account for stock-based compensation in accordance with APB No. 25.
F-31
<PAGE>
Had the Company recorded stock-based compensation cost consistent with the
provisions of SFAS No. 123, the Company's net income and earnings per share
would have been reduced to the pro forma amounts included in the table below.
The table also discloses the weighted-average assumptions used in estimating the
fair value of stock options using the Black-Scholes option pricing model and the
weighted-average fair value of the stock options granted. Because the
accounting method prescribed by SFAS No. 123 does not apply to stock options
granted by the Company prior to December 1, 1995, the compensation cost
reflected in the pro forma amounts included in the table below may not be
representative of that to be expected in future years.
<TABLE>
<CAPTION>
Years Ended November 30,
------------------------
Dollars in thousands, except per share amounts
Income before extraordinary item 1997 1996
---- ----
<S> <C> <C>
As reported . . . . . . . . . . . . . $30,775 $11,814
Pro forma . . . . . . . . . . . . . . 30,406 11,465
Net income
As reported . . . . . . . . . . . . . $30,775 $11,292
Pro forma . . . . . . . . . . . . . . 30,406 10,943
Income per share before extraordinary item
As reported . . . . . . . . . . . . . $3.13 $1.22
Pro forma . . . . . . . . . . . . . . $3.09 $1.18
Net income per share
As reported . . . . . . . . . . . . . $3.13 $1.16
Pro forma . . . . . . . . . . . . . . $3.09 $1.13
Weighted-average assumptions
Expected stock price volatility. . . . 31.70% 32.64%
Risk-free interest rate . . . . . . . 5.20% 5.81%
Expected option lives (years) . . . . 2.84 3.06
Expected dividend yield . . . . . . . 1.00% 1.00%
Estimated fair value of options
granted . . . . . . . . . . . . . $4.05 $3.97
</TABLE>
8. EMPLOYEE BENEFIT PLANS
401(K) PLAN
The Company maintains a defined contribution retirement savings plan for
all full-time employees who have at least one year of continuous employment and
1,000 hours of service. The Company contributes amounts equal to 50% of each
eligible employee's voluntary contributions. For purposes of determining the
Company's required contribution to the plan, the employee's voluntary
F-32
<PAGE>
contributions cannot exceed 6% of the employee's qualified compensation. The
Company's contribution to the plan for the years ended November 30, 1997, 1996
and 1995 amounted to approximately $1.6 million, $1.0 million and $1.0 million,
respectively.
LONG-TERM INCENTIVE PLAN
In 1994, the Company adopted a long-term incentive plan for key
employees. Under the plan, incentives are accrued based upon annual operating
results; however, ultimate payment of these incentives is contingent upon the
Company attaining certain financial objectives over consecutive and
concurrent three-year periods. As of November 30, 1997 and 1996, the amount
due to plan participants was approximately $1.0 million and $782,000,
respectively.
DEFERRED COMPENSATION PLAN
In 1990, the Company established a non-qualified deferred compensation plan
for designated executives and outside directors. Individuals electing to
participate in this plan may voluntarily defer receipt of up to twenty-five
percent (25%) of the participant's annual compensation. The deferred
compensation is credited to each participant's account, and interest on such
amounts is added to the participant's account each quarter. The interest rate
paid on amounts deferred prior to calendar year 1995 is the prime rate at the
beginning of each quarter plus five percent (13.25% at November 30, 1997). The
interest rate paid on amounts deferred subsequent to December 31, 1994 is the
prime rate plus two and one-half percent (10.75% at November 30, 1997). The
Company is under no obligation to fund amounts under this plan, and such amounts
are unsecured and treated as general obligations of the Company. As of November
30, 1997 and 1996, the amount due participants in this plan was approximately
$2.3 million and $2.0 million, respectively.
POSTRETIREMENT BENEFITS
The Company provides postretirement medical benefits for certain key
executives and members of the Company's Board of Directors. These plans have
been accounted for in accordance with the provisions of SFAS No. 106 -
EMPLOYERS' ACCOUNTING FOR POSTRETIREMENT BENEFITS OTHER THAN PENSIONS. This
statement requires that the cost of these postretirement medical benefits be
recognized under the accrual method of accounting. As permitted by SFAS No.
106, the Company has elected to amortize over a period of 20 years the
accumulated postretirement benefit obligation (transition obligation) related
to prior service costs. The components of the periodic expense for
postretirement benefits were as follows:
<TABLE>
<CAPTION>
Years ended November 30,
-------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Service cost of benefits earned............ $ 75,219 $ 94,414 $ 70,372
Interest cost on liability................. 56,907 55,338 47,470
Amortization of transition obligation...... 12,197 12,197 12,197
Prior service cost......................... 6,683 6,683 5,012
Loss....................................... - 3,136 1,766
-------- -------- --------
Net periodic postretirement benefit cost... $151,006 $171,768 $136,817
-------- -------- --------
-------- -------- --------
</TABLE>
F-33
<PAGE>
The Company's current policy is to fund the plan as covered benefits are
paid. The actuarial and recorded liabilities for postretirement benefits, none
of which have been funded, were as follows:
<TABLE>
<CAPTION>
November 30,
-------------
1997 1996
---- ----
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees........................................... $ 71,761 $ 35,433
Fully eligible active plan participants............ 104,182 97,139
Other active plan participants..................... 739,129 775,681
-------- --------
915,072 908,253
Plan assets at fair value.............................. - -
-------- --------
Accumulated postretirement benefit obligation in
excess of plan assets............................... 915,072 908,253
Prior service cost not recognized in net periodic
postretirement benefit cost......................... (95,864) (102,547)
Unrecognized net gain (loss)........................... 13,589 (110,393)
Unrecognized transition obligation..................... (182,943) (195,140)
-------- --------
Postretirement benefit liability recognized in the
consolidated balance sheets......................... $649,854 $500,173
-------- --------
-------- --------
</TABLE>
A 6% annual rate of increase in the per capita cost of covered health
care benefits was assumed for 1997 and 1996. Increasing the assumed health care
cost trend rates by one percentage point in each year would increase the
accumulated postretirement benefit obligation as of November 30, 1997 and 1996
by approximately $142,000 and $139,000, respectively, and increase the service
and interest cost components of net periodic postretirement benefit cost by
approximately $23,000 and $26,000, respectively. The weighted-average discount
rate used to estimate the accumulated postretirement benefit obligation at
November 30, 1997 and 1996 was 7.25%.
SUPPLEMENTAL RETIREMENT PLANS
The Company provides noncontributory supplemental executive
retirement plans for certain key executives. Normal retirement under the
supplemental executive retirement plans is age 65, and participants receive
benefits based on years of service and compensation. The Company provides a
noncontributory plan for members of the Company's Board of Directors.
Participants in the Board of Directors plan receive benefits based on years of
service, as a non-employee director, upon retirement from the Board.
F-34
<PAGE>
The following table sets forth the plan's funded status and amounts
recognized in the Company's balance sheet as of November 30, 1997 and 1996:
ACTUARIAL PRESENT VALUE OF BENEFIT OBLIGATION
<TABLE>
<CAPTION>
November 30,
-------------
1997 1996
---- ----
<S> <C> <C>
Accumulated benefit obligation, including vested benefits
of $11,556,484 and $10,024,952, respectively........... $12,038,065 $10,662,987
----------- -----------
----------- -----------
Projected benefit obligation for service rendered to date $15,133,038 $13,660,863
Plan assets at fair value................................ - -
----------- -----------
Projected benefit obligation in excess of plan assets.... 15,133,038 13,660,863
Unrecognized net loss.................................... (2,639,993) (2,586,914)
Prior service cost not yet recognized in net periodic
pension cost........................................... (1,649,152) (1,862,149)
Unrecognized net obligation at adoption date............. (1,714,122) (1,885,821)
----------- -----------
Accrued pension cost recognized.......................... $ 9,129,771 $ 7,325,979
----------- -----------
----------- -----------
Additional liability and intangible asset:
Accumulated benefit obligation........................... $12,038,065 $10,662,987
Less: Plan assets at fair value.......................... - -
----------- -----------
Unfunded accumulated benefit obligation.................. 12,038,065 10,662,987
Less: Accrued pension cost............................... (9,129,771) (7,325,979)
----------- -----------
Additional liability..................................... $ 2,908,294 $ 3,337,008
----------- -----------
----------- -----------
Intangible asset -- limited to unrecognized net
obligation plus prior service cost..................... $ 2,908,294 $ 3,337,008
----------- -----------
----------- -----------
</TABLE>
Pension cost consists of the following components:
<TABLE>
<CAPTION>
Years Ended November 30,
------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Service cost -- benefits earned during the period..... $ 502,946 $ 425,334 $ 286,453
Interest cost on projected benefit obligation......... 987,746 907,147 835,627
Return on plan assets................................. - - -
Net amortization and deferral......................... 496,173 517,165 451,468
---------- ---------- ----------
Net periodic pension cost............................. $1,986,865 $1,849,646 $1,573,548
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
F-35
<PAGE>
The projected benefit obligation for November 30, 1997 and 1996 was
determined using an assumed discount rate of 7.25% and an assumed salary
increase rate of 5%. The Company has recorded additional liabilities of
$2,908,294 and $3,337,008, and intangible assets of $2,908,294 and $3,337,008
as of November 30, 1997 and 1996, respectively. As of November 30, 1997 and
1996, a liability of approximately $12.0 and $10.6 million, respectively, is
included in the consolidated balance sheets under the caption "Other
liabilities" for the above plan.
SELF INSURED PLANS
The Company is self insured for employee medical coverage and workers'
compensation for the benefit of its employees. Estimated accrued obligations for
claims under these self-insured plans as of November 30, 1997 and 1996 were
approximately $2.4 million and $1.6 million, respectively. The Company's maximum
liability under both plans is limited by stop-loss agreements with insurance
companies.
9. COMMITMENTS AND CONTINGENCIES
LETTERS OF CREDIT
In connection with regulatory requirements, the Company was required to
issue irrevocable standby letters of credit to guarantee the Company's
obligation to satisfy a progressive slot machine jackpot payout and guarantee
payment of workers' compensation benefits. Outstanding standby letters of credit
as of November 30, 1997 were as follows:
<TABLE>
<CAPTION>
AMOUNT EXPIRATION DATE
------ ---------------
<S> <C> <C>
Gaming Patron..................................... $ 430,476 March 31, 1998
St. Paul Fire and Marine (workers' compensation).. 812,500 April 15, 1998
----------
$1,242,976
----------
----------
</TABLE>
EMPLOYMENT CONTRACTS
The Company has entered into employment agreements, each of which expires
prior to November 30, 2002, with certain key executives. The employment
agreements provide for, among other things, annual base compensation,
participation in bonus plans, certain stock grants and stock option provisions.
F-36
<PAGE>
EMPLOYEE MEALS AND PAYROLL TAXES
On September 30, 1997, the United States Tax Court issued an adverse ruling
applicable to hotels and casinos which provide meals to employees. The Tax
Court ruled that nonqualifying employees are required to recognize income based
upon the fair value of the meals received in excess of the amount paid by the
employee. Accordingly, employers may be liable for withholding and payroll
taxes associated with the fair value of the meals provided to employees in
excess of the amount paid by the employee. At this time it is uncertain whether
or not the Company will be liable for withholding and payroll taxes related to
the income excluded from nonqualifying employee wages for the meals it has
provided.
CLAIMS AND LEGAL ACTIONS
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, all pending matters
are either adequately covered by insurance or if not covered by insurance, will
not have a material adverse effect on the Company's financial statements taken
as a whole.
10. RELATED PARTY TRANSACTIONS
NOTES RECEIVABLE FROM RELATED PARTY TRUST
Jessica L. Ledbetter, Kirk B. Ledbetter and Franklin K. Rahbeck, all
directors of the Company, and Wells Fargo Bank, National Association are the
co-trustees of the William B. Ledbetter and Beverlee A. Ledbetter Irrevocable
Trust ("the Trust"). The Trust owns survivorship life insurance policies on
the lives of William B. Ledbetter and Beverlee A. Ledbetter, deceased.
William B. Ledbetter is an officer and director of the Company and until her
death on September 12, 1995, Beverlee A. Ledbetter was the largest
shareholder of the Company. Prior to fiscal 1995, the Company had paid
premiums on the life insurance policies owned by the Trust. The Company has
no further obligation to pay such premiums. The Trust has issued two notes
payable to the Company for the amounts of the premiums previously paid by the
Company. The notes are in the principal amounts of $1,376,995 and $455,272
and bear interest at the rate of 5.84% and 6.30%, respectively. Interest on
the notes is payable on December 31 of each year and the entire unpaid
principal amount becomes due on the earlier of November 15, 2001 or the death
of William B. Ledbetter.
11. SALE OF INTERESTS IN UNCONSOLIDATED AFFILIATE
Until October 24, 1997, the Company owned a 40% equity interest in HRHC.
The Company accounted for this investment on the equity method. Pursuant to a
management agreement between HRHC and HLVMC, relating to the management and
operations of the Hard Rock Hotel and Casino owned by HRHC (the "Management
Agreement"), the Company earned a base management fee from HRHC of 4% of
adjusted gross revenue, as defined in the Management Agreement, and up to an
additional 2% of adjusted gross revenue if certain financial targets were met.
F-37
<PAGE>
On October 24, 1997, the Company sold all of the capital stock of HRHC held
by the Company, representing 40% of the then outstanding capital stock of HRHC,
and all of the Company's rights under the Management Agreement. The capital
stock and the rights under the Management Agreement were sold to HRHC. The sale
closed pursuant to the terms of a Stock Purchase and Management Buyout Agreement
entered into on July 1, 1997 by and among the Company, HLVMC, Lily Pond
Investments, Inc., a Nevada corporation ("Lily Pond") and HRHC. Upon closing,
the Management Agreement terminated and a stockholders' agreement among the
Company, HRHC and Lily Pond was canceled.
The Company received $45.0 million cash for the capital stock and the
Company's rights under the Management Agreement. The Company received, in
addition, approximately $1.2 million cash in satisfaction of a note and other
amounts due the Company from HRHC as of October 24, 1997.
Summarized balance sheet and statement of income information for HRHC as of
November 30, 1996, for the year ended November 30, 1996 and for the period from
December 1, 1996 through October 24, 1997 were as follows:
<TABLE>
<CAPTION>
November 30,
------------
1996
----
<S> <C>
Summarized Balance Sheet Information (in thousands)
Current assets.................................................. $ 11,376
Land, building and equipment, net............................... 84,466
Other assets.................................................... 11,792
--------
Total assets................................................. 107,634
--------
Current liabilities............................................. 20,950
Long-term debt.................................................. 55,922
--------
Total liabilities............................................ 76,872
--------
Net assets................................................... $ 30,762
--------
--------
</TABLE>
<TABLE>
<CAPTION>
Period Ended Year Ended
October 24, November 30,
1997 1996
---- ----
<S> <C> <C>
Summarized Statement of Income Information (in
thousands)
Revenues............................................ $68,699 $77,289
Operating income.................................... 11,323 12,663
Net income.......................................... 4,295 4,467
</TABLE>
F-38
<PAGE>
12. SUBSEQUENT EVENT (UNAUDITED)
On February 1, 1998, the Company entered into an Agreement and Plan of
Merger (the "Merger Agreement"). Pursuant to the Merger Agreement, the Company
has agreed to merge with Harveys Acquisition Corporation, a Delaware
corporation which is an affiliate of Colony Investors III, L. P., a Delaware
limited partnership and controlled affiliate of Colony Capital, Inc. of Los
Angeles, California ("Colony Capital"). Upon closing of the transaction
contemplated by the Merger Agreement, the Company will be an affiliate of Colony
Capital. The all-cash transaction values each of the approximately 10.8 million
fully diluted common shares of the Company at $28. Closing of the merger is
subject to a number of conditions, including approval by the stockholders of at
least two-thirds of the Company's common stock and receipt of all necessary
regulatory approvals, including the approvals of Nevada, Colorado and Iowa
gaming authorities. Stockholders owning approximately 41% of the Company's
outstanding common stock, including the Company's largest stockholder, have
agreed to vote in favor of the transaction. If the merger has not closed by
September 1, 1998, the Company's stockholders would receive additional
consideration under certain circumstances.
If the merger is consummated, under the terms of the Indenture each
holder of the Senior Subordinated Notes will have the right to require the
Company to repurchase such holder's Senior Subordinated Notes at 101% of the
principal amount plus accrued and unpaid interest to the repurchase date.
See footnote 4.
13. SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following table sets forth unaudited selected quarterly financial
information for each quarter of fiscal 1997 and 1996. This information, in the
opinion of management, includes only normal recurring adjustments necessary for
a fair representation of the information set forth therein. The operating
results for any quarter are not indicative of results for any future period.
Quarterly results may not be comparative due to the seasonal nature of
operations.
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA) FIRST SECOND THIRD FOURTH
- ------------------------------------- ----- ------ ----- ------
<S> <C> <C> <C> <C>
Fiscal 1997
Revenue.................................... $58,554 $71,709 $83,676 $69,624
Operating income........................... 4,599 11,560 17,995 7,126
Income before income taxes (a)............. 7 6,683 12,981 30,002
Net income (a)............................. 4 3,978 7,724 19,068
Net income per common share (a) (b)........ $ 0.00 $ 0.40 $ 0.78 $ 1.93
Fiscal 1996
Revenue.................................... $49,474 $59,380 $74,249 $64,647
Operating income........................... 895 8,147 15,198 9,781
Income (loss) before income taxes and
extraordinary item....................... (896) 5,049 10,533 4,918
Extraordinary item, net of tax............. - (141) (380) -
Net income (loss).......................... (576) 3,003 5,905 2,961
Net income (loss) per common share (b)
Income (loss) before extraordinary item.. $ (0.06) $ 0.33 $ 0.64 $ 0.30
Extraordinary item, net of tax........... - (0.02) (0.04) -
Net income (loss) per common share....... $ (0.06) $ 0.31 $ 0.60 $ 0.30
</TABLE>
F-39
<PAGE>
(a) Income before income taxes, net income and net income per common share for
the fourth quarter of fiscal 1997 include the effect of the gain recognized on
the sale of the Company's interests in the Hard Rock Hotel and Casino. The gain
on the transaction was approximately $27.4 million, before income taxes, and
approximately $17.4 million on an after-tax basis.
(b) Net income (loss) per share calculations for each quarter are based on the
weighted average number of common stock and common stock equivalents outstanding
during the respective quarters; accordingly, the sum of the quarters does not
equal the full-year income per share.
F-40
<PAGE>
HARVEYS CASINO RESORTS
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
August 31, November 30,
1998 1997
---- ----
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 78,245 $ 55,035
Accounts and notes receivable, net 5,652 5,264
Prepaid expenses 4,033 3,447
Other current assets 4,517 4,310
--------- ---------
Total current assets 92,447 68,056
Property and equipment (net of accumulated depreciation
of $141,565 and $128,110) 316,658 318,270
Notes receivable - related parties 1,876 1,876
Other assets 15,664 15,263
--------- ---------
Total assets $ 426,645 $ 403,465
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt $ 11 $ 633
Accounts and contracts payable 6,044 5,991
Income taxes payable 5,948 7,056
Accrued interest payable 4,153 175
Accrued expenses 22,518 20,770
--------- ---------
Total current liabilities 38,674 34,625
--------- ---------
Long-term debt, net of current portion 150,209 150,220
Deferred income taxes 23,023 23,023
Other liabilities 18,131 16,240
--------- ---------
Total liabilities 230,037 224,108
--------- ---------
Commitments and contingencies
Stockholders' equity
Preferred stock, $.01 par value; 5,000,000 shares authorized; - -
none issued
Common stock, $.01 par value; 30,000,000 shares authorized;
shares issued 10,079,671 and 9,853,488 101 99
Additional paid-in capital and other 43,483 39,043
Retained earnings 153,267 140,415
Treasury stock, at cost; 14,155 shares and 12,516 shares (243) (200)
--------- ---------
Total stockholders' equity 196,608 179,357
--------- ---------
Total liabilities and stockholders' equity $426,645 $403,465
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these statements.
F-41
<PAGE>
HARVEYS CASINO RESORTS
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended August 31, Ended August 31,
---------------- ----------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues
Casino $68,030 $63,148 $183,501 $162,397
Lodging 10,447 10,199 26,157 24,659
Food and beverage 13,726 13,378 35,479 33,380
Other 2,203 2,099 5,583 5,267
Management fees and joint venture - 1,251 - 3,920
Less: Casino proportional allowances (6,783) (6,399) (17,763) (16,092)
---------- --------- ---------- ---------
Total net revenues 87,623 83,676 232,957 213,531
---------- --------- ---------- ---------
Costs and expenses
Casino 30,653 27,306 86,310 75,168
Lodging 3,673 3,524 10,299 10,051
Food and beverage 8,305 8,461 22,664 22,595
Other operating 808 806 2,230 2,145
Selling, general and administrative 20,636 20,541 58,766 55,432
Depreciation and amortization 5,276 5,043 15,641 13,987
Merger related costs 1,103 - 1,103 -
---------- --------- ---------- ---------
Total costs and expenses 70,454 65,681 197,013 179,378
---------- --------- ---------- ---------
Operating income 17,169 17,995 35,944 34,153
---------- --------- ---------- ---------
Other income (expense)
Interest income 591 81 1,495 245
Interest expense (4,477) (4,929) (13,390) (14,776)
Other, net (63) (166) (123) 49
---------- --------- ---------- ---------
Total other income (expense) (3,949) (5,014) (12,018) (14,482)
---------- --------- ---------- ---------
Income before income taxes 13,220 12,981 23,926 19,671
Income tax provision (5,288) (5,257) (9,571) (7,965)
---------- --------- ---------- ---------
Net income $ 7,932 $ 7,724 $ 14,355 $ 11,706
---------- --------- ---------- ---------
---------- --------- ---------- ---------
Income per common share
Basic $ 0.79 $ 0.79 $ 1.43 $ 1.19
---------- --------- ---------- ---------
---------- --------- ---------- ---------
Diluted $ 0.77 $ 0.78 $ 1.41 $ 1.19
---------- --------- ---------- ---------
---------- --------- ---------- ---------
Dividends declared per common share $ 0.05 $ 0.05 $ 0.15 $ 0.15
---------- --------- ---------- ---------
---------- --------- ---------- ---------
Weighted average common shares used in
calculating income per common share
Basic 10,065,851 9,832,206 10,009,086 9,822,667
---------- --------- ---------- ---------
---------- --------- ---------- ---------
Diluted 10,265,027 9,851,443 10,213,456 9,835,297
---------- --------- ---------- ---------
---------- --------- ---------- ---------
</TABLE>
The accompanying notes are an integral part of these statements.
F-42
<PAGE>
HARVEYS CASINO RESORTS
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Ended August 31,
----------------------------
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities
Net income $14,355 $11,706
Adjustments to reconcile income to net cash
provided by operating activities
Depreciation and amortization 15,641 13,987
Other, net 5,062 14,165
------- -------
Net cash provided by operating activities 35,058 39,858
------- -------
Cash flows from investing activities
Capital expenditures (13,040) (22,114)
Proceeds from disposition of assets 98 3,674
Other, net - (45)
------- -------
Net cash used in investing activities (12,942) (18,485)
------- -------
Cash flows from financing activities
Principal payments on long-term debt (633) (26,049)
Dividends paid (1,503) (1,474)
Proceeds form long-term debt - 11,014
Exercise of options to purchase stock 3,382 388
Other, net (152) (325)
------- -------
Net cash used in financing activities 1,094 (16,446)
------- -------
Increase in cash and cash equivalents 23,210 4,927
Cash and cash equivalents at beginning of period 55,035 21,121
------- -------
Cash and cash equivalents at end of period $78,245 $26,048
------- -------
------- -------
Supplemental cash flows disclosure
Cash paid for interest net of amounts capitalized $ 8,513 $10,104
Cash paid for income taxes 9,755 663
</TABLE>
The accompanying notes are an integral part of these statements
F-43
<PAGE>
HARVEYS CASINO RESORTS
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation and Consolidation - Harveys Casino Resorts, a Nevada
corporation, (the "Company") is engaged in the casino entertainment
industry. Through its wholly-owned subsidiary, Harveys Tahoe Management
Company, Inc. ("HTMC"), the Company owns and operates Harveys Resort
Hotel/Casino on the south shore of Lake Tahoe, Nevada. The Company,
through its wholly-owned subsidiary, Harveys C. C. Management Company, Inc.
("HCCMC"), owns and operates Harveys Wagon Wheel Hotel/Casino in Central
City, Colorado. Until October 24, 1997, the Company, through its wholly-
owned subsidiary, Harveys L.V. Management Company, Inc. ("HLVMC"), owned
40% of the equity interest in Hard Rock Hotel, Inc. ("HRHC"), which owns
the Hard Rock Hotel and Casino in Las Vegas, Nevada. HLVMC had a contract
to manage the Las Vegas hotel and casino. On October 24, 1997 the Company
sold its 40% equity interest and its interest in the management contract to
HRHC. Additionally, the Company's wholly-owned subsidiary, Harveys Iowa
Management Company, Inc. ("HIMC") is the owner and operator of Harveys
Casino Hotel, a riverboat casino, hotel and convention center complex in
Council Bluffs, Iowa.
The condensed consolidated financial statements include the accounts of
Harveys Casino Resorts and its wholly-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
The condensed consolidated balance sheet as of November 30, 1997 has been
prepared from the audited financial statements at that date. The
accompanying condensed consolidated financial statements have been prepared
by the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Accordingly, certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed
or omitted.
In the opinion of management, all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of financial
condition, results of operations and cash flows have been included. The
results of operations for the interim periods should not be considered
indicative of results for a full fiscal year. These financial statements
should be read in conjunction with the financial statements, and notes
thereto, in the Company's Annual Report on Form 10-K for the year ended
November 30, 1997.
2. Proposed Merger - At the Company's annual meeting of stockholders, held May
14, 1998, the Company's stockholders voted to adopt an Agreement and Plan
of Merger, dated as of February 1, 1998 (the "Merger Agreement") and
approved the merger described therein (the "Merger"). Pursuant to the
Merger Agreement, the Company has agreed to merge with Harveys Acquisition
Corporation, a Delaware corporation which is an affiliate of Colony
Investors III, L.P., a Delaware limited partnership and controlled
affiliate of Colony Capital, Inc. of Los Angeles,
F-44
<PAGE>
California ("Colony Capital"). Upon closing of the Merger, the Company
will be an affiliate of Colony Capital. The all-cash transaction
values each of the approximately 10.1 million outstanding common shares
of the Company at $28 and each of the approximately 0.7 million common
shares of the Company underlying outstanding options to purchase common
shares at $28 less the option exercise price per share. Closing of the
Merger is subject to a number of conditions, including receipt of all
necessary regulatory approvals, including those of Nevada, Colorado and
Iowa gaming authorities. The Company's stockholders may receive
additional consideration under certain circumstances. The additional
consideration would be an amount in cash, without interest, equal to the
difference, if positive, of (a) the product of (i) $1.96 times (ii) a
fraction the numerator of which shall be the number of days elapsed from
and including September 1, 1998 to and excluding the date the Merger
closes and the denominator of which shall be 365, minus (b) the quotient
of (1) the aggregated amount of all cash dividends paid on the Company's
common stock during the period from and including September 1, 1998 to
and excluding the date the Merger closes, divided by (2) the number of
shares of the Company's common stock upon which the cash consideration
is to be paid plus the number of shares of the Company's common stock
underlying the stock options to acquire the Company's common stock upon
which the cash consideration is to be paid.
3. Net Income Per Common Share - As of December 1, 1997, the Company adopted
the provisions of Statement of Financial Accounting Standards ("SFAS") No.
128, Earnings Per Share. The Company has restated the prior periods net
income per common share to conform with the provisions of SFAS No. 128.
Basic net income per common share is calculated by dividing net income by
the weighted average number of common shares outstanding during the period.
Diluted net income per common share is calculated by dividing net income by
the weighted average number of common and common equivalent shares
outstanding during the period. Common equivalent shares include restricted
stock and stock options outstanding and exercisable for the purpose of
calculating diluted net income per common share. The Company has no other
potentially dilutive securities.
A reconciliation of net income and shares for basic and diluted net income
per common share follows (dollars in thousands, except per share amounts):
<TABLE>
<CAPTION>
Three Months Three Months
Ended August 31,1998 Ended August 31, 1997
-------------------- ---------------------
Per Share Per Share
Income Shares Amount Income Shares Amount
------ ------- ------ ------ ------ --------
<S> <C> <C> <C> <C> <C> <C>
Basic net income per common share $ 7,932 10,065,851 $ 0.79 $ 7,724 9,832,206 $ 0.79
------ -------
------ -------
Effect of dilutive securities 199,176 19,237
------- ---------- ------- ---------
Diluted net income per common share $ 7,932 10,265,027 $ 0.77 $ 7,724 9,851,443 $ 0.78
------- ---------- ------ ------- --------- -------
------- ---------- ------ ------- --------- -------
</TABLE>
F-45
<PAGE>
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended August 31, 1998 Ended August 31, 1997
--------------------- ----------------------
Per Share Per Share
Income Shares Amount Income Shares Amount
------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Basic net income per common share $ 14,355 10,009,086 $ 1.43 $11,706 9,822,667 $ 1.19
------ ------
------ ------
Effect of dilutive securities 204,370 12,630
-------- ---------- ------- ---------
Diluted net income per common share $ 14,355 10,213,456 $ 1.41 $11,706 9,835,297 $ 1.19
-------- ---------- ------ ------- --------- -------
-------- ---------- ------ ------- --------- -------
</TABLE>
4. Recently Issued Accounting Standards - The Financial Accounting Standards
Board ("FASB") has issued SFAS No. 131, Disclosures About Segments of an
Enterprise and Related Information, which establishes new standards for
determining a reportable segment and for disclosing information regarding
each such segment. A reportable segment is an operating segment: (a) that
engages in business activities from which it earns revenues and incurs
expenses, (b) whose operating results are regularly reviewed by the
enterprise's chief operating decision maker in deciding how to allocate
resources and in assessing performance, (c) for which discrete financial
information is available, and (d) that exceeds specific quantitative
thresholds. SFAS No. 131 will be effective for the Company beginning
December 1, 1998. On adoption, and to the extent practicable, segment
information for earlier comparative periods will be restated. The Company
anticipates, with the adoption of SFAS No. 131, it will expand its segment
disclosures relative to its Nevada, Colorado and Iowa operations. The
Company believes the segment information required to be disclosed under
SFAS No. 131 will have no effect on the Company's consolidated results of
operations, financial position or cash flows, but will be more
comprehensive than previously provided, including expanded disclosure of
income statement and balance sheet items for each of its reportable
operating segments.
The Accounting Standards Executive Committee of the American Institute of
Certified Public Accountants has issued Statement of Position ("SOP") 98-5,
Reporting on the Costs of Start-Up Activities. SOP 98-5 requires costs of
start-up activities (commonly referred to as pre-opening costs in the gaming
industry) to be expensed as incurred. The Company will be required to adopt
SOP 98-5 beginning December 1, 1999, although earlier adoption is encouraged.
On adoption, restatement of previously issued financial statements will not
be permitted. The initial effect of adopting SOP 98-5 will be reported as
the cumulative effect of a change in accounting principle. The Company has
not yet determined if it will elect to adopt SOP 98-5 early nor has it
determined what effect, if any, the adoption of SOP 98-5 will have on the
financial position or results of operations of the Company.
5. Subsidiary Guarantors - The 10 5/8% Senior Subordinated Notes due 2006 (the
"Senior Subordinated Notes"), issued by the Company are guaranteed by all
direct and indirect subsidiaries of the Company (the "Subsidiary
Guarantors") except for subsidiaries which are inconsequential. The
guarantees are full and unconditional and are joint and several. The
aggregate assets, liabilities, earnings, and equity of the Subsidiary
Guarantors are substantially equivalent to the assets, liabilities,
earnings, and equity of the Company on a consolidated basis. Separate
financial statements and other disclosures concerning the Subsidiary
Guarantors have not been included because management has determined they
are not material to investors. If the Merger is consummated (see Note 2),
under the terms of the Indenture governing the Senior
F-46
<PAGE>
Subordinated Notes, each holder of the Senior Subordinated Notes will
have the right to require the Company to repurchase such holder's Senior
Subordinated Notes at 101% of the principal amount plus accrued and
unpaid interest to the repurchase date.
F-47
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
2.1 Agreement and Plan of Merger dated as of February 1, 1998
by and between Harveys Acquisition Corporation, a Nevada
Corporation, and Harveys Casino Resorts, a Nevada
corporation
3.1 Articles of Incorporation of Harveys Acquisition
Corporation
3.2 Bylaws of Harveys Acquisition Corporation
4.1 Form of stock certificate
10.1 Memorandum of Understanding dated February 1, 1998 among
Harveys Acquisition Corporation, a Nevada corporation,
Charles W. Scharer, Stephen L. Cavallaro and John L.
McLaughlin
10.2 Voting and Profit Sharing Agreement dated as of February
1, 1998 by and among Harveys Acquisition Corporation and the
individuals and entities signatory thereto
10.3 Noncompetition and Trade Secret Agreement dated as of
February 1, 1998 by and among Harveys Acquisition
Corporation and the individuals signatory thereto
10.4 Form of Director and Officer Indemnification Agreement*
27.1 Financial Data Schedule
- -----------------------------------------
* To be filed by amendment
<PAGE>
AGREEMENT AND PLAN OF MERGER
Dated as of February 1, 1998
between
HARVEYS ACQUISITION CORPORATION
and
HARVEYS CASINO RESORTS
<PAGE>
TABLE OF CONTENTS
PAGE
----
ARTICLE I
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II
THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 2.01. THE MERGER . . . . . . . . . . . . . . . . . . . 8
SECTION 2.02. CLOSING. . . . . . . . . . . . . . . . . . . . . 8
SECTION 2.03. EFFECTIVE TIME . . . . . . . . . . . . . . . . . 9
SECTION 2.04. EFFECTS OF THE MERGER. . . . . . . . . . . . . . 9
SECTION 2.05. ARTICLES OF INCORPORATION AND BY-LAWS. . . . . . 9
SECTION 2.06. DIRECTORS. . . . . . . . . . . . . . . . . . . . 9
SECTION 2.07. OFFICERS . . . . . . . . . . . . . . . . . . . .10
SECTION 2.08. FURTHER ACTIONS. . . . . . . . . . . . . . . . .10
ARTICLE III
CONVERSION OF SHARES. . . . . . . . . . . . . . . . . . . . . . . .10
SECTION 3.01. EFFECT ON CAPITAL STOCK. . . . . . . . . . . . .10
SECTION 3.02. EXCHANGE OF CERTIFICATES . . . . . . . . . . . .12
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF TARGET . . . . . . . . . . . . . .14
SECTION 4.01. ORGANIZATION, STANDING AND CORPORATE POWER . . .14
SECTION 4.02. SUBSIDIARIES . . . . . . . . . . . . . . . . . .14
SECTION 4.03. CAPITAL STRUCTURE. . . . . . . . . . . . . . . .15
SECTION 4.04. AUTHORITY; NONCONTRAVENTION. . . . . . . . . . .15
SECTION 4.05. OPINION OF FINANCIAL ADVISOR . . . . . . . . . .17
SECTION 4.06. SEC DOCUMENTS; FINANCIAL STATEMENTS. . . . . . .17
SECTION 4.07. ABSENCE OF CERTAIN CHANGES OR EVENTS . . . . . .18
SECTION 4.08. LITIGATION . . . . . . . . . . . . . . . . . . .19
i
<PAGE>
SECTION 4.09. ABSENCE OF CHANGES IN BENEFIT PLANS. . . . . . .19
SECTION 4.10. EMPLOYEE BENEFITS; ERISA . . . . . . . . . . . .19
SECTION 4.11. TAXES. . . . . . . . . . . . . . . . . . . . . .22
SECTION 4.12. ENVIRONMENTAL MATTERS. . . . . . . . . . . . . .23
SECTION 4.13. PERMITS; COMPLIANCE WITH GAMING LAWS . . . . . .25
SECTION 4.14. STATE TAKEOVER STATUTES; CHARTER PROVISIONS. . .26
SECTION 4.15. BROKERS. . . . . . . . . . . . . . . . . . . . .27
SECTION 4.16. TRADEMARKS, ETC. . . . . . . . . . . . . . . . .27
SECTION 4.17. TITLE TO PROPERTIES. . . . . . . . . . . . . . .28
SECTION 4.18. INSURANCE. . . . . . . . . . . . . . . . . . . .28
SECTION 4.19. CONTRACTS; DEBT INSTRUMENTS. . . . . . . . . . .28
SECTION 4.20. LABOR RELATIONS. . . . . . . . . . . . . . . . .29
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF ACQ CORP. . . . . . . . . . . . . .29
SECTION 5.01. ORGANIZATION, STANDING AND CORPORATE POWER . . .29
SECTION 5.02. AUTHORITY; NONCONTRAVENTION. . . . . . . . . . .30
SECTION 5.03. INTERIM OPERATIONS OF ACQ CORP . . . . . . . . .31
SECTION 5.04. SUFFICIENT FUNDS.. . . . . . . . . . . . . . . .31
ARTICLE VI
COVENANTS RELATING TO CONDUCT OF BUSINESS. . . . . . . . . . . . . .32
SECTION 6.01. CONDUCT OF BUSINESS . . . . . . . . . . . . . . .32
SECTION 6.02. ADVICE OF CHANGES. . . . . . . . . . . . . . . .37
SECTION 6.03. NO SOLICITATION. . . . . . . . . . . . . . . . .37
ARTICLE VII
ADDITIONAL AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . .39
SECTION 7.01. STOCKHOLDERS MEETING . . . . . . . . . . . . . .39
SECTION 7.02. PROXY STATEMENT AND OTHER FILINGS; REGISTRATION
STATEMENT; AUDITOR'S LETTER. . . . . . . . . . .40
ii
<PAGE>
SECTION 7.03. ACCESS TO INFORMATION; CONFIDENTIALITY . . . . .41
SECTION 7.04. REASONABLE EFFORTS; NOTIFICATION . . . . . . . .42
SECTION 7.05. STOCK OPTION PLANS; CHANGE OF CONTROL PLAN . . .44
SECTION 7.06. INDEMNIFICATION AND INSURANCE. . . . . . . . . .45
SECTION 7.07. FEES AND EXPENSES. . . . . . . . . . . . . . . .46
SECTION 7.08. PUBLIC ANNOUNCEMENTS . . . . . . . . . . . . . .47
SECTION 7.09. TITLE POLICIES . . . . . . . . . . . . . . . . .47
SECTION 7.10. TRANSFER TAXES . . . . . . . . . . . . . . . . .48
SECTION 7.11. MAINTENANCE OF COMMITMENT. . . . . . . . . . . .48
ARTICLE VIII
CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . . .48
SECTION 8.01. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT
THE MERGER . . . . . . . . . . . . . . . . . . .48
SECTION 8.02. CONDITIONS TO OBLIGATIONS OF ACQ CORP. . . . . .49
SECTION 8.03. CONDITIONS TO OBLIGATIONS OF TARGET. . . . . . .50
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER . . . . . . . . . . . . . . . . .51
SECTION 9.01. TERMINATION. . . . . . . . . . . . . . . . . . .51
SECTION 9.02. EFFECT OF TERMINATION. . . . . . . . . . . . . .52
SECTION 9.03. AMENDMENT. . . . . . . . . . . . . . . . . . . .52
SECTION 9.04. EXTENSION; WAIVER. . . . . . . . . . . . . . . .52
SECTION 9.05. PROCEDURE FOR TERMINATION, AMENDMENT, EXTENSION
OR WAIVER. . . . . . . . . . . . . . . . . . . .52
ARTICLE X
GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . .53
SECTION 10.01. NONSURVIVAL OF REPRESENTATIONS. . . . . . . . .53
SECTION 10.02. NOTICES . . . . . . . . . . . . . . . . . . . .53
SECTION 10.03. INTERPRETATION. . . . . . . . . . . . . . . . .55
SECTION 10.04. COUNTERPARTS. . . . . . . . . . . . . . . . . .55
SECTION 10.05. ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES.55
iii
<PAGE>
SECTION 10.06. GOVERNING LAW . . . . . . . . . . . . . . . . .55
SECTION 10.07. GAMING LAWS . . . . . . . . . . . . . . . . . .55
SECTION 10.08. ASSIGNMENT. . . . . . . . . . . . . . . . . . .55
SECTION 10.09. ENFORCEMENT . . . . . . . . . . . . . . . . . .56
iv
<PAGE>
SCHEDULES
EXHIBITS
Exhibit A Voting and Profit Sharing Agreement
Exhibit B Non-Competition and Trade Secrets Agreement
v
<PAGE>
AGREEMENT AND PLAN OF MERGER dated as of February 1, 1998 (this
"AGREEMENT"), among HARVEYS ACQUISITION CORPORATION, a Nevada corporation ("ACQ
CORP"), and HARVEYS CASINO RESORTS, a Nevada corporation ("TARGET").
