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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the fiscal year ended December 31, 1994
[_] Transaction Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number 1-7831
ELSINORE CORPORATION
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(Exact name of registrant as specified in its charter)
NEVADA 88-0117544
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
202 FREMONT STREET, LAS VEGAS, NEVADA 89101
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(Address of principal executive offices) (Zip Code)
(702) 385-4011
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(Registrant's telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class Name of Stock Exchange on Which Registered
------------------- ------------------------------------------
COMMON STOCK AMERICAN STOCK EXCHANGE
PACIFIC STOCK EXCHANGE
Securities Registered Pursuant to Section 12(b) of the Act:
NONE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]
The aggregate market value of the voting stock, held by non-affiliates of the
registrant on March 29, 1995 (based on the closing price per share on that date
as reported on the American Stock Exchange) was approximately $13,746,811.
On March 29, 1995 there were 15,635,218 shares of common stock issued and
outstanding.
Documents Incorporated By Reference
Parts I and III incorporate information by reference from the registrant's
definitive Proxy Statement for its 1995 Annual Meeting of Stockholders to be
filed with the Commission within 120 days after the close of registrant's
fiscal year.
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Total number of sequentially numbered pages
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Exhibit Index begins at sequential page number
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PART I
ITEM 1. BUSINESS
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SUMMARY AND RECENT DEVELOPMENTS
Elsinore Corporation ("Elsinore" or the "Company") owns, operates and
develops casinos and casino/hotels in the U.S. gaming industry. The Company
owns and operates its principal property, the Four Queens Hotel and Casino, in
downtown Las Vegas, Nevada. The Four Queens, which opened in 1966 and has been
one of the leaders in the downtown market throughout the 1980s and early 1990s,
attracts a loyal customer base through a high level of personalized service and
a variety of innovative targeted marketing techniques. Elsinore has assisted
in the development of and currently manages two casinos on Native American
land: the Spotlight 29 Casino, located near Palm Springs, California, which
opened on January 14, 1995, and the 7 Cedars Casino, located on the Olympic
Peninsula in Washington State, which opened on February 3, 1995. In addition,
the Company is a participant in a venture formed to develop and own, subject to
obtaining the necessary financing, up to four casino/hotels, which the Company
will manage, as part of the Mojave Valley Resort being developed on the
Colorado River six miles south of Laughlin, Nevada.
Since January 1993, Elsinore has substantially restructured its senior
management team. In 1993, each of the Company's Chairman and Chief Executive
Officer, President, and Senior Vice President -- Development, joined the
Company in their respective positions. In 1994, each of the Company's Senior
Vice President, Chief Financial Officer, General Counsel, and Vice President --
Facilities Management joined the management team. Over the past 27 months,
Elsinore's management team has put in place a strategy designed to (1) improve
the financial results of the Company's flagship property by improving the Four
Queen's physical plant and operations and participating in traffic-building
redevelopment projects in downtown Las Vegas, and (2) pursue growth,
diversification and attractive financial returns in casino opportunities in new
geographical markets.
To assist the implementation of management's strategy, the Company borrowed
$60 million through the issuance of its 12 1/2% First Mortgage Notes due 2000
("First Mortgage Notes") in October 1993 and an additional $3 million through
the issuance of its 20% Mortgage Notes due 1996 ("Mortgage Notes") in October
1994. The net proceeds were used to repay existing indebtedness and interest,
refurbish major portions of the Four Queens, invest in downtown redevelopment
projects, and develop and construct the two Native American gaming projects.
In 1994, the scheduled refurbishment of the Four Queens was completed,
construction commenced on a major downtown Las Vegas redevelopment project--the
Fremont Street Experience--and on each of the Native American casinos, and the
Company entered into an agreement to develop, subject to obtaining the
necessary financing, the Nashville Nevada casino/hotel at the Mojave Valley
Resort. The Native American casinos opened in January and February 1995,
respectively, and the Fremont Street Experience is scheduled for completion in
the late Fall or Winter of 1995.
In January 1995, the Company completed an underwritten public offering of 2.5
million shares of its common stock (the "Equity Offering"). At that time, the
Company believed the net proceeds to the Company of the Equity Offering
(approximately $4 million before deducting the Company's offering expenses),
together with cash on hand and cash generated from operations, would be
sufficient to satisfy the Company's working capital requirements through the
first quarter of 1995. However, as a result of the unanticipated poor initial
performance of the Spotlight 29 Casino following its opening, the Company was
required to obtain additional financing through the sale of $1,706,250
aggregate principal amount of its 7 1/2% Convertible Subordinated Notes due
December 31, 1996 (the "Convertible Notes"). The private placement of
Convertible Notes was completed on March 31, 1995. See "1995 Working Capital
Requirements; Insufficient Liquidity" below.
THE FOUR QUEENS; THE FREMONT STREET EXPERIENCE. Based principally on results
at the Four Queens, the Company's earnings before interest, tax, depreciation
and amortization dropped in 1994 to $3.8 million, from $7.2 million in 1993.
Although occupancy rates at the Four Queens remained above 90% in 1994, gaming
revenues declined approximately 11% from the prior year period. The Company
believes this decline is primarily due to the impact of themed mega-casinos on
the Las Vegas Strip such as the MGM Grand, Luxor, and Treasure Island, each of
which opened in the fourth quarter of 1993. It believes that customers of the
downtown casino/hotels who
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would normally spend substantially all of their gaming and entertainment budget
at downtown casinos in 1994 were drawn to and spent a portion of their budgets
at these new Strip properties, resulting in a loss of revenue to downtown
casinos. The Company believes that similar results occurred in late 1989 and
mid-1990, when two mega-casinos, The Mirage and Excalibur, opened on the Strip