W I T N E S S E T H
WHEREAS, the respective Boards of Directors of Acq Corp and Target
have determined that the merger of Acq Corp with and into Target (the "MERGER"),
upon the terms and subject to the conditions set forth in this Agreement, is
advisable and in the best interests of their respective corporations and
stockholders, and have approved this Agreement;
WHEREAS, as a condition for Acq Corp to enter into this Agreement,
those stockholders of Target listed in the signature pages to the Voting
Agreement, as defined below (the "FAMILY"), have entered into the Voting
Agreement as of the date hereof with Acq Corp, which provides, among other
things, that, subject to the terms and conditions thereof, each trustee or
member of the Family will vote its shares of Common Stock, as defined below, in
favor of the Merger and the approval and adoption of this Agreement;
WHEREAS, the Board of Directors of Target has approved the terms of
the Voting Agreement; and
WHEREAS, Acq Corp and Target desire to make certain representations,
warranties, covenants and agreements in connection with the Merger and also to
prescribe various conditions to the Merger.
NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants and agreements contained in this Agreement and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto, intending to be legally bound, agree as
follows:
1
<PAGE>
ARTICLE I
DEFINITIONS
Capitalized and certain other terms used in this Agreement and not
otherwise defined have the meanings set forth below. Unless the context
otherwise requires, such terms shall include the singular and plural and the
conjunctive and disjunctive forms of the terms defined.
"AFFILIATE" of any Person means another Person that directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, such first Person.
"ARTICLES OF MERGER" has the meaning set forth in Section 2.01.
"AUDIT" means any audit, assessment of Taxes, other examination by any
Tax Authority, proceeding or appeal of such proceeding relating to Taxes.
"BENEFIT PLAN" has the meaning set forth in Section ?(i).
"BUDGET" has the meaning set forth in Section 6.01(a)(v).
"CHANGE OF CONTROL PLAN" means Target's Change of Control Plan dated
November 20, 1997, as in effect on the date hereof.
"CLASS A COMMON STOCK" has the meaning set forth in Section
3.01(a)(i).
"CLASS B COMMON STOCK" has the meaning set forth in Section
3.01(a)(ii).
"CLOSING" has the meaning set forth in Section 2.02.
"CLOSING DATE" has the meaning set forth in Section 2.02.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMON STOCK" means the Common Stock of Target, par value $.01 per
share.
2
<PAGE>
"COMPETITIVE PROPOSAL" means any written proposal made by a third
party, other than any member of either the Family or the Board of Directors of
Target, to acquire, for consideration consisting of cash and/or publicly traded
equity securities, more than 50% of the shares of Common Stock then outstanding
or all or substantially all the assets of Target, with respect to which proposal
(i) the Board of Directors of Target determines in its good faith judgment
(based on the opinion, with only customary qualifications, of an independent
financial advisor of good national reputation in such matters) that (a) the
value of the consideration of such proposal exceeds the value of each of the
Merger Consideration and any alternative proposal presented by Acq Corp or any
of its Affiliates and (b) such proposal is more favorable to Target and Target's
stockholders than the Merger and any alternative proposal presented by Acq Corp
or any of its Affiliates, and (ii) there is no financing condition and
financing, to the extent required, is fully committed.
"CONTRACT" means any mortgage, indenture, note, debenture, agreement,
lease, license, permit, franchise or other instrument or obligation, whether
written or oral.
"COVERED PERSON" has the meaning set forth in Section 6.03(a).
"DLJ" means Donaldson, Lufkin & Jenrette Securities Corporation.
"EFFECTIVE TIME" has the meaning set forth in Section 2.03.
"ENVIRONMENTAL CLAIM" has the meaning set forth in Section 4.12(c).
"ENVIRONMENTAL LAWS" has the meaning set forth in Section 4.12(a).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"EXCHANGE FUNDS" has the meaning set forth in Section 3.02(a).
"EXPENSES" has the meaning set forth in Section 7.07(b).
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
3
<PAGE>
"FAMILY" has the meaning set forth in the second recital hereof.
"GAMING AUTHORITY" means any governmental authority or agency with
regulatory control or jurisdiction over the conduct of lawful gaming or
gambling, including, without limitation, the Nevada State Gaming Control Board,
the Nevada Gaming Commission, the Colorado Division of Gaming, the Colorado
Limited Gaming Control Commission and the Iowa Racing and Gaming Commission.
"GAMING LAWS" means any Federal, state, local or foreign statute,
ordinance, rule, regulation, permit, consent, approval, license, judgment,
order, decree, injunction or other authorization governing or relating to the
current or contemplated manufacturing, distribution, casino gambling and gaming
activities and operations of Target, including, without limitation, the Nevada
Gaming Control Act and the rules and regulations promulgated thereunder, the
Colorado Limited Gaming Act and the rules and regulations promulgated thereunder
and chapter 99F of the Code of Iowa and the rules and regulations promulgated
thereunder.
"GOVERNMENTAL ENTITY" means any Federal, state or local government or
any court, administrative or regulatory agency or commission or other
governmental authority or agency, domestic or foreign, including any Gaming
Authority.
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"INDEBTEDNESS" means, with respect to any Person, without
duplication, (A) all obligations of such Person for borrowed money, or with
respect to deposits or advances of any kind, (B) all obligations of such
Person evidenced by bonds, debentures, notes or similar instruments, (C) all
obligations of such Person upon which interest charges are customarily paid
(other than trade payables incurred in the ordinary course of business), (D)
all obligations of such Person under conditional sale or other title
retention agreements relating to property purchased by such Person, (E) all
obligations of such Person issued or assumed as the deferred purchase price
of property or services or for trade or barter arrangements (excluding
obligations of such Person to creditors for raw materials, inventory,
services and supplies incurred in the ordinary course of such Person's
business), (F) all lease obligations of such Person capitalized on the books
and records of such Person, (G) all obligations of others secured by any Lien
on property or assets owned or acquired by such Person, whether or not the
obligations secured thereby have been assumed, (H) all obligations of such
4
<PAGE>
Person under interest rate, or currency or commodity hedging, swap or similar
derivative transactions (valued at the termination value thereof), (I) all
letters of credit issued for the account of such Person (excluding letters of
credit issued for the benefit of suppliers or lessors to support accounts
payable to suppliers incurred in the ordinary course of business) and (J) all
guarantees and arrangements having the economic effect of a guarantee by such
Person of any other Person.
"INDEMNIFIED PARTIES" has the meaning set forth in Section 7.06(a).
"KNOWLEDGE" of any Person means the current actual knowledge of the
officers and directors of such Person.
"LAW" means any law, statute, ordinance, regulation or rule or any
judgment, decree, order, regulation or rule of any court or governmental
authority or body.
"LIEN" means any mortgage, pledge, assessment, security interest,
lease, sublease, lien, adverse claim, levy, charge, option, right of others or
restriction (whether on voting, sale, transfer, disposition or otherwise) or
other encumbrance of any kind, whether imposed by agreement, understanding, law
or equity, or any conditional sale contract, title retention contract or other
contract to give or to refrain from giving any of the foregoing.
"MATERIAL ADVERSE CHANGE" or "MATERIAL ADVERSE EFFECT" with respect to
any Person means any change or effect (or any development that, insofar as can
reasonably be foreseen, is likely to result in any change or effect) that is
materially adverse to the business, business prospects, properties, assets,
financial condition or results of operations of such Person and its
Subsidiaries, taken as a whole.
"MATERIAL SUBSIDIARY" has the meaning set forth in Section 4.02.
"MAXIMUM PREMIUM" has the meaning set forth in Section 7.06(b).
"MERGER" has the meaning set forth in the first recital hereof.
"MERGER CONSIDERATION" has the meaning set forth in Section 3.01(c).
5
<PAGE>
"MATERIAL OF ENVIRONMENTAL CONCERN" has the meaning set forth in
Section 4.12(a).
"NRS" means Nevada Revised Statutes.
"NYSE" means the New York Stock Exchange, Inc., or any successor
entity.
"NEVADA MERGER LAW" has the meaning set forth in Section 2.03.
"OPTION AGREEMENT" has the meaning set forth in Section 6.01(b).
"ORDINARY COURSE OF BUSINESS," when used with respect to Target, in
addition to its usual and customary meaning, shall be deemed to mean
transactions in the ordinary course of business consistent with Target's prior
practice.
"PAYING AGENT" has the meaning set forth in Section 3.02(a).
"PERSON" means any natural person, corporation, general partnership,
limited partnership, limited liability company, limited liability partnership,
proprietorship, trust, union, association, court, tribunal, agency, government,
department, commission, self-regulatory organization, arbitrator, board, bureau,
instrumentality or other entity, enterprise, authority or business organization.
"PLAN" has the meaning set forth in Section 4.10.
"PREFERRED STOCK" means the Preferred Stock of Target, par value $.01
per share.
"SEC" means the Securities and Exchange Commission.
"SEC DOCUMENTS" has the meaning set forth in Section 4.06.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"STOCK PURCHASE PLAN" has the meaning set forth in Section 7.05(c)
hereof.
6
<PAGE>
"SUBSIDIARY" means, with respect to any Person, (i) any corporation
with respect to which such Person, directly or indirectly through one or more
Subsidiaries, (a) owns more than 50% of the outstanding shares of capital
stock having generally the right to vote in the election of directors or (b)
has the power, under ordinary circumstances, to elect, or to direct the
election of, a majority of the board of directors of such corporation, (ii)
any partnership with respect to which (a) such Person or a Subsidiary of such
Person is a general partner, (b) such Person and its Subsidiaries together
own more than 50% of the interests therein, or (c) such Person and its
Subsidiaries have the right to appoint or elect or direct the appointment or
election of a majority of the directors or other Person or body responsible
for the governance or management thereof, (iii) any limited liability company
with respect to which (a) such Person or a Subsidiary of such Person is the
manager or managing member, (b) such Person and its Subsidiaries together own
more than 50% of the interests therein, or (c) such Person and its
Subsidiaries have the right to appoint or elect or direct the appointment or
election of a majority of the directors or other Person or body responsible
for the governance or management thereof, or (iv) any other entity in which
such Person has, and/or one or more of its Subsidiaries have, directly or
indirectly, (a) at least a 50% ownership interest or (b) the power to appoint
or elect or direct the appointment or election of a majority of the directors
or other Person or body responsible for the governance or management thereof.
"SURVIVING CORPORATION" has the meaning set forth in Section 2.01
hereof.
"TAKEOVER PROPOSAL" means (a) any proposal or offer from any Person
relating to any direct or indirect acquisition or purchase of a material
amount of assets of Target or any of its Subsidiaries or of over 10% of any
class of equity securities of Target or any of its Subsidiaries or which
would require approval under any Gaming Law, or any tender offer or exchange
offer that if consummated would result in any Person beneficially owning 10%
or more of any class of equity securities of Target or any of its
Subsidiaries or which would require approval under any Gaming Law, or any
merger, consolidation, business combination, sale of all or substantially all
assets, recapitalization, liquidation, dissolution or similar transaction
involving Target or any of its Subsidiaries other than the transactions
contemplated by this Agreement, or any other transaction the consummation of
which would reasonably be expected to impede, interfere with, frustrate,
prevent, nullify or materially delay the Merger or which would reasonably be
expected to dilute materially the benefits to Acq Corp of the transactions
contemplated hereby. Notwithstanding the foregoing, a transaction or
7
<PAGE>
series of related transactions involving the sale, transfer or other
disposition of Reno Projects, Inc. or a material amount of the assets thereof
(substantially as such assets consist on the date hereof) for consideration
not to exceed $2 million shall not be deemed to constitute a Takeover
Proposal.
"TAX" or "TAXES" means all Federal, state, local and foreign taxes and
other assessments and governmental charges of a similar nature (whether imposed
directly or through withholdings), including any interest, penalties and
additions to Tax applicable thereto.
"TAX AUTHORITY" means the Internal Revenue Service and any other
domestic or foreign governmental authority responsible for the administration of
any Taxes.
"TAX RETURNS" means all Federal, state, local and foreign returns,
declarations, statements, reports, schedules, forms and information returns
relating to Taxes, and all amendments thereto.
"TERMINATION FEE" has the meaning set forth in Section 7.07(b).
ARTICLE II
THE MERGER
SECTION 2.01. THE MERGER. Upon the terms and subject to the
conditions set forth in this Agreement and in the articles of merger or other
appropriate documents (in any such case, the "ARTICLES OF MERGER") required
by law in connection with the Merger, and in accordance with the applicable
provisions of Nevada law, Acq Corp shall be merged with and into Target.
Following the Merger, Target shall continue as the surviving corporation (the
"SURVIVING CORPORATION") and the separate existence of Acq Corp will cease.
SECTION 2.02. CLOSING. The closing (the "CLOSING") of the Merger
will take place at 10:00 a.m. on a date (the "CLOSING DATE") to be specified
by Acq Corp, which may be on, but shall be no later than the third business
day after, the day on which there shall have been satisfaction or waiver of
the conditions set forth in Article VIII, at the offices of Skadden, Arps,
Slate, Meagher & Flom LLP, 919 Third
8
<PAGE>
Avenue, New York, New York 10022, unless another time date or place is
agreed to in writing by the parties hereto.
SECTION 2.03. EFFECTIVE TIME. On the Closing Date, or as soon as
practicable thereafter, the parties shall file the Articles of Merger with the
Secretary of State of the State of Nevada (the "NEVADA SECRETARY OF STATE") in
accordance with the provisions of NRS section 92A.005 ET SEQ. (the "NEVADA
MERGER LAW") and make all other filings or recordings required by law in
connection with the Merger. The Merger shall become effective at such time as
the Articles of Merger are duly filed with the Nevada Secretary of State, or at
such other later time (which shall not be more than 90 days after the Articles
of Merger are filed) as Acq Corp and Target shall agree and specify in the
Articles of Merger (the time the Merger becomes effective being the "EFFECTIVE
TIME").
SECTION 2.04. EFFECTS OF THE MERGER. The Merger shall have the
effects set forth in the Nevada Merger Law. Without limiting the generality
of the foregoing, and subject thereto, at the Effective Time, all the
properties, rights, privileges, powers and franchises of Target and Acq Corp
shall vest in the Surviving Corporation, and all debts, liabilities and
duties of Target and Acq Corp shall become the debts, liabilities and duties
of the Surviving Corporation.
SECTION 2.05. ARTICLES OF INCORPORATION AND BY-LAWS. The Articles
of Incorporation of Acq Corp, as in effect immediately prior to the Effective
Time of the Merger, shall become the Articles of Incorporation of the
Surviving Corporation after the Effective Time, except that such Articles of
Incorporation shall be amended to provide that the name of the Surviving
Corporation shall be "Harveys Casino Resorts," and thereafter may be amended
in accordance with its terms and as provided by law. The By-laws of Acq Corp
as in effect on the Effective Time shall become the By-laws of the Surviving
Corporation and thereafter may be amended in accordance with its terms and as
provided by law.
SECTION 2.06. DIRECTORS. The directors of Acq Corp immediately
prior to the Effective Time shall become the directors of the Surviving
Corporation, and shall serve in such capacity until the earlier of their
resignation or removal or until their respective successors are duly elected
and qualified, as the case may be.
SECTION 2.07. OFFICERS. The officers of Target immediately prior
to the Effective Time shall become the officers of the Surviving Corporation,
and shall
9
<PAGE>
serve in such capacity until the earlier of their resignation or removal or
until their respective successors are duly elected and qualified, as the case
may be.
SECTION 2.08. FURTHER ACTIONS. At and after the Effective Time,
the Surviving Corporation shall take all action as shall be required in
connection with the Merger, including, but not limited to, the execution and
delivery of any further deeds, assignments, instruments or documentation as
are necessary or desirable to carry out the provisions of this Agreement.
ARTICLE III
CONVERSION OF SHARES
SECTION 3.01. EFFECT ON CAPITAL STOCK. As of the Effective Time,
by virtue of the Merger and without any action on the part of the holder of
any shares of Common Stock or any shares of capital stock of Acq Corp:
(a) CAPITAL STOCK OF ACQ CORP.
(i) Each share of the Class A Common Stock, par
value $.01 per share ("CLASS A COMMON STOCK"), of Acq Corp issued and
outstanding immediately prior to the Effective Time shall be converted
into and become one fully paid and nonassessable share of Class A
Common Stock, par value $.01 per share, of the Surviving Corporation.
(ii) Each share of the Class B Common Stock, par
value $.01 per share (the "CLASS B COMMON STOCK"), of Acq Corp issued
and outstanding immediately prior to the Effective Time shall be
converted into and become one fully paid and nonassessable share of
Class B Common Stock, par value $.01 per share, of the Surviving
Corporation.
(iii) Each share of the Series A Preferred Stock,
par value $.01 per share, of Acq Corp issued and outstanding
immediately prior to the Effective Time shall be converted into and
become one fully paid and nonassessable share of Series A Preferred
10
<PAGE>
Stock, par value $.01 per share, of the Surviving Corporation.
(b) CANCELLATION OF TREASURY STOCK AND ACQ CORP OWNED STOCK.
Each share of Common Stock that is owned by Target or by any Subsidiary of
Target and each share of Common Stock that is owned by Acq Corp shall
automatically be canceled and retired and shall cease to exist, and no
payment shall be made in exchange therefor.
(c) CONVERSION OF COMMON STOCK. Each issued and outstanding
share of Common Stock (other than shares to be canceled in accordance with
Section 3.01(b)) shall be converted into the right to receive from the
Surviving Corporation $28.00 in cash, without interest, plus the additional
consideration, if any, contemplated by the next following sentence
(collectively, the "MERGER CONSIDERATION"). If the Closing shall not have
occurred on or before August 31, 1998 as a result of the failure of Acq
Corp to cause the conditions specified in Section 8.03 to be satisfied due
to the failure of Acq Corp or its directors or officers to be licensed or
found suitable under any applicable Gaming Law, the per share Merger
Consideration shall include an amount in cash, without interest, equal to
the difference, if positive, of (i) the product of (A) $1.96 times (B) a
fraction the numerator of which shall be the number of days elapsed from
and including September 1, 1998 to and excluding the Closing Date and the
denominator of which shall be 365, minus (ii) the quotient of (1) the
aggregate amount of all cash dividends on the Common Stock paid during the
period from and including September 1, 1998 to and excluding the Closing
Date, divided by (2) the number of shares of Common Stock upon which the
Merger Consideration is paid pursuant to this Section 3.01(c) plus the
number of shares of Common Stock underlying the stock options, warrants and
other rights to acquire Common Stock cancelled in connection with the
Merger pursuant to Section 7.05. As of the Effective Time, all shares of
Common Stock upon which the Merger Consideration is payable pursuant to
this Section 3.01(c) shall no longer be outstanding and shall automatically
be canceled and retired and shall cease to exist, and each holder of a
certificate representing any such shares of Common Stock shall cease to
have any rights with respect thereto, except the right to receive the
Merger Consideration, without interest.
11
<PAGE>
SECTION 3.02. EXCHANGE OF CERTIFICATES.
(a) PAYING AGENT. Immediately prior to the Effective Time,
Acq Corp shall designate a bank or trust to act as paying agent in the
Merger (the "PAYING AGENT"), and, from time to time on, prior to or after
the Effective Time, Acq Corp shall make available, or cause the Surviving
Corporation to make available, to the Paying Agent immediately available
funds (the "EXCHANGE FUNDs") in amounts and at the times necessary for the
payment of the Merger Consideration upon surrender of certificates
representing Common Stock as part of the Merger pursuant to Section 3.01,
it being understood that any and all interest earned on the Exchange Fund
shall be turned over to Acq Corp.
(b) EXCHANGE PROCEDURE. As soon as reasonably practicable after
the Effective Time, the Surviving Corporation shall cause the Paying Agent
to mail to each holder of record of a certificate or certificates which
immediately prior to the Effective Time represented outstanding shares of
Common Stock (the "CERTIFICATES") whose shares were converted into the
right to receive the Merger Consideration pursuant to Section 3.01, (i) a
letter of transmittal (which shall specify that delivery shall be effected,
and risk of loss and title to the Certificates shall pass, only upon
delivery of the Certificates to the Paying Agent and shall be in such form
and have such other provisions as the Surviving Corporation may reasonably
specify) and (ii) instructions for use in effecting the surrender of the
Certificates in exchange for the Merger Consideration. Upon surrender of a
Certificate for cancellation to the Paying Agent or to such other agent or
agents as may be appointed by the Surviving Corporation, together with such
letter of transmittal, duly executed, and such other documents as may
reasonably be required by the Paying Agent, the holder of such Certificate
shall be entitled to receive in exchange therefor the amount of cash into
which the shares of Common Stock theretofore represented by such
Certificate shall have been converted pursuant to Section 3.01, and the
Certificate so surrendered shall forthwith be cancelled. In the event of a
transfer of ownership of Common Stock which is not registered in the
transfer records of Target, payment may be made to a Person other than the
Person in whose name the Certificate so surrendered is registered, if such
Certificate shall be properly endorsed or otherwise be in proper form for
transfer and the Person requesting such payment shall pay any transfer or
other taxes required
12
<PAGE>
by reason of the payment to a Person other than the registered holder
of such Certificate or establish to the satisfaction of
the Surviving Corporation that such tax has been paid or is not applicable.
Until surrendered as contemplated by this Section 3.02, each Certificate
shall be deemed at any time after the Effective Time to represent only the
right to receive upon such surrender the amount of cash, without interest,
into which the shares of Common Stock theretofore represented by such
Certificate shall have been converted pursuant to Section 3.01. No
interest will be paid or will accrue on the cash payable upon the surrender
of any Certificate.
(c) NO FURTHER OWNERSHIP RIGHTS IN COMMON STOCK. All cash paid
upon the surrender of Certificates in accordance with the terms of this
Article III shall be deemed to have been paid in full satisfaction of all
rights pertaining to the shares of Common Stock theretofore represented by
such Certificates, and there shall be no further registration of transfers
on the stock transfer books of the Surviving Corporation of the shares of
Common Stock which were outstanding immediately prior to the Effective
Time. If, after the Effective Time, Certificates are presented to the
Surviving Corporation or the Paying Agent for any reason, they shall be
cancelled and exchanged as provided in this Article III, except as
otherwise provided by law.
(d) TERMINATION OF EXCHANGE FUNDS. Any portion of the Exchange
Funds which remains undistributed to the holders of the Certificates for
six months after the Effective Time shall be delivered to an entity
identified in writing to Target by Colony Capital, Inc., upon demand, and
any holders of the Certificates who have not theretofore complied with this
Article III shall thereafter look only to such identified entity for
payment of their claim for the Merger Consideration, and any cash or
dividends or distributions payable to such holders pursuant to this Article
III.
(e) NO LIABILITY. None of Acq Corp, Target, the Surviving
Corporation or the Paying Agent shall be liable to any Person in respect of
any cash delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law.
13
<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF TARGET
Target represents and warrants to Acq Corp as follows:
SECTION 4.01. ORGANIZATION, STANDING AND CORPORATE POWER. Each of
Target and each of its Subsidiaries is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction in which it is
organized and has the requisite corporate power and authority to carry on its
business as now being conducted. Each of Target and its Subsidiaries is duly
qualified or licensed to do business and is in good standing in each
jurisdiction in which the nature of its business or the ownership or leasing of
its properties makes such qualification or licensing necessary, other than in
such jurisdictions where the failure to be so qualified or licensed
(individually or in the aggregate) would not have a material adverse effect on
Target or any Material Subsidiary. Target has made available to Acq Corp
complete and correct copies of the Restated Articles of Incorporation and By-
laws of the corporation, in each case as amended to the date of this Agreement,
and will make available immediately following the date of this Agreement the
certificates of incorporation and by-laws or other organizational documents of
its Subsidiaries, in each case as amended to the date of this Agreement. The
respective certificates of incorporation and by-laws or other organizational
documents of the Subsidiaries of Target do not contain any provision limiting or
otherwise restricting the ability of Target to control such Subsidiaries.
SECTION 4.02. SUBSIDIARIES. The Subsidiaries of Target identified on
Schedule 4.02(a) (collectively, the "MATERIAL SUBSIDIARIES") own or lease all of
the material assets, hold all material Permits and conduct all of the material
business and operations of Target and its Subsidiaries, taken as a whole
(including, without limitation, all business and operations associated with
Target's Lake Tahoe, Colorado and Iowa casino resorts and related facilities).
Each Subsidiary of Target that is not a Material Subsidiary is identified on
Schedule 4.02(b). All the outstanding shares of capital stock of each
Subsidiary are owned by Target, by another wholly owned Subsidiary of Target or
by Target and another wholly owned Subsidiary of Target, free and clear of all
Liens, except as set forth on Schedule 4.02(c). There are no proxies with
respect to any shares of any such Subsidiary.
14
<PAGE>
SECTION 4.03. CAPITAL STRUCTURE. The authorized capital stock of
Target consists of 30,000,000 shares of Common Stock and 5,000,000 shares of
Preferred Stock. At the close of business on January 27, 1998, (i) 9,906,869
shares of Common Stock and no shares of Preferred Stock were issued and
outstanding, (ii) 12,792 shares of Common Stock were held by Target in its
treasury, and (iii) 950,543 shares of Common Stock were reserved for issuance
upon exercise of outstanding Stock Options (as defined in Section 7.05). Except
as set forth above, as of the date of this Agreement, no shares of capital stock
or other voting securities of Target were issued or outstanding. Except as set
forth in Schedule 4.03, as of the date of this agreement, there are no
outstanding stock appreciation rights, restricted stock grants or contingent
stock grants and there are no other outstanding contractual rights to which
Target is a party, the value of which is derived from the value of shares of
Common Stock. All outstanding shares of capital stock of Target are, and all
shares which may be issued will be, when issued, duly authorized, validly
issued, fully paid and nonassessable and not subject to preemptive rights.
There are no bonds, debentures, notes or other indebtedness of Target having the
right to vote (or convertible into, or exchangeable for, securities having the
right to vote) on any matters on which stockholders of Target may vote. Except
as set forth above, as of the date of this Agreement, there are no outstanding
securities, options, warrants, calls, rights, commitments, agreements,
arrangements or undertakings of any kind to which Target or any of its
Subsidiaries is a party or by which any of them is bound obligating Target or
any of its Subsidiaries to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of capital stock or other voting securities
of Target or of any of its Subsidiaries or obligating Target or any of its
Subsidiaries to issue, grant, extend or enter into any such security, option,
warrant, call, right, commitment, agreement, arrangement or undertaking.
SECTION 4.04. AUTHORITY; NONCONTRAVENTION. Target has the requisite
corporate power and authority to enter into this Agreement and, subject to
approval of this Agreement by the holders of at least two-thirds of the
outstanding shares of Common Stock, to consummate the transactions contemplated
by this Agreement. The execution and delivery of this Agreement by Target and
the consummation by Target of the transactions contemplated by this Agreement
have been duly authorized by all necessary corporate action on the part of
Target, subject, in the case of this Agreement, to approval of this Agreement by
the holders of at least two-thirds of the outstanding shares of Common Stock.
This Agreement has been duly executed and delivered by Target and, assuming this
Agreement constitutes the valid and binding obligation of Acq Corp, constitutes
the valid and binding obligation of Target,
15
<PAGE>
enforceable against Target in accordance with its terms. The execution and
delivery of this Agreement do not, and the consummation of the transactions
contemplated by this Agreement and compliance with the provisions of this
Agreement will not, conflict with, or result in any violation of, or default
(with or without notice or lapse of time, or both) under, or give rise to a
right of termination, cancellation or acceleration of any obligation or to
loss of a material benefit under, or result in the creation of any Lien upon
any of the properties or assets of Target or any of its Subsidiaries under,
(i) the Restated Articles of Incorporation or By-laws of Target or the
comparable charter or organizational documents of any of its Subsidiaries,
(ii) other than subject to the governmental filings and other matters
referred to in the following sentence and except as set forth on Schedule
4.04(a), any loan or credit agreement, note, bond, mortgage, indenture, lease
or other agreement, instrument, permit, concession, franchise or license
applicable to Target or any of its Subsidiaries or their respective
properties or assets (including all agreements described pursuant to Section
4.19) or (iii) subject to the governmental filings and other matters referred
to in the following sentence, any judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Target or any of its Subsidiaries
or their respective properties or assets, other than, in the case of clauses
(ii) or (iii), any such conflicts, violations, defaults, rights or Liens that
individually or in the aggregate would not (x) have a material adverse effect
on Target or any Material Subsidiary, (y) impair in any material respect the
ability of Target to perform its obligations under this Agreement or (z)
prevent or impede, in any material respect, the consummation of any of the
transactions contemplated by this Agreement. No consent, approval, order or
authorization of, or registration, declaration or filing with, any
Governmental Entity is required by Target or any of its Subsidiaries in
connection with the execution and delivery of this Agreement by Target or the
consummation by Target of the transactions contemplated by this Agreement,
except for (i) the filing of a premerger notification and report form by
Target under the HSR Act, (ii) the filing with the SEC of such reports under
Section 13(a) of the Exchange Act as may be required in connection with this
Agreement and the transactions contemplated by this Agreement, (iii) the
filing of the Articles of Merger with the Nevada Secretary of State and
appropriate documents with the relevant authorities of other states in which
Target is qualified to do business, (iv) the licensing, permitting,
registration or other approval of, or written consent or no action letter
from, each Gaming Authority within each municipality, state, or commonwealth,
or subdivision thereof, wherein Target or any of its Subsidiaries conducts
business on the date hereof and as of the Effective Date, each of which
licenses, permits, registrations or other approvals, consents or no action
letters are set forth in Schedule 4.04(b) hereto, (v) such filings as may be
required by any applicable
16
<PAGE>
state securities or "blue sky" laws, and (vi) such other consents, approvals,
orders, authorizations, registrations, declarations and filings the failure
of which to be obtained or made would not, individually or in the aggregate,
(x) have a material adverse effect on Target or any Material Subsidiary, (y)
impair, in any material respect, the ability of Target to perform its
obligations under this Agreement or (z) prevent or delay the consummation of
the transactions contemplated by this Agreement.
SECTION 4.05. OPINION OF FINANCIAL ADVISOR. The Board of
Directors of Target has received the opinion of DLJ, dated February 1, 1998
(the "FAIRNESS OPINION"), to the effect that, as of such date, the Merger
Consideration is fair to the stockholders of Target, from a financial point
of view, and a copy of the Fairness Opinion has been delivered to Acq Corp.
SECTION 4.06. SEC DOCUMENTS; FINANCIAL STATEMENTS. Target files and
has filed all required reports, proxy statements, forms, and other documents
with the SEC since February 1, 1994 (the "SEC DOCUMENTS"). Schedule 4.06(a)
hereto sets forth a complete list of all the SEC Documents through the date
hereof. True and complete copies of all such SEC Documents have been delivered
to Acq Corp. As of their respective dates, (i) the SEC Documents complied in
all material respects with the requirements of the Securities Act or the
Exchange Act, as the case may be, and the rules and regulations of the SEC
promulgated thereunder applicable to such SEC Documents, and (ii) none of the
SEC Documents contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading. Except to the extent that information contained in any
SEC Document has been revised or superseded by a later filed SEC Document filed
and publicly available prior to the date of this Agreement, none of the SEC
Documents contains any untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The financial statements of Target included in the SEC
Documents comply as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto, have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis during the periods involved and fairly
present the consolidated financial position of Target and its consolidated
Subsidiaries as of the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments). Except as set
forth in the SEC
17
<PAGE>
Documents filed and publicly available prior to the date of this Agreement
and in Schedule 4.06(b), and except for liabilities and obligations incurred
in the Ordinary Course of Business since the date of the most recent
consolidated balance sheet included in the SEC Documents filed and publicly
available prior to the date of this Agreement (the "BASE BALANCE SHEET"),
neither Target nor any of its Subsidiaries has any liabilities or obligations
of any nature (whether accrued, absolute, contingent or otherwise) required
by generally accepted accounting principles to be set forth on a consolidated
balance sheet of Target and its consolidated Subsidiaries or in the notes
thereto.
SECTION 4.07. ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as
disclosed in SEC Documents filed and publicly available during the year ended
November 30, 1997 (the "1997 SEC DOCUMENTS"), Target and its Material
Subsidiaries have conducted their respective businesses only in the Ordinary
Course of Business, and there has not been (i) any material adverse change in
Target, (ii) any declaration, setting aside or payment of any dividend or other
distribution with respect to its capital stock, except for the declaration and
payment of regular quarterly cash dividends on the Common Stock in an amount not
to exceed $.05 per share for each of Target's fiscal quarters, (iii) any split,
combination or reclassification of any of its capital stock or any issuance or
the authorization of any issuance of any other securities in respect of, in lieu
of or in substitution for shares of its capital stock, (iv) except as set forth
in Schedule 4.07, (x) any granting by Target or any of its Subsidiaries to any
officer of Target or any of its Subsidiaries of any increase in compensation,
except in the Ordinary Course of Business (including in connection with
promotions) or as was required under employment agreements in effect as of the
date of the Base Balance Sheet, (y) any granting by Target or any of its
Subsidiaries to any such officer of any increase in severance or termination
pay, except as part of a standard employment package to any Person promoted or
hired, or as was required under employment, severance or termination agreements
in effect as of the date of the Base Balance Sheet or (z) any entry by Target or
any of its Subsidiaries into any employment, severance or termination agreement
with any executive officer of Target, (v) any damage, destruction or loss,
whether or not covered by insurance, that has or reasonably could be expected to
have a material adverse effect on Target or any Material Subsidiary or (vi) any
change in accounting methods, principles or practices by Target materially
affecting its assets, liabilities or business.
18
<PAGE>
SECTION 4.08. LITIGATION. There is no suit, action or proceeding
pending or, to the Knowledge of Target, threatened against Target or any of its
Subsidiaries that, individually or in the aggregate, could reasonably be
expected to have a material adverse effect on Target or any Material Subsidiary,
including any affecting its licenses, permits, registration or other gaming
approvals under the Gaming Laws, nor is there any judgment, decree, injunction,
rule or order of any Governmental Entity or arbitrator outstanding against
Target or any of its Subsidiaries that, individually or in the aggregate, could
reasonably be expected to have such an effect.
SECTION 4.09. ABSENCE OF CHANGES IN BENEFIT PLANS. Except as
disclosed in the 1997 SEC Documents, as set forth in Schedule 4.09 or as
otherwise expressly permitted hereunder, there has not been any adoption or
amendment in any material respect by Target or any of its Subsidiaries of any
Plan since August 31, 1997. All employment, consulting, severance, termination
or indemnification agreements, arrangements or understandings between Target or
any of its Subsidiaries which are required to be disclosed in the SEC Documents
have been disclosed therein.
SECTION 4.10. EMPLOYEE BENEFITS; ERISA.
(a) Schedule 4.10(a) contains a true and complete list of each
employment, consulting, bonus, deferred compensation, incentive
compensation, stock purchase, stock option, stock appreciation right or
other stock-based incentive, severance, change-in-control or termination
pay, hospitalization or other medical, disability, life or other insurance,
supplemental unemployment benefits, profit-sharing, pension, or retirement
plan, program, agreement or arrangement, and each other employee benefit
plan, program, agreement or arrangement, sponsored, maintained or
contributed to or required to be contributed to by Target or any of its
Subsidiaries, or by any trade or business, whether or not incorporated,
that together with Target or any of its Subsidiaries would be deemed to
comprise a controlled group or affiliated service group or be deemed to be
under common control or otherwise aggregated for purposes of Sections
414(b), (c), (m) or (o) of the Code (an "ERISA AFFILIATE"), for the benefit
of any current or former employee or director of Target, or any of its
Subsidiaries or any ERISA Affiliate (the "PLANS"). Schedule 4.10(a)
identifies each of the Plans that is an "employee welfare benefit plan," or
"employee pension benefit plan" as such terms are defined in Sections 3(1)
and 3(2) of ERISA (such plans being hereinafter referred to collectively as
the "ERISA PLANS").
19
<PAGE>
None of Target, any of its Subsidiaries nor any ERISA Affiliate has any
formal plan or commitment, whether legally binding or not, to create any
additional Plan or modify or change any existing Plan that would affect
any current or former employee or director of Target, any of its
Subsidiaries or any ERISA Affiliate.
(b) With respect to each of the Plans, Target has heretofore
delivered or as promptly as practicable after the date hereof shall deliver
to Acq Corp true and complete copies of each of the following documents, as
applicable:
(i) a copy of the Plan documents (including all
amendments thereto) for each written Plan or a written description of
any Plan that is not otherwise in writing;
(ii) a copy of the annual report or Internal
Revenue Service Form 5500 Series, if required under ERISA, with
respect to each ERISA Plan for the last three Plan years ending prior
to the date of this Agreement for which such a report was filed;
(iii) a copy of the actuarial report, if required
under ERISA, with respect to each ERISA Plan for the last three Plan
years ending prior to the date of this Agreement;
(iv) a copy of the most recent Summary Plan
Description ("SPD"), together with all Summaries of Material
Modification issued with respect to such SPD, if required under ERISA,
with respect to each ERISA Plan, and all other material employee
communications relating to each ERISA Plan;
(v) if the Plan is funded through a trust or any
other funding vehicle, a copy of the trust or other funding agreement
(including all amendments thereto) and the latest financial statements
thereof, if any;
(vi) all contracts relating to the Plans with
respect to which Target, any of its Subsidiaries or any ERISA
Affiliate may have any liability, including insurance contracts,
investment
20
<PAGE>
management agreements, subscription and participation
agreements and record keeping agreements; and
(vii) the most recent determination letter
received from the IRS with respect to each Plan that is intended to be
qualified under Section 401(a) of the Code.
(c) Neither Target, nor any Subsidiary nor any current or former
ERISA Affiliate has at any time sponsored, maintained, contributed to or
been required to contribute to any "employee pension benefit plan" (as
defined in Section 3(2) of ERISA) subject to Title IV of ERISA, including
without limitation any "multiemployer plan" (as defined in Sections 3(37)
and 4001(a)(3) of ERISA). No liability under Title IV of ERISA has been
incurred by Target, any of its Subsidiaries or any ERISA Affiliate since
the effective date of ERISA, and no condition exists that presents a
material risk to Target, any of its Subsidiaries or any ERISA Affiliate of
incurring any liability under such Title.
(d) None of Target, any of its Subsidiaries, any ERISA
Affiliate, any of the ERISA Plans, any trust created thereunder, nor to
Target's Knowledge, any trustee or administrator thereof has engaged in a
transaction or has taken or failed to take any action in connection with
which Target, any of its Subsidiaries or any ERISA Affiliate could be
subject to any material liability for either a civil penalty assessed
pursuant to Section 409 or 502(i) of ERISA or a tax imposed pursuant to
Section 4975(a) or (b), 4976 or 4980B of the Code.
(e) All contributions which Target, any of its Subsidiaries or
any ERISA Affiliate is required to pay under the terms of each of the ERISA
Plans have, to the extent due, been paid in full or properly recorded on
the financial statements or records of Target or its Subsidiaries.
(f) Each of the Plans has been operated and administered in all
material respects in accordance with applicable Laws, including but not
limited to ERISA and the Code.
(g) Each of the ERISA Plans that is intended to be "qualified"
within the meaning of Section 401(a) of the Code is so qualified.
21
<PAGE>
Target has applied for and received a currently effective determination
letter from the IRS stating that it is so qualified, and no event has
occurred which would affect such qualified status.
(h) No Plan provides benefits, including without limitation
death or medical benefits (whether or not insured), with respect to current
or former employees of Target, its Subsidiaries or any ERISA Affiliate
after retirement or other termination of service (other than (i) coverage
mandated by applicable Laws, (ii) death benefits or retirement benefits
under any "employee pension plan," as that term is defined in Section 3(2)
of ERISA, (iii) deferred compensation benefits accrued as liabilities on
the books of Target, any of its Subsidiaries or an ERISA Affiliate, or
(iv) benefits, the full direct cost of which is borne by the current or
former employee (or beneficiary thereof)).
(i) Except pursuant to the Plans set forth in Schedule 4.10(i),
the consummation of the transactions contemplated by this Agreement will
not (i) entitle any current or former employee, officer or director of
Target, any of its Subsidiaries or any ERISA Affiliate to severance pay,
unemployment compensation or any other similar termination payment, or (ii)
accelerate the time of payment or vesting, or increase the amount of or
otherwise enhance any benefit due any such employee, officer or director.
(j) There are no pending or, to Target's Knowledge, threatened
or anticipated claims by or on behalf of any Plan, by any employee or
beneficiary under any such Plan or otherwise involving any such Plan (other
than routine claims for benefits).
SECTION 4.11. TAXES.
(a) Each of Target and its Subsidiaries has timely filed (or has
had timely filed on its behalf) or will file or cause to be timely filed,
all material Tax Returns required by applicable law to be filed by it prior
to or as of the Closing Date. All such Tax Returns and amendments thereto
are, or will be before the Closing Date, true, complete and correct in all
material respects.
(b) Each of Target and its Subsidiaries has paid (or has had
paid on its behalf), or where payment is not yet due, has established (or
has had established on its behalf and for its sole benefit and recourse),
or will
22
<PAGE>
establish or cause to be established on or before the Closing Date,
an adequate accrual in accordance with generally accepted accounting
principles for the payment of, all Taxes due with respect to any period
ending prior to or as of the Closing Date.
(c) Except as set forth in Schedule 4.11(c), no Audit by a Tax
Authority is pending or threatened with respect to any material Taxes due
from Target or any of its Subsidiaries. There are no outstanding waivers
extending the statutory period of limitation relating to the payment of
material Taxes due from Target or any of its Subsidiaries for any taxable
period ending prior to the Closing Date which are expected to be
outstanding as of the Closing Date. No issue has been raised by any Tax
Authority in any Audit of Target or any of its Subsidiaries that if raised
with respect to any other period not so audited could be expected to result
in a proposed deficiency for any period not so audited.
(d) No deficiency or adjustment for any Taxes has been proposed,
asserted or assessed against Target or any of its Subsidiaries that has not
been resolved or paid or for which an adequate accrual has not been
established in accordance with generally accepted accounting principles.
There are no Liens for Taxes upon the assets of Target or any of its
Subsidiaries, except Liens for current Taxes not yet due and for which
adequate accruals have been established in accordance with generally
accepted accounting principles.
(e) All Tax sharing agreements, Tax indemnity agreements and
similar agreements to which Target or any of its Subsidiaries is a party
are disclosed in the 1997 SEC Documents.
SECTION 4.12. ENVIRONMENTAL MATTERS.
(a) Each of Target and the Material Subsidiaries is in full
compliance with all Federal, state, local and foreign laws and regulations
relating to pollution or protection of human health or the environment,
including, without limitation, ambient air, surface water, ground water,
land surface or subsurface strata, and natural resources (together
"ENVIRONMENTAL LAWS" and including, without limitation, laws and
regulations relating to emissions, discharges, releases or threatened
releases of chemicals, pollutants, contaminants, wastes, toxic or hazardous
substances or wastes, petroleum and
23
<PAGE>
petroleum products, polychlorinated biphenyls (PCBs), or asbestos or
asbestos-containing materials ("MATERIALS OF ENVIRONMENTAL CONCERN")),
or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of Materials of
Environmental Concern. Such compliance includes, but is not limited to,
the possession by Target and the Material Subsidiaries of all permits
and other governmental authorizations required under all applicable
Environmental Laws, and compliance with the terms and conditions
thereof. All permits and other governmental authorizations currently
held by the Target and the Material Subsidiaries pursuant to the
Environmental Laws are identified in Schedule 4.12(a).
(b) Neither Target nor any of its Subsidiaries has received any
communication (written or oral), whether from a governmental authority,
citizens group, employee or otherwise, that alleges that Target or any
such Subsidiary is not in full compliance with any Environmental Laws, and
there are no circumstances that may prevent or interfere with such full
compliance in the future. Target has provided to Acq Corp all information
that is in the possession of or reasonably available to Target regarding
environmental matters pertaining to the environmental condition of Target's
and its Subsidiaries' business, or Target's and its Subsidiaries'
compliance (or noncompliance) with any Environmental Laws.
(c) There is no claim, action, cause of action, investigation or
notice (written or oral) (together, "ENVIRONMENTAL CLAIM") by any Person or
entity alleging potential liability (including, without limitation,
potential liability for investigatory costs, cleanup costs, governmental
response costs, natural resources damages, property damages, personal
injuries, or penalties) arising out of, based on or resulting from (a) the
presence, or release into the environment, of any Material of Environmental
Concern at any location, whether or not owned or operated by Target or (b)
circumstances forming the basis of any violation, or alleged violation, of
any Environmental Law, that in either case is pending or threatened against
Target or any of its Subsidiaries or against any Person or entity whose
liability for any Environmental Claim Target or any of its Subsidiaries has
retained or assumed either contractually or by operation of law.
(d) There are no past or present actions, activities,
circumstances, conditions, events or incidents, including, without
limitation,
24
<PAGE>
the release, emission, discharge, presence or disposal of any
Material of Environmental Concern, that could form the basis of any
Environmental Claim against Target or any of its Subsidiaries or, to
Target's best Knowledge after due inquiry, against any Person or entity
whose liability for any Environmental Claim Target or any of its
Subsidiaries has retained or assumed either contractually or by operation
of law.
(e) Without in any way limiting the generality of the foregoing,
(i) all on-site and off-site locations where Target or any of its
Subsidiaries has (previously or currently) stored, disposed or arranged for
the disposal of Materials of Environmental Concern are identified in
Schedule 4.12(e), (ii) all underground storage tanks, and the capacity and
contents of such tanks, located on any property owned, leased, operated or
controlled by Target or any of its Subsidiaries are identified in Schedule
4.12(e), (iii) except as set forth in Schedule 4.12(e), there is no
asbestos contained in or forming part of any building, building component,
structure or office space owned, leased, operated or controlled by Target
or any of its Subsidiaries, and (iv) except as set forth in Schedule
4.12(e), no PCBs or PCB-containing items are used or stored at any property
owned, leased, operated or controlled leased by Target or any of its
Subsidiaries.
(f) Neither Target nor any Material Subsidiary is subject to any
Environmental Laws requiring the performance of site assessments for
Materials of Environmental Concern, or the removal or remediation of
Materials of Environmental Concern, or the giving of notice to any
governmental agency or the recording or delivery to other Persons or an
environmental disclosure document or statement by virtue of the
transactions set forth herein and contemplated hereby, or as a condition to
the effectiveness of any transactions contemplated hereby.
SECTION 4.13. PERMITS; COMPLIANCE WITH GAMING LAWS.
(a) Each of Target, its Subsidiaries and their respective
officers, directors and other personnel has in effect all Federal, state,
local and foreign governmental approvals, authorizations, certificates,
filings, franchises, orders, registrations, findings of suitability,
licenses, notices, permits, applications and rights, including all
authorizations under Gaming Laws ("PERMITS"), necessary for Target and its
Subsidiaries to own, lease or operate
25
<PAGE>
their properties and assets and to carry on their business as now
conducted, other than such Permits the absence of which would not,
individually or in the aggregate, have a material adverse effect on
Target or any Material Subsidiary, and there has occurred no default
under any such Permit other than such defaults which, individually or
in the aggregate, would not have a material adverse effect on Target or
any Subsidiary, result in a limitation or condition on any Permit or
result in the imposition of a fine or penalty in excess of $25,000 against
Target or any Subsidiary. All such Permits are held only by Target or a
Material Subsidiary. Except as disclosed in the 1997 SEC Documents, Target
and its Subsidiaries are in compliance with all applicable statutes, laws,
ordinances, rules, orders and regulations of any Governmental Entity,
except for possible noncompliance which individually or in the aggregate
would not have a material adverse effect on Target or any Material
Subsidiary. The preceding sentence of this Section 4.13(a) does not
apply to matters specifically covered by Sections ?, 4.10, 4.12 or
4.13(b).
(b) Each of Target and its Subsidiaries is in compliance with
all applicable Gaming Laws, except for possible noncompliance which,
individually or in the aggregate, would not have a material adverse effect
on Target or any Material Subsidiary, result in a limitation or condition
on any Permit or result in the imposition of a fine or penalty in excess of
$25,000 against Target or any Subsidiary.
(c) Neither Target, any Subsidiary or Target nor any officer or
director of Target or any Subsidiary of Target has received any written
claim, demand, notice, complaint, court order or administrative order from
any Governmental Entity in the past three years, asserting that a Permit of
it or them, as applicable, under any Gaming Laws should be limited, revoked
or suspended.
SECTION 4.14. STATE TAKEOVER STATUTES; CHARTER PROVISIONS. The Board
of Directors of Target has approved the Merger, this Agreement and the Voting
Agreement and, (a) by virtue of NRS Section 78.3783(2)(b)(4), the control share
statutes (including, without limitation, the provisions of NRS Sections 78.378
to 78.3793) and, (b) by virtue of NRS Section 78.438(1), the business
combination statutes (including, without limitation, the provisions of NRS
Sections 78.411 to 78.444), and (c) by virtue of NRS Section 92A.390, the fair
price or value or dissenters' rights statutes (including, without limitation,
the provisions of NRS Sections 92A.300 to 92A.500) of the State of Nevada do
26
<PAGE>
not apply to the Merger, this Agreement or the Voting Agreement or to the
transactions contemplated thereby or hereby. In addition, such approval is
sufficient to render inapplicable to the Merger, this Agreement and the
Voting Agreement the provisions of Article VIII of Target's Restated Articles
of Incorporation.
SECTION 4.15. BROKERS. No broker, investment banker, financial
advisor or other Person, other than DLJ, is entitled to any broker's, finder's,
financial advisor's or other similar fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of Target. Target has provided Acq Corp true and correct copies of
all agreements between Target and DLJ.
SECTION 4.16. TRADEMARKS, ETC. The material patents, trademarks
(registered or unregistered), trade names, service marks and copyrights and
applications therefor owned, used or filed by or licensed to Target and the
Material Subsidiaries (collectively, "INTELLECTUAL PROPERTY RIGHTS") are
sufficient to allow each of Target and the Material Subsidiaries exclusive
use thereof and to conduct, and continue to conduct, its business as
currently conducted or as Target proposes to conduct such business. Each of
Target and the Material Subsidiaries owns or has unrestricted right to use
the Intellectual Property Rights in order to allow it to conduct, and
continue to conduct, its business as currently conducted or as Target
proposes to conduct such business, and the consummation of the transactions
contemplated hereby will not alter or impair such ability in any respect
which individually or in the aggregate would be reasonably likely to have a
material adverse effect on Target or any Material Subsidiary. Neither Target
nor any of its Subsidiaries has received any oral or written notice from any
other Person pertaining to or challenging the right of Target or any of its
Subsidiaries to use any of the Intellectual Property Rights, which challenge
or other assertion, if upheld or successful, individually or in the aggregate
would be reasonably likely to have a material adverse effect on Target or any
Material Subsidiary. No claims are pending by any Person with respect to the
ownership, validity, enforceability or use of any such Intellectual Property
Rights challenging or questioning the validity or effectiveness of any of the
foregoing which claims would reasonably be expected to have a material
adverse effect on Target or any Material Subsidiary. Neither Target nor any
of its Subsidiaries has made any claim of a violation or infringement by
others of its rights to or in connection with the Intellectual Property
Rights in any such case where such claims (individually or in the aggregate)
would reasonably be expected to have a material adverse effect on Target or
any Material Subsidiary.
27
<PAGE>
SECTION 4.17. TITLE TO PROPERTIES. To the Knowledge of Target, each
of Target and each of its Subsidiaries has sufficiently good and valid title to,
or an adequate leasehold interest in, its material tangible properties and
assets in order to allow it to conduct, and continue to conduct, its business as
currently conducted or as Target proposes to conduct such business. Such
material tangible assets and properties are sufficiently free of Liens to allow
each of Target and each of its Subsidiaries to conduct, and continue to conduct,
its business as currently conducted, or as Target proposes to conduct such
business and, to the Knowledge of Target, the consummation of the transactions
contemplated by this Agreement will not alter or impair such ability in any
respect which individually or in the aggregate would be reasonably likely to
have a material adverse effect on Target or any Material Subsidiary. To the
Knowledge of Target, each of Target and each of its Subsidiaries enjoys peaceful
and undisturbed possession under all material leases, except for such breaches
of the right to peaceful and undisturbed possession that do not materially
interfere with the ability of Target and its Subsidiaries to conduct its
business as currently conducted. Target and its Subsidiaries have no Knowledge
of any pending or contemplated condemnation, eminent domain or similar
proceeding or special assessment which would affect any of their properties or
leases or any part thereof in any way whatsoever. Schedule 4.17 sets forth a
complete list of all material real property and material interests in real
property owned in fee by Target or one of its Subsidiaries and sets forth all
material real property and interests in real property leased by Target or any of
its Subsidiaries as of the date hereof.
SECTION 4.18. INSURANCE. To the Knowledge of Target, Target and its
Subsidiaries have obtained and maintained in full force and effect insurance
with responsible and reputable insurance companies or associations in such
amounts, on such terms and covering such risks, including fire and other risks
insured against by extended coverage, as is reasonably prudent, and each has
maintained in full force and effect public liability insurance, insurance
against claims for personal injury or death or property damage occurring in
connection with any of activities of Target or its Subsidiaries or any of any
properties owned, occupied or controlled by Target or its Subsidiaries, in such
amount as reasonably deemed necessary by Target or its Subsidiaries.
SECTION 4.19. CONTRACTS; DEBT INSTRUMENTS. Except as set forth in
the 1997 SEC Documents or in Schedule 4.19, there are no (i) agreements of
Target or any of its Subsidiaries containing an unexpired covenant not to
compete or similar
28
<PAGE>
restriction applying to Target or any of its Subsidiaries, (ii) interest
rate, currency or commodity hedging, swap or similar derivative transactions
to which Target is a party or (iii) other contracts or amendments thereto
that would be required to be filed as an exhibit to a Form 10-K filed by
Target with the SEC as of the date of this Agreement. Each of the material
agreements to which target or any of its Subsidiaries is a party is a valid
and binding obligation of Target or its Subsidiary, as the case may be, and,
to Target's Knowledge, of each other party thereto, and each such agreement
is in full force and effect and is enforceable by Target or its Subsidiary in
accordance with its terms, except that (i) such enforcement may be subject to
bankruptcy, insolvency, reorganization, moratorium or other similar laws now
or hereafter in effect relating to creditors' rights generally and (ii) the
remedy of specific performance and injunctive relief may be subject to
equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought. There are no existing defaults (or
circumstances or events that, with the giving of notice or lapse of time or
both would become defaults) of Target or any of its Subsidiaries (or, to the
Knowledge of Target, any other party thereto) under any of such material
agreements except for defaults that have not and would not, individually or
in the aggregate, have a material adverse effect on Target or any Material
Subsidiary.
SECTION 4.20. LABOR RELATIONS. No strike or other labor dispute
involving Target or any of its Subsidiaries is pending or, to the Knowledge of
Target, threatened, and, to the Knowledge of Target, there is no activity
involving any unorganized employees of Target or any of its Subsidiaries seeking
to certify a collective bargaining unit or engaging in any other organization
activity. Except as set forth in Schedule 4.20 and as disclosed in the 1997 SEC
Documents, since August 31, 1997, there has not been any adoption or amendment
in any material respect by Target or any of its Subsidiaries of any collective
bargaining agreement. Other than those filed as exhibits to the 1997 SEC
Document, Schedule 4.20 lists all collective bargaining agreements to which
Target or any of its Subsidiaries is a party.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF ACQ CORP
Acq Corp represents and warrants to Target as follows:
SECTION 5.01. ORGANIZATION, STANDING AND CORPORATE POWER. Acq
Corp is a corporation duly organized, validly existing and in good standing
under the
29
<PAGE>
laws of the jurisdiction in which it is incorporated and has the requisite
corporate power and authority to carry on its business as now being conducted.
Acq Corp is duly qualified or licensed to do business and is in good standing in
each jurisdiction in which the nature of its business or the ownership or
leasing of its properties makes such qualification or licensing necessary, other
than in such jurisdictions where the failure to be so qualified or licensed
(individually or in the aggregate) would not have a material adverse effect on
Acq Corp. Acq Corp will make available to Target complete and correct copies of
its articles of incorporation and by-laws in effect on the date of this
Agreement.
SECTION 5.02. AUTHORITY; NONCONTRAVENTION. Acq Corp has the
requisite corporate power and authority to enter into this Agreement and to
consummate the transactions contemplated by this Agreement. The execution
and delivery of this Agreement by Acq Corp and the consummation by Acq Corp
of the transactions contemplated by this Agreement have been duly authorized
by all necessary corporate action on the part of Acq Corp. This Agreement
has been duly executed and delivered by Acq Corp and, assuming this Agreement
constitutes the valid and binding obligation of Target, constitutes a valid
and binding obligation of Acq Corp, enforceable against Acq Corp in
accordance with its terms. The execution and delivery of this Agreement do
not, and the consummation of the transactions contemplated by this Agreement
will not, conflict with, or result in any violation of, or default (with or
without notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of any obligation or to loss of a
material benefit under, or result in the creation of any Lien upon any of the
properties or assets of Acq Corp under, (i) the articles of incorporation or
by-laws of Acq Corp, (ii) subject to the governmental filings and other
matters referred to in the following sentence, any loan or credit agreement,
note, bond, mortgage, indenture, lease or other agreement, instrument,
permit, concession, franchise or license applicable to Acq Corp or (iii)
subject to the governmental filings and other matters referred to in the
following sentence, any judgment, order, decree, statute, law, ordinance,
rule or regulation applicable to Acq Corp or its properties or assets, other
than, in the case of clauses (ii) or (iii), any such conflicts, violations,
defaults, rights or Liens that individually or in the aggregate would not (x)
have a material adverse effect on Acq Corp, (y) impair in any material
respect the ability of Acq Corp to perform its obligations under this
Agreement or (z) prevent or impede the consummation of any of the
transactions contemplated by this Agreement. No consent, approval, order or
authorization of, or registration, declaration or filing with, any
Governmental Entity is required by Acq Corp in connection with the execution
and delivery of this Agreement or the consummation by
30
<PAGE>
Acq Corp of any of the transactions contemplated by this Agreement, except
for (i) the filing of a premerger notification and report form under the HSR
Act, (ii) the filing with the SEC of such reports under the Exchange Act as
may be required in connection with this Agreement and the transactions
contemplated by this Agreement, (iii) the filing of the Articles of Merger
with the Nevada Secretary of State and appropriate documents with the
relevant authorities of other states in which Target is qualified to do
business, (iv) any approvals, licenses, authorizations, orders,
registrations, findings of suitability and filings of notices with Gaming
Authorities under Gaming Laws, (v) such filings as may be required by an
applicable state securities or "blue sky" laws, (vi) in connection with any
state or local tax which is attributable in respect of the beneficial
ownership of real property of Target or its Subsidiaries, (vii) such
immaterial filings and immaterial consents as may be required under any
environmental, health or safety law or regulation pertaining to any
notification, disclosure or required approval triggered by the Merger or the
transactions contemplated by this Agreement, (viii) such immaterial filings,
consents, approvals, orders, registrations and declarations as may be
required under the laws of any foreign country in which the Acq Corp or any
of its Subsidiaries or Target or any of its Subsidiaries conducts any
business or owns any assets, and (ix) such other consents, approvals, orders,
authorizations, registrations, declarations and filings the failure of which
to be obtained or made would not, individually or in the aggregate, (x) have
a material adverse effect on Acq Corp, (y) impair, in any material respect,
the ability of Acq Corp to perform its obligations under this Agreement or
(z) prevent or significantly delay the consummation of the transactions
contemplated by this Agreement.
SECTION 5.03. INTERIM OPERATIONS OF ACQ CORP. Acq Corp was formed
solely for the purpose of engaging in the transactions contemplated hereby and
has not engaged in any business activities or conducted any operations other
than in connection with the transactions contemplated hereby.
SECTION 5.04. SUFFICIENT FUNDS. On the Closing Date, Acq Corp will
have sufficient funds to pay the Merger Consideration. Acq Corp possesses the
means, pursuant to a binding commitment from Colony Investors III, L.P. or
pursuant to another arrangement from a replacement source reasonably acceptable
to Target, to obtain $10 million in cash upon 10 business days' prior notice.
31
<PAGE>
ARTICLE VI
COVENANTS RELATING TO CONDUCT OF BUSINESS
SECTION 6.01. CONDUCT OF BUSINESS.
(a) During the term of this Agreement, except as specifically
required by this Agreement or permitted under subsection (b) of this
Section 6.01, Target shall and shall cause its Subsidiaries to carry on
their respective businesses in the Ordinary Course of Business and use all
reasonable efforts to preserve intact their current business organizations,
keep available the services of their current officers and employees and
preserve their relationships consistent with past practice with desirable
customers, suppliers, licensors, licensees, distributors and others having
business dealings with them to the end that their goodwill and ongoing
businesses shall be unimpaired in all material respects at the Effective
Time. Except as expressly permitted or contemplated by the terms of this
Agreement, without limiting the generality of the foregoing, Target shall
not, and shall not permit any of its Subsidiaries to (without Acq Corp's
prior written consent, which consent may not be unreasonably withheld):
(i) (A) declare, set aside or pay any dividends
on, or make any other distributions in respect of, any of its capital
stock, other than dividends and distributions by any direct or
indirect wholly owned Subsidiary of Target to its Parent and other
than the declaration and payment of regular quarterly dividends on the
Common Stock in an amount not to exceed $.05 per share for each of
Target's fiscal quarters, (B) split, combine or reclassify any of its
capital stock or issue or authorize the issuance of any other
securities in respect of, in lieu of or in substitution for shares of
its capital stock or (C) except as shall be required under currently
existing terms of any stock-based benefit plan, purchase, redeem or
otherwise acquire or amend any shares of capital stock of Target or
any of its Subsidiaries or any other securities thereof or any rights,
warrants, options to acquire or any securities convertible into or
exchangeable for any such shares or other securities (other than (x)
redemptions, purchases or other acquisitions required by applicable
provisions under Gaming Laws and (y) issuances or redemptions of
capital stock of wholly owned
32
<PAGE>
Subsidiaries occurring between Target and any of its wholly owned
Subsidiaries or occurring between wholly owned Subsidiaries of Target);
(ii) issue, deliver, sell, pledge or otherwise
encumber or amend any shares of its capital stock, any other voting
securities or any securities convertible or exchangeable into, or any
rights, warrants or options to acquire, any such shares, voting
securities or convertible or exchangeable securities (other than the
issuance of Common Stock upon the exercise of employee stock options
and contingent incentive plans (including with respect to contingent
shares of Common Stock) outstanding on the date of this Agreement in
accordance with their present terms);
(iii) amend its Restated Articles of
Incorporation, By-laws or other comparable charter or organizational
documents;
(iv) take any action that would result in the
failure to maintain the listing of Common Stock on the NYSE;
(v) develop, acquire or agree to develop or
acquire any projects, assets or lines of business, including without
limitation by merging or consolidating with, or by purchasing all or a
substantial portion of the assets of, or by any other manner, any
business or any corporation, partnership, joint venture, association
or other business organization or division thereof, or any assets that
are material, individually or in the aggregate, to Target and its
Subsidiaries taken as a whole, except (x) purchases of inventory,
furnishings and equipment in the Ordinary Course of Business or (y)
expenditures consistent with Target's current capital budget, as set
forth in Schedule 6.01(a)(v) (the "BUDGET");
(vi) sell, lease, license, swap, barter, mortgage
or otherwise encumber or subject to any Lien or otherwise dispose of
or prevent from becoming subject to a Lien any of its properties or
assets, except transactions in the Ordinary Course of Business;
33
<PAGE>
(vii) (A) other than (1) working capital
borrowings in the Ordinary Course of Business, (2) projects approved
prior to the date of this Agreement by the Board of Directors of
Target as set forth in Schedule 6.01(a)(vii), to the extent permitted
by Section 6.01(b), (3) specific projects at existing, operational
facilities referred to in the Budget and (4) other incurrences of
indebtedness which, in the aggregate, do not exceed $10.0 million,
incur any indebtedness, forgive any debt obligations of any Person to
Target or its Subsidiaries, issue or sell any debt securities or
warrants or other rights to acquire any debt securities of Target or
any of its Subsidiaries, guarantee any debt securities of another
Person, enter into any "keep well" or other agreement to maintain any
financial statement condition of another Person or enter into any
arrangement having the economic effect of any of the foregoing or (B)
other than (1) to Target or any direct or indirect wholly owned
Subsidiary of Target, (2) advances to employees, suppliers or
customers in the Ordinary Course of Business, (3) projects approved
prior to the date of this Agreement by the Board of Directors of
Target as set forth in Schedule 6.01(a)(vii), to the extent permitted
by Section 6.01(b), and (4) specific projects referred to in the
Budget, make any loans, advances or capital contributions to, or
investments in, any other Person;
(viii) settle any claim, action, or lawsuit
relating to material Taxes pending as of the date hereof or arising on
or after the date hereof, make any material Tax election, or amend any
material Tax Return in any respect;
(ix) pay, discharge, settle or satisfy any
material claims, liabilities or obligations (absolute, accrued,
asserted or unasserted, contingent or otherwise), other than the
payment, discharge, settlement or satisfaction in the Ordinary Course
of Business or in accordance with their terms of liabilities reflected
or reserved against in the Base Balance Sheet or incurred in the
Ordinary Course of Business, or, except in the Ordinary Course of
Business, waive the benefits of, or agree to modify in any manner, any
confidentiality, standstill or similar agreement to which Target or
any of its Subsidiaries is a party;
34
<PAGE>
(x) make any change in the compensation payable
or to become payable to any of its officers, directors, employees,
agents or consultants (other than (i) general increases in wages to
employees who are not officers, directors or Affiliates in the
Ordinary Course of Business and (ii) salary increases for officers
other than Target's President pursuant to regular annual reviews in
the Ordinary Course of Business and approved by Target's President
pursuant to previously granted Board authority, PROVIDED that no
compensation described in the clause (ii) shall be in the form of
capital stock of Target or any securities convertible or exchangeable
into, or any rights, warrants or options to acquire, such capital
stock), or to Persons providing management services, enter into or
amend any employment, severance, consulting, termination or other
agreement or employee benefit plan or make any loans to any of its
officers, directors, employees, Affiliates, agents or consultants or
make any change in its existing borrowing or lending arrangements for
or on behalf of any of such Persons pursuant to an employee benefit
plan or otherwise;
(xi) pay or make any accrual or arrangement for
payment of any pension, retirement allowance or other employee benefit
pursuant to any existing plan, agreement or arrangement to any
officer, director, employee or Affiliate or pay or agree to pay or
make any accrual or arrangement for payment to any officers,
directors, employees or Affiliates of Target of any amount relating to
unused vacation days, except payments and accruals made in the
Ordinary Course of Business; adopt or pay, grant, issue, accelerate or
accrue salary or other payments or benefits pursuant to any pension,
profit-sharing, bonus, extra compensation, incentive, deferred
compensation, stock purchase, stock option, stock appreciation right,
group insurance, severance pay, retirement or other employee benefit
plan, agreement or arrangement, or any employment or consulting
agreement with or for the benefit of any director, officer, employee,
agent or consultant, whether past or present, other than as required
under applicable law or the current terms of any plan or agreement
identified in Schedule 4.10(a); or amend in any material respect any
such existing plan, agreement or arrangement in a manner inconsistent
with the foregoing;
35
<PAGE>
(xii) enter into any collective bargaining
agreement;
(xiii) make any payments (other than regular
compensation payable to officers and employees of Target in the
Ordinary Course of Business), loans, advances or other distributions
to, or enter into any transaction, agreement or arrangement with, any
of Target's Affiliates, officers, directors, stockholders or their
Affiliates, associates or family members or do or enter into any of
the foregoing with respect to employees, agents or consultants other
than in the Ordinary Course of Business;
(xiv) except in the Ordinary Course of Business
and except as otherwise permitted by this Agreement, modify, amend or
terminate any contract or agreement set forth in the 1997 SEC
Documents to which Target or any Subsidiary is a party or waive,
release or assign any material rights or claims; or
(xv) authorize any of, or commit or agree to take
any of, the foregoing actions except as otherwise permitted by this
Agreement.
(b) DEVELOPMENT PROJECT. Target and Acq Corp agree that Target,
without the prior written consent of Acq Corp otherwise required under
Section 6.01(a), (1) may make option payments in the monthly amount of
$37,500.00 until August 15, 1998, and in the monthly amount of $75,000.00
thereafter until October 15, 1998, in accordance with the terms of that
certain Option Agreement made and entered into as of January 8, 1998 (the
"OPTION AGREEMENT"), by and between Target and Grand Plaza Limited
Partnership, a Nevada limited partnership, as such agreement may be amended
and in effect on the date hereof, and (2) may further expend such amounts
as are reasonably necessary in connection with development opportunities
and activities for the parcel of land subject to the Option Agreement as
well as for previously identified development opportunities in
Massachusetts and in Rockford, Illinois, PROVIDED, that this Section
6.01(b) shall not permit Acq Corp to exercise the option pursuant to the
Option Agreement or to acquire (by purchase, lease or otherwise) any fixed
or other tangible assets relating to any
36
<PAGE>
such project without Acq Corp's consent pursuant to Section 6.01(a).
(c) OTHER ACTIONS. Target shall not, and shall not permit any
of its Subsidiaries to, take any action that would result in any of its
representations and warranties set forth in this Agreement becoming untrue.
SECTION 6.02. ADVICE OF CHANGES. Acq Corp and Target shall promptly
advise the other party orally and in writing of
(a) Any representation or warranty made by it contained in this
Agreement becoming untrue or inaccurate in any respect;
(b) The failure by it to comply with or satisfy in any respect
any covenant, condition or agreement to be complied with or satisfied by it
under this Agreement; or
(c) Any change or event having, or which, insofar as can
reasonably be foreseen, would have, a material adverse effect on such party
and its Subsidiaries taken as a whole or on the truth of their respective
representations and warranties or the ability of the conditions set forth
in Article VI to be satisfied;
PROVIDED, HOWEVER, that no such notification shall affect the representations,
warranties, covenants or agreements of the parties or the conditions to the
obligations of the parties under this Agreement. Additionally, Target shall
furnish to Acq Corp, as promptly as practicable following Acq Corp's request
therefor, all information reasonably necessary for Acq Corp accurately to
determine (i) what amounts, if any, payable under any of the Plans or any other
contract, agreement or arrangement with respect to which Target or any of its
Subsidiaries may have any liability could fail to be deductible for federal
income tax purposes by virtue of section 162(m) or section 280G of the Code, or
(ii) whether Target or any of its Subsidiaries has entered into any contract,
agreement or arrangement that would result in the disallowance of any tax
deductions pursuant to section 280G of the Code.
SECTION 6.03. NO SOLICITATION.
(a) Target shall not, nor shall it permit any of its
Subsidiaries to, nor shall it authorize or permit any affiliate, agent,
partner, officer,
37
<PAGE>
director or employee of, or any investment banker, attorney or other
advisor or representative of, Target or any of its Subsidiaries to,
directly or indirectly, (i) solicit or initiate, or encourage any
inquiries regarding or the submission of, any Takeover Proposal
(including, without limitation, any proposal or offer to Target's
stockholders) or (ii) participate in any discussions or negotiations
regarding, or furnish to any Person any information with respect to, or
take any other action to facilitate the making of any proposal that
constitutes, or may reasonably be expected to lead to, any such Takeover
Proposal; PROVIDED, if in the opinion of the Board of Directors, after
consultation with outside legal counsel, such failure to act would be
inconsistent with its fiduciary duties to Target's stockholders under
applicable law, Target may, in response to an unsolicited Takeover
Proposal, and subject to compliance with Section 6.03(c), (A) furnish
information with respect to Target to any Person pursuant to an
executed, customary confidentiality and "standstill" agreement and (B)
participate in negotiations regarding such Takeover Proposal. Without
limiting the foregoing, it is understood that any violation of the
restrictions set forth in the preceding sentence by any director or
officer of Target or any of its Subsidiaries (each a "COVERED PERSON"),
whether or not such Person is purporting to act on behalf of Target or
any of its Subsidiaries or otherwise, shall be deemed to be a breach of
this Section 6.03(a) by Target; PROVIDED that it is understood that this
Section 6.03(a) shall not be deemed to have violated if in response to
an unsolicited inquiry, a Covered Person states solely that he or she is
subject to the terms of this Agreement. All Covered Persons shall
immediately cease and cause to be terminated any existing activities,
discussions and negotiations with any parties conducted heretofore with
respect to, or that could reasonably be expected to lead to, any of the
foregoing.
(b) Neither the Board of Directors of Target nor any committee
thereof shall (i) withdraw or modify, or propose to withdraw or, in a
manner adverse to Acq Corp, modify the approval or recommendation by such
Board of Directors or any such committee of this Agreement, the Merger, or
the Voting Agreement, (ii) approve or recommend, or propose to approve or
recommend, any Takeover Proposal or (iii) enter into any agreement with
respect to any Takeover Proposal. Notwithstanding the foregoing, the Board
of Directors, prior to the approval of this Agreement or the Merger
(including as the same may be modified hereafter) by the holders of at
least two-thirds of the outstanding shares of Common Stock, to the extent
required by the fiduciary duties to Target's shareholders under applicable
Law, after consulta-
38
<PAGE>
tion with outside legal counsel, may, subject to the terms of this and
the following sentences of this Section 6.03(b), withdraw or modify its
approval or recommendation of this Agreement, the Merger or the Voting
Agreement, approve or recommend a Competitive Proposal, or enter into an
agreement with respect to a Competitive Proposal, in each case at any
time after 12:00 noon, Los Angeles time, on the tenth day following Acq
Corp's receipt of written notice (a "NOTICE OF COMPETITIVE PROPOSAL")
advising Acq Corp that the Board of Directors has received a Competitive
Proposal, specifying the material terms and conditions of such
Competitive Proposal and identifying the Person making such Competitive
Proposal. Acq Corp shall have the opportunity, until the end of the
tenth day after it receives a Notice of Competitive Proposal, to make an
offer that the Board of Directors of Target must consider in good faith,
after consultation with its financial advisors, to determine if it is at
least as favorable, from a financial point of view, to the shareholders
of Target as the Competitive Proposal. In addition, if Target enters
into an agreement with respect to any Takeover Proposal, it shall
concurrently with entering into such agreement pay, or cause to be paid,
to Acq Corp the Expenses and the Termination Fee.
(c) In addition to the obligations of Target set forth in
paragraph (b), Target shall advise Acq Corp promptly of any request for
information or of any Takeover Proposal, or any proposal with respect to
any Takeover Proposal, the material terms and conditions of such request or
Takeover Proposal, and the identity of the Person making any such Takeover
Proposal or inquiry. Target will keep Acq Corp fully informed of the
status and details (including amendments or proposed amendments) of any
such request, Takeover Proposal or inquiry.
ARTICLE VII
ADDITIONAL AGREEMENTS
SECTION 7.01. STOCKHOLDERS MEETING. Target will, as soon as
practicable, and in no event later than 120 days after the date hereof, duly
call, give notice of, convene and hold a meeting of the holders of Common Stock
(the "STOCKHOLDERS MEETING"). Subject to the provisions of Section 6.03(b),
Target will, through its Board of Directors, recommend to its stockholders
approval of this
39
<PAGE>
Agreement, the Merger and the other transactions contemplated by this
Agreement.
SECTION 7.02. PROXY STATEMENT AND OTHER FILINGS; REGISTRATION
STATEMENT; AUDITOR'S LETTER.
(a) If required pursuant to the Exchange Act, Target shall as
promptly as possible after the execution of this Agreement, and in no event
later than 30 days after the date hereof, prepare and file with the SEC a
proxy statement (the "PROXY STATEMENT") in connection with the Merger.
Target shall cause the Proxy Statement to comply as to form in all material
respects with the applicable provisions of the Exchange Act. Target agrees
that the Proxy Statement and each amendment or supplement thereto at the
time it is filed shall not include an untrue statement of material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances in which they
were made, not misleading. As promptly as possible after clearance by the
SEC of the Proxy Statement, Target shall mail the Proxy Statement to its
stockholders.
(b) Target shall fully cooperate with Acq Corp so that Acq Corp
may prepare and file with the SEC a registration statement on Form 10
(together with all amendments thereto, the "REGISTRATION STATEMENT") in
connection with the registration under the Exchange Act of the shares of
Class A Common Stock of Acq Corp, including using Target's best efforts to
obtain and furnish the information required to be included therein and
using its best efforts to respond promptly to any comments made by the SEC
with respect thereto.
(c) As promptly as practicable, Acq Corp and Target each shall
properly prepare and file any other filings required under the Exchange
Act, the Securities Act or any other Laws relating to the Merger, the Proxy
Statement, the registration of any capital stock of Acq Corp and the
transactions contemplated hereby (collectively, "OTHER FILINGS").
(d) Acq Corp and Target shall furnish to each other all
information concerning it as the other may reasonably request in connection
with the preparation of the Proxy Statement, the Registration Statement and
the Other Filings.
40
<PAGE>
(e) Target shall use its best efforts to cause to be delivered
to Acq Corp a letter of Deloitte & Touche LLP, Target's independent
auditors, dated a date within two business days before the date on which
the Registration Statement shall become effective and addressed to Acq
Corp, customary in form, scope and substance for letters delivered by
independent public accountants in connection with registration statements
similar to the Registration Statement.
SECTION 7.03. ACCESS TO INFORMATION; CONFIDENTIALITY. Target
shall afford to Acq Corp, and to Acq Corp's officers, employees, accountants,
counsel, financial advisers and other representatives, reasonable access
during normal business hours during the period prior to the Effective Time to
all the properties, books, contracts, commitments and records of Target and
its Subsidiaries and, during such period, Target shall furnish promptly to
Acq Corp (a) a copy of each report, schedule, registration statement and
other document filed by it or its Subsidiaries during such period pursuant to
the requirements of Federal or state securities laws and (b) all other
information concerning its or its Subsidiaries' business, properties and
personnel as Acq Corp may reasonably request. Except as otherwise agreed to
by Target, notwithstanding termination of this Agreement, Acq Corp will keep,
and will cause its officers, employees, accountants, counsel, financial
advisers and other representatives and affiliates to keep, all Confidential
Information (as defined below) confidential and not to disclose any
Confidential Information to any Person other than Acq Corp's or Acq Corp's
directors, officers, employees, affiliates or agents, and then only on a
confidential basis; PROVIDED, HOWEVER, that Acq Corp may disclose
Confidential Information (i) as required by law, rule, regulation or judicial
process, including as required to be disclosed in connection with the Merger,
the Registration Statement and the Other Filings, (ii) to its attorneys,
accountants and financial advisors or (iii) as requested or required by any
Governmental Entity. For purposes of this Agreement, "CONFIDENTIAL
INFORMATION" shall include all information about Target which has been
furnished by Target to Acq Corp; PROVIDED, HOWEVER, that Confidential
Information does not include information which (x) is or becomes generally
available to the public other than as a result of a disclosure by Acq Corp,
its attorneys, accountants or financial advisors not permitted by this
Agreement, (y) was available to Acq Corp on a non-confidential basis prior to
its disclosure to Acq Corp by Target or (z) becomes available to Acq Corp on
a non-confidential basis from a Person other than Target who, to the
Knowledge of Acq Corp, is not otherwise bound by a confidentiality agreement
with Target or is not otherwise prohibited from transmitting the relevant
information to Acq Corp. In the event of termination of this Agreement for any
41
<PAGE>
reason, Acq Corp shall promptly return all Confidential Information to Target.
SECTION 7.04. REASONABLE EFFORTS; NOTIFICATION.
(a) Upon the terms and subject to the conditions set forth in
this Agreement, each of the parties agrees to use all reasonable efforts to
take, or cause to be taken (including through its officers and directors
and other appropriate personnel), all actions, and to do, or cause to be
done, and to assist and cooperate with the other parties in doing, all
things necessary, proper or advisable to consummate and make effective, in
the most expeditious manner practicable, the Merger, the Voting Agreement
and the other transactions contemplated by this Agreement, including (i)
the obtaining of all necessary actions or nonactions, waivers, consents and
approvals from Governmental Entities and the making of all necessary
registrations and filings (including filings with Governmental Entities, if
any) and the taking of all reasonable steps as may be necessary to obtain
Permits or waivers from, or to avoid an action or proceeding by, any
Governmental Entity (including in respect of any Gaming Law), (ii) the
obtaining of all necessary consents, approvals or waivers from third
parties, (iii) the defending of any lawsuits or other legal proceedings,
whether judicial or administrative, challenging this Agreement or the
consummation of any of the transactions contemplated by this Agreement,
including seeking to have any stay or temporary restraining order entered
by any court or other Governmental Entity vacated or reversed and (iv) the
execution and delivery of any additional instruments necessary to
consummate the transactions contemplated by, and to fully carry out the
purposes of, this Agreement. In connection with and without limiting the
foregoing, Target and its Board of Directors shall (including through its
officers and directors and other appropriate personnel) (i) take all action
necessary to ensure that no state takeover, business combination, control
share, fair price or value statute or similar statute or regulation is or
becomes applicable to the Merger, this Agreement, the Voting Agreement or
any of the other transactions contemplated by this Agreement, (ii) if any
state takeover, business combination, control share, fair price or value
statute or similar statute or regulation becomes applicable to the Merger,
this Agreement or the Voting Agreement or any other transaction
contemplated by this Agreement or the Voting Agreement, take all action
necessary to ensure that the Merger and the other transactions contemplated
by this Agreement or the Voting Agreement may be consummated as promptly as
practicable on the terms contemplated by this
42
<PAGE>
Agreement and the Voting Agreement and otherwise to minimize the effect
of such statute or regulation on the Merger, this Agreement, the Voting
Agreement and the other transactions contemplated by this Agreement and
the Voting Agreement, and (iii) take all action necessary to assist Acq
Corp in connection with efforts reasonably related to obtaining
financing for the Merger and related transactions. Notwithstanding the
foregoing, the parties acknowledge that Acq Corp and its Affiliates are
not obligated by Section 7.04(a) or any other provision of this
Agreement to obtain any consent, approval, license, waiver, order,
decree, determination of suitability or other authorization with respect
to any limited partner of any Affiliate of Acq Corp. Nothing herein
shall be deemed to require Acq Corp or any of its Affiliates to take any
steps (including without limitation the expenditure of funds) or provide
any information to obtain any consent, approval, license, waiver, order,
decree, determination of suitability or other authorization, other than
is customary in the States of Nevada, Iowa and Colorado for such matters.
(b) Target shall give prompt notice to Acq Corp of (i) any
representation or warranty made by it contained in this Agreement becoming
untrue or inaccurate in any respect (including receiving Knowledge of any
fact, event or circumstance which may cause any representation qualified as
to the Knowledge of Target to be or become untrue or inaccurate in any
respect) or (ii) the failure by it to comply with or satisfy in any
material respect any covenant, condition or agreement to be complied with
or satisfied by it under this Agreement; PROVIDED HOWEVER, that no such
notification shall affect the representations, warranties, covenants or
agreements of the parties or the conditions to the obligations of the
parties under this Agreement.
(c) Acq Corp shall give prompt notice to Target of (i) any
representation or warranty made by it contained in this Agreement becoming
untrue or inaccurate in any respect (including receiving Knowledge of any
fact, event or circumstance which may cause any representation qualified as
to the Knowledge of Acq Corp to be or become untrue or inaccurate in any
respect) or (ii) the failure by it to comply with or satisfy in any
material respect any covenant, condition or agreement to be complied with
or satisfied by it under this Agreement; PROVIDED, HOWEVER, that no such
notification shall affect the representations, warranties, covenants or
agreements of the parties or the conditions to the obligations of the
parties under this Agreement.
43
<PAGE>
SECTION 7.05. STOCK OPTION PLANS; CHANGE OF CONTROL PLAN.
(a) As soon as practicable following the date of this Agreement,
but in any event no later than 30 days before the Closing Date, the Board
of Directors of Target (or, if appropriate, any committee administering the
Stock Option Plans (as defined below)) shall adopt such resolutions or use
its best efforts to take such other actions as are required to provide that
each then outstanding stock option to purchase shares of Common Stock (a
"STOCK OPTION") heretofore granted under any stock option or other stock-
based incentive plan, program or arrangement of Target (collectively, the
"STOCK OPTION PLANS") shall be cancelled immediately prior to the Effective
Time in exchange for payment of an amount in cash equal to the product of
(x) the number of shares of Common Stock subject to such Stock Option
immediately prior to the consummation of the Merger and (y) the excess, if
any, of the Merger Consideration over the per share exercise price of such
Stock Option. A listing of all outstanding Stock Options as of the date
hereof, showing what portions of such Stock Options are exercisable as of
such date, the dates upon which such Stock Options expire, and the exercise
price of such Stock Options, is set forth in Schedule 7.05. Target
represents and warrants that it has the authority to provide for the
cancellation of all Target Stock Options as provided in this Section 7.05
without the need to obtain consents from the holders of any such Stock
Options.
(b) All Stock Option Plans shall terminate as of the Effective
Time, and the provisions in any other Benefit Plan providing for the
issuance, transfer or grant of any capital stock of Target or any interest
in respect of any capital stock of Target shall be deleted as of the
Effective Time. Immediately following the Effective Time no holder of a
Stock Option or any participant in any Stock Option Plan shall have any
right thereunder to acquire any capital stock of Target, Acq Corp or the
Surviving Corporation.
(c) Target shall take all actions necessary to provide that at
or immediately prior to the Effective Time, (i) each then outstanding
option or right to acquire shares of Common Stock under Target's Employee
Stock Purchase Plan (the "STOCK PURCHASE PLAN") shall automatically be
exercised or deemed exercised and (ii) in lieu of issuing certificates for
Common Stock, each option or right holder shall receive an amount in cash
(subject to any applicable withholding tax) equal to the product of (x) the
number of shares of
44
<PAGE>
Common Stock otherwise issuable upon such exercise and (y) the Merger
Consideration. Target shall use all reasonable efforts to effectuate
the foregoing, including, without limitation, amending the Stock
Purchase Agreement and obtaining any necessary consents from holders of
such options or rights. Target (i) shall not permit the commencement of
any new offering period under the Stock Purchase Plan following the date
hereof, (ii) shall not permit any optionee or right holder to increase
his or her rate of contributions under the Stock Purchase Plan following
the date hereof, (iii) shall terminate the Stock Purchase Plan as of the
Effective Time, and (iv) shall take any other actions necessary to
provide that as of the Effective Time no holder of options or rights
under the Stock Purchase Plan will have any right to receive shares of
common stock of the Surviving Corporation upon exercise of any such
option or right.
(d) As soon as reasonably practicable after the date hereof,
Target shall amend its Change of Control Plan, effective as of the date
hereof, (i) to delete Section 9 thereof (regarding non-competition
provisions) and (ii) to clarify that, except as may be otherwise expressly
agreed to in writing by Acq Corp, no participant in the Change of Control
Plan shall, upon termination of employment, be entitled to receive an
amount in excess of the greater of (x) the amount of such participant's
severance compensation as determined under the Change of Control Plan and
(y) the amount of such participant's severance compensation as determined
under any applicable employment agreement between such participant and
Target; PROVIDED, that the amendments provided for under this Section
7.05(d) shall only apply with respect to a "Change of Control" (as defined
under the Change of Control Plan) resulting from the consummation of the
transactions contemplated hereunder.
SECTION 7.06. INDEMNIFICATION AND INSURANCE.
(a) The indemnification obligations set forth in Target's
Restated Articles of Incorporation and By-laws on the date of this
Agreement shall be duplicated, to the extent permissible under the NRS, in
the Surviving Corporation's Articles of Incorporation and By-laws and shall
not be amended, repealed or otherwise modified for a period of six years
after the Effective Time in any manner that would adversely affect the
rights thereunder of individuals who on or prior to the Effective Time were
directors, officers, employees or agents of Target (the "INDEMNIFIED
PARTIES").
45
<PAGE>
(b) For six years from the Effective Time, the Surviving
Corporation shall, unless Acq Corp agrees in writing to guarantee the
indemnification obligations set forth in Section 7.06(a), either (x)
maintain in effect Target's current directors' and officers' liability
insurance covering those Persons who are covered on the date of this
Agreement by Target's directors' and officers' liability insurance policy
(a copy of which has been made available to Acq Corp) or (y) procure
directors' and officers' liability insurance to cover those Persons who are
covered on the date of this Agreement by Target's directors' and officers'
liability insurance policy with respect to those matters covered by
Target's directors' and officers' liability policy; PROVIDED that in no
event shall the Surviving Corporation be required to expend to maintain or
procure insurance coverage pursuant to this Section 7.06(b) an amount per
annum in excess of 125% of the current annual premiums for the directors'
and officers' liability insurance policy approved by Target's Board of
Directors on January 22, 1998 (the "MAXIMUM PREMIUM") and, if the cost of
such coverage exceeds the Maximum Premium, the maximum amount of coverage
that shall be required to be purchased or maintained shall be such amount
that may be purchased or maintained for the Maximum Premium.
(c) Section 7.06 shall survive the consummation of the Merger at
the Effective Time, is intended to benefit Target, Acq Corp, the Surviving
Corporation and the Indemnified Parties, and shall be binding on all
successors and assigns of Acq Corp and the Surviving Corporation.
SECTION 7.07. FEES AND EXPENSES.
(a) Except as provided below, all fees and expenses incurred in
connection with the Merger, this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such fees or
expenses, whether or not the Merger is consummated.
(b) Target shall pay, or cause to be paid, in same day funds to
Acq Corp the sum of (x) all of the reasonably documented out-of-pocket
expenses (the "EXPENSES") of Acq Corp and (y) $10,000,000 (the "TERMINATION
FEE") upon demand if (i) Acq Corp terminates this Agreement pursuant to
Section 9.01(d) and prior to such termination a Takeover Proposal shall
have been made; (ii) Target terminates this Agreement pursuant to Section
9.01(e);
46
<PAGE>
or (iii) prior to any other termination of this Agreement (which
termination does not result from the failure of Acq Corp to cause any
condition specified in Section 8.03 to be satisfied), a Takeover
Proposal shall have been made and within 12 months of such termination,
a transaction constituting a Takeover Proposal is consummated or Target
enters into an agreement with respect to, or the Board of Directors of
Target or a committee thereof approves or recommends a Takeover
Proposal. The amount of Expenses payable under this subsection (b) shall
be the amount set forth in an estimate delivered by Acq Corp or Target,
as the case may be, following the date such expenses become payable,
subject to upward or downward adjustment, upon delivery of reasonable
documentation therefor.
SECTION 7.08. PUBLIC ANNOUNCEMENTS. Acq Corp, on the one hand, and
Target, on the other hand, will consult with each other before issuing, and
provide each other the opportunity to review and comment upon, any press release
or other public statements with respect to the transactions contemplated by this
Agreement, including the Merger, and shall not issue any such press release or
make any such public statement prior to such consultation, except as may be
required by applicable law, court process or by obligations pursuant to any
listing agreement with any national securities exchange or national securities
quotation system (in which case the parties will use reasonable efforts to
cooperate in good faith with respect to such press release or other public
statement). The parties agree that the initial press release to be issued with
respect to the transactions contemplated by this Agreement shall be in the form
heretofore agreed to by the parties.
SECTION 7.09. TITLE POLICIES. Target agrees that, prior to the
Effective Time, it will use its reasonable efforts to cause such officers of
Target and its Subsidiaries, as Acq Corp's or Acq Corp's Title Insurer may
reasonably require, to execute such reasonable and customary affidavits as shall
permit such Title Insurer to issue an endorsement to its title insurance
policies insuring title to the real properties owned or leased by Target or any
of its Subsidiaries to the effect that the Title Insurer will not claim as a
defense under any such policy failure of insured to disclose to the Title
Insurer prior to the date of the relevant policy any defects, Liens,
encumbrances or adverse claims not shown by public records and known to the
insured (but not known to Acq Corp) prior to the Effective Time.
47
<PAGE>
SECTION 7.10. TRANSFER TAXES. All liability for transfer or other
similar taxes arising out of or related to the sale of Common Stock to the Acq
Corp or the consummation of any other transaction contemplated by this Agreement
("TRANSFER TAXES") shall be borne by Target. Target shall file or cause to be
filed all returns relating to such Transfer Taxes which are due, and, to the
extent appropriate or required by law, the stockholders of Target shall
cooperate with respect to the filing of such returns.
SECTION 7.11. MAINTENANCE OF COMMITMENT. Acq Corp shall maintain in
effect the arrangements contemplated by Section 5.04 until the earlier of (i)
the consummation of the Merger and (ii) subject to the proviso below, six months
following any termination of this Agreement prior to the Effective Time;
PROVIDED that Acq Corp's obligations pursuant to this Section 7.11 shall
terminate if and when (a) Acq Corp terminates this Agreement pursuant to Section
9.01(d) or (b) Target enters into a definitive agreement with respect to a
Takeover Proposal or such a proposal is consummated.
ARTICLE VIII
CONDITIONS PRECEDENT
SECTION 8.01. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGER. The respective obligations of each party to effect the Merger is
subject to the satisfaction or waiver on or prior to the Closing Date of the
following conditions:
(a) STOCKHOLDER APPROVAL. This Agreement shall have been
approved and adopted by the affirmative vote of the holders of at least
two-thirds of all shares of Common Stock entitled to be cast in accordance
with applicable law and Target's Restated Articles of Incorporation.
(b) NO INJUNCTIONS OR RESTRAINTS. No statute, rule, regulation,
executive order, decree, temporary restraining order, preliminary or
permanent injunction or other order enacted, entered, promulgated, enforced
or issued by any Governmental Entity or other legal restraint or
prohibition preventing the consummation of the Merger or the transactions
contemplated thereby shall be in effect; PROVIDED, in the case of a decree,
injunction or other order, each of the parties shall have used their best
efforts to prevent the entry of any such injunction or other order and to
appeal as promptly as possible any
48
<PAGE>
decree, injunction or other order that may be entered.
SECTION 8.02. CONDITIONS TO OBLIGATIONS OF ACQ CORP. The
obligations of Acq Corp to effect the Merger are further subject to the
satisfaction or waiver on or prior to the Closing Date of the following
conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Target contained herein that are qualified as to materiality
shall be true and accurate, and those not so qualified shall be true and
accurate in all material respects, in each case at and as of the Effective
Time with the same force and effect as though made at and as of the
Effective Time (except to the extent a representation or warranty speaks
specifically as of an earlier date or except as contemplated by this
Agreement), and Acq Corp shall have received certificates signed on behalf
of Target by its President and its Chief Financial Officer to such effect.
(b) AGREEMENTS AND COVENANTS. Target shall have performed, in
all material respects, all obligations and complied, in all material
respects, with all covenants required by this Agreement to be performed or
complied with by it at or prior to the Effective Time, and Acq Corp shall
have received certificates signed on behalf of Target by its President and
its Chief Financial Officer to such effect.
(c) NO MATERIAL ADVERSE EFFECT. From the date hereof through
and including the Effective Time, no event shall have occurred which would
have a material adverse effect on Target or any Material Subsidiary.
(d) CANCELLATION OF STOCK OPTIONS AND SARS. As of the Effective
Time, all Stock Options shall have been cancelled.
(e) GAMING AUTHORITY APPROVAL. All licenses, permits,
registrations, authorizations, consents, waivers, orders, findings of
suitability or other approvals required to be obtained from, and all
filings, notices or declarations required to be made with, any Gaming
Authority to permit Acq Corp to consummate the Merger and to permit it and
each of its Subsidiaries to conduct their businesses in the jurisdictions
regulated by such Gaming Authorities after the Effective Time in the same
manner as conducted by Target and its Subsidiaries prior to the Effective
Time shall have been obtained or
49
<PAGE>
made, as applicable.
(f) THIRD PARTY CONSENTS. All consents, orders, approvals,
authorizations, registrations, findings of suitability and action of any
Governmental Entity other than a Gaming Authority required to permit the
consummation of the Merger shall have been obtained or made, free of any
condition.
(g) REGISTRATION STATEMENT. The Registration Statement shall
have become effective in accordance with the Exchange Act, and no stop
order suspending such effectiveness shall have been issued and remain in
effect.
SECTION 8.03. CONDITIONS TO OBLIGATIONS OF TARGET. The obligations
of Target to effect the Merger are further subject to the satisfaction or waiver
on or prior to the Closing Date of the following condition:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Acq Corp contained herein that are qualified as to
materiality shall be true and accurate, and those not so qualified shall be
true and accurate in all material respects, in each case at and as of the
Effective Time with the same force and effect as though made at and as of
the Effective Time (except to the extent a representation or warranty
speaks specifically as of an earlier date or except as contemplated by this
Agreement), and Target shall have received certificates signed on behalf of
Acq Corp by its President to such effect.
(b) AGREEMENTS AND COVENANTS. Acq Corp shall have performed, in
all material respects, all obligations and complied, in all material
respects, with all agreements and covenants required by this Agreement to
be performed or complied with by it at or prior to the Effective Time , and
Target shall have received certificates signed on behalf of Acq Corp by its
President to such effect.
(c) GAMING AUTHORITY APPROVAL. All licenses, permits,
registrations, authorizations, consents, waivers, orders, findings of
suitability or other approvals required to be obtained from, and all
filings, notices or declarations required to be made with, any Gaming
Authority to permit Acq Corp to consummate the Merger shall have been
obtained or made, as applicable.
50
<PAGE>
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
SECTION 9.01. TERMINATION. This Agreement may be terminated at any
time prior to the Effective Time, whether before or after approval of matters
presented in connection with the Merger by the stockholders of Target:
(a) by mutual written consent of Acq Corp and Target;
(b) by either Acq Corp or Target if any Governmental Entity
shall have issued an order, decree or ruling or taken any other action
permanently enjoining, restraining or otherwise prohibiting the acceptance
for payment of, or payment for, shares of Common Stock pursuant to the
Merger and such order, decree or ruling or other action shall have become
final and nonappealable; PROVIDED, in the case of a order, decree, ruling
or other order, each of the parties shall have used their best efforts to
prevent the entry of any such order, decree, ruling or other order and to
appeal as promptly as possible any order, decree, ruling or other order
that may be entered; PROVIDED FURTHER, the right to terminate this
Agreement pursuant to the foregoing clause shall not be available to any
party that fails to comply with Section 7.04(a);
(c) by either Acq Corp or Target, at any time after February 1,
1999, if the Effective Time shall not have occurred on or prior to such
date; PROVIDED, HOWEVER, in the event that the parties shall have received
from any responsible individual of each Gaming Authority (i) the approval
of which is required to be obtained to permit Acq Corp to consummate the
Merger and (ii) which has not prior to February 1, 1999 finally determined
whether such approval shall be granted, reasonable assurances (written or
oral) that a hearing is scheduled or can reasonably be expected to be
scheduled on or prior to April 1, 1999, then, in such event, neither party
may terminate this Agreement pursuant to this Section 9.01(c) prior to
April 1, 1999;
(d) by Acq Corp, if this Agreement has not been approved by
holders of at least two-thirds of the outstanding shares of Common Stock
within 120 days after the date hereof; or
51
<PAGE>
(e) by Target in connection with entering into a definitive
agreement in accordance with Section 6.03(b), PROVIDED, it has complied
with all provisions thereof, including the notice provisions therein, and
that it makes simultaneous payment of the Expenses and the Termination Fee.
SECTION 9.02. EFFECT OF TERMINATION. In the event of termination of
this Agreement by either Target or Acq Corp as provided in Section 9.01, this
Agreement shall forthwith become void and have no effect, without any liability
or obligation on the part of Acq Corp or Target, other than the provisions of
Section 7.03, Section 7.07, this Section 9.02 and Article X and except to the
extent that such termination results from the wilful or grossly negligent and
material breach by a party of any of its representations, warranties, covenants
or agreements set forth in this Agreement, in which case each other party shall
be entitled to recover all damages allowable at law and all relief available in
equity.
SECTION 9.03. AMENDMENT. This Agreement may be amended by the mutual
agreement of the parties at any time before or after any required approval of
matters presented in connection with the Merger by the stockholders of Target;
PROVIDED, that after any such approval, there shall not be made any amendment
that by law requires further approval by such stockholders without the further
approval of such stockholders. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties.
SECTION 9.04. EXTENSION; WAIVER. At any time prior to the Effective
Time, the parties may (a) extend the time for the performance of any of the
obligations or other acts of the other parties, (b) waive any inaccuracies in
the representations and warranties of the other party contained in this
Agreement or in any document delivered pursuant to this Agreement or (c) subject
to the proviso of Section 9.03, waive compliance by the other party with any of
the agreements or conditions contained in this Agreement. Any agreement on the
part of a party to any such extension or waiver shall be valid only if set forth
in an instrument in writing signed on behalf of such party. The failure of any
party to this Agreement to assert any of its rights under this Agreement or
otherwise shall not constitute a waiver of those rights.
SECTION 9.05. PROCEDURE FOR TERMINATION, AMENDMENT, EXTENSION OR
WAIVER. A termination of this Agreement pursuant to Section 9.01, an amendment
of this Agreement pursuant to Section 9.03 or an extension or waiver pursuant to
Section 9.04 shall, in order to be effective, require in the case of Acq Corp or
Target, action
52
<PAGE>
by its Board of Directors or the duly authorized designee of its Board of
Directors.
ARTICLE X
GENERAL PROVISIONS
SECTION 10.01. NONSURVIVAL OF REPRESENTATIONS. Except as otherwise
provided herein, none of the representations and warranties in this Agreement
shall survive the Effective Time. This Section 10.01 shall not limit any
covenant or agreement of the parties which by its terms contemplates performance
after the Effective Time of the Merger.
SECTION 10.02. NOTICES. All notices, requests, claims, demands and
other communications under this Agreement shall be in writing and shall be
deemed given if delivered personally or sent by overnight courier (providing
proof of delivery) to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
(a) if to Acq Corp, to:
c/o Colony Capital, Inc.
1999 Avenue of the Stars, Suite 1200
Los Angeles, California 90067
Telephone: 310-282-8813
Facsimile: 310-282-8813
Attention: Kelvin L. Davis
and
c/o Colony Capital, Inc.
201 Main Street, Suite 2420
Fort Worth, Texas 76102
Telephone: 817-871-4023
Facsimile: 817-871-4088
Attention: Wade Hundley
53
<PAGE>
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
300 South Grand Avenue, Suite 3400
Los Angeles, California 90071
Attention: Jonathan H. Grunzweig, Esq.
Telephone: 213-687-5000
Facsimile: 213-687-5600
(b) if to Target, to
Highway 50 and Stateline Avenue
P.O. Box 128
Lake Tahoe, Nevada 89449
Telephone: 702-588-2411
Facsimile:
with a copy to:
Morgan, Lewis & Bockius LLP
300 South Grand Avenue, Suite 2200
Los Angeles, California 90071
Attention: Peter P. Wallace, Esq.
Telephone: 213-612-2500
Facsimile: 213-612-2554
and with a copy to:
Scarpello & Alling, Ltd.
276 Kingsbury Grade, Suite 2000
Post Office Box 3390
Lake Tahoe, Nevada 89449
Attention: Ronald D. Alling, Esq.
Telephone: 702-588-6676
Facsimile: 702-588-4970
54
<PAGE>
SECTION 10.03. INTERPRETATION. When a reference is made in this
Agreement to an Article, Section or Schedule, such reference shall be to an
Article or Section of or a Schedule to, this Agreement unless otherwise
indicated. The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include," "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation." The Voting Agreement and the consummation of
the transactions contemplated by such Voting Agreement are transactions
contemplated by this Agreement. To the extent any restriction on the activities
of Target or its Subsidiaries under the terms of this Agreement, including with
respect to any negative pledge or other restriction on the ability of Target to
dispose of stock of any Colorado, Iowa or Nevada Subsidiary, requires prior
approval under any Gaming Law, such restriction shall be of no force or effect
unless and until such approval is obtained. If any provision of this Agreement
is illegal or unenforceable under any Gaming Law, such provision shall be void
and of no force or effect.
SECTION 10.04. COUNTERPARTS. This Agreement may be executed in
one or more counterparts, all of which shall be considered one and the same
agreement and shall become effective when one or more counterparts have been
signed by each of the parties and delivered to the other parties.
SECTION 10.05. ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES. This
Agreement and the Voting Agreement constitute the entire agreements, and
supersede all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter of these agreements and are not
intended to confer upon any Person other than the parties any rights or remedies
hereunder.
SECTION 10.06. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEVADA, WITHOUT
REGARD TO ANY APPLICABLE CONFLICTS OF LAW.
SECTION 10.07. GAMING LAWS. Each of the provisions of this Agreement
is subject to and shall be enforced in compliance with the Gaming Laws.
SECTION 10.08. ASSIGNMENT. Neither this Agreement nor any of the
rights, interests or obligations under this Agreement shall be assigned, in
whole or in part, by operation of law or otherwise by any of the parties without
the prior written
55
<PAGE>
consent of the other parties, except that Acq Corp may assign, in its sole
discretion, any of or all its rights, interests and obligations under this
Agreement to any controlled affiliate of Colony Capital, Inc., PROVIDED such
party assumes Acq Corp's obligations hereunder. Subject to the preceding
sentence, this Agreement will be binding upon, inure to the benefit of, and
be enforceable by, the parties and their respective successors and assigns.
SECTION 10.09. ENFORCEMENT. The parties agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions of this Agreement in any court
of the United States located in the State of Nevada or in Nevada state court,
this being in addition to any other remedy to which they are entitled at law
or in equity. In addition, each of the parties hereto (a) consents to commit
itself to the personal jurisdiction of any Federal court located in the State
of Nevada or any Nevada state court in the event any dispute arises out of
this Agreement or any of the transactions contemplated by this Agreement, (b)
agrees that it will not attempt to deny or defeat such personal jurisdiction
by motion or other request for leave from any such court and (c) agrees that
it will not bring any action relating to this Agreement or any of the
transactions contemplated by this Agreement in any court other than a Federal
or state court sitting in the State of Nevada.
[SIGNATURE PAGES FOLLOW]
56
<PAGE>
IN WITNESS WHEREOF, Acq Corp and Target have caused this Agreement
to be signed by their respective officers thereunto duly authorized, all as
of the date first written above.
HARVEYS ACQUISITION CORPORATION
By: /s/ KELVIN L. DAVIS
-----------------------------
Name: Kelvin L. Davis
Title: President
HARVEYS CASINO RESORTS
By: /s/ CHARLES W. SCHARER
-----------------------------
Name: Charles W. Scharer
Title: Chairman of the Board,
President and Chief
Executive Officer
<PAGE>
ARTICLES OF INCORPORATION
OF
HARVEYS ACQUISITION CORPORATION
The undersigned, for the purpose of forming a corporation pursuant to and
by virtue of Chapter 78 of the Nevada Revised Statutes (the "Nevada Private
Corporation Law"), hereby adopts, executes and acknowledges the following
Articles of Incorporation.
ARTICLE I
The name of the Corporation is HARVEYS ACQUISITION CORPORATION
(hereinafter the "Corporation").
ARTICLE II
The name of the initial resident agent and the street address of the
initial registered office in the State of Nevada where process may be served
upon the Corporation is Schreck Morris, 300 South Fourth Street, Suite 1200, Las
Vegas, Clark County, Nevada 89101. The Corporation may, from time to time, in
the manner provided by law, change the resident agent and the registered office
within the State of Nevada. The Corporation may also maintain an office or
offices for the conduct of its business, either within or without the State of
Nevada.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the Nevada Private
Corporation Law.
ARTICLE IV
Section 4.1 AUTHORIZED SHARES. The total number of shares of stock
which the Corporation shall have authority to issue is (a) 10,000,000 shares of
Common Stock, consisting of 5,000,000 shares of Class A Common Stock, par value
$.01 per share (the "Class A Common Stock"), and 5,000,000 shares of Class B
Common Stock, par value $.01 per share (the "Class B Common Stock" and, together
with the Class A Common Stock, the "Common Stock"), and (b) 1,000,000 shares of
Preferred Stock, par value $.01 per share (the "Preferred Stock").
Section 4.2 PREFERRED STOCK. The Board of Directors is expressly
authorized to provide for the issuance of all or any shares of the Preferred
Stock in one or more classes or series, and to fix for each such class or series
such voting powers, full or limited, or no voting
-1-
<PAGE>
powers, and such distinctive designations, preferences and relative,
participating, optional or other special rights and such qualifications,
limitations or restrictions thereof, as shall be stated and expressed in the
resolution or resolutions adopted by the Board of Directors providing for the
issuance of such class or series and as may be permitted by the Nevada
Private Corporation Law, including, without limitation, the authority to
provide that any such class or series may be (i) subject to redemption at
such time or times and at such price or prices; (ii) entitled to receive
dividends (which may be cumulative or non-cumulative) at such rates, on such
conditions, and at such times, and payable in preference to, or in such
relation to, the dividends payable on any other class or classes or any other
series; (iii) entitled to such rights upon the dissolution of, or upon any
distribution of the assets of, the Corporation; or (iv) convertible into, or
exchangeable for, shares of any other class or classes of stock, or of any
other series of the same or any other class or classes of stock, of the
Corporation at such price or prices or at such rates of exchange and with
such adjustments, all as may be stated in such resolution or resolutions.
Section 4.3 CLASS A COMMON STOCK AND CLASS B COMMON STOCK.
(a) RANKING. Except as provided in this Section 4.3, the Class
A Common Stock and the Class B Common Stock shall have the same rights and
privileges and shall rank equally, share ratably and be identical in all
respects as to all matters, including rights in liquidation.
(b) DIVIDENDS. Subject to the rights of holders of Preferred
Stock, when, as and if dividends are declared on the Common Stock, whether
payable in cash, in property or in securities of the Corporation, the holders of
Class A Common Stock and Class B Common Stock shall be entitled to share
equally, share for share, in such dividends; PROVIDED that if dividends or
distributions are declared that are payable in shares of, or in subscription or
other rights to acquire shares of, Class A Common Stock or Class B Common Stock,
dividends or distributions payable in shares of, or in subscription or other
rights to acquire shares of, any particular class of Common Stock shall be
payable only to holders of such class of Common Stock.
(c) CONVERSION. Each of Colony Investors III, L.P., a Delaware
limited partnership, and its successor entities and affiliates (as such term is
defined in Rule 501(b) under the Securities Act of 1933, as amended)
(collectively, the "Designated Class B Holders") shall have the right at any
time, at their option, to convert any of their shares of Class B Common Stock
into an equal number of shares of Class A Common Stock, without cost. So long
as the Designated Class B Holders in the aggregate hold at least one share of
Class B Common Stock, no holder of Class B Common Stock who is not a Designated
Class B Holder may convert such stock into Class A Common Stock without the
prior written consent of Designated Class B Holders holding a majority of the
outstanding Class B Common Stock then held by Designated Class B Holders (which
consent may be granted in each such holder's sole and absolute discretion). At
any time that no Designated Class B Holder holds any Class B Common Stock, each
holder of Class B Common Stock who is not a Designated Class B Holder shall have
the right, at its option, to convert any of its shares of Class B
-2-
<PAGE>
Common Stock into an equal number of shares of Class A Common Stock, without
cost. Notwithstanding the foregoing, the rights of each holder of Class B
Common Stock to convert such stock into Class A Common Stock shall be subject
at all times to compliance with all gaming and other statutes, laws, rules
and regulations applicable to the Corporation and such holder at that time.
(d) SUBDIVISIONS AND COMBINATIONS OF SHARES. If the Corporation
in any manner subdivides or combines the outstanding shares of one class of
Common Stock, the outstanding shares of the other class of Common Stock will be
likewise subdivided or combined.
(e) LIQUIDATION OR DISSOLUTION. In the event of any voluntary
or involuntary liquidation, dissolution or winding up of the Corporation,
holders of Class A Common Stock and holders of Class B Common Stock shall
receive a pro rata distribution of any remaining assets after payment or
provision for liabilities and the liquidation preference on Preferred Stock, if
any.
(f) RESERVATION OF CLASS A COMMON STOCK FOR CONVERSION. The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Class A Common Stock or its treasury shares, solely for
the purpose of issuance upon the conversion of the Class B Common Stock, such
number of shares of Class A Common Stock as may be issued upon conversion of all
outstanding Class B Common Stock.
(g) VOTING RIGHTS. The holders of Class A Common Stock shall be
entitled to one vote per share on all matters to be voted on by the stockholders
of the Corporation, and except as otherwise expressly required by law, the
holders of the Class B Common Stock shall have no right to vote on any matter to
be voted on by the stockholders of the Corporation (including, without
limitation, any election or removal of the directors of the Corporation) and the
Class B Common Stock shall not be included in determining the number of shares
voting or entitled to vote on such matters.
(h) CONSIDERATION FOR SHARES. The Common Stock and Preferred
Stock authorized by this Article shall be issued for such consideration as shall
be fixed, from time to time, by the Board of Directors.
(i) ASSESSMENT OF STOCK. The capital stock of the Corporation,
after the amount of the subscription price has been fully paid in, shall not be
assessable for any purpose, and no stock issued as fully paid shall ever be
assessable or assessed. No stockholder of the Corporation is individually
liable for the debts or liabilities of the Corporation.
(j) CUMULATIVE VOTING FOR DIRECTORS. No stockholder of the
Corporation shall be entitled to cumulative voting of his shares for the
election of directors.
-3-
<PAGE>
(k) PREEMPTIVE RIGHTS. No stockholder of the Corporation shall
have any preemptive rights.
ARTICLE V
Section 5.1 ISSUANCE OF SECURITIES IN ACCORDANCE WITH GAMING LAWS.
The Corporation shall not issue any stock or securities except in accordance
with the provisions of the Nevada Gaming Control Act (the "NGCA") and the
regulations promulgated thereunder. The issuance of any stock or securities in
violation thereof shall be ineffective and such stock or securities shall be
deemed not to be issued and outstanding until (a) the Corporation shall cease to
be subject to the jurisdiction of the Nevada Gaming Commission (the
"Commission"), or (b) the Commission shall, by affirmative action, validate said
issuance or waive any defect in issuance.
Section 5.2 TRANSFER OF SECURITIES IN ACCORDANCE WITH THE NGCA. No
stock or securities issued by the Corporation and no interest, claim or charge
therein or thereto shall be transferred in any manner whatsoever, except in
accordance with the provisions of the NGCA and the regulations promulgated
thereunder. Any transfer in violation thereof shall be ineffective until (a)
the Corporation shall cease to be subject to the jurisdiction of the Commission,
or (b) the Commission shall, by affirmative action, validate said transfer or
waive any defect in said transfer.
Section 5.3 UNSUITABILITY TO HOLD SECURITIES. If the Commission at
any time determines that a holder of stock or other securities of this
Corporation is unsuitable to hold such securities, then until such securities
are held by persons found by the Commission to be suitable to hold them, (a) the
Corporation shall not be required or permitted to pay any dividend or interest
with regard to the securities, (b) the holder of such securities shall not be
entitled to vote on any matter as the holder of the securities, or to exercise,
directly or indirectly or through any proxy, trustee or nominee, any voting or
other right conferred by such securities, and such securities shall not for any
purposes be included in the securities of the Corporation entitled to vote, and
(c) neither the Corporation nor any affiliate of the Corporation shall pay any
remuneration in any form to the holder of the securities.
ARTICLE VI
Each director and each officer shall meet the qualifications for a
license or finding of suitability as set forth in Section 463.170 of the Nevada
Revised Statutes and shall, in all other respects, comply with all requirements
of the NGCA for the filing and processing of licensing applications. Each
director and officer shall also comply with all applicable state, local and
municipal gaming and liquor licensing laws in Nevada and any other jurisdiction
in which the Corporation does business.
-4-
<PAGE>
ARTICLE VII
The name and mailing address of the Sole Incorporator is as follows:
Name Address
---- -------
Ellen Schulhofer, Esq. 300 S. Fourth Street, Ste. 1200
Las Vegas, Nevada 89101
ARTICLE VIII
The following provisions are inserted for the management of the
business and the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its directors and stockholders:
(1) The business and affairs of the Corporation shall be managed
by or under the direction of the Board of Directors.
(2) The directors shall have concurrent power with the
stockholders to make, alter, amend, change, add to or repeal the
By-Laws of the Corporation.
(3) The number of directors of the Corporation shall be as from
time to time fixed by, or in the manner provided in, the By-Laws of
the Corporation. Election of directors need not be by written ballot
unless the By-Laws so provide.
(4) The names and post office box or street addresses of the
directors constituting the first Board of Directors, which shall
consist of two (2) directors in number, are:
Name Address
---- -------
Thomas J. Barrack, Jr. 300 South Fourth Street, Suite 1200
Las Vegas, Nevada 89101
Kelvin L. Davis 300 South Fourth Street, Suite 1200
Las Vegas, Nevada 89101
(5) No director or officer shall be personally liable to the
Corporation or any of its stockholders for monetary damages for breach
of fiduciary duty as a director or officer, except for liability (i)
for acts or omissions which involve intentional misconduct, fraud or a
knowing violation of law, or (ii) for the payment of distributions in
violation of Section 78.300 of the Nevada Private Corporation Law.
-5-
<PAGE>
(6) In addition to any other rights of indemnification permitted
by the law of the State of Nevada as may be provided for by the
Corporation in its By-Laws or by agreement, the expenses of officers
and directors incurred in defending a civil or criminal action, suit
or proceeding, involving alleged acts or omissions of such officer or
director in his or her capacity as an officer or director of the
Corporation, must be paid by the Corporation or through insurance
purchased and maintained by the Corporation or through other financial
arrangements made by the Corporation, as they are incurred and in
advance of the final disposition of the action, suit or proceeding,
upon receipt of an undertaking by or on behalf of the director or
officer to repay the amount if it is ultimately determined by a court
of competent jurisdiction that he or she is not entitled to be
indemnified by the Corporation.
(7) Any repeal or modification of this Article VIII by the
stockholders of the Corporation shall not adversely affect any right
or protection of a director of the Corporation existing at the time of
such repeal or modification with respect to acts or omissions
occurring prior to such repeal or modification.
(8) In addition to the powers and authority hereinbefore or by
statute expressly conferred upon them, the directors are hereby
empowered to exercise all such powers and do all such acts and things
as may be exercised or done by the Corporation, subject, nevertheless,
to the provisions of the Nevada Private Corporation Law, these
Articles of Incorporation, and any By-Laws adopted by the
stockholders; PROVIDED, HOWEVER, that no By-Laws hereafter adopted by
the stockholders shall invalidate any prior act of the directors which
would have been valid if such By-Laws had not been adopted.
ARTICLE IX
Meetings of stockholders may be held within or without the State of
Nevada, as the By-Laws may provide. The books of the Corporation may be kept
(subject to any provision contained in the Nevada Private Corporation Law)
outside the State of Nevada at such place or places as may be designated from
time to time by the Board of Directors or in the By-Laws of the Corporation.
ARTICLE X
The Corporation reserves the right to amend, alter, change or repeal
any provision contained in these Articles of Incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.
[signature page follows]
-6-
<PAGE>
IN WITNESS WHEREOF, I have executed these Articles of Incorporation the
30th day of January, 1998.
/s/ Ellen Schulhofer
----------------------------------
Ellen Schulhofer, Esq.
State of Nevada )
) ss.
County of Clark )
This instrument was acknowledged before me on January 30, 1998, by Ellen
Schulhofer as Incorporator of Harveys Acquisition Corp.
/s/ Ethan A. Jones
----------------------------------
Notary Public
-7-
<PAGE>
CERTIFICATE OF ACCEPTANCE OF APPOINTMENT
BY RESIDENT AGENT
IN THE MATTER OF HARVEYS ACQUISITION CORP.
1. The undersigned, Schreck Morris, hereby certifies that on the 30th
day of January, 1998, it accepted the appointment as Resident Agent of the
above-referenced corporation.
2. The registered office of the corporation in the State of Nevada is
located at 300 South Fourth Street, Suite 1200, City of Las Vegas, County of
Clark, State of Nevada 89101.
IN WITNESS WHEREOF, I have hereunto set my hand this 30th day of January,
1998.
RESIDENT AGENT,
SCHRECK MORRIS
By: /s/ Ellen Schulhofer
-----------------------------------
Ellen Schulhofer, Esq.,
Authorized Signatory
-1-
<PAGE>
BYLAWS OF
HARVEYS ACQUISITION CORPORATION
ARTICLE I
OFFICES
SECTION 1.01 REGISTERED OFFICE. The registered office of the corporation
shall be in the City of Las Vegas, County of Clark, State of Nevada. The
corporation may, from time to time, in the manner provided by law, change the
registered office within the State of Nevada.
SECTION 1.02 OTHER OFFICES. The corporation may also maintain an office
or offices at such other places within or without the State of Nevada as the
Board of Directors may form time to time determine or the business of the
corporation may require.
ARTICLE II
STOCKHOLDERS
SECTION 2.01 ANNUAL MEETING. The annual meeting of stockholders shall be
held each year on a date and time designated by the Board of Directors. Any
previously scheduled annual meeting of the stockholders may be postponed by
resolution of the Board of Directors upon public notice given prior to the date
previously scheduled for such annual meeting of the stockholders.
SECTION 2.02 SPECIAL MEETINGS.
(a) Except as otherwise required by law and subject to the rights of
the holders of Preferred Stock, special meetings of stockholders may be called
only by the Board of Directors pursuant to a resolution approved by a majority
of the entire Board of Directors, the chairman of the board, chief executive
officer, or president. Each special meeting shall be held at such date, time
and place either within or without the State of Nevada as shall be designated by
the Board of Directors at least ten (10) days prior to such meeting.
(b) No business shall be acted upon at a special meeting except as
set forth in the notice calling the meeting, unless one of the conditions for
the holding of a meeting without notice set forth in Section 2.05 shall be
satisfied, in which case any business (except as noted in Section 2.12
immediately below) may be transacted and the meeting shall be valid for all
purposes.
SECTION 2.03 PLACE OF MEETINGS. Any meeting of the stockholders of the
corporation may be held at its registered office in the State of Nevada or at
such other place in or out of the United States as the Board of Directors may
designate. A waiver of notice signed by stockholders entitled to vote may
designate any place for the holding of such meeting.
-1-
<PAGE>
SECTION 2.04 NOTICE OF MEETINGS.
(a) The president, a vice president, the secretary, an assistant
secretary or any other individual designated by the Board of Directors shall
sign and deliver written notice of any meeting at least ten (10) days, but not
more than sixty (60) days, before the date of such meeting. The notice shall
state the place, date and time of the meeting and the purpose or purposes for
which the meeting is called.
(b) In the case of an annual meeting, subject to Section 2.12, any
proper business may be presented for action, except that action on any of the
following items shall be taken only if the general nature of the proposal is
stated in the notice:
(1) Action with respect to any contract or transaction between
the corporation and one or more of its directors or officers or between the
corporation and any corporation, firm or association in which one or more of the
corporation's directors or officers is a director or officer or is financially
interested;
(2) Adoption of amendments to the Articles of Incorporation; or
(3) Action with respect to a merger, share exchange,
reorganization, partial or complete liquidation, or dissolution of the
corporation.
(c) A copy of the notice shall be personally delivered or mailed
postage prepaid to each stockholder of record entitled to vote at the meeting at
the address appearing on the records of the corporation, and the notice shall be
deemed delivered the date the same is deposited in the United States mail for
transmission to such stockholder. If the address of any stockholder does not
appear upon the records of the corporation, it will be sufficient to address any
notice to such stockholder at the registered office of the corporation.
(d) The written certificate of the individual signing a notice of
meeting, setting forth the substance of the notice or having a copy thereof
attached, the date the notice was mailed or personally delivered to the
stockholders and the addresses to which the notice was mailed, shall be prima
facie evidence of the manner and fact of giving such notice.
(e) Any stockholder may waive notice of any meeting by a signed
writing, either before or after the meeting.
SECTION 2.05 MEETING WITHOUT NOTICE.
(a) Whenever all persons entitled to vote at any meeting consent,
either by:
(1) A writing on the records of the meeting or filed with the
secretary; or
-2-
<PAGE>
(2) Presence at such meeting and oral consent entered on the
minutes; or
(3) Taking part in the deliberations at such meeting without
objection;
The doings of such meeting shall be as valid as if had at a meeting regularly
called and noticed.
(b) At such meeting any business may be transacted which is not
excepted from the written consent or to the consideration of which no objection
for want of notice is made at the time.
(c) If any meeting be irregular for want of notice or of such
consent, provided a quorum was present at such meeting, the proceedings of the
meeting may be ratified and approved and rendered likewise valid and the
irregularity or defect therein waived by a writing signed by all parties having
the right to vote at such meeting.
(d) Such consent or approval may be by proxy or power of attorney,
but all such proxies and powers of attorney must be in writing.
SECTION 2.06 DETERMINATION OF STOCKHOLDERS OF RECORD.
(a) For the purpose of determining the stockholders entitled to
notice of and to vote at any meeting of stockholders or any adjournment thereof,
or entitled to receive payment of any distribution or the allotment of any
rights, or entitled to exercise any rights in respect of any change, conversion,
or exchange of stock or for the purpose of any other lawful action, the
directors may fix, in advance, a record date, which shall not be more than sixty
(60) days nor less than ten (10) days before the date of such meeting, nor more
than sixty (60) days prior to any other action.
(b) If no record date is fixed, the record date for determining
stockholders: (i) entitled to notice of and to vote at a meeting of stockholders
shall be at the close of business on the day next preceding the day on which
notice is given, or, if notice is waived, at the close of business on the day
next preceding the day on which the meeting is held and (ii) for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto. A determination of
stockholders of record entitled to notice of or to vote at any meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
SECTION 2.07 QUORUM; ADJOURNED MEETINGS.
(a) Unless the Articles of Incorporation provide for a different
proportion, stockholders holding at least a majority of the voting power of the
corporation's stock, represented in person or by proxy, are necessary to
constitute a quorum for the transaction of
-3-
<PAGE>
business at any meeting. If, on any issue, voting by classes is required by
the laws of the State of Nevada, the Articles of Incorporation or these
Bylaws, at least a majority of the voting power within each such class is
necessary to constitute a quorum of each such class.
(b) If a quorum is not represented, a majority of the voting power so
represented may adjourn the meeting from time to time until holders of the
voting power required to constitute a quorum shall be represented. At any such
adjourned meeting at which a quorum shall be represented, any business may be
transacted which might have been transacted as originally called. When a
stockholders' meeting is adjourned to another time or place hereunder, notice
need not be given of the adjourned meeting if the time and place thereof are
announced at the meeting at which the adjournment is taken. The stockholders
present at a duly convened meeting may continue to transact business until
adjournment, notwithstanding the withdrawal of enough stockholders to leave less
than a quorum of the voting power.
SECTION 2.08 VOTING.
(a) Unless otherwise provided in the Articles of Incorporation, or in
the resolution providing for the issuance of the stock adopted by the Board of
Directors pursuant to authority expressly vested in it by the provisions of the
Articles of Incorporation, each stockholder of record, or such stockholder's
duly authorized proxy or attorney-in-fact, shall be entitled to one (1) vote for
each share of voting stock standing registered in such stockholder's name on the
record date. No stockholder of the corporation shall be entitled to cumulative
voting for the election of directors.
(b) Except as otherwise provided herein, all votes with respect to
shares standing in the name of an individual on the record date (included
pledged shares) shall be cast only by that individual or such individual's duly
authorized proxy, attorney-in-fact, or voting trustee(s) pursuant to a voting
trust. With respect to shares held by a representative of the estate of a
deceased stockholder, guardian, conservator, custodian or trustee, votes may be
cast by such holder upon proof of capacity, even though the shares do not stand
in the name of such holder. In the case of shares under the control of a
receiver, the receiver may cast votes carried by such shares even though the
shares do not stand in the name of the receiver; provided, that the order of the
court of competent jurisdiction which appoints the receiver contains the
authority to cast votes carried by such shares. If shares stand in the name of
a minor, votes may be cast only by the duly appointed guardian of the estate of
such minor if such guardian has provided the corporation with written proof of
such appointment.
(c) With respect to shares standing in the name of another
corporation, partnership, limited liability company or other legal entity on the
record date, votes may be cast: (i) in the case of a corporation, by such
individual as the bylaws of such other corporation prescribe, by such individual
as may be appointed by resolution of the board of directors of such other
corporation or by such individual (including the officer making the
authorization) authorized in writing to do so by the chairman of the board of
directors, president or any vice-president of such corporation and (ii) in the
case of a partnership, limited liability company
-4-
<PAGE>
or other legal entity, by an individual representing such stockholder upon
presentation to the corporation of satisfactory evidence of his authority to
do so.
(d) Notwithstanding anything to the contrary herein contained, no
votes may be cast for shares owned by this corporation or its subsidiaries, if
any. If shares are held by this corporation or its subsidiaries, if any, in a
fiduciary capacity, no votes shall be cast with respect thereto on any matter
except to the extent that the beneficial owner thereof possesses and exercises
either a right to vote or to give the corporation holding the same binding
instructions on how to vote.
(e) Any holder of shares entitled to vote on any matter may cast a
portion of the votes in favor of such matter and refrain from casting the
remaining votes or cast the same against the proposal, except in the case of
elections of directors. If such holder entitled to vote fails to specify the
number of affirmative votes, it will be conclusively presumed that the holder is
casting affirmative votes with respect to all shares held.
(f) With respect to shares standing in the name of two or more
persons, whether fiduciaries, members of a partnership, joint tenants, tenants
in common, husband and wife as community property, tenants by the entirety,
voting trustees, persons entitled to vote under a stockholder voting agreement
or otherwise and shares held by two or more persons (including proxy holders)
having the same fiduciary relationship in respect to the same shares, votes may
be cast in the following manner:
(1) If only one person votes, the vote of such person binds all.
(2) If more than one person casts votes, the act of the majority
so voting binds all.
(3) If more than one person casts votes, but the vote is evenly
split on a particular matter, the votes shall be deemed cast proportionately, as
split.
(g) If a quorum is present, unless the Articles of Incorporation
provide for a different proportion, the affirmative vote of holders of at least
a majority of the voting power represented at the meeting and entitled to vote
on any matter shall be the act of the stockholders, unless voting by classes is
required for any action of the stockholders by the laws of the State of Nevada,
the Articles of Incorporation or these Bylaws, in which case the affirmative
vote of holders of a least a majority of the voting power of each such class
shall be required.
SECTION 2.09 PROXIES. At any meeting of stockholders, any holder of
shares entitled to vote may designate, in a manner permitted by the laws of the
State of Nevada, another person or persons to act as a proxy or proxies. No
proxy is valid after the expiration of six (6) months from the date of its
creation, unless it is coupled with an interest or unless otherwise specified in
the proxy. In no event shall the term of a proxy exceed seven (7) years from
the date of its
-5-
<PAGE>
creation. Every proxy shall continue in full force and effect until its
expiration or revocation in a manner permitted by the laws of the State of
Nevada.
SECTION 2.10 ORDER OF BUSINESS. At the annual stockholder's meeting, the
regular order of business shall be as follows:
1. Determination of stockholders present and existence of quorum, in
person or by proxy;
2. Reading and approval of the minutes of the previous meeting or
meetings;
3. Reports of the Board of Directors, and, if any, the president,
treasurer and secretary of the corporation;
4. Reports of committees;
5. Election of directors;
6. Unfinished business;
7. New business;
8. Adjournment.
SECTION 2.11 ABSENTEES' CONSENT TO MEETINGS. Transactions of any meeting
of the stockholders are as valid as though had at a meeting duly held after
regular call and notice if a quorum is represented, either in person or by
proxy, and if, either before or after the meeting, each of the persons entitled
to vote, not represented in person or by proxy (and those who, although present,
either object at the beginning of the meeting to the transaction of any business
because the meeting has not been lawfully called or convened or expressly object
at the meeting to the consideration of matters not included in the notice which
are legally required to be included therein), signs a written waiver of notice
and/or consent to the holding of the meeting or an approval of the minutes
thereof. All such waivers, consents, and approvals shall be filed with the
corporate records and made a part of the minutes of the meeting. Attendance of
a person at a meeting shall constitute a waiver of notice of such meeting,
except when the person objects at the beginning of the meeting to the
transaction of any business because the meeting is not lawfully called or
convened and except that attendance at a meeting is not a waiver of any right to
object to the consideration of matters not properly included in the notice if
such objection is expressly made at the time any such matters are presented at
the meeting. Neither the business to be transacted at nor the purpose of any
regular or special meeting of stockholders need be specified in any written
waiver of notice or consent, except as otherwise provided in Section 2.04(a) and
(b) or Section 2.12 (if applicable) of these Bylaws.
-6-
<PAGE>
SECTION 2.12 BUSINESS TO BE CONDUCTED AT MEETING. At an annual or
special meeting of the stockholders, only such business shall be conducted as
shall have been properly brought before the meeting. To be properly brought
before a meeting, business must be (a) specified in the notice of meeting (or
any supplement thereto) given by or at the direction of the Board of Directors,
(b) brought before the meeting by or at the direction of the Board of Directors,
(c) properly brought before an annual meeting by a stockholder, or (d) if, and
only if, the notice of a special meeting provides for business to be brought
before the meeting by stockholders, properly brought before the meeting by a
stockholder who is a stockholder of record at the time of serving of the notice
pursuant to Section 2.04, who shall be entitled to vote at such meeting and who
complies with the notice procedures set forth in this Section 2.12. For
business to be properly brought before a meeting by a stockholder pursuant to
the preceding clauses (c) or (d), the stockholder must have given timely notice
thereof in writing to the secretary of the corporation. To be timely, a
stockholder's notice must be delivered to, or mailed and received by, the
secretary at the principal executive office of the corporation not less than
thirty-five (35) days prior to the meeting; PROVIDED, HOWEVER, that in the event
less than forty-five (45) days notice or public disclosure of the date of the
meeting is given or made to the stockholders, notice by the stockholder to be
timely must be so received not later than the fifth (5th) day following the day
on which such notice of the date of the meeting was mailed or such disclosure
was made. In no event shall the public disclosure of an adjournment of an
annual or special meeting commence a new time period for the giving of
stockholder's notice as described above. A stockholder's notice to the
secretary shall set forth as to each matter the stockholder proposes to bring
before the meeting (a) a brief description of the business desired to be brought
before the meeting and the reasons for conducting such business at the meeting,
(b) the name and address, as they appear on the corporation's books, of the
stockholder proposing such business, and the name and address of the beneficial
owner, if any, on whose behalf the proposal is made, (c) the class and number of
shares of the corporation which are owned beneficially and of record by such
stockholder of record and by the beneficial owner, if any, on whose behalf the
proposal is made, and (d) any material interest of such stockholder of record
and the beneficial owner, if any, on whose behalf the proposal is made in such
business. Notwithstanding anything in the Bylaws to the contrary, no business
shall be conducted at a meeting except in accordance with the procedures set
forth in this Section 2.12. The presiding officer at the meeting shall, if the
facts warrant, determine and declare to the meeting that business was not
brought in accordance with this Section 2.12, and if he should so determine, he
shall so declare to the meeting and any such business not properly brought
before the meeting shall not be transacted. Notwithstanding the foregoing
provisions of this Section 2.12, a stockholder shall also comply with all
applicable requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules and regulations thereunder with respect to the
matters set forth herein. As used herein, "public disclosure" shall mean
disclosure in a press release reported by the Dow Jones News Association, the
Associated Press, or comparable news service or in a document publicly filed
with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d)
of the Exchange Act.
SECTION 2.13 NO STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING.
Stockholders may take action only at a regular or special meeting of
stockholders.
-7-
<PAGE>
ARTICLE III
DIRECTORS
SECTION 3.01 NUMBER, ELECTION, TENURE, AND QUALIFICATIONS. Except as
otherwise fixed by resolution of the Board of Directors pursuant to the Articles
of Incorporation relating to the authorization of the Board of Directors to
provide by resolution for the issuance of Preferred Stock and to determine the
rights of the holders of such Preferred Stock to elect directors, the Board of
Directors shall consist of at least one (1) individual who shall be elected at
the annual meeting of the stockholders of the corporation and who shall hold
office for one (1) year or until his or her successor is elected and qualify. A
director need not be a stockholder of the corporation.
SECTION 3.02 CHANGE IN NUMBER. Subject to any limitation in the laws of
the State of Nevada, the Articles of Incorporation or these Bylaws, the number
of directors may be changed from time to time by resolution adopted by the Board
of Directors.
SECTION 3.03 REDUCTION IN NUMBER. No reduction in the number of
directors shall have the effect of removing any director prior to the expiration
of his term in office.
SECTION 3.04 NOMINATION OF DIRECTORS. Except as otherwise fixed by
resolution of the Board of Directors pursuant to the Articles of Incorporation
relating to the authorization of the Board of Directors to provide by resolution
for the issuance of Preferred Stock and to determine the rights of the holders
of such Preferred Stock to elect directors, nominations for the election of
directors may be made by the Board of Directors, by a committee appointed by the
board of directors, or by any stockholder of record at the time of giving of
notice provided for herein. However, any stockholder entitled to vote in the
election of directors as provided herein may nominate one or more persons for
election as directors at a meeting only if written notice of such stockholder's
intent to make such nomination or nominations has been delivered to or mailed
and received by the secretary of the corporation not later than, (a) with
respect to an election to be held at an annual meeting of stockholders, 120
calendar days in advance of the first anniversary of the date the corporation's
proxy statement was released to security holders in connection with the
preceding year's annual meeting; PROVIDED, HOWEVER, that in the event that the
date of the annual meeting is changed by more than thirty (30) days from such
anniversary date, notice by the stockholder to be timely must be received not
later than the close of business on the tenth (10th) day following the earlier
of the day on which notice of the date of the meeting was mailed or public
disclosure was made, and (b) with respect to an election to be held at a special
meeting of stockholders for the election of directors, not earlier than the
close of business on the 90th day prior to such special meeting and not later
than the close of business on the later of the 60th day prior to such special
meeting or the tenth (10th) day following the day on which public disclosure is
first made of the date of the special meeting and the nominees proposed by the
board of directors to be elected at such a meeting. Notwithstanding any of
the foregoing to the contrary, in the event that the number of directors to be
elected by the Board of Directors of the corporation is increased and there is
no public disclosure by the corporation naming the nominees for director or
specifying the size of the increased Board of Directors at least seventy
-8-
<PAGE>
(70) days prior to the first anniversary of the date of the preceding year's
annual meeting, a stockholder's notice required hereunder shall also be
considered timely, but only with respect to nominees for any new positions
created by such increase, if it shall be delivered to the secretary at the
principal executive office of the corporation not later than the close of
business on the tenth (10th) day following the earlier of day on which notice
of the meeting is mailed or such public disclosure is first made by the
corporation. In no event shall the public announcement of an adjournment of
an annual or special meeting commence a new time period for the giving of a
stockholder's notice as describe above. Each such notice shall set forth:
(a) the name and address of the stockholder who intends to make the
nomination and of the person or persons to be nominated; (b) a representation
that the stockholder is a holder of record of stock of the corporation
entitled to vote at such meeting and intends to appear in person or by proxy
at the meeting to nominate the person or persons specified in the notice; (c)
the class and number of shares of the corporation which are beneficially
owned by such stockholder and also which are owned of record by such
stockholder; (d) as to the beneficial owner, if any, on whose behalf the
nomination is made, (i) the name and address of such person and (ii) the
class and number of shares of the corporation which are beneficially owned by
such person; (e) a description of all arrangements or understandings between
the stockholder and each nominee and any other person or persons (naming such
person or persons) pursuant to which the nomination or nominations are to be
made by the stockholder; (f) such other information regarding each nominee
proposed by such stockholder as would be required to be included in a proxy
statement filed pursuant to the proxy rules of the Securities and Exchange
Commission, had such nominee been nominated, or intended to be nominated, by
the Board of Directors; and (g) the written consent of each nominee to being
named as nominee in the proxy statement and to serving as a director of the
corporation if so elected. At the request of the Board of Directors, any
person nominated by the Board of Directors for election as a director shall
furnish to the secretary of the corporation, that information required to be
set forth in a stockholder's notice of nomination which pertains to the
nominee. The presiding officer of the meeting may refuse to acknowledge the
nomination of any person not made in compliance with the foregoing procedure.
As used herein, "public disclosure" shall have the meaning set forth in
Section 2.12. No person shall be eligible to serve as a director of the
corporation unless nominated in accordance with the procedures set forth in
this Section 3.04. The presiding officer at the meeting shall, if the facts
warrant, determine and declare to the meeting that a nomination was not made
in accordance with the procedures prescribed by this Section 3.04, and if he
should so determine, he shall so declare to the meeting and the defective
nomination shall be disregarded. Notwithstanding the foregoing provisions
hereof, a stockholder shall also comply with all applicable requirements of
the Exchange Act and the rules and regulations thereunder with respect to the
matters set forth herein.
SECTION 3.05 VACANCIES; NEWLY CREATED DIRECTORSHIPS. Except as otherwise
fixed by resolution of the Board of Directors pursuant to the Articles of
Incorporation relating to the authorization of the Board of Directors to provide
by resolution for the issuance of Preferred Stock and to determine the rights of
the holders of such Preferred Stock to elect directors, any vacancies on the
Board of Directors resulting from death, resignation, retirement,
disqualification, removal from office, or other cause, and newly created
directorships resulting from any increase in the authorized number of directors,
may be filled only by a majority vote
-9-
<PAGE>
of the directors then in office, though less than a quorum, or by a sole
remaining director, and the director(s) so chosen shall hold office (i) in
the case of the replacement of a director, during the remainder of the term
of office of the replaced director and (ii) in the case of an increase in the
number of directors, until the next annual meeting of stockholders at which
directors are elected, unless sooner displaced.
SECTION 3.06 REMOVAL OF DIRECTORS. Subject to any rights of the holders
of Preferred Stock, any director may be removed from office by the affirmative
vote of the holders of at least two-thirds (2/3rds) of the voting power of all
shares of the corporation entitled to vote generally in the election of
directors (voting as a single class).
SECTION 3.07 ANNUAL AND REGULAR MEETINGS. Immediately following the
adjournment of, and at the same place as, the annual or any special meeting of
the stockholders at which directors are elected other than pursuant to Section
3.06 of this Article, the Board of Directors, including directors newly elected,
shall hold its annual meeting without notice, other than this provision, to
elect officers and to transact such further business as may be necessary or
appropriate. The Board of Directors may provide by resolution the place, date,
and hour for holding regular meetings between annual meetings.
SECTION 3.08 SPECIAL MEETINGS. Except as otherwise required by law, and
subject to the rights, if any, of the holders of Preferred Stock, special
meetings of the Board of Directors may be called by the chairman, or if there be
no chairman, by the president or secretary and shall be called by the chairman,
the president or the secretary upon the request of any two (2) directors. If
the chairman, or if there be no chairman both the president and secretary,
refuses or neglects to call such special meeting, a special meeting may be
called by notice signed by any two (2) directors.
SECTION 3.09 PLACE OF MEETINGS. Any regular or special meeting of the
directors of the corporation may be held at such place as the Board of
Directors, or in the absence of such designation, as the notice calling such
meeting, may designate. A waiver of notice signed by directors may designate
any place for the holding of such meeting.
SECTION 3.10 NOTICE OF MEETINGS. Except as otherwise provided in Section
3.07, there shall be delivered to all directors, at least forty-eight (48) hours
before the time of such meeting, a copy of a written notice of any meeting by
delivery of such notice personally by mailing such notice postage prepaid or by
telegram. Such notice shall be addressed in the manner provided for notice to
stockholders in Section 2.04(c). If mailed, the notice shall be deemed
delivered two (2) business days following the date the same is deposited in the
United States mail, postage prepaid. Any director may waive notice of any
meeting, and the attendance of a director at a meeting and oral consent entered
on the minutes of the meeting or taking part in deliberations of the meeting
without objection shall constitute a waiver of notice of such meeting.
Attendance for the express purpose of objecting to the transaction of business
thereat because the meeting is not properly called or convened shall not
constitute presence nor a waiver of notice for purposes hereof.
-10-
<PAGE>
SECTION 3.11 QUORUM; ADJOURNED MEETINGS.
(a) A majority of the directors in office, at a meeting duly
assembled, is necessary to constitute a quorum for the transaction of business.
(b) At any meeting of the Board of Directors where a quorum is not
present, a majority of those present may adjourn, from time to time, until a
quorum is present, and no notice of such adjournment shall be required. At any
adjourned meeting where a quorum is present, any business may be transacted
which could have been transacted at the meeting originally called.
SECTION 3.12 BOARD OF DIRECTORS' DECISIONS. The affirmative vote of a
majority of the directors present at a meeting at which a quorum is present is
the act of the Board of Directors.
SECTION 3.13 TELEPHONIC MEETINGS. Members of the Board of Directors or
of any committee designated by the Board of Directors may participate in a
meeting of the Board of Directors or committee by means of a telephone
conference or similar method of communication by which all persons participating
in such meeting can hear each other. Participation in a meeting pursuant to
this Section 3.13 constitutes presence in person at the meeting.
SECTION 3.14 ACTION WITHOUT MEETING. Any action required or permitted to
be taken at a meeting of the Board of Directors or of a committee thereof may be
taken without a meeting if, before or after the action, a written consent
thereto is signed by all of the members of the Board of Directors or the
committee. The written consent may be signed in counterparts and must be filed
with the minutes of the proceedings of the Board of Directors or committee.
SECTION 3.15 POWERS AND DUTIES.
(a) Except as otherwise restricted in the laws of the State of Nevada
or the Articles of Incorporation, the Board of Directors has full control over
the affairs of the corporation. The Board of Directors may delegate any of its
authority to manage, control or conduct the business of the corporation to any
standing or special committee, as more fully set forth in Article V of these
Bylaws, or to any officer or agent and to appoint any persons to be agents of
the corporation with such powers, including the power to subdelegate, and upon
such terms as may be deemed fit.
(b) The Board of Directors may present to the stockholders at annual
meetings of the stockholders, and when called for by a majority vote of the
stockholders at an annual meeting or, subject to Section 2.12, a special meeting
of the stockholders shall so present, a full and clear report of the condition
of the corporation.
(c) The Board of Directors, in its discretion, or the officer of the
corporation presiding at a meeting of stockholders, in his discretion, may
require that any votes cast at such
-11-
<PAGE>
meeting shall be cast by written ballot and may submit any contract or act
for approval or ratification at any annual meeting of the stockholders or any
special meeting properly called for the purpose of considering any such
contract or act, provided a quorum is present.
SECTION 3.16 COMPENSATION. The directors shall be paid their expenses of
attendance at each meeting of the board of directors and any applicable
committee and may be paid a fixed fee for attendance at each meeting of the
board of directors and any applicable committee or a stated salary as director
and member of an applicable committee. No such payment shall preclude any
director from serving the corporation in any other capacity and receiving
compensation therefor.
SECTION 3.17 BOARD OF DIRECTORS' OFFICERS.
(a) At its annual meeting, the Board of Directors shall elect, from
among its members, a chairman, who shall preside at meetings of the Board of
Directors and the stockholders. The Board of Directors may also elect such
other officers of the Board of Directors and for such term as it may, from time
to time, determine advisable.
(b) Any vacancy in any office of the Board of Directors because of
death, resignation, removal or otherwise may be filled by the Board of Directors
for the unexpired portion of the term of such office.
SECTION 3.18 ORDER OF BUSINESS. The order of business at any meeting of
the Board of Directors shall be as follows:
1. Determination of members present and existence of quorum;
2. Reading and approval of the minutes of any previous meeting or
meetings;
3. Reports of officers and committeemen;
4. Election of officers (annual meeting);
5. Unfinished business;
6. New business;
7. Adjournment.
ARTICLE IV
COMMITTEES
-12-
<PAGE>
SECTION 4.01 STANDING COMMITTEES. The Board of Directors shall designate
an audit committee and a compensation committee, each committee to consist of
two or more directors to serve at the pleasure of the Board. The Board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. In
the absence or disqualification of a member of a committee, the member or
members thereof present at any meeting and not disqualified from voting, whether
or not he or they constitute a quorum, may unanimously appoint another member of
the board of directors to act at the meeting in the place of any such absent or
disqualified member. The committees shall keep regular minutes of their
proceedings and report the same to the Board when required
(a) AUDIT COMMITTEE. The audit committee will review the annual
audits of the corporation's independent public accountants, review and evaluate
internal accounting controls, recommend the selection of the corporation's
independent public accountants, review and pass upon (or ratify) related party
transactions, and conduct such reviews and examinations as it deems necessary
with respect to the practices and policies of, and the relationship between, the
corporation and its independent public accountants.
(b) COMPENSATION COMMITTEE. The Compensation Committee will review
salaries, bonuses and stock options of senior officers of the corporation and
administer the corporation's executive compensation policies and stock option
plan.
SECTION 4.02 SPECIAL COMMITTEES. In addition to the standing committees
provided in Section 4.01 above, the Board of Directors may, by resolution passed
by a majority of the whole board, designate one or more special committees, each
committee to consist of one or more of the directors of the corporation. The
Board may designate one or more directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the
committee. In the absence or disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member. Such committee or committees shall have
such name or names as may be determined from time to time by resolution adopted
by the Board of Directors. The committees shall keep regular minutes of their
proceedings and report the same to the Board when required. Subject to
applicable law and to the extent provided in the resolution of the Board of
Directors, any committee designated hereunder shall have and may exercise all
the powers of the Board of Directors, except with respect to: (i) the approval
of any action which, under Chapter 78 of the Nevada Revised Statutes, also
requires the approval of the full Board of Directors, or the stockholders of the
outstanding shares; (ii) the filling of vacancies on the Board of Directors or
in any committee; (iii) the amendment or repeal of bylaws or the adoption of
new bylaws; (iv) the amendment or repeal of any resolution of the Board of
Directors which by its express terms is not so amendable or repealable; (v) a
distribution to the stockholders of the corporation, except at a rate or in a
periodic amount or within a price range determined by the Board of Directors; or
(vi) the appointment of any other committees of the Board of Directors or the
members thereof.
-13-
<PAGE>
SECTION 4.03 MEETINGS AND ACTIONS OF COMMITTEES. Meetings and actions of
committees shall be governed by, and held and taken in accordance with Sections
3.07 (annual and regular meetings), 3.08 (special meetings), 3.09 (place of
meetings). 3.10 (notice of meetings), 3.11 (quorum and adjourned meetings), 3.13
(telephonic meetings), and 3.13 (action without a meeting) of these Bylaws, with
such changes in the context of those bylaws as are necessary to substitute the
committee and its members for the Board of Directors, and notice of special
meetings of committees shall also be given to all alternate members, who shall
have the right to attend all meetings of the committee. The Board of Directors
may adopt rules for the government of any committee not inconsistent with the
provisions of these Bylaws.
ARTICLE V
OFFICERS
SECTION 5.01 ELECTION. The Board of Directors, at its annual meeting,
shall elect a president, a secretary and a treasurer to hold office for a term
of one (1) year or until their successors are chosen and qualify. Any
individual may hold two or more offices. The Board of Directors may, from time
to time, by resolution, elect one or more vice-presidents, assistant
secretaries, assistant treasurers or other officers, and appoint agents of the
corporation, prescribe their duties and fix their compensation.
SECTION 5.02 REMOVAL; RESIGNATION. Any officer or agent elected or
appointed by the Board of Directors may be removed by it with or without cause.
Any officer may resign at any time upon written notice to the corporation. Any
such removal or resignation shall be subject to the rights, if any, of the
respective parties under any contract between the corporation and such officer
or agent.
SECTION 5.03 VACANCIES. Any vacancy in any office because of death,
resignation, removal or otherwise may be filled by the Board of Directors for
the unexpired portion of the term of such office.
SECTION 5.04 CHAIRMAN OF THE BOARD. The chairman shall be the chief
executive officer of the corporation and shall, subject to the control of the
Board of Directors, have general supervision, direction and control of the
business and affairs of the corporation and shall preside at meetings of the
stockholders and the Board of Directors.
SECTION 5.05 PRESIDENT.
(a) The president shall be the chief operations officer, and if no
chairman is elected, the chief executive officer, of the corporation, subject to
the supervision and control of the Board of Directors, and shall direct the
corporate affairs, with full power to execute all resolutions and orders of the
Board of Directors not expressly delegated to some other officer or agent of the
corporation. If the chairman of the Board of Directors elects not to preside or
is absent, the president shall preside at meetings of the stockholders and Board
of Directors and perform such other duties as shall be prescribed by the Board
of Directors.
-14-
<PAGE>
(b) The president shall have full power and authority on behalf of
the corporation to attend and to act and to vote, or designate such other
officer or agent of the corporation to attend and to act and to vote, at any
meetings of the stockholders of any corporation in which the corporation may
hold stock and, at any such meetings, shall possess and may exercise any and all
rights and powers incident to the ownership of such stock. The Board of
Directors, by resolution from time to time, may confer like powers on any person
or persons in place of the president to exercise such powers for these purposes.
SECTION 5.06 VICE-PRESIDENTS. The Board of Directors may elect one or
more vice-presidents who shall be vested with all the powers and perform all the
duties of the president whenever the president is absent or unable to act and
such other duties as shall be prescribed by the Board of Directors or the
president.
SECTION 5.07 SECRETARY. The secretary shall keep, or cause to be kept,
the minutes of proceedings of the stockholders and the Board of Directors in
books provided for that purpose. The secretary shall attend to the giving and
service of all notices of the corporation, may sign with the president in the
name of the corporation all contracts in which the corporation is authorized to
enter, shall have the custody or designate control of the corporate seal, shall
affix the corporate seal to all certificates of stock duly issued by the
corporation, shall have charge or designate control of stock certificate books,
transfer books and stock ledgers, and such other books and papers as the Board
of Directors or appropriate committee may direct, and shall, in general, perform
all duties incident to the office of the secretary.
SECTION 5.08 ASSISTANT SECRETARIES. The Board of Directors may appoint
one or more assistant secretaries who shall have such powers and perform such
duties as may be prescribed by the Board of Directors or the secretary.
SECTION 5.09 TREASURER. The treasurer shall be the chief financial
officer of the corporation, subject to the supervision and control of the Board
of Directors, and shall have custody of all the funds and securities of the
corporation. When necessary or proper, the treasurer shall endorse on behalf of
the corporation for collection checks, notes, and other obligations, and shall
deposit all monies to the credit of the corporation in such bank or banks or
other depository as the Board of Directors may designate, and shall sign all
receipts and vouchers for payments made by the corporation. Unless otherwise
specified by the Board of Directors, the treasurer may sign with the president
all bills of exchange and promissory notes of the corporation, shall also have
the care and custody of the stocks, bonds, certificates, vouchers, evidence of
debts, securities, and such other property belonging to the corporation as the
Board of Directors shall designate, and shall sign all papers required by law,
by these Bylaws, or by the Board of Directors to be signed by the treasurer.
The treasurer shall enter, or cause to be entered, regularly in the financial
records of the corporation, to be kept for that purpose, full and accurate
accounts of all monies received and paid on account of the corporation and,
whenever required by the Board of Directors, the treasurer shall render a
statement of any or all accounts. The treasurer shall at all reasonable times
exhibit the books of account to any
-15-
<PAGE>
director of the corporation and shall perform all acts incident to the
position of treasurer subject to the control of the Board of Directors.
The treasurer shall, if required by the Board of Directors, give bond to
the corporation in such sum and with such security as shall be approved by the
Board of Directors for the faithful performance of all the duties of treasurer
and for restoration to the corporation, in the event of the treasurer's death,
resignation, retirement or removal from office, of all books, records, papers,
vouchers, money and other property in the treasurer's custody or control and
belonging to the corporation. The expense of such bond shall be borne by the
corporation.
SECTION 5.10 ASSISTANT TREASURERS. The Board of Directors may appoint
one or more assistant treasurers who shall have such powers and perform such
duties as may be prescribed by the Board of Directors or the treasurer. The
Board of Directors may require an assistant treasurer to give a bond to the
corporation in such sum and with such security as it may approve, for the
faithful performance of the duties of assistant treasurer, and for restoration
to the corporation, in the event of the assistant treasurer's death,
resignation, retirement or removal from office, of all books, records, papers,
vouchers, money and other property in the assistant treasurer's custody or
control and belonging to the corporation. The expense of such bond shall be
borne by the corporation.
ARTICLE VI
CAPITAL STOCK
SECTION 6.01 ISSUANCE. Shares of the corporation's authorized stock
shall, subject to any provisions or limitations of the laws of the State of
Nevada, the Articles of Incorporation or any contracts or agreements to which
the corporation may be a party, be issued in such manner, at such times, upon
such conditions and for such consideration as shall be prescribed by the Board
of Directors.
SECTION 6.02 CERTIFICATES. Ownership in the corporation shall be
evidenced by certificates for shares of stock in such form as shall be
prescribed by the Board of Directors, shall be under the seal of the corporation
and shall be manually signed by the president or a vice-president and also by
the secretary or an assistant secretary; provided, however, whenever any
certificate is countersigned or otherwise authenticated by a transfer agent or
transfer clerk, and by a registrar, then a facsimile of the signatures of said
officers may be printed or lithographed upon the certificate in lieu of the
actual signatures. If the Corporation uses facsimile signatures of its officers
on its stock certificates, it shall not act as registrar of its own stock, but
its transfer agent and registrar may be identical if the institution acting in
those dual capacities countersigns any stock certificates in both capacities.
Each certificate shall contain the name of the record holder, the number,
designation, if any, class or series of shares represented, a statement or
summary of any applicable rights, preferences, privileges or restrictions
thereon, and a statement, if applicable, that the shares are assessable. All
certificates shall be consecutively numbered. If provided by the stockholder,
the name, address and federal
-16-
<PAGE>
tax identification number of the stockholder, the number of shares, and the
date of issue shall be entered in the stock transfer records of the
corporation.
SECTION 6.03 SURRENDERED; LOST OR DESTROYED CERTIFICATES. All
certificates surrendered to the corporation, except those representing shares of
treasury stock, shall be canceled and no new certificate shall be issued until
the former certificate for a like number of shares shall have been canceled,
except that in case of a lost, stolen, destroyed or mutilated certificate, a new
one may be issued therefor. However, any stockholder applying for the issuance
of a stock certificate in lieu of one alleged to have been lost, stolen,
destroyed or mutilated shall, prior to the issuance of a replacement, provide
the corporation with his, her or its affidavit of the facts surrounding the
loss, theft, destruction or mutilation and, if required by the Board of
Directors, an indemnity bond in an amount not less than twice the current market
value of the stock, and upon such terms as the treasurer or the Board of
Directors shall require which shall indemnify the corporation against any loss,
damage, cost or inconvenience arising as a consequence of the issuance of a
replacement certificate.
SECTION 6.04 REPLACEMENT CERTIFICATE. When the Articles of Incorporation
are amended in any way affecting the statements contained in the certificates
for outstanding shares of capital stock of the corporation or it becomes
desirable for any reason, in the discretion of the Board of Directors,
including, without limitation, the merger of the corporation with another
corporation or the reorganization of the corporation, to cancel any outstanding
certificate for shares and issue a new certificate therefor conforming to the
rights of the holder, the Board of Directors may order any holders of
outstanding certificates for shares to surrender and exchange the same for new
certificates within a reasonable time to be fixed by the Board of Directors.
The order may provide that a holder of any certificate(s) ordered to be
surrendered shall not be entitled to vote, receive distributions or exercise any
other rights of stockholders of record until the holder has complied with the
order, but the order operates to suspend such rights only after notice and until
compliance.
SECTION 6.05 TRANSFER OF SHARES. Upon surrender to the corporation, or
the transfer agent of the corporation, of a certificate or shares duly endorsed
or accompanied by proper evidence of succession, assignation or authority to
transfer, it shall be the duty of the corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and the record the
transaction upon its books.
SECTION 6.06 TRANSFER AGENT; REGISTRARS. The Board of Directors may
appoint one or more transfer agents, transfer clerk and registrars of transfer
and may require all certificates for shares of stock to bear the signature of
such transfer agent, transfer clerk and/or registrar of transfer.
SECTION 6.07 STOCK TRANSFER RECORDS. The stock transfer records shall be
closed for a period of at least ten (10) days prior to all meetings of the
stockholders and shall be closed for the payment of distributions as provided in
Article VII hereof and during such periods as, from time to time, may be fixed
by the Board of Directors, and, during such periods, no stock shall
-17-
<PAGE>
be transferable for purposes of Article VII and no voting rights shall be
deemed transferred during such periods. Subject to the forgoing limitations,
nothing contained herein shall cause transfers during such periods to be void
or voidable.
SECTION 6.08 MISCELLANEOUS. The Board of Directors shall have the power
and authority to make such rules and regulations not inconsistent herewith as it
may deem expedient concerning the issue, transfer, and registration of
certificates for shares of the corporation's stock.
ARTICLE VII
DISTRIBUTIONS
Section 7.01 Distributions may be declared, subject to the provisions of
the laws of the State of Nevada and the Articles of Incorporation, by the Board
of Directors at any regular or special meeting and may be paid in cash,
property, shares of corporate stock, or any other medium. The Board of
Directors may fix in advance a record date, as provided in Section 2.06, prior
to the distribution for the purpose of determining stockholders entitled to
receive any distribution. The Board of Directors may close the stock transfer
books for such purpose for a period of not more than ten (10) days prior to the
date of such distribution.
ARTICLE VIII
RECORDS; REPORTS; SEAL; AND FINANCIAL MATTERS
SECTION 8.01 RECORDS. All original records of the corporation, shall be
kept by or under the direction of the secretary or at such places as may be
prescribed by the Board of Directors.
SECTION 8.02 DIRECTORS' AND OFFICERS' RIGHT OF INSPECTION. Every
director and officer shall have the absolute right at any reasonable time for a
purpose reasonably related to the exercise of such individual's duties to
inspect and copy all of the corporation's books, records, and documents of every
kind and to inspect the physical properties of the corporation and/or its
subsidiary corporations. Such inspection may be made in person or by agent or
attorney.
SECTION 8.03 CORPORATE SEAL. The Board of Directors may, by resolution,
authorize a seal, and the seal may be used by causing it, or a facsimile, to be
impressed or affixed or reproduced or otherwise. Except when otherwise
specifically provided herein, any officer of the corporation shall have the
authority to affix the seal to any document requiring it.
SECTION 8.04 FISCAL YEAR-END. The fiscal year-end of the corporation
shall be such date as may be fixed from time to time by resolution of the Board
of Directors.
SECTION 8.05 RESERVES. The Board of Directors may create, by resolution,
such reserves as the directors may, from time to time, in their discretion,
think proper to provide for contingencies, or to equalize distributions or to
repair or maintain any property of the corporation, or for such other purpose as
the Board of Directors may deem beneficial to the
-18-
<PAGE>
corporation, and the directors may modify or abolish any such reserves in the
manner in which they were created.
ARTICLE IX
INDEMNIFICATION
SECTION 9.01 INDEMNIFICATION AND INSURANCE.
(a) INDEMNIFICATION OF DIRECTORS AND OFFICERS.
(i) For purposes of this Article, (A) "Indemnitee" shall mean
each director or officer who was or is a party to, or is threatened to be made a
party to, or is otherwise involved in, any Proceeding (as hereinafter defined),
by reason of the fact that he or she is or was a director or officer of the
corporation or is or was serving in any capacity at the request of the
corporation as a director, officer, employee, agent, partner, or fiduciary of,
or in any other capacity for, another corporation or any partnership, joint
venture, trust, or other enterprise; and (B) "Proceeding" shall mean any
threatened, pending, or completed action, or suit (including without limitation
an action, suit or proceeding by or in the right of the corporation), whether
civil, criminal, administrative, or investigative.
(ii) Each Indemnitee shall be indemnified and held harmless by
the corporation for all actions taken by him or her and for all omissions
(regardless of the date of any such action or omission), to the fullest extent
permitted by Nevada law, against all expense, liability and loss (including
without limitation attorneys' fees, judgments, fines, taxes, penalties, and
amounts paid or to be paid in settlement) reasonably incurred or suffered by the
Indemnitee in connection with any Proceeding.
(iii) Indemnification pursuant to this Section shall continue as
to an Indemnitee who has ceased to be a director or officer and shall inure to
the benefit of his or her heirs, executors and administrators.
(b) INDEMNIFICATION OF EMPLOYEES AND OTHER PERSONS.
The corporation may, by action of its Board of Directors and to
the extent provided in such action, indemnify employees and other persons as
though they were Indemnitees.
(c) NON-EXCLUSIVITY OF RIGHTS.
The rights to indemnification provided in this Article shall not
be exclusive of any other rights that any person may have or hereafter acquire
under any statute, provision of the corporation's Articles of Incorporation or
Bylaws, agreement, vote of stockholders or directors, or otherwise.
-19-
<PAGE>
(d) INSURANCE.
The corporation may purchase and maintain insurance or make other
financial arrangements on behalf of any person who is or was a director,
officer, employee, or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee, or agent of another
corporation, partnership, joint venture, trust, or other enterprise for any
liability asserted against him or her and liability and expenses incurred by him
or her in his or her capacity as a director, officer, employee or agent, or
arising out of his or her status as such, whether or not the corporation has the
authority to indemnify him or her against such liability and expenses.
(e) OTHER FINANCIAL ARRANGEMENTS.
The other financial arrangements which may be made by the
corporation may include the following (i) the creation of a trust fund; (ii) the
establishment of a program of self-insurance; (iii) the securing of its
obligation of indemnification by granting a security interest or other lien on
any assets of the corporation; (iv) the establishment of a letter of credit,
guarantee or surety. No financial arrangement made pursuant to this subsection
may provide protection for a person adjudged by a court of competent
jurisdiction, after exhaustion of all appeals therefrom, to be liable for
intentional misconduct, fraud, or a knowing violation of law, except with
respect to advancement of expenses or indemnification ordered by a court.
(f) OTHER MATTERS RELATING TO INSURANCE OR FINANCIAL ARRANGEMENTS.
Any insurance or other financial arrangement made on behalf of a
person pursuant to this section may be provided by the corporation or any other
person approved by the Board of Directors, even if all or part of the other
person's stock or other securities is owned by the corporation. In the absence
of fraud:
(i) the decision of the Board of Directors as to the propriety
of the terms and conditions of any insurance or other financial arrangement made
pursuant to this section and the choice of the person to provide the insurance
or other financial arrangement is conclusive; and
(ii) the insurance or other financial arrangement:
(A) is not void or voidable; and
(B) does not subject any director approving it to personal
liability for his action,
even if a director approving the insurance or other financial arrangement is a
beneficiary of the insurance or other financial arrangement.
-20-
<PAGE>
SECTION 9.02 AMENDMENT. The provisions of this Article IX relating to
indemnification shall constitute a contract between the corporation and each of
its directors and officers which may be modified as to any director or officer
only with that person's consent or as specifically provided in this Section.
Notwithstanding any other provision of these Bylaws relating to their amendment
generally (including, without limitation, Article X below), any repeal or
amendment of this Article IX which is adverse to any director or officer shall
apply to such director or officer only on a prospective basis, and shall not
limit the rights of an Indemnitee to indemnification with respect to any action
or failure to act occurring prior to the time of such repeal or amendment.
Notwithstanding any other provision of these Bylaws, no repeal or amendment of
these Bylaws shall affect any or all of this Article IX so as to limit or reduce
the indemnification in any manner unless adopted by (a) the unanimous vote of
the directors of the corporation then serving, or (b) by the stockholders as set
forth in Article X hereof; provided that no such amendment shall have a
retroactive effect inconsistent with the preceding sentence.
ARTICLE X
AMENDMENT OR REPEAL
SECTION 10.01 AMENDMENT OF BYLAWS. These Bylaws or any provision hereof
may be amended, altered, or repealed (a) by the Board of Directors at an annual
meeting thereof without prior notice or at any special meeting thereof if notice
of such proposed amendment, alteration or repeal is contained in the notice of
such special meeting or (b) by the affirmative vote of at least sixty-six and
two thirds percent (66-2/3%) of the voting power of all the then outstanding
shares of capital stock entitled to vote at any meeting of the stockholders at
which a quorum is present, if notice of such proposed amendment, alteration or
repeal is contained in the notice of such meeting.
SECTION 10.02 ADDITIONAL BYLAWS. Additional bylaws not inconsistent
herewith may be adopted by the Board of Directors. Any bylaws so adopted shall
be subject to alteration, amendment or repeal by the stockholders in accordance
with Section 10.01 of these Bylaws.
ARTICLE XI
CHANGES IN NEVADA LAW
SECTION 11.01 CHANGES IN NEVADA LAW. References in these Bylaws to Nevada
law or to any provision thereof shall be to such law as it existed on the date
these Bylaws were adopted or as such law thereafter may be changed; provided
that (a) in the case of any change which expands the liability of directors or
officers or limits the indemnification rights or the rights to advancement of
expenses which the corporation may provide in Article IX hereof, the rights to
limited liability, to indemnification and to the advancement of expenses
provided in the corporation's Articles of Incorporation and/or these Bylaws
shall continue as theretofore to the extent permitted by law; and (b) if such
change permits the corporation, without the requirement of any further action by
stockholders or directors, to limit further the liability of directors or
officers or to provide broader indemnification rights or rights to the
advancement of expenses than the corporation was permitted to provide prior to
such change, then liability thereupon shall
-21-
<PAGE>
be so limited and the rights to indemnification and the advancement of
expenses shall be so broadened to the extent permitted by law.
CERTIFICATION
The undersigned duly elected secretary of the corporation does hereby
certify that the foregoing Bylaws were adopted by the Board of Directors on the
30th day of January, 1998.
/s/ Kelvin L. Davis
----------------------------------
Kelvin L. Davis, Secretary
<PAGE>
[FRONT OF CERTIFICATE]
INCORPORATED UNDER THE LAWS OF THE
STATE OF NEVADA
NUMBER SHARES
HARVEYS ACQUISITION CORPORATION
This Corporation is authorized to issue 5,000,000 Class A Common Shares at
$.01 Par Value, and 5,000,000 Class B Common Shares at $.01 Par Value
THIS CERTIFIES THAT __________________________________________ is the owner of
__________________________________________________ fully paid and nonassessable
shares of the above Corporation transferable only on the books of the
Corporation by the holder hereof in person or by duly authorized Attorney
upon surrender of this Certificate properly endorsed.
IN WITNESS WHEREOF, the said Corporation has caused this Certificate to
be signed by its duly authorized officers and its Corporate Seal to be
hereunto affixed this ______ day of ____________ AD, 19_____.
________________________ [SEAL] ________________________
President Secretary/Treasurer
[BACK OF CERTIFICATE]
For Value Received, _______________hereby sell, assign and transfer
unto _________________________________________________________________
_________________________________________________________________ Shares
represented by the within Certificate, and do hereby irrevocably
constitute and appoint
__________________________________________________ Attorney to transfer
the said Shares on the books of the within named Corporation with full
power of substitution in the premises.
Dated ______________________ 19___
In presence of
___________________________________ _______________________________
NOTICE THE SIGNATURE OF THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT
ALTERATION OR ENLARGENMENT, OR ANY CHANGE WHATEVER.
<PAGE>
Exhibit 10.1
MEMORANDUM OF UNDERSTANDING
February 1, 1998
THIS MEMORANDUM OF UNDERSTANDING confirms the agreements among
Charles W. Scharer, Stephen L. Cavallaro and John J. McLaughlin
(collectively, the "EXECUTIVES"), and Harveys Acquisition Corporation, a
Nevada corporation ("ACQ CORP") recently organized by Colony Capital, Inc., a
Delaware corporation ("COLONY"), with respect to a contemplated proposal by
Acq Corp to acquire Harveys Casino Resorts, a Nevada corporation (including,
as the context may require, after giving affect to an Acquisition Transaction
(as defined below), the "COMPANY"). For all purposes herein (including the
schedules hereto), references to the Executives' employment agreements
(including all forms of compensation due thereunder) shall be deemed to
include adjustments, amendments or restatements thereof to the extent such
adjustments, amendments or restatements are permitted by the terms of the
documents governing an Acquisition Transaction or are otherwise agreed to in
writing by Acq Corp. prior to the consummation of such Acquisition
Transaction.
1. GENERAL STATEMENT OF PURPOSE. The Executives and Acq Corp
have conducted discussions with respect to an acquisition by merger of all of
the outstanding shares of Company (an "ACQUISITION TRANSACTION"). The
Executives and Acq Corp have concluded it would be desirable to effect an
Acquisition Transaction. To that end, the parties hereto have executed this
Memorandum of Understanding to confirm their binding agreements. The
Executives and Acq Corp agree that this Memorandum of Understanding shall
terminate and cease to be of effect upon the termination of the merger
agreement being executed as of the date hereof in connection with an
Acquisition Transaction.
2. AGREEMENTS WITH THE EXECUTIVES. If the contemplated
Acquisition Transaction is consummated, then, at the closing (the "CLOSING"):
(a) Each option to purchase common stock, par value $.01 per
share, of Company ("COMPANY COMMON STOCK") held by each of the Executives, as
specified in Schedule A hereto, whether vested or unvested, shall be
cancelled in exchange for a payment equal to the product of the number of
shares of Company Common Stock subject to such option and (i) the excess, if
any, of(ii) 1) the price per share of Company Common Stock to be paid by Acq
Corp in the Acquisition
1
<PAGE>
Transaction for a share of Company Common Stock over 2) the exercise price
per share of Company Common Stock of such option.
(b) Each share of Company Common Stock held by each of the
Executives, as specified in Schedule B hereto, shall be acquired by Acq Corp
at the same price per share to be paid by Acq Corp for each of the other
shares of Company Common Stock in the Acquisition Transaction.
(c) The Company's Long-Term Incentive Plan (the "LTIP"), as in
effect on the date hereof, all current performance periods thereunder, and
the rights of Messrs. Scharer, Cavallaro and McLaughlin (as well as all other
participants) to participate therein, shall be terminated in exchange for
lump sum payments pursuant to the terms of the LTIP, as specified in Schedule
C attached hereto.
(d) The rights of Messrs. Scharer, Cavallaro and McLaughlin to
participate in the Company's Management Incentive Plan (the "MIP"), as in
effect on the date hereof, shall be terminated in exchange for lump sum
payments pursuant to the terms of the MIP, as specified in Schedule D
attached hereto. Participants in the MIP other than Messrs. Scharer,
Cavallaro and McLaughlin shall be entitled to continue to participate therein
for the duration of 1998. At the election of the Company following an
Acquisition Transaction, the MIP may thereafter be maintained for an
additional period or replaced with a new bonus or equivalent plan having a
similar structure to the MIP and providing for maximum aggregate annual
payments no less in the aggregate than amounts actually paid under the MIP in
1997, but with thresholds and triggering events for payment being determined
by the Company's Board of Directors (the "BOARD") using targets established
based on an annual business plan.
(e) The severance compensation provisions of the Company's Change
of Control Plan shall remain in effect following consummation of the
Acquisition Transaction, either pursuant to that plan or a replacement change
of control plan reasonably acceptable to the Executives. If reasonably
requested by Acq Corp, a document shall be executed and delivered by the
Executives to clarify that no separate severance rights remain under Messrs.
Scharer, Cavallaro and McLaughlin's existing employment agreements with the
Company, and the Change of Control Plan shall be amended to clarify that no
dual severance rights shall apply to any participant in the plan. The Change
of Control Plan shall also be amended to clarify that non-competition
agreements between the Company and plan participants shall be enforceable.
2
<PAGE>
(f) The rights of Messrs. Scharer, Cavallaro and McLaughlin to
participate in the Company's Supplemental Executive Retirement Plan ("SERP")
shall be terminated. It is agreed that the accrued SERP benefits for such
individuals as of the Closing shall be $1,261,435, $701,454 and $450,000,
respectively. At the Closing, one-half of each such amount shall be paid in
a lump sum to Messrs. Scharer, Cavallaro and McLaughlin. The parties will
endeavor in good faith to achieve a reasonably satisfactory approach pursuant
to which the remaining amounts, rather than being distributed, shall be
rolled over into an unfunded phantom stock account, Rabbi Trust or similar
deferral arrangement and shall be deemed to be invested in Company Common
Stock at the Implied Price (as hereinafter defined) and otherwise on
substantially the same terms as contemplated with respect to the Base Stock
Grant Shares under Section 4 hereof, except that appropriate deferral
mechanisms consistent with a SERP or other deferred compensation plan shall
be implemented so that no adverse tax consequences will result to the
Executives from the rolled-over amounts. Otherwise, such remaining amounts
will be distributed and reinvested in Company Common Stock at the Implied
Price and otherwise on substantially the same terms as contemplated with
respect to the Base Stock Grant Shares under Section 4 hereof.
(g) Each of the Executives shall enter into a non-competition
agreement with the Company, pursuant to which each Executive shall agree not
to (i) engage in owning, operating and developing casinos or hotels
associated or materially competitive with casinos, except in connection with
such Executive's employment with the Company, (ii) solicit any employee,
agent or consultant of the Company to terminate such person's relationship
with the Company or (iii) solicit any counterparty to any contract with the
Company to terminate such counterparty's contract or other relationship with
the Company. Such non-competition agreements shall have a term of (i) twelve
months following any termination of such Executive's employment with the
Company in the case of clause (i) of the first sentence of this paragraph and
(ii) two years following any termination of such Executive's employment with
the Company in the case of clauses (ii) and (iii) of the first sentence of
this paragraph. Reasonable exceptions to the non-competition restrictions
will be provided in respect of (i) hospitality activities not materially
competitive with gaming, (ii) passive ownership of less than 5% of public
companies and (iii) investments in enterprises which are principally
bar/restaurant enterprises containing no more than 50 gaming positions.
(h) Each of the Executives shall enter into a new employment
agreement with the Company containing mutually acceptable terms based on
3
<PAGE>
reasonable and customary provisions in comparable agreements in addition to
the provisions expressly contemplated herein. The employment agreements
shall have a term of five years from the Closing and provide for, without
limitation, (i) annual base salaries of $500,000, $400,000 and $300,000 for
Messrs. Scharer, Cavallaro and McLaughlin, respectively, to be reviewed no
less than annually relative to specified performance-based criteria
determined by the Board, (ii) annual year-end incentive payments under the
MIP or such other plan as may be implemented consistent with Section 2(d)
hereof, the payment and amount of which are to be based on the achievement of
the annual budget submitted to the Board and business plan targets to be
determined by the Board following the Acquisition Transaction, based on such
budget, (iii) the continuation of perquisites in effect with respect to the
Executives as of the date hereof, (iv) the immediate vesting of all options
and restricted stock grants upon a change of control, (v) the vesting of that
portion of options and restricted stock grants due to vest over the lesser of
(1)(a) eighteen months (with respect to Messrs. Cavallaro and McLaughlin) or
(b) two years (with respect to Mr. Scharer) or (2) the remainder of the
employment agreement term (in each case, the "PERIOD"), and the provision of
severance for the applicable Period (in each case consisting of the
terminated Executive's then-applicable base salary, bonus and benefits, which
severance shall be the exclusive severance payable to such Executive and
shall supercede and replace any severance that might otherwise be due under
the Company's Change of Control Plan) upon a termination of the Executives
other than for cause, (vi) five weeks vacation time for each of the
Executives (PROVIDED that Messrs. Cavallaro and McLaughlin shall each be
entitled to four weeks vacation during the first three years of the term of
such employment agreements), (vii) reasonable notice and cure provisions in
the event of breaches, (viii) geographic location rights consistent with
those in the Company's existing employment agreements with respect to Messrs.
Scharer and Cavallaro, and similar to those contained in Mr. Scharer's
employment agreement, with respect to Mr. McLaughlin, (ix) "for cause"
definitions consistent with those in the Company's existing employment
agreements with the Executives, except that "for cause" shall also include
instances of a conviction of a felony and the definition of "dishonest"
contained therein shall be clarified to include instances of fraud, and (x)
trade secret protection agreements.
3. MANAGEMENT STRUCTURE AND COMPENSATION; BOARD DESIGNATION.
Upon the consummation of the contemplated Acquisition Transaction, Messrs.
Scharer, Cavallaro and McLaughlin shall remain the President and Chief
Executive Officer, the Chief Operating Officer and the Senior Vice President
and Chief Financial Officer, respectively, of the Company immediately
following the
4
<PAGE>
Acquisition Transaction. The other officers of the Company shall be
appointed by Mr. Scharer, with the approval of the Board.
Prior to the contemplated Acquisition Transaction, the members of
Acq Corp's Board of Directors shall be designated by Colony. Upon
consummation of the contemplated Acquisition Transaction, such Acq Corp
directors, together with Messrs. Scharer and Cavallaro, shall initially
comprise the Board.
4. MANAGEMENT STOCK OWNERSHIP; MANAGEMENT INCENTIVE PROGRAMS.
The Company shall grant to the Executives, the general managers of the
Company's facilities located in each of Nevada, Iowa and Colorado as of the
date hereof, the vice president of human resources, the vice president of
marketing as of the date hereof, the vice president of business development
as of the date hereof and such others as are mutually determined by Mr.
Scharer and the Board (collectively with the Executives, the "KEY MANAGERS")
the number of shares of the Company Common Stock that is equivalent in the
aggregate to three percent of the Company Common Stock outstanding at the
Closing (the "BASE STOCK GRANT SHARES"). Except as otherwise provided
herein, twenty percent of the Base Stock Grant Shares granted to each Key
Manager shall vest on each of the first through fifth anniversaries of the
Closing, in accordance with each Key Manager's employment agreement to the
extent applicable.
If, prior to the fifth anniversary of the Closing, the Company
opens one or more new gaming facilities (each, a "NEW PROJECT"), and, for
each of any four consecutive fiscal quarters within the first two years
following the opening thereof, (a) the ratio of (i) any such New Project's
net income, before interest expenses, income taxes, depreciation,
amortization and pre-opening expenses ("EBITDA") to (ii) such New Project's
aggregate invested development, construction and pre-opening costs, including
transaction costs, is at least seventeen and one half percent, and (b) such
New Project's EBITDA for those four quarters is at least $25 million, then
the Company shall grant to such of the Key Managers and such others as are
mutually determined by Mr. Scharer and the Board the number of shares of the
Company Common Stock that is equivalent in the aggregate to an additional two
percent of the Company Common Stock outstanding at the Closing (the
"INCENTIVE STOCK GRANT SHARES"). The Incentive Stock Grant Shares shall vest
on the same schedule as the Base Stock Grant Shares as if such Incentive
Stock Grant Shares had been granted at the Closing, in accordance with each
Key Manager's employment agreement to the extent applicable.
5
<PAGE>
The Company shall grant to the Key Managers options to acquire, at
the price per share (the "IMPLIED PRICE") obtained by dividing Colony's
initial common stock investment in the Acquisition Transaction by the number
of shares of Company Common Stock acquired by Acq Corp thereby, the number of
shares of the Company Common Stock that is equivalent in the aggregate to
five percent of the Company Common Stock outstanding at the Closing (the
"MANAGEMENT OPTIONS"). Twenty percent of the Management Options shall vest on
each of the first through fifth anniversaries of the Closing, in accordance
with each Key Manager's employment agreement.
The Base Stock Grant Shares, the Incentive Stock Grant Shares and
the Management Options shall be subject to other terms and provisions,
including customary transfer restrictions and provisions pursuant to which
two-thirds of all vested options and grants and all unvested options and
grants will be forfeited without compensation (except that shares acquired
pursuant to Section 2(f) will be cashed out at the lesser of (A) fair market
value and (B) the invested amount as increased at a cumulative rate of 8% per
year), effective upon termination by the Company for cause or resignation by
the Key Managers. The parties agree to negotiate in good faith to provide
alternative provisions for the payment of taxes by the Executives resulting
from the receipt of such shares or options, PROVIDED that the Company will
not be required to suffer additional costs or other adverse consequences in
connection therewith beyond reasonable administrative costs associated with
any alternative provision that may be agreed upon and de minimus consequences
not otherwise reasonably avoidable, including, without limitation: (i) An
IRC Section 83(b) election at Closing, (ii) a Company agreement to provide
tax liquidity at such time as income is recognized by the Executive, or (iii)
adoption of a deferred compensation arrangement, such as a Rabbi Trust,
effective at such time as income is recognized by the Executive, to further
defer the payment of tax until the Company Common Stock becomes liquid.
Stock grant shares (whether or not vested) shall be deemed to be outstanding
for purposes of the receipt of any dividends on such class of stock. Option
conversions will receive customary economic anti-dilution protection.
All issuances hereunder of Company Common Stock shall be comprised
of a combination of voting and non-voting securities so that each such class
of security constitutes the applicable percentage of all such shares of such
class of security outstanding at the time of issuance.
The Board will consider future increases of the Company's stock
option plan and stock grant plan to attract and hire new executive officers
in connection with
6
<PAGE>
future property additions. So long as the Company is a private company, the
Board will consider in good faith reasonable requests to grant options as
"Incentive Stock Options" (and not "Non-Qualified Stock Options") to the
maximum extent permitted by law.
Any Company Common Stock or options issued hereunder shall be
subject to a Stockholders Agreement containing customary transfer
restrictions and other terms and provisions reasonably satisfactory to the
parties. The Stockholders Agreement shall also provide for (a) a right of
first refusal with respect to prospective transfers of any Company Common
Stock owned by any of the Key Managers, whether such securities are owned
outright or are Base Stock Grant Shares or Incentive Stock Grant Shares
subject to vesting, (b) mutually acceptable "piggyback" registration rights
with respect to the sale of Company Common Stock by Key Managers and (c)
mutually acceptable "tag-along" rights with respect to the sale of Company
Common Stock by Colony.
5. COMMITMENT TO SUPPORT ACQUISITION TRANSACTION; NO SOLICITATION
OF ALTERNATIVE TRANSACTIONS. Subject to his fiduciary duties under
applicable law as advised by counsel, each of the Executives agrees (a) that
he shall use his best efforts to assist in the consummation of the
contemplated Acquisition Transaction and shall act in good faith in such
process (including, without limitation, by voting his shares of Company
Common Stock in favor of such transaction if it is presented for a
shareholder vote and by cooperating with Acq Corp in preparing and filing any
filings required under the Securities Exchange Act of 1934, as amended, the
Securities Act of 1933, as amended, any laws relating to the current or
contemplated gaming activities and operations of Colony, Acq Corp or the
Company, or any other Federal, state or local laws relating to the
Acquisition Transaction and the transactions contemplated thereby) and (b)
that he shall not, directly or indirectly, solicit or initiate the submission
of proposals or offers from any person relating to any acquisition or
purchase of all or (other than in the ordinary course of business) a material
portion of the assets of, or any equity interest in, Company or any of its
subsidiaries or any merger, consolidation or business combination with
Company or any such subsidiary.
6. DISCLOSURE REQUIREMENTS. In connection with their execution
and delivery of this Memorandum, the Executives acknowledge and agree to
comply with all applicable disclosure requirements relating thereto imposed
under Federal and state securities laws.
7
<PAGE>
7. FEES AND EXPENSES. The Executives, on the one hand (jointly
and severally), and Acq Corp, on the other hand, shall each be responsible
for their respective expenses incurred in connection with the consideration
of the contemplated Acquisition Transaction, PROVIDED, that Acq Corp shall
pay up to $35,000 in the aggregate of the Executives' reasonably documented
expenses.
8. BINDING AGREEMENT; STANDARD OF CONDUCT. The terms of the
agreements herein shall be more fully set forth in definitive documentation,
which each of the parties hereto agrees to negotiate in good faith. The
Company will gross up payments made hereunder to account for the payment of
IRC Section 4999 excise taxes as well as taxes imposed on the gross up
payments, and will provide reasonable and customary indemnity in respect of
the same. Subject to the negotiation and execution of such definitive
documentation and the reaching of agreement on other matters contemplated but
not specifically addressed herein, each of the parties hereto acknowledges
and agrees that this Memorandum of Understanding is intended as a binding
agreement among them with respect to the matters set forth herein.
9. PARTIES IN INTEREST. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to confer upon any other person
any rights or remedies of any nature whatsoever under or by reason of this
Agreement except as specifically referred to in connection with Colony.
Neither this Agreement nor any of the rights, interests or obligations under
this Agreement shall be assigned, in whole or in part, by operation of law or
otherwise by any of the parties without the prior written consent of the
other parties, except that Acq Corp may assign, in its sole discretion, any
or all of its rights, interests and obligations under this Agreement to any
controlled affiliate of Colony. Subject to the preceding sentence, this
Agreement shall be binding upon, inure to the benefit of, and be enforceable
by, the parties and their respective successors and assigns.
10. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEVADA, WITHOUT REGARD
TO ANY APPLICABLE CONFLICTS OF LAW.
[SIGNATURE PAGES FOLLOW]
8
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has executed this
Memorandum of Understanding as of the date first above written.
HARVEYS ACQUISITION CORPORATION
By: /s/ Kelvin L. Davis
-----------------------------------
Name: Kelvin L. Davis
Title: President
/s/ Charles W. Scharer
---------------------------------------
CHARLES W. SCHARER
/s/ Stephen L. Cavallaro
---------------------------------------
STEPHEN L. CAVALLARO
/s/ John J. McLaughlin
---------------------------------------
JOHN J. MCLAUGHLIN
<PAGE>
SCHEDULE A (1)
OPTIONS TO PURCHASE COMPANY COMMON STOCK HELD BY EXECUTIVES
CHARLES W. SCHARER
215,500 Options Purchased at $28 less Exercise Price
183,500 Options at $16.4375 Exercise Price
32,000 Options at $14.00 Exercise Price
183,500 x (28 - 16.4375) = $ 2,121,719
32,000 x (28 - 14.00) = $ 448.000
-----------
Total Payment $ 2,569,719
STEPHEN L. CAVALLARO
78,800 Options Purchased at $28 less Exercise Price
48,800 Options at $16.4375 Exercise Price
30,000 Options at $14.00 Exercise Price
48,800 x (28 - 16.4375) = $ 564,250
30,000 x (28 - 14.00) = 420,000
---------
Total Payment $ 984,250
JOHN J. MCLAUGHLIN
41,000 Options Purchased at $28 less Exercise Price
41,000 x (28 - 16.4375) = $474,063
- -------------------
(1) This Schedule assumes a purchase price for the Company Common Stock
of $28 per share. If the purchase price per share is other than $28, this
Schedule shall be revised accordingly.
<PAGE>
SCHEDULE B (2)
GRANTS OF RESTRICTED COMPANY COMMON STOCK HELD BY EXECUTIVES
CHARLES W. SCHARER
$28 x 18,000 Shares = $504,000
STEPHEN L. CAVALLARO
$28 x 15,000 Shares = $420,000
JOHN J. MCLAUGHLIN
$28 x 10,000 Shares = $280,000
- ----------------------
(2) This Schedule assumes a purchase price for the Company Common Stock
of $28 per share. If the purchase price per share is other than $28, this
Schedule shall be revised accordingly.
<PAGE>
SCHEDULE C
PAYMENTS TO BE MADE TO EXECUTIVES PURSUANT TO COMPANY'S
LONG-TERM INCENTIVE PLAN
Charles W. Scharer $1,081,988
Stephen L. Cavallaro $ 531,018
John L. McLaughlin $ 332,063
<PAGE>
SCHEDULE D
PAYMENTS TO BE MADE TO EXECUTIVES PURSUANT TO COMPANY'S
MANAGEMENT INCENTIVE PLAN
Charles W. Scharer $467,500
Stephen L. Cavallaro $232,500
John L. McLaughlin $187,500
<PAGE>
Exhibit 10.2
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
VOTING AND PROFIT SHARING AGREEMENT
BY
AND
AMONG
HARVEYS ACQUISITION CORPORATION
AND
THE INDIVIDUALS AND ENTITIES SIGNATORY HERETO
DATED AS OF FEBRUARY 1, 1998
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
<PAGE>
VOTING AND PROFIT SHARING AGREEMENT
VOTING AND PROFIT SHARING AGREEMENT (this "AGREEMENT"), dated as of
February 1, 1998, by and among Harveys Acquisition Corporation, a Nevada
corporation (together with its assignees or designees,"ACQ CORP"), the
Ledbetter Marital Trust (the "LEDBETTER MARITAL TRUST"), Kirk B. Ledbetter,
Jessica L. Ledbetter and William B. Ledbetter (the Ledbetter Marital Trust,
Kirk B. Ledbetter, Jessica L. Ledbetter and William B. Ledbetter hereinafter
being collectively referred to as the "SELLERS").
W I T N E S S E T H
WHEREAS, concurrently with the execution and delivery of this
Agreement, Harveys Casino Resorts, a Nevada corporation ("TARGET"), is
entering into an Agreement and Plan of Merger dated as of the date hereof
(the "MERGER AGREEMENT") with Acq Corp, pursuant to which Acq Corp shall
merge with and into Target (the "MERGER"), upon the terms and conditions set
forth therein;
WHEREAS, each Seller severally desires that the Acq Corp and Target
enter into the Merger Agreement;
WHEREAS, the Ledbetter Marital Trust established under the will of
Beverlee A. Ledbetter owns beneficially and of record 2,924,392 shares of
common stock, par value $.01 per share, of Target (the "COMMON STOCK"), which
shares represent approximately 29.5% of the issued and outstanding shares of
Common Stock, Kirk B. Ledbetter owns beneficially and of record 618,600
shares of Common Stock, which shares represent approximately 6.2% of the
issued and outstanding shares of Common Stock, Jessica L. Ledbetter owns
beneficially and of record 506,196 shares of Common Stock, which shares
represent approximately 5.1% of the issued and outstanding shares of Common
Stock, and William B. Ledbetter owns beneficially and of record 50 shares of
Common Stock, which shares represent less than 1.0% of the issued and
outstanding shares of Common Stock (such shares of Common Stock owned by the
Sellers being the "SHARES"); and
WHEREAS, as a condition to its willingness to enter into the
Merger, Acq Corp has requested that the Sellers enter into this Agreement;
NOW, THEREFORE, in consideration of the foregoing premises and the
representations, warranties and agreements contained herein, and for other
good
1
<PAGE>
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto, intending to be legally bound, agree as
follows:
ARTICLE I
DEFINITIONS
Certain capitalized terms used and not otherwise defined herein
have the meanings ascribed to them in the Merger Agreement. All other
capitalized terms used but not otherwise defined herein or in the Merger
Agreement have the meanings set forth below. Unless the context otherwise
requires, such terms shall include the singular and plural and the
conjunctive and disjunctive forms of the terms defined.
"FAIR MARKET VALUE" means:
(a) with respect to a security listed on a domestic exchange or
quoted in the Nasdaq National Market, the Nasdaq SmallCap Market or the
domestic over-the-counter market,
(i) the average of the closing prices of the
security's sales on all domestic exchanges on which the security may at
the time be listed, or
(ii) if there shall have been no sales on any such
exchange on any day, the average of the highest bid and lowest asked
prices on all such exchanges at the end of such day, or
(iii) if on any day the security is not so listed, the
average of the representative bid and asked prices quoted in the Nasdaq
National Market or Nasdaq SmallCap Market as of 3:30 P.M., Eastern time,
or
(iv) if on any day the security is not quoted in the
Nasdaq National Market or Nasdaq SmallCap Market, the average of the high
and low bid and asked prices on such day in the domestic over-the-counter
market as reported by the National Quotation Bureau, Incorporated, or any
similar successor organization,
2
<PAGE>
in each such case averaged over a period of ten (10) consecutive trading
days immediately prior to the day as of which the "Fair Market Value" is
being determined,
(b) with respect to any other security, the value of the
security as mutually agreed by Acq Corp and the Sellers, PROVIDED, HOWEVER,
that if Acq Corp and the Sellers are unable to mutually agree upon such
value, the members of the Board of Directors of Target who are not
Affiliates of Acq Corp or any of the Sellers (the "INDEPENDENT DIRECTORS")
shall select an Independent Financial Expert who shall determine the value
of such security.
(c) with respect to any other consideration, the value of the
consideration as mutually agreed by Acq Corp and the Sellers, PROVIDED,
HOWEVER, that if Acq Corp and the Sellers are unable to mutually agree upon
such value, the Independent Directors shall select an Independent Financial
Expert who shall determine the value of such security.
"INDEPENDENT FINANCIAL EXPERT" means a nationally recognized
investment banking firm selected by the Independent Directors (a) that has
not been, and at the time it is called upon to serve as an Independent
Financial Expert under this Agreement is not (and none of whose directors,
officers, employees or Affiliates is) a promoter, director or officer of the
Target, that has not been retained by any of the Sellers, the Target or any
of their respective Affiliates for any purpose within the preceding twelve
months, and that, in the reasonable judgment of the Independent Directors,
is otherwise qualified to serve as an independent financial advisor. Any
such person may receive customary compensation and indemnification by the
Target for opinions or services it provides as an Independent Financial
Expert.
"NEVADA ACT" means the Nevada Gaming Control Act, as amended, and
the rules and regulations promulgated thereunder.
"NON-MERGER SALE" has the meaning set forth in Section 4.07 hereto.
"PROFIT SHARING TERMINATION DATE" has the meaning set forth in
Section 4.07 hereto.
3
<PAGE>
ARTICLE II
VOTING AGREEMENTS
SECTION 2.01. STOCKHOLDER MEETINGS. Subject to the provisions of
Article VI, each Seller agrees that at any meeting of stockholders of Target
called to vote upon the Merger or the Merger Agreement, or at any adjournment
thereof, or in any other circumstances upon which a vote, consent or other
approval of the stockholders of Target with respect to the Merger, the Merger
Agreement or any of the other transactions contemplated thereby or hereby is
sought, such Seller shall cause its Shares to be present for quorum purposes
and to vote (or caused to be voted) its Shares in favor of the terms thereof
and each of the other transactions contemplated by the Transaction and this
Agreement and any actions required in furtherance thereof and hereof.
SECTION 2.02. COMPETING TRANSACTION. Subject to the provisions of
Article VI, each Seller agrees that at any meeting of stockholders of Target,
or at any adjournment thereof, or in any other circumstances upon which their
vote, consent or other approval is sought, such Seller shall vote (or cause
to be voted) its Shares against (i) any Takeover Proposal and (ii) any
amendment of Target's Restated Articles of Incorporation or Bylaws or other
proposal or transaction involving Target or any of its subsidiaries which
amendment or other proposal or transaction would in any manner impede,
interfere with, materially delay, frustrate, prevent or nullify or result in
a breach of any covenant, representation or warranty or any other obligation
or agreement of Target or any Seller under or with respect to, the Merger,
the Merger Agreement or any of the other transactions contemplated by the
Merger Agreement or by this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.01. Representations and Warranties of the Sellers. Each
of the Sellers severally and not jointly represents and warrants to Acq Corp
as follows:
(a) ORGANIZATION AND STANDING. Such Seller has all requisite
power and authority to enter into and perform its obligations under this
4
<PAGE>
Agreement and, if such Seller is not a natural person, such Seller is duly
organized, validly existing and in good standing under the laws of its
state of organization.
(b) AUTHORITY. The execution and delivery of this Agreement,
and the performance by such Seller of its obligations hereunder, have been
duly authorized by all necessary action on the part of such Seller. This
Agreement has been duly executed and delivered by such Seller and, assuming
the due execution and delivery hereof by Acq Corp and assuming that
approval of this Agreement by Target remains effective, this Agreement
constitutes a valid and binding obligation of such Seller, enforceable
against such Seller in accordance with its terms.
(c) THE SHARES. Such Seller is the record and beneficial owner
of, and has good and valid title to, the number of Shares recited to be
owned by it in the recitals hereof, free and clear of all Liens except as
indicated in Schedule 3.01(c) (i) and in Section 4.02 hereof. Except for
this Agreement and as indicated in Schedule 3.01(c) (i) and in Section 4.02
hereof, there are no outstanding warrants, subscriptions, rights (including
preemptive rights), options, calls, commitments or other agreements or
Liens to encumber, purchase or acquire any of the Shares of such Seller or
securities convertible into or exchangeable for the Shares of such Seller.
Except as indicated in Schedule 3.01(c)(ii), neither such Seller nor any of
its affiliates or associates (as such terms are defined in Rule 12b-2
promulgated under the Exchange Act) holds either of record or beneficially
any securities, capital stock, warrants, subscriptions, rights (including
preemptive rights), options, calls, commitments or other instruments of
Target or any of Target's direct or indirect subsidiaries other than such
Seller's Shares.
(d) NO CONFLICT. The execution of this Agreement and the
consummation of the transactions contemplated hereby will not require
notice to, or the consent of, any party to any Contract to which such
Seller is a party or by which it is bound, or the consent, approval, order
or authorization of, or the registration, declaration or filing with, any
governmental authority, except for those (i) required under the HSR Act, if
any; (ii) required by any Gaming Authority, including approvals under the
Nevada Act; and (iii) pertaining to approval by the Target Board of
Directors (which the Sellers represent has been granted). Assuming that
the notices, consents and approvals referred to in the preceding sentence
have been given, made or ob-
5
<PAGE>
tained and remain effective, the execution, delivery and performance by
such Seller of this Agreement and the consummation of the transactions
contemplated hereby will not (i) violate any Laws, (ii) result in a
breach or violation of any provision of, constitute a default under, or
result in the termination of, or an acceleration of indebtedness or
creation of any Lien under, any contract to which such Seller is a party
or by which it is bound or (iii) conflict with or violate any provision
of the organizational or similar documents of such Seller.
(e) MERGER AGREEMENT REPRESENTATIONS. Such Seller has reviewed
the provisions of Article IV of the Merger Agreement (including the
schedules thereto) and, based upon such review, nothing has come to such
Seller's attention that would cause such Seller to believe that the
representations and warranties of Target made therein are not true,
complete and correct in all material respects as of the time made. The
parties hereto agree that this Section 3.01(e) shall not survive the
Closing Date.
(f) BROKERS, FINDERS, ETC. No broker, investment banker,
financial advisor, finder or other person (other than DLJ in connection
with the Merger, the fees and expenses of which are not the responsibility
of Acq Corp) is entitled to any broker's, finder's, financial advisor's or
other similar fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf
of the Sellers.
SECTION 3.02. REPRESENTATIONS AND WARRANTIES OF ACQ CORP. Acq Corp
hereby represents and warrants to each of the Sellers as follows:
(a) ORGANIZATION AND STANDING. Acq Corp is duly organized,
validly existing and in good standing under the laws of its state of
incorporation, and has all requisite power and authority to enter into and
perform its obligations under this Agreement.
(b) AUTHORITY. The execution and delivery of this Agreement,
and the performance by Acq Corp of its obligations hereunder, have been
duly authorized by all necessary action on the part of Acq Corp. This
Agreement has been duly executed and delivered on behalf of Acq Corp and,
assuming the due execution and delivery hereof by the Sellers and assuming
that approval of this Agreement by Target remains effective, this Agreement
constitutes a valid and binding obligation of Acq Corp, enforceable against
Acq Corp in accordance with its terms.
6
<PAGE>
(c) NO CONFLICT. The execution of this Agreement and the
consummation of the transactions contemplated hereby will not require
notice to, or the consent of, any party to any Contract to which Acq Corp
or any of its affiliates is a party or by which any of them is bound, or
the consent, approval, order or authorization of, or the registration,
declaration or filing with, any governmental authority, except for (i)
those required under the HSR Act, if any, (ii) approvals, as necessary, by
any Gaming Authority, including approvals under the Nevada Act, (iii)
approval by the Target Board of Directors (which the Sellers represent has
been granted); and (iv) as set forth on Schedule 3.02(c). Assuming that
the notices, consents and approvals referred to in the preceding sentence
have been given, made or obtained and remain effective, the execution,
delivery and performance by Acq Corp of this Agreement and the consummation
of the transactions contemplated hereby will not (i) violate any Laws, (ii)
result in a breach or violation of any provision of, or constitute a
default under, any contract to which Acq Corp is a party or by which it is
bound or (iii) conflict with any provision of the articles of incorporation
or bylaws of Acq Corp.
ARTICLE IV
COVENANTS
SECTION 4.01. NO SOLICITATION.
(a) Each Seller agrees that it shall not, nor shall it authorize
or permit any Affiliate, agent, partner or employee of, or any investment
banker, attorney or other advisor or representative of, such Seller to,
directly or indirectly, (i) solicit or initiate, or encourage any inquiries
regarding or the submission of, any Takeover Proposal (including without
limitation any proposal or offer to Target's stockholders) or (ii)
participate in any discussions or negotiations regarding, or furnish to any
person any information with respect to, or take any other action to
facilitate the making of any proposal that constitutes, or may reasonably
be expected to lead to, any Takeover Proposal; PROVIDED, HOWEVER, that it
is understood that this Section 4.01(a) will not be deemed to have been
violated if in response to an unsolicited inquiry, the Seller states solely
that he or she is subject to the provisions of this Agreement, and PROVIDED
FURTHER, that this Section 4.01(a) and the following Section
7
<PAGE>
4.01(b) shall not be deemed to have been violated as a result of any
actions taken by such Seller in his or her capacity as an officer or
director of Target (although Acq Corp reserves all rights and remedies it
may have other than pursuant to this Agreement in respect of conduct of
the sort covered by the foregoing further proviso).
(b) Each Seller agrees that it shall not enter into any
agreement with respect to any Takeover Proposal.
SECTION 4.02. NO TRANSFER; NO INCONSISTENT ARRANGEMENTS. Each
Seller agrees that it shall not (including by way of any gift, sale, pledge
or other disposition, including without limitation in connection with
foreclosures by lenders secured by pledges of Shares) transfer or pledge, or
consent to the transfer or pledge of, any or all of the Shares owned by it or
of any interest therein, enter into any contract, option or other agreement
or understanding with respect to any such transfer of any such Shares, or any
interest therein, grant any proxy, power-of-attorney or other authorization
in or with respect to any such Shares, deposit any such Shares into a voting
trust or enter into a voting agreement or arrangement with respect to any
such Shares or take any action that would in any way restrict, limit or
interfere or in any way be inconsistent with the performance of its
obligations hereunder or the transactions contemplated hereby or by the
Merger Agreement. Notwithstanding the foregoing, after the later to occur of
(i) June 30, 1998 and (ii) approval and adoption of the Merger Agreement by
the affirmative vote of holders of at least two-thirds of all shares of
Common Stock entitled to vote thereon, if the Closing has not occurred and no
Seller is in breach hereof, the Sellers, collectively, or any of them, may in
the aggregate (subject to the next following sentence) (i) transfer up to
100,000 Shares in open market sales pursuant to Rule 144 under the Securities
Act of 1933, as amended, and (ii) transfer up to 200,000 Shares pursuant to
pledge arrangements securing bona fide commercial loans, PROVIDED that the
terms of all such pledges shall not prohibit the performance by the Sellers
of their obligations under Section 4.07 hereof with respect to such pledged
Shares or otherwise. In the case of any transfers pursuant to clause (i) of
the immediately preceding sentence, the number of Shares permitted to be so
transferred shall be reduced by the percentage equal to the difference
between 100% and the percentage obtained by dividing the number of Shares
transferred pursuant to clause (ii) of the immediately preceding sentence by
200,000, and in the case of any transfers pursuant to clause (ii) of the
immediately preceding sentence, the number of Shares permitted to be so
transferred shall be reduced by the percentage equal to the difference
between
8
<PAGE>
100% and the percentage obtained by dividing the number of Shares transferred
pursuant to clause (i) of the immediately preceding sentence by 100,000.
SECTION 4.03. FURTHER ASSURANCES. From time to time, whether
before, at, or after the Closing, each party hereto agrees to execute and
deliver, or cause to be executed and delivered, such additional instruments,
certificates and other documents, and to take such other action, as may be
necessary or advisable in order to carry out the terms and provisions of this
Agreement and the transactions contemplated hereby (including voting the
Shares in favor of any such transaction) or to cause the elimination of any
circumstance that would cause a condition under Article V hereof not to be
satisfied on the Closing Date.
SECTION 4.04. EXPENSES. All fees and expenses incurred in
connection with this Agreement and the transactions contemplated hereby shall
be paid by the party incurring such fees or expenses, whether or not the
Merger is consummated.
SECTION 4.05. PUBLICITY. Each Seller and Acq Corp agree that,
prior to the Closing, no public release or announcement concerning this
Agreement shall be issued by any such party without the prior written consent
(which consent shall not be unreasonably withheld) of the other parties
hereto, except as such release or announcement may be required by law (in
which event the other parties hereto shall have the right to comment promptly
on the form and content of the disclosure).
SECTION 4.06. NOTICE OF CERTAIN EVENTS. Acq Corp and each Seller
agrees to notify each other party hereto promptly of (a) any event or
condition that, with or without notice or lapse of time, would or could
reasonably be expected to cause any of the representations and warranties
made by such party herein to be no longer complete and accurate as of any
date on or before the Closing Date, or (b) any failure, with or without
notice or lapse of time, on the part of such party to comply with any of the
covenants or agreements on its part contained herein at any time on or before
the Closing Date.
SECTION 4.07. EXCESS PROCEEDS. Each of the Sellers hereby
severally agrees to pay to Acq Corp an amount equal to the product of 62.5%
of the amount, if any, by which the Fair Market Value of the gross proceeds
per Share from any sale, transfer or other disposition (including without
limitation to Acq Corp or an affiliate thereof) of its Shares (a "NON-MERGER
SALE") exceeds the sum of (x) $28.00 plus (y) any additional consideration
that becomes payable under Section 3.01(c) of
9
<PAGE>
the Merger Agreement as in effect on the date hereof, and the number of
Shares so sold, transferred or otherwise disposed of by such Seller in any
Non-Merger Sale, if such Non-Merger Sale (x) occurs on or prior to the date
(the "PROFIT SHARING TERMINATION DATE") which is 12 months subsequent to the
date of the termination of the Merger Agreement under circumstances pursuant
to which Acq Corp is entitled to a Termination Fee under Section 7.07(b)
thereof or (y) is effected pursuant to an agreement or understanding, oral or
written, which is entered into, or with respect to which any agreement in
principle is reached, on or prior to the Profit Sharing Termination Date.
The Sellers shall make the payment referenced herein within two business days
of receipt of such proceeds.
ARTICLE V
CONDITIONS PRECEDENT TO THE SELLERS' OBLIGATIONS
The obligation of each of the Sellers pursuant to Article II shall
be subject to the satisfaction or waiver on the Closing Date of each of the
following conditions precedent:
SECTION 5.01. NO INJUNCTIONS OR RESTRAINTS. No temporary
restraining order or preliminary or permanent injunction of any court or
administrative agency of competent jurisdiction prohibiting the transactions
contemplated by this Agreement shall be in effect.
SECTION 5.02. NO VIOLATION OF LAW. The performance of the
obligations of each of the Sellers pursuant to Article II shall not
constitute a violation of any Laws.
SECTION 5.03. REPRESENTATIONS AND WARRANTIES. The representations
and warranties of Acq Corp set forth in this Agreement shall be true and
correct in all material respects on and as of the Closing Date, as though
made on and as of the Closing Date, except as otherwise contemplated by this
Agreement.
10
<PAGE>
ARTICLE VI
TERMINATION AND AMENDMENT
SECTION 6.01. TERMINATION. This Agreement shall terminate
without any further action on the part of Acq Corp or any of the Sellers (i)
if the Closing has occurred, (ii) if the Merger has been consummated in
accordance with the terms of the Merger Agreement, (iii) if the Merger
Agreement has been terminated under circumstances pursuant to which Acq Corp
is entitled to a Termination Fee under Section 7.07(b) thereof or (iv) if, as
of the Applicable Date (as defined in the next following sentence) the
Closing shall not have occurred. The "Applicable Date" shall mean February
1, 1999; PROVIDED, HOWEVER, in the event that Target and Acq Corp shall have
received from any responsible individual of each Gaming Authority (i) the
approval of which is required to be obtained to permit Acq Corp to consummate
the Merger and (ii) which has not prior to February 1, 1999 finally
determined whether such approval shall be granted, reasonable assurances
(written or oral) that a hearing is scheduled or can reasonably be expected
to be scheduled on or prior to April 1, 1999, then, in such event, the
Applicable Date shall mean April 1, 1999.
SECTION 6.02. EFFECT OF TERMINATION. In the event this Agreement
shall have been terminated in accordance with Section 6.01 of this Agreement,
this Agreement shall forthwith become void and have no effect, except (i) to
the extent such termination results from a breach by any of the parties
hereto of any of its representations, warranties or obligations hereunder (in
which case such breaching party shall be liable for all damages allowable at
law and any relief available in equity), (ii) as otherwise set forth in any
written termination agreement, if any, and (iii) that Section 4.07 shall
survive the termination of this Agreement.
SECTION 6.03. AMENDMENT. This Agreement and the Schedules and
Exhibits hereto may not be amended except by an instrument or instruments in
writing signed and delivered on behalf of each of the parties hereto. At any
time prior to the Closing Date, any party hereto which is entitled to the
benefits hereof may (a) extend the time for the performance of any of the
obligations or other acts of any other party, (b) waive any inaccuracy in the
representations and warranties of any other party contained herein, in any
Schedule and Exhibit hereto, or in any document delivered pursuant hereto,
and (c), subject to applicable law, waive compliance with any of the
agreements of any other party hereto or any conditions contained herein. Any
agreement on the part of any of the parties hereto to any such extension or
waiver (i) shall be valid only if set forth in an instrument in writing
signed and delivered on
11
<PAGE>
behalf of each such party, and (ii) shall not be construed as a waiver or
extension of any subsequent breach or time for performance hereunder.
ARTICLE VII
MISCELLANEOUS
SECTION 7.01. NOTICES. All notices, requests, claims, demands and
other communications under this Agreement shall be in writing and shall be
deemed given if delivered personally or sent by overnight courier (providing
proof of delivery) to the parties at the following addresses (or at such
other address for a party as shall be specified by like notice):
(a) if to Acq Corp, to:
c/o Colony Capital, Inc.
1999 Avenue of the Stars, Suite 1200
Los Angeles, California 90067
Telephone: 310-282-8813
Facsimile: 310-282-8813
Attention: Kelvin L. Davis
and
c/o Colony Capital, Inc.
201 Main Street, Suite 2420
Fort Worth, Texas 76102
Telephone: 817-871-4023
Facsimile: 817-871-4088
Attention: Wade Hundley
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
300 South Grand Avenue, Suite 3400
Los Angeles, California 90071
Attention: Jonathan H. Grunzweig, Esq.
Telephone: 213-687-5000
12
<PAGE>
Facsimile: 213-687-5600
(b) if to Kirk B. Ledbetter, to:
147 Granite Springs Drive
Stateline, Nevada 89449
Telephone: 702-588-2645
Facsimile: 702-588-8775
with a copy to:
Shartsis, Friese & Ginsburg LLP
One Maritime Plaza, 18th Floor
San Francisco, California 94111
Attention: Robert C. Friese, Esq.
Telephone: 415-421-6500
Facsimile: 415-421-2922
and with a copy to:
Walther, Key, Maupin, Oats, Cox, Klaich & LeGoy
Lakeside Professional Plaza
3500 Lakeside Court
Reno, Nevada 89509
Attention: G. Barton Mowry, Esq.
Telephone: 702-827-2000
Facsimile: 702-827-2185
and with a copy to:
Michael Smiley Rowe, Esq.
1638 Esmeralda Street
P.O. Box 2080
Minden, Nevada 89423
Telephone: 702-782-8141
Facsimile: 702-782-3685
13
<PAGE>
(c) if to Jessica L. Ledbetter, to:
Thunderbird Ranch
575 Highway 88
Gardnerville, Nevada 89410
Telephone: 702-265-2025
Facsimile: 702-265-2024
with a copy to:
Shartsis, Friese & Ginsburg LLP
One Maritime Plaza, 18th Floor
San Francisco, California 94111
Attention: Robert C. Friese, Esq.
Telephone: 415-421-6500
Facsimile: 415-421-2922
and with a copy to:
Walther, Key, Maupin, Oats, Cox, Klaich & LeGoy
Lakeside Professional Plaza
3500 Lakeside Court
Reno, Nevada 89509
Attention: G. Barton Mowry, Esq.
Telephone: 702-827-2000
Facsimile: 702-827-2185
and with a copy to:
Thomas J. Hall, Esq.
305 South Arlington Avenue
P.O. Box 3948
Reno, Nevada 89505
Telephone: 702-348-7011
Facsimile: 702-348-7211
(d) if to William B. Ledbetter, to:
14
<PAGE>
\ P.O. Box 128
Stateline, Nevada 89449
Telephone: 702-588-2411
Facsimile: 702-588-8155
with a copy to:
Shartsis, Friese & Ginsburg LLP
One Maritime Plaza, 18th Floor
San Francisco, California 94111
Attention: Robert C. Friese, Esq.
Telephone: 415-421-6500
Facsimile: 415-421-2922
and with a copy to:
Walther, Key, Maupin, Oats, Cox, Klaich & LeGoy
Lakeside Professional Plaza
3500 Lakeside Court
Reno, Nevada 89509
Attention: G. Barton Mowry, Esq.
Telephone: 702-827-2000
Facsimile: 702-827-2185
and with a copy to:
William C. Sanford, Jr., Esq.
100 W. Liberty Street, Suite 900
P.O. Box 3438
Reno, Nevada 89505
Telephone: 702-329-4733
Facsimile: 702-322-6644
(e) if to the Ledbetter Marital Trust, to each of Kirk B.
Ledbetter, Jessica L. Ledbetter and William B. Ledbetter as provided in
this Section 7.01.
15
<PAGE>
SECTION 7.02. INTERPRETATION. When a reference is made in this
Agreement to an Article, Section or Schedule, such reference shall be to an
Article, Section or Schedule of this Agreement, unless otherwise indicated.
The headings contained in this Agreement are for reference purposes only and
shall not affect in any way the meaning or interpretation of this Agreement.
Whenever the words "include," "includes" or "including" are used in this
Agreement, they shall be deemed to be followed by the words "without
limitation." The Merger Agreement and the consummation of the transactions
contemplated by such Merger Agreement are transactions contemplated by this
Agreement. To the extent any restriction on the activities of Target or its
subsidiaries under the terms of this Agreement requires prior approval under
any Gaming Law, such restriction shall be of no force or effect unless and
until such approval is obtained. If any provision of this Agreement is
illegal or unenforceable under any Gaming Law, such provision shall be void
and of no force or effect.
SECTION 7.03. SEVERABILITY. If any provision of this Agreement or
the application of any such provision shall be held invalid, illegal or
unenforceable in any respect by a court of competent jurisdiction, such
invalidity, illegality or unenforceability shall not affect any other
provision hereof. In lieu of any such invalid, illegal or unenforceable
provision, the parties hereto intend that there shall be added as part of
this Agreement a valid, legal and enforceable provision as similar in terms
to such invalid, illegal or unenforceable provision as may be possible or
practicable under the circumstances.
SECTION 7.04. COUNTERPARTS. This Agreement may be executed in one
or more counterparts, all of which shall be considered one and the same
agreement and shall become effective when one or more counterparts have been
signed by each of the parties and delivered to the other parties.
SECTION 7.05. ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES.
This Agreement and the Merger Agreement, and the Schedules and Exhibits
thereto, constitute the entire agreements, and supersede all prior agreements
and understandings, both written and oral, among the parties with respect to
the subject matter of these agreements and, except for the provisions of
article III, sections 7.05 and 7.06, each of the Merger Agreement, are not
intended to confer upon any person other than the parties any rights or
remedies hereunder.
SECTION 7.06. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF
16
<PAGE>
THE STATE OF NEVADA, WITHOUT REGARD TO ANY APPLICABLE CONFLICTS OF LAW,
EXCEPT TO THE EXTENT THE NEVADA GENERAL CORPORATION LAW SHALL BE HELD TO
GOVERN THE TERMS OF THE MERGER, AND EXCEPT THAT GAMING LAWS SHALL BE GOVERNED
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE RESPECTIVE JURISDICTIONS IN
WHICH APPROVALS FROM GAMING AUTHORITIES ARE REQUIRED TO BE OBTAINED.
SECTION 7.07. GAMING LAWS. Each of the provisions of this
Agreement is subject to and shall be enforced in compliance with the Gaming
Laws.
SECTION 7.08. ASSIGNMENT. Neither this Agreement nor any of the
rights, interests or obligations under this Agreement shall be assigned, in
whole or in part, by operation of law or otherwise by any of the parties
without the prior written consent of the other parties, except that Acq Corp
may assign, in its sole discretion and without any Seller's consent, any of
or all its rights, interests and obligations under this Agreement to any
controlled affiliate of Colony Capital, Inc., but no such assignment shall
relieve Acq Corp of any of its obligations under this Agreement. Subject to
the preceding sentence, this Agreement will be binding upon, inure to the
benefit of, and be enforceable by, the parties and their respective
successors and assigns.
SECTION 7.09. ENFORCEMENT. The parties agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions of this Agreement in any court
of the United States located in the State of Nevada or in any Nevada state
court, this being in addition to any other remedy to which they are entitled
at law or in equity. In addition, each of the parties hereto (a) consents to
submit itself to the personal jurisdiction of any Federal court located in
the State of Nevada or any Nevada state court in the event any dispute arises
out of this Agreement or any of the transactions contemplated by this
Agreement, (b) agrees that it will not attempt to deny or defeat such
personal jurisdiction by motion or other request for leave from any such
court and (c) agrees that it will not bring any action relating to this
Agreement or any of the transactions contemplated by this Agreement in any
court other than a Federal or state court sitting in the State of Nevada.
17
<PAGE>
SECTION 7.10. INDIVIDUAL CAPACITY. Notwithstanding anything
herein to the contrary, the Sellers enter into this Agreement solely in their
respective capacities as shareholders of Target. No person executing this
Agreement who is or becomes a director or officer of Target shall be deemed
to make any agreement herein in his or her capacity as director or officer.
Nothing herein shall limit or affect (a) actions taken by any Seller in his
or her capacity as director or officer or (b) the rights and remedies Acq
Corp may have other than pursuant to this Agreement in respect of such
conduct undertaken in the capacity of director or officer.
[SIGNATURE PAGES FOLLOW]
18
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused its duly
authorized officers to execute this Agreement as of the date first above
written.
HARVEYS ACQUISITION CORPORATION
By: /s/ Kelvin L. Davis
----------------------------------
Name: Kelvin L. Davis
Title: President
LEDBETTER MARITAL TRUST
By: /s/ Kirk B. Ledbetter
----------------------------------
Name: Kirk B. Ledbetter
Title: Co-Trustee
By: /s/ Jessica L. Ledbetter
----------------------------------
Name: Jessica L. Ledbetter
Title: Co-Trustee
By: /s/ William B. Ledbetter
----------------------------------
Name: William B. Ledbetter
Title: Co-Trustee
/s/ Kirk B. Ledbetter
---------------------------------------
KIRK B. LEDBETTER
/s/ Jessica L. Ledbetter
---------------------------------------
JESSICA L. LEDBETTER
/s/ William B. Ledbetter
---------------------------------------
WILLIAM B. LEDBETTER
<PAGE>
VOTING AND PROFIT SHARING AGREEMENT
SCHEDULE 3.01(C)(ii)
AFFILIATE OWNERSHIP AND STOCK OPTIONS
1. The Ledbetter 1993 Irrevocable Trust, of which Wells Fargo Bank is the
sole trustee, owns 333,400 shares of stock of Target and is an affiliate.
2. Debbie Ledbetter, the wife of Kirk B. Ledbetter, and their children own
400 shares of stock of Target.
3. Each of William B. Ledbetter, Jessica L. Ledbetter and Kirk B. Ledbetter
are owners of certain stock option rights or stock appreciation rights
pursuant to Employment Agreements (Bill) or Board of Directors Compensation
Plan/Change of Control Plan (Kirk and Jessica).
<PAGE>
VOTING AND PROFIT SHARING AGREEMENT
SCHEDULE 3.01(C)(ii)
LIENS ENCUMBERING SHARES
1. 400,000 shares of Target common stock have been pledged to secure a
Revolving Line of Credit Loan of up to $3,000,000 from Wells Fargo Bank to
the Marital trust created under article VI of the Will of Beverlee A.
Ledbetter (the "Marital Trust").
2. Pursuant to the Guaranty by the Marital Trust in favor of Wells Fargo
Bank of a Construction Loan made to William B. Ledbetter, the Marital Trust
has transferred physical possession, without a pledge, of 175,000 shares of
Target common stock.
3. Jessica L. Ledbetter has pledged 79,000 shares of target common stock to
secure a farm credit loan.
<PAGE>
Exhibit 10.3
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
NONCOMPETITION AND TRADE SECRET AGREEMENT
BY
AND
AMONG
HARVEYS ACQUISITION CORPORATION
AND
THE INDIVIDUALS SIGNATORY HERETO
DATED AS OF FEBRUARY 1, 1998
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
<PAGE>
NONCOMPETITION AND TRADE SECRET AGREEMENT
NONCOMPETITION AND TRADE SECRET AGREEMENT (this "AGREEMENT"), dated
as of February 1, 1998, by and among Harveys Acquisition Corporation, a
Nevada corporation (together with its assignees or designees, "ACQ CORP"),
Kirk B. Ledbetter ("MR. K. LEDBETTER"), Jessica L. Ledbetter ("MS. J.
LEDBETTER") and William B. Ledbetter ("MR. W. LEDBETTER" and, collectively
with the Mr. K. Ledbetter and Ms. J. Ledbetter, the "SELLERS").
W I T N E S S E T H
WHEREAS, concurrently with the execution and delivery of this
Agreement, Harveys Casino Resorts, a Nevada corporation ("TARGET"), is
entering into an Agreement and Plan of Merger (the "MERGER AGREEMENT") with
Acq Corp, pursuant to which Acq Corp shall merge with and into Target (the
"MERGER"), upon the terms and conditions set forth therein, and in connection
therewith Target will assume the right and obligations of Acq Corp hereunder;
WHEREAS, Target is engaged in the business of owning, operating and
developing gaming and gaming-related projects, including hotel/casinos (the
"BUSINESS");
WHEREAS, the Sellers collectively own beneficially 2,924,392 shares
(through the Ledbetter Marital trust established under the will of Beverlee
A. Ledbetter) and of record an aggregate of 4,049,238 shares of common stock,
par value $.01 per share, of Target (the "COMMON STOCK"), which shares
represent approximately 40.87% of the issued and outstanding shares of Common
Stock;
WHEREAS, the Sellers have specialized knowledge of the Business,
including, without limitation, knowledge of business relationships, lines of
business, markets, key personnel, profitability and other confidential
information, substantial marketing, business and financial expertise and
extensive experience in a wide range of activities that will affect and
constitute the Business;
WHEREAS, Acq Corp would be irreparably harmed and impaired if any
of the Sellers were to engage, directly or indirectly, in any activity
competing with the Business or disclose in violation of this Agreement, or
make unauthorized use of, any confidential information concerning the
Business;
1
<PAGE>
WHEREAS, each Seller recognizes that Acq Corp is entitled to
protection from such use of the specialized knowledge of such Seller; and
WHEREAS, Acq Corp and each of the Sellers desire to provide for the
ability of Acq Corp to utilize each Seller's expertise regarding the Business;
NOW, THEREFORE, in consideration of the foregoing premises and the
agreements contained herein, and for other good and valuable consideration,
the receipt and adequacy of which are hereby acknowledged, the parties
hereto, intending to be legally bound, agree as follows:
ARTICLE I
DEFINITIONS
Certain capitalized terms used and not otherwise defined herein
have the meanings ascribed to them in the Merger Agreement. All other
capitalized terms used but not otherwise defined herein or in the Merger
Agreement have the meanings set forth below. Unless the context otherwise
requires, such terms shall include the singular and plural and the
conjunctive and disjunctive forms of the terms defined.
"CHANGE OF CONTROL" (i) Colony Capital, Inc. and its Affiliates
(including without limitation Thomas Barrack and Kelvin Davis) no longer
collectively "beneficially own," directly or indirectly, more than 50% of the
total voting power in the aggregate normally entitled to vote in the election
of directors, managers, or trustees, as applicable, of Target and (ii) any
"person" or "group" (as such terms are used for purposes of Sections 13(d)
and 14(d) of the Exchange Act, whether or not applicable) is or becomes the
"beneficial owner," directly or indirectly, of more of the total voting power
in the aggregate outstanding normally entitled to vote in elections of
directors of Target than is beneficially owned collectively by Colony
Capital, Inc. and its Affiliates (including without limitation Thomas Barrack
and Kelvin Davis).
2
<PAGE>
ARTICLE II
SELLERS' COVENANTS AND AGREEMENTS
SECTION 2.01. COVENANT NOT TO COMPETE.
(a) SELLERS' ACKNOWLEDGMENTS. Target is engaged in the
ownership, operation and development of hotel/casinos in the State of
Nevada and throughout the United States. Sellers hereby represent and
warrant and acknowledge and agree as follows:
(i) the market for the Business extends
throughout the State of Nevada and the rest of the United
States, and Sellers are among a limited number of people
engaged in the Business in the United States;
(ii) as part of the transactions contemplated
by this Agreement, Acq Corp shall merge with and into Target,
with Target continuing as the Surviving Corporation and assuming
the rights and obligations of Acq Corp hereunder;
(iii) the noncompetition and other covenants
contained in this Article II are an essential part of this
Agreement and the transactions contemplated hereby;
(iv) they have been fully advised by counsel
in connection with the negotiation, preparation, execution and
delivery of this Agreement and the transactions contemplated by
this Agreement, including the intent, meaning and effect of the
noncompetition and other covenants contained in this Article II;
(v) they shall be fully bound by the
noncompetition and other covenants contained in this Article II;
(vi) compliance with the noncompetition and
other covenants contained herein will not create any hardship for
Sellers, as Sellers have independent means and sufficient income,
including the payments made and to be made pursuant to this
Agreement, to be fully self-supporting without competing with Acq
Corp or
3
<PAGE>
the Company in the Business or violating the noncompetition or
other covenants contained herein; and
(vii) no reasonable Person would engage in
any of the transactions contemplated by this Agreement and the
MERGER AGREEMENT without the benefit of the noncompetition and
other covenants contained herein by Sellers.
Accordingly, Sellers agree to be bound by the noncompetition and other
covenants contained herein to the maximum extent permitted by law, it being
the intent and spirit of the parties that the noncompetition and other
covenants contained herein shall be valid and enforceable in all respects
and, subject to the terms and conditions of this Agreement, mutually
dependent upon the obligations of Acq Corp to pay Sellers the amounts set
forth in this Agreement.
(b) NONCOMPETITION. During the three (3) year period commencing
on the Closing Date (the "RESTRICTED PERIOD"), except for the Permitted
Activities (as hereinafter defined), Sellers shall not in any city, town,
county, parish or other municipality in the State of Nevada (the names of
each such city, town, county, parish or other municipality being expressly
incorporated by reference herein), in which state Target, including through
its Subsidiaries, engages in the Business, directly or indirectly,
(i) engage in the Business for Sellers' own
account;
(ii) enter the employ of, or render any
services to or for, any entity that is engaged in the Business; or
(iii) become interested in any such entity in any
capacity, including as an individual, partner, stockholder, officer,
director, principal, agent, employee, trustee or consultant;
PROVIDED, that Sellers may own, directly or indirectly, securities of, and
may serve as a member of the board of directors (but may not be employed by
or act as a consultant to) of any entity traded on any national securities
exchange or automated quotation system if Sellers, individually or in the
aggregate, are not a controlling Person of, or a member of a group which
controls, such entity and do not, directly or
4
<PAGE>
indirectly, "beneficially own" (as defined in Rule 13d-3 of the Exchange Act,
without regard to the 60 day period referred to in Rule 13d-3(d)(1)(i)) five
(5) percent or more of any class of securities of such entity. For the
purposes of this Article II, "PERMITTED ACTIVITIES" means each of Mr. K.
Ledbetter's and Ms. J. Ledbetter's ownership of an interest in or employment
by any Person holding convention and/or hotel/motel properties within a 60
mile radius from Stateline, Nevada, PROVIDED, that, in the case of any
hotel/motel properties (including with convention facilities), no facilities
in which Mr. K. Ledbetter or Ms. J. Ledbetter directly or indirectly holds an
interest in or are either or both employed by collectively contain more than
350 guest rooms, more than 15 table games or more than 250 slot machines in
the aggregate.
(c) NONINTERFERENCE. During the Restricted Period, Sellers
shall not, directly or indirectly, solicit, induce, or attempt to solicit
or induce any officer, director, agent, employee or consultant of Target or
any of its Subsidiaries, Affiliates, successors or assigns, to terminate
his, her or its employment or other relationship with Target or any of its
Subsidiaries, Affiliates, successors or assigns, for the purpose of
associating with any competitor of Target or any of its Subsidiaries,
Affiliates, successors or assigns, or otherwise encourage any such person
or entity to leave or sever his, her or its employment or other
relationship with Target or any of its Subsidiaries, Affiliates, successors
or assigns, for any other reason or no reason.
(d) NONSOLICITATION. During the Restricted Period, Sellers
shall not, directly or indirectly, solicit, induce, or attempt to solicit
or induce, any customers, clients, vendors, suppliers or consultants then
under contract to Target or any of its Subsidiaries, Affiliates, successors
or assigns, to terminate his, her or its relationship with Target or any of
its Subsidiaries, Affiliates, successors or assigns, for the purpose of
associating with any competitor of Target or any of its Subsidiaries,
Affiliates, successors or assigns, or otherwise encourage such customers,
clients, vendors, suppliers or consultants then under contract to terminate
his, her or its relationship with Target or any of its Subsidiaries,
Affiliates, successors or assigns, for any other reason or no reason.
SECTION 2.02. CONFIDENTIAL INFORMATION. Sellers acknowledge that
they have had access to proprietary information and confidential materials
consisting of materials relating to current and future business activities
and plans, development
5
<PAGE>
projects, marketing plans known to exist and customer lists pertaining to the
Business (the "CONFIDENTIAL INFORMATION"). Sellers agree, without limitation
in time or until such information shall become public other than by Sellers'
unauthorized disclosure, to maintain the confidentiality of the Confidential
Information and to refrain from divulging, disclosing, or otherwise using in
any respect the Confidential Information to the detriment of Target or any of
its Subsidiaries, Affiliates, successors or assigns, or for any other purpose
or no purpose.
SECTION 2.03. RIGHTS AND REMEDIES UPON BREACH. If Sellers breach,
or threaten to commit a breach of, any of the provisions of Section 2.01 or
2.02, Acq Corp and any of its Subsidiaries, Affiliates, successors or
assigns, shall have the following rights and remedies, each of which shall be
independent of the others and severally enforceable, and each of which shall
be in addition to, and not in lieu of, any other rights or remedies available
to Acq Corp or any of its Subsidiaries, Affiliates, successors or assigns, at
law or in equity, under this Agreement or otherwise:
(a) SPECIFIC PERFORMANCE AND/OR INJUNCTIVE RELIEF. The right
and remedy to have each of the covenants contained herein specifically
enforced and the right and remedy to obtain injunctive relief preventing or
prohibiting the breach or threatened breach of any of the covenants
contained herein in an arbitration proceeding pursuant to Section 5.04
hereof, it being agreed that any breach or threatened breach of any of the
covenants contained in this Article II would cause irreparable injury to
Acq Corp and its Subsidiaries, Affiliates, successors or assigns, and that
remedies at law, including money damages, would not provide an adequate
remedy to Acq Corp or its Subsidiaries, Affiliates, successors or assigns;
(b) ACCOUNTING. The right and remedy to require Sellers,
jointly and severally, to account for and pay over to Acq Corp or its
Subsidiaries, Affiliates, successors or assigns, as the case may be, all
compensation, profits, monies, accruals, increments or other benefits
derived or received by Sellers that result from any transaction or activity
constituting a breach of the covenants contained herein;
(c) SEVERABILITY OF COVENANTS. Sellers acknowledge and agree
that the noncompetition and other covenants contained in this Article II
are reasonable and valid in geographic and temporal scope and in all other
respects based on current Nevada law. If, however, any arbitration panel
subse-
6
<PAGE>
quently determines that the noncompetition or other covenants, or any
part thereof, are invalid or unenforceable, the remainder of the
noncompetition and other covenants shall not thereby be affected and shall
be given full effect without regard to the invalid portions;
(d) BLUE-PENCILING. If any arbitration panel determines that
the noncompetition or other covenants contained herein, or any part
thereof, are unenforceable because of the duration or geographic scope of
such provision(s), such arbitration panel shall have the power to reduce
the duration or scope of such provision(s), as the case may be, and, in its
reduced form, such provision(s) shall then be enforceable to the maximum
extent permitted by applicable law.
SECTION 2.04. RIGHT OF SUCCESSOR TO ENFORCE AGREEMENT. Any Person
whom all or part of the Business is sold, if this Agreement is assigned
pursuant to Section 5.09, shall be entitled to enforce each of the covenants
contained in Sections 2.01, 2.02 and 2.03.
ARTICLE III
AGREEMENTS OF ACQ CORP
SECTION 3.01. EMPLOYMENT AND RETIREMENT CONTRACTS.
(a) MR. W. LEDBETTER.
(i) Mr. W. Ledbetter's employment with Target
shall be terminated on the Closing Date, whereupon he shall resign
from and he shall cease to hold any office of Target and he shall
resign from and cease to be a member of Target's Board of Directors
and any committee thereof. From and after the date of such
termination of employment, Acq Corp and Target shall have no further
obligation to provide wages, benefits or other services to Mr. W.
Ledbetter, except as set forth herein;
(ii) As of the Closing Date, each option to
purchase Common Stock held by Mr. W. Ledbetter, whether vested or
unvested, will be cancelled in exchange for a payment in cash
equal
7
<PAGE>
to the product of the number of shares of Common Stock subject
to such option and the excess, if any, of the price per share
of Common Stock to be paid by Acq Corp in the Acquisition
Transaction over the exercise price per share of Common Stock
of such option; and
(iii) Acq Corp shall cause Target to maintain
its Senior Supplemental Executive Retirement Plan ("S-SERP") for
Mr. W. Ledbetter and to provide the perquisites described in Mr.
W. Ledbetter's Employment Agreement executed November 12, 1993
at Section 10.9 until the earlier of age 80 or death even if the
S-SERP benefits are prepaid by Target. Target shall provide for
the continued employment of the employee functioning as a
secretary to Mr. W. Ledbetter at such employee's current level of
compensation and benefits, PROVIDED that Target shall terminate
such employee at Mr. W. Ledbetter's reasonable request unless
doing so would violate any agreement to which Target or any of
its subsidiaries is a party or by which it may be bound, and
PROVIDED FURTHER that in no event shall target be required
to violate any Law.
(b) MS. J. LEDBETTER.
(i) Ms. J. Ledbetter shall resign from
and she shall cease to hold any office of Target and, except
as provided herein, she shall resign from and cease to serve
as a member of Target's Board of Directors and any committee
thereof on the Closing Date. Acq Corp shall cause Target to
pay to Ms. J. Ledbetter at the Closing Date all amounts due to
her as a Director of Target pursuant to the severance compensation
provisions of the Company's Change of Control Plan in effect on
the date hereof, as such amounts are set forth in Schedule 3.01(b).
Acq Corp and its Affiliates shall cause Target or its Board of
Directors to designate Ms. J. Ledbetter as a Director Emerita
of Target as promptly as practicable following the Closing Date.
(ii) As of the Closing Date, each option to
purchase Common Stock held by Ms J. Ledbetter, whether vested or
unvested, will be cancelled in exchange for a payment in cash
equal to the product of (A) the number of shares of Common Stock
subject to such option and (B) the excess, if any, of the price
per share of
8
<PAGE>
Common Stock to be paid by Acq Corp in the Acquisition Transaction
over the exercise price per share of Common Stock of such option
(c) MR. K. LEDBETTER.
(i) Mr. K. Ledbetter's employment with Target
shall be terminated on the Closing Date, whereupon Mr. K. Ledbetter
shall resign from and he shall cease to hold any office of Target
and he shall resign from and he shall cease to be a member of
Target's Board of Directors and any committee thereof. From and
after the Closing Date, Acq Corp and Target shall have no
obligation to provide wages, benefits or other services to Mr. K.
Ledbetter, except as set forth herein.
(ii) Acq Corp shall cause Target to pay Mr. K.
Ledbetter on the Closing Date an amount in cash equal to the present
value (discounted at the prime rate of Wells Fargo Bank, National
Association in effect on the Closing Date) of the sum of $65,000 in
cash on each of the Closing Date and the first and second
anniversaries thereof. Until the tenth anniversary of the Closing
Date, Acq Corp shall cause Target to maintain Target's current
group term life insurance policy for Mr. K. Ledbetter, providing
for a death benefit of $232,000 per year, or provide for a term
life insurance policy that provides for an equivalent benefit,
with Mr. Ledbetter to designate a beneficiary.
(iii) As of the Closing Date, each phantom Common
Stock instrument held by Mr. K. Ledbetter, whether vested or
unvested, will be cancelled in exchange for a payment in cash
calculated in accordance with the agreement pursuant to which
such instruments were granted as in effect at the time of grant,
PROVIDED that such payment may not exceed 110% of the amount equal
to what Mr. K. Ledbetter would have been entitled had he received
Common Stock options and been entitled to the product of the
number of shares of Common Stock subject to such option and the
excess, if any, of the price per share of Common Stock to be paid
by Colony in the Acquisition Transaction over the exercise price
per share of Common Stock of such option.
9
<PAGE>
(iv) Acq Corp shall cause Target to pay to
Mr. K. Ledbetter at the Closing Date all amounts due to him as a
Director of Target pursuant to the severance compensation provisions
of the Company's Change of Control Plan as in effect on the date
hereof, as such amounts are set forth in Schedule 3.01(c).
(v) Target's Management Incentive Plan (the
"MIP") as in effect as of the date hereof shall be terminated at the
Closing Date, and Acq Corp shall cause Target to pay to Mr. K.
Ledbetter $19,500 in cash, in full satisfaction of his rights under
the MIP.
SECTION 3.02. MEDICAL BENEFITS. Notwithstanding Section 3.01, Acq
Corp shall cause Target to maintain in effect the medical, dental and vision
insurance coverage (equal to Class I coverage, and as amended from time to
time for members of the Board and senior officers, including without
limitation annual executive physicals) maintained by Target covering Ms. J.
Ledbetter, Mr. K. Ledbetter and Mr. K. Ledbetter's spouse and children until
the earlier to occur of the tenth anniversary of the Closing Date and, in the
case of Mr. K. Ledbetter's children, the 20th anniversary of each of their
births or, as long as any such child is enrolled as a full-time student in a
college or university, until the 24th anniversary of each of their births, to
the extent that such policies are available; PROVIDED, that Target may
substitute therefor policies with at least the same coverage containing terms
and conditions which are no less advantageous to the coverage provided to the
insureds at the date hereof (as the same may be modified in accordance with
the terms of the Merger Agreement). True, correct and complete summaries of
the aforementioned policies are set forth on Schedule 3.02.
SECTION 3.03. FAMILY MEMORABILIA. Acq Corp agrees that Mr. K.
Ledbetter and Ms. J. Ledbetter own the items set forth in Schedule 3.03 (the
"FAMILY MEMORABILIA") which are located in the facilities of Target. Mr. K.
Ledbetter and Ms. J. Ledbetter each agree to permit Target, in its sole
discretion, to display the Family Memorabilia at such facilities at which
they are currently displayed until the earlier of the tenth anniversary of
the Closing Date or a Change of Control of Target. For so long as Target
elects to display Family Memorabilia in accordance with the preceding
sentence, Target shall maintain casualty insurance coverage on such items at
their full insurable value, subject to customary deductible amounts.
10
<PAGE>
SECTION 3.04. COMPLIMENTARY SERVICES. Acq Corp shall cause
Target to issue a credit card providing "Level I" benefits (a "PLATINUM
CARD") to Ms. J. Ledbetter, Mr. K. Ledbetter and members of Mr. K.
Ledbetter's immediate family designated by him. During each of the twelve
month periods commencing on the Closing Date and continuing thereafter until
the tenth anniversary thereof, Ms. J. Ledbetter and members of the immediate
family of Mr. K. Ledbetter shall be permitted to purchase food, beverage and
lodging services at prevailing retail prices at Target's current and any
future facilities utilizing the Platinum Card with benefits not less than
current Level I benefits. Ms. J. Ledbetter shall be liable for charges on
any Cards issued to her, and Mr. K. Ledbetter shall be liable for charges on
any Cards issued to him or his designees, PROVIDED, that Ms. J. Ledbetter and
Mr. K. Ledbetter shall not be liable for such charges not exceeding $8,000 in
any yearly period referred to in the previous sentence.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. REPRESENTATIONS AND WARRANTIES OF THE SELLERS. Each
of the Sellers severally and not jointly represents and warrants to Acq Corp
as follows:
(a) NO CONFLICT. The execution of this Agreement and the
consummation of the transactions contemplated hereby will not (i) require
notice to, or the consent of, any party to any Contract to which such
Seller is a party or by which it is bound, or the consent, approval, order
or authorization of, or the registration, declaration or filing with, any
governmental authority, (ii) violate any Law, or (iii) result in a breach
or violation of any provision of, constitute a default under, or result in
the termination of, or an acceleration of indebtedness or creation of any
Lien under, any material contract to which such Seller is a party or by
which it is bound.
(b) BROKERS, FINDERS, ETC. No broker, investment banker,
financial advisor, finder or other person (other than Donaldson, Lufkin &
Jenrette Securities Corporation in connection with the Merger, the fees and
expenses of which will not be the responsibility of Acq Corp) is entitled
to any broker's, finder's, financial advisor's or other similar fee or
commission in
11
<PAGE>
connection with the transactions contemplated by this Agreement based
upon arrangements made by or on behalf of the Sellers.
SECTION 4.02. REPRESENTATIONS AND WARRANTIES OF ACQ CORP. Acq
Corp hereby represents and warrants to each of the Sellers as follows:
(a) ORGANIZATION AND STANDING. Acq Corp is duly organized,
validly existing and in good standing under the laws of its state of
incorporation, and has all requisite power and authority to enter into and
perform its obligations under this Agreement.
(b) AUTHORITY. The execution and delivery of this Agreement,
and the performance by Acq Corp of its obligations hereunder, have been
duly authorized by all necessary action on the part of Acq Corp. This
Agreement has been duly executed and delivered on behalf of Acq Corp and,
assuming the due execution and delivery hereof by the Sellers and assuming
that approval of this Agreement by Target remains effective, this Agreement
constitutes a valid and binding obligation of Acq Corp, enforceable against
Acq Corp in accordance with its terms.
(c) NO CONFLICT. The execution of this Agreement and the
consummation of the transactions contemplated hereby will not (i) require
notice to, or the consent of, any party to any Contract to which Acq Corp
or any of its Affiliates is a party or by which any of them is bound, or
the consent, approval, order or authorization of, or the registration,
declaration or filing with, any governmental authority, (ii) violate any
Laws, (iii) result in a breach or violation of any provision of, or
constitute a default under, any contract to which Acq Corp is a party or by
which it is bound or (iv) conflict with any provision of the certificate of
incorporation or bylaws of Acq Corp.
ARTICLE V
MISCELLANEOUS
SECTION 5.01. NOTICES. All notices, requests, claims, demands and
other communications under this Agreement shall be in writing and shall be
deemed given if delivered personally or sent by overnight courier (providing
proof of
12
<PAGE>
delivery) to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
(a) if to Acq Corp or Target, to:
c/o Colony Capital, Inc.
1999 Avenue of the Stars, Suite 1200
Los Angeles, California 90067
Telephone: 310-282-8820
Facsimile: 310-282-8813
Attention: Kelvin L. Davis
and
c/o Colony Capital Inc.
201 Main Street, Suite 2420
Fort Worth, Texas 76102
Telephone: 817-871-4023
Facsimile: 817-871-4088
Attention: Wade Hundley
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
300 South Grand Avenue, Suite 3400
Los Angeles, California 90071
Attention: Jonathan H. Grunzweig, Esq.
Telephone: 213-687-5000
Facsimile: 213-687-5600
(b) if to Mr. K. Kedbetter, to:
147 Granite Springs Drive
Stateline, Nevada 89449
Telephone: 702-588-2645
Facsimile: 702-588-8775
with a copy to:
13
<PAGE>
Shartsis, Friese & Ginsburg LLP
One Maritime Plaza, 18th Floor
San Francisco, California 94111
Attention: Robert C. Friese, Esq.
Telephone: 415-421-6500
Facsimile: 415-421-2922
and with a copy to:
Walther, Key, Maupin, Oats, Cox, Klaich & LeGoy
Lakeside Professional Plaza
3500 Lakeside Court
Reno, Nevada 89509
Attention: G. Barton Mowry, Esq.
Telephone: 702-827-2000
Facsimile: 702-827-2185
and with a copy to:
Michael Smiley Rowe, Esq.
1638 Esmeralda Street
P.O. Box 2080
Minden, Nevada 89423
Telephone: 702-782-8141
Facsimile: 702-782-3685
(c) if to Ms. J. Ledbetter, to:
Thunderbird Ranch
575 Highway 88
Gardnerville, Nevada 89410
Telephone: 702-265-2025
Facsimile: 702-265-2024
and with a copy to:
Shartsis, Friese & Ginsburg LLP
One Maritime Plaza, 18th Floor
San Francisco, California 94111
14
<PAGE>
Attention: Robert C. Friese, Esq.
Telephone: 415-421-6500
Facsimile: 415-421-2922
and with a copy to:
Walther, Key, Maupin, Oats, Cox, Klaich & LeGoy
Lakeside Professional Plaza
3500 Lakeside Court
Reno, Nevada 89509
Attention: G. Barton Mowry, Esq.
Telephone: 702-827-2000
Facsimile: 702-827-2185
and with a copy to:
Thomas J. Hall, Esq.
305 South Arlington Avenue
P.O. Box 3948
Reno, Nevada 89505
Telephone: 702-348-7011
Facsimile: 702-348-7211
(d) if to Mr. W. Ledbetter, to:
P.O. Box 128
Stateline, Nevada 89449
Telephone: 702-588-2411
Facsimile: 702-588-8155
and with a copy to:
Shartsis, Friese & Ginsburg LLP
One Maritime Plaza, 18th Floor
San Francisco, California 94111
Attention: Robert C. Friese, Esq.
Telephone: 415-421-6500
Facsimile: 415-421-2922
15
<PAGE>
and with a copy to:
Walther, Key, Maupin, Oats, Cox, Klaich & LeGoy
Lakeside Professional Plaza
3500 Lakeside Court
Reno, Nevada 89509
Attention: G. Barton Mowry, Esq.
Telephone: 702-827-2000
Facsimile: 702-827-2185
and with a copy to:
William C. Sanford, Jr., Esq.
100 W. Liberty Street, Suite 900
P.O. Box 3438
Reno, Nevada 89505
Telephone: 702-329-4733
Facsimile: 702-322-6644
SECTION 5.02. INTERPRETATION. When a reference is made in this
Agreement to a Section or Schedule, such reference shall be to a Section of
or a Schedule to this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include," "includes" or "including" are used
in this Agreement, they shall be deemed to be followed by the words "without
limitation." The Merger Agreement and the consummation of the transactions
contemplated by the Merger Agreement also are transactions contemplated by
this Agreement. If any provision of this Agreement is illegal or
unenforceable under any Gaming Law, such provision shall be void and of no
force or effect.
SECTION 5.03. SEVERABILITY. In addition to the remedies specified
in Section 2.03, if any provision of this Agreement or the application of any
such provision shall be held invalid, illegal or unenforceable in any respect
by a court of competent jurisdiction, such invalidity, illegality or
unenforceability shall not affect any other provision hereof. In lieu of any
such invalid, illegal or unenforceable provision, the parties hereto intend
that there shall be added as part of this Agreement a valid, legal and
enforceable provision as similar in terms to such invalid, illegal or
unenforceable provision as may be possible or practicable under the
circumstances.
16
<PAGE>
SECTION 5.04. ARBITRATION OF DISPUTES. Any dispute arising out of
or relating to this Agreement, Sellers' employment or other relationship with
the Target or the termination of any such employment or other relationship,
or any other dispute arising by and among Sellers, or any of them, and
Target, Acq Corp, or their officers, directors, agents, employees or
consultants, or their successors and assigns, shall be submitted to binding
arbitration by three arbitrators, at least one of which shall have
substantial business experience with the gaming industry in Nevada, under the
then-existing Commercial Arbitration Rules of the American Arbitration
Association in arbitration proceedings conducted in Reno, Nevada. Acq Corp
and Sellers shall each select one arbitrator, and these two arbitrators shall
select the third arbitrator. The arbitrators shall have the power to
specifically enforce or to enjoin the breach of this Agreement. Judgment
upon the award of the arbitrator shall be binding upon the parties and may be
entered in any court having jurisdiction. The arbitrator shall award to the
prevailing party reasonable attorneys' fees and expenses from the other
party, including any expert fees, which fees and expenses shall be in
addition to any other relief which may be awarded.
SECTION 5.05. COUNTERPARTS. This Agreement may be executed in one
or more counterparts, all of which shall be considered one and the same
agreement and shall become effective when one or more counterparts have been
signed by each of the parties and delivered to the other parties.
SECTION 5.06. ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES.
This Agreement, and the Schedules and Exhibits hereto, and the Merger
Agreement, and the Schedules and Exhibits thereto, constitute the entire
agreements, and supersede all prior agreements and understandings, both
written and oral, among the parties with respect to the subject matter of
these agreements.
SECTION 5.07. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEVADA, WITHOUT
REGARD TO ANY APPLICABLE CONFLICTS OF LAW.
SECTION 5.08. GAMING LAWS. Each of the provisions of this
Agreement is subject to and shall be enforced in compliance with the Gaming
Laws.
SECTION 5.09. ASSIGNMENT. Neither this Agreement nor any of any
Seller's rights, interests or obligations hereunder shall be assigned, in
whole or in
17
<PAGE>
part, by operation of law or otherwise by any Seller without the prior
written consent of Acq Corp. Prior to the Closing, Acq Corp may assign, in
its sole discretion, any of or all its rights, interests and obligations
under this Agreement to any controlled Affiliate of Colony Capital, Inc., a
Delaware corporation, PROVIDED, that such Affiliate assumes all covenants,
duties and responsibilities of Acq Corp hereunder. Subject to the preceding
sentence, this Agreement will be binding upon, inure to the benefit of, and
be enforceable by, the parties and their respective successors and assigns.
SECTION 5.10. AMENDMENTS. This Agreement and the Schedules and
Exhibits hereto may not be amended except by an instrument or instruments in
writing signed and delivered on behalf of each of the parties hereto. At any
time prior to the Closing Date, any party hereto which is entitled to the
benefits hereof may (a) extend the time for the performance of any of the
obligations or other acts of any other party, (b) waive any inaccuracy in the
representations and warranties of any other party contained herein, in any
Schedule and Exhibit hereto, or in any document delivered pursuant hereto,
and (c), subject to applicable law, waive compliance with any of the
agreements of any other party hereto or any conditions contained herein. Any
agreement on the part of any of the parties hereto to any such extension or
waiver (i) shall be valid only if set forth in an instrument in writing
signed and delivered on behalf of each such party, and (ii) shall not be
construed as a waiver or extension of any subsequent breach or time for
performance hereunder.
SECTION 5.11. ENFORCEMENT. In addition to the remedies specified
in Section 2.03, the parties agree that irreparable damage would occur in
the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in an arbitration proceeding as
set forth in Section 5.04.
[SIGNATURE PAGES FOLLOW]
18
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused its duly
authorized officers to execute this Agreement as of the date first above
written.
HARVEYS ACQUISITION CORPORATION
By: /s/ Kelvin L. Davis
----------------------------------
Name: Kelvin L. Davis
Title: President
/s/ Kirk B. Ledbetter
----------------------------------------
KIRK B. LEDBETTER
/s/ Jessica L. Ledbetter
----------------------------------------
JESSICA L. LEDBETTER
/s/ William B. Ledbetter
----------------------------------------
WILLIAM B. LEDBETTER
<PAGE>
SCHEDULE 3.01(b)
SEVERANCE COMPENSATION
<TABLE>
<CAPTION>
Average Payout
Retirement Strike Amount
Severance Payout Total # Options Price at $28
---------- ---------- -------- --------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
J. Ledbetter $ 90,000(1) $250,000 $340,000 9,000 $15.466 $112,806
</TABLE>
- -----------------
(1) Assumes that Jessica L. Ledbetter will be reelected for a three-year
term as a Director at the upcoming annual shareholder meeting, which is
likely to occur prior to the Closing Date.
<PAGE>
SCHEDULE 3.01(c)
SEVERANCE COMPENSATION
<TABLE>
<CAPTION>
Average Payout
Retirement Strike Amount
Severance Payout Total # Options Price at $28
--------- ---------- -------- ------------ ------- ------
<S> <C> <C> <C> <C> <C> <C>
K. Ledbetter $30,000 $250,000 $280,000 Stock
Appreciation
Rights
</TABLE>
<PAGE>
SCHEDULE 3.02
MEDICAL BENEFITS
1. See Executive Medical Plan description attached, specifically Class 1.
2. See Harveys Casino Resorts Summary Schedule of Benefits attached.
3. See Summary of Dental Benefits attached.
4. See Vision Benefits Schedule attached.
5. See Harveys Policy No. HR101 attached (Executive physical examinations).
<PAGE>
EXECUTIVE MEDICAL PLAN
I. ELIGIBILITY
- CLASS 1
Chairman of the Board, Board of Directors (including outside
directors), President/Chief Executive Officer, Chief Operating
Officer, and all Vice Presidents.
- CLASS 2
Directors with Hay points of 700 or more.
II. COVERAGE
- CLASS 1
100% reimbursement for medical, dental, and vision care expenses not
reimbursed through the standard benefit program. Covered expenses
include deductibles, co-payments and coinsurance. Reimbursement for
eligible expenses will be made regardless of a provider's
participation in the preferred Provider Network. Benefits are limited
to expenses covered under the Plan (outlined in the Group Health
Benefit booklet), and all Plan limits, maximums and exclusions remain
in effect.
- CLASS 2
100% reimbursement for medical, dental, and vision care deductibles,
co-payments and coinsurance ONLY when using preferred providers.
Services provided by non-plan providers will be reimbursed according
to the schedule outlined in the Group Health Plan booklet. For
example, the annual deductible will be applied, and reimbursement will
be at least 80% of the usual, customary and reasonable limits. All
Plan limits, maximums and exclusions remain in effect.
As there are currently no contracted or preferred vision care
providers, reimbursement will continue to be 100%.
<PAGE>
EXECUTIVE MEDICAL PLAN
MEDICAL
- - Includes well-baby/child care
- - Mammograms
- - Prostate exams
- - Spouse physicals - $200 limit
VISION
- - Eye exam @ actual cost
- - $250 per year for lenses & frames
DENTAL
- - Yearly maximum of $3,000
<PAGE>
HARVEYS CASINO RESORTS
SUMMARY
SCHEDULE OF BENEFITS
This is an outline only to provide a quick overview of benefits. It does not
constitute the group policy and is not a contract of insurance. It explains
in simple language the essential features of the group benefits provided.
All rights with respect to the benefits of an insured person will be governed
solely by the group plan document.
LIFETIME MAXIMUM - $1,000,000
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
DESCRIPTION PARTICIPATING NON-PARTICIPATING
- ------------------------------------------------------------------------------
<S> <C> <C>
DEDUCTIBLE
Individual $0 $ 400
Family $0 $1,000
- ------------------------------------------------------------------------------
CO-INSURANCE 80% of $12,500 per 70% of $16,667 per
person, then 100% person, then 100%
- ------------------------------------------------------------------------------
MAXIMUM ANNUAL OUT-OF- $2,500 $5,000
-------------------------------------------------
POCKET EXPENSE - individual After co-pay/deductible has been satisfied.
- ------------------------------------------------------------------------------
HOSPITAL
-Inpatient $400 co-pay, then 80% After deductible,
(El Dorado and Douglas $600 co-pay, then 70%
County residents; (Based on Plan Document
Designated participating per diem rates)
hospitals are Barton
Memorial Hospital and
St. Mary's)
- ------------------------------------------------------------------------------
MANDATORY PRE-AUTHORIZATION, OTHERWISE $350 PENALTY PER DAY,
(HOSPITAL - INPATIENT ONLY)
- ------------------------------------------------------------------------------
SURGEON 100% Second Opinion After deductible, 70%
INPATIENT & OUTPATIENT NOT required
- ------------------------------------------------------------------------------
HOSPITAL $50 co-pay then 80% After deductible
-Outpatient Surgery, (All residents OTHER than $400 co-pay, then 70%
Ambulatory Douglas and El Dorado
Surgical Center county residents may
use Carson Ambulatory
Surgical Center, Carson
Tahoe Hospital, St.
Mary's Barton Memorial
Hospital).
- ------------------------------------------------------------------------------
HOSPITAL OUTPATIENT
SERVICES
X-RAY'S (EXCEPT- $15 co-pay each x-ray. After deductible, 70%.
CAT/MRI) LAB $5 co-pay each test.
ALL OTHER (EXCEPT $50 co-pay per visit,
SURGERY) then 80%.
Barton Memorial Hospital
& St. Mary's are
designated hospitals for
residents of Douglas & El
Dorado Counties
- ------------------------------------------------------------------------------
EMERGENCY ROOM CARE $125 co-pay, then 80%. After deductible,
To qualify for reduced $75, then 80%. $125 co-pay,
co-pay* or $75 then 70%.
- ------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
DESCRIPTION PARTICIPATING NON-PARTICIPATING
- ------------------------------------------------------------------------------
<S> <C> <C>
CAT/MRI $100 co-pay each test. After deductible, 70%.
- ------------------------------------------------------------------------------
PAP SMEAR (only one $5 co-pay NOT COVERED
routine pap smear
allowed per year)
- ------------------------------------------------------------------------------
PODIATRY AFTER CO-PAY, 100% After deductible, 70%.
Treatment of foot
disorders
$100 maximum per calendar
year.
Surgery 100%
(see benefit book for
exclusions)
- ------------------------------------------------------------------------------
PRESCRIPTION DRUGS $10 co-pay for Generic
30-day supply for 100 brand up to $100
tabs $15 co-pay for Brand name
(RX AMERICA) up to $100
20% co-pay $100 or more
- ------------------------------------------------------------------------------
MAIL-IN PRESCRIPTION $15-Generic (three month N/A
PROGRAM supply)
$30-Brand Name (three
month supply)
- ------------------------------------------------------------------------------
PHYSICIAN OR CLINIC $20 co-pay for general After deductible, 70%.
VISITS practitioner,
$20 co-pay for
specialist.
- ------------------------------------------------------------------------------
SPINAL MANIPULATION 50% maximum $60 per After deductible,
(CHIROPRACTIC) visit; 50% maximum $60 per visit
$500 maximum per $500 maximum per calendar
calendar year. year.
- ------------------------------------------------------------------------------
MENTAL & NERVOUS $400 co-pay per After deductible,
DISORDERS/SUBSTANCE ABUSE admission, then 80%. $600 co-pay per
admission,
then 50%.
- ------------------------------------------------------------------------------
INPATIENT $10,000 lifetime maximum.+
- ------------------------------------------------------------------------------
OUTPATIENT ** Plan pays $20 per visit. After deductible, plan
Professional pays $20 per visit.
- ------------------------------------------------------------------------------
$1,000 calendar year
maximum.
- ------------------------------------------------------------------------------
INPATIENT HOSPITAL 100% After deductible, 70%.
VISITS.
- ------------------------------------------------------------------------------
</TABLE>
ALL BENEFITS ARE SUBJECT TO ONE OR ALL OF THE FOLLOWING:
ALL BENEFITS ARE SUBJECT TO A "PRE-EXISTING LIMITATION"
* If Emergency Room visit results in hospital admit or if visit is for any
of the following conditions: heart conditions, head injury, open wounds,
presence of foreign bodies, toxic effects, burns or fractures.
** Our HPPO network allows $82.50 maximum for Psychologist/Psychiatrist and
$75.00 maximum for Marriage and Family Counseling.
+ Mental and nervous benefits are exempt from the maximum out-of-pocket
expense.
<PAGE>
SUMMARY OF DENTAL BENEFITS
<TABLE>
<CAPTION>
PRO PROVIDER NON-PPO PROVIDER
<S> <C> <C> <C>
1. CALENDAR YEAR MAXIMUM $1,000 calendar year maximum payable for all
dental plan services. PPO and Non-PPO Providers.
2. CALENDAR YEAR DEDUCTIBLE
Per Covered Person None $ 50.00
Per Covered Family None $150.00
3. CO-PAY PER PROCEDURE $5.00 to $190.00 N/A
based on the
procedure involved.
4. REIMBURSEMENT
Basic Dental 100% after Co-pay 80% of scheduled amount after
deductible.
Major Dental 80% after Co-pay 50% of scheduled amount after
deductible.
5. PREDETERMINATION OF BENEFITS
Non-emergency services exceeding $200 must be approved in advance by the
Contract Administrator. Your dentist will probably have the "treatment
plan" forms needed. If not, forms are available in the Compensation and
Benefits Office.
</TABLE>
<PAGE>
VISION BENEFITS
As of May 1, 1990, Harveys' vision benefit was changed to include the
coverage of CONTACT LENSES with no exclusions.
The Summary of Benefits is as follows:
1. Calendar Year Deductible:
$25 per covered person
2. VISION EXAMINATION:
After deductible. Plan pays 80% of usual, customary, and reasonable fee
(plan allows up to $68.25). Coverage is limited to one examination in any
12-month period.
3. LENSES AND FRAMES:
LENSES - After deductible. Plan pays 80% of usual, customary and
reasonable fee (plan allows up to $50 for regular lenses, $75 for bifocals,
$90 for trifocals and $125 for contact lenses). Coverage is limited to one
pair of any lenses in any 12-month period, if warranted by a prescription
change.
FRAMES - After deductible. Plan pays 80% of usual, customary, and
reasonable fee (plan allows up to $75). Coverage is limited to one pair
within any 24-month period.
You may select any optometrist you choose, as the vison plan does not function
under our PPO Plan.
<PAGE>
STANDARD POLICY AND
PROCEDURES
HARVEYS
POLICY NUMBER: HR101
IMPLEMENTATION DATE: 12/1/92
REVISION DATE: Approved 12/2/92
TITLE: EXECUTIVE PHYSICAL EXAMINATIONS PAGE 1 OF 2
- ------------------------------------------------------------------------------
POLICY
It is the policy of Harvey's that all employed executives and officers with
the title of Director, Vice President or Board of Directors Member will be
permitted to take an annual physical examination at company expense, the
results of which will remain strictly confidential between themselves and the
examining health care professional. This privilege is also extended to
spouses of members of the Board of Directors. Harvey's strongly urges those
eligible to take advantage of this opportunity.
PROCEDURE
1. The Saint Mary's Health Promotion Center will be the provider of executive
physical examinations.
2. The staff member is to contact the Coordinator of Executive Physical
Examinations by calling (702) 688-6109.
3. At a mutually agreeable appointment time, the St. Mary's representative
will meet with the staff member at Harvey's to conduct an interview,
determine the appropriate tests and procedures to be performed during the
examination. Additionally, blood samples will be taken and all factors
preliminary to the actual examination will be taken care of.
4. At a mutually agreeable appointment time the staff member will travel to
the St. Mary's facility where the examination and a consultation will take
place.
5. The cost of the physical examination will be paid by Harveys' and, since
this is a part of the employer/staff member agreement and a condition of
the staff relationship, it will be non-taxable to the staff member. The
payment will be made from the Harvey's Accounts Payable operation in the
Corporate Controller's office. A central record for budgeting will be
kept.
<PAGE>
TITLE: EXECUTIVE PHYSICAL EXAMINATIONS PAGE 2 OF 2
- ------------------------------------------------------------------------------
6. The results or the physical examination and the physician consultation will
remain strictly confidential between the staff member and the examination
provider, and will not be available for review by any other entity or
individual.
7. The year during which this examination will take place will be considered
our fiscal year as established by the Board of Directors. In order to
spread the cost out over the fiscal year, eligible persons are asked to
schedule their exam in the time frame from one month before to one month
after their anniversary of hire date.
8. The provision for full payment for the physical examination shall not be
construed as applying to any treatments or remedial services which are
subsequent to the examination or which result from the examination; any
resulting required diagnostic or treatment services will be covered
consistent with the provisions of our Health Benefits Plan as detailed in
the Group Health and Short Term Disability Plans description, and as
applying to the particular classes of employees detailed therein.
EXCEPTIONS
Exemptions from this requirement or from utilizing the St. Mary's facility will
require the approval of the Vice President of Human Resources and the Executive
Vice President/Chief Operating Officer.
<PAGE>
SCHEDULE 3.03
All photographs of Harveys interior and exterior, various photos of
historical events, people, signs, planes, boats, the bombing and other
historical photos that have sentimental value to the family. All photographs
of Harvey Gross, Llewellyn Gross, Beverlee Ledbetter and other family
members. These items are located in the Collection Storage Room, across from
the executive offices and consist of approximately 3 full boxes of
photographs. The family would like to retain the originals of these
photographs but they are willing to allow Acq Corp to make copies of any
photographs they would like to copy.
All paintings of Harvey Gross, Llewellyn Gross and Beverlee Ledbetter,
including the framed painting of Harvey A. Gross hanging outside the entrance
to W. Ledbetter's office, Harvey and Llewellyn Gross "Founders" oil painting
at the bottom of the escalator in the main hotel lobby, Harvey, Llewellyn and
Beverlee felt paintings in the Sage Room, and Beverlee Ledbetter in the
Council Bluff, Iowa facility.
Brass established 1944 plaque with Wagon Wheel and Cow Skull which was
mounted outside at the hotel valet lobby entrance on the center beam; the
location of this plaque is unknown, Property Department is looking for it.
Large brass Wagon Wheel sign labeled "A-108" located in the Collection
Storage Room.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-30-1998
<PERIOD-END> NOV-15-1998
<CASH> 1,000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,000
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,000
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 10
<OTHER-SE> 990
<TOTAL-LIABILITY-AND-EQUITY> 1,000
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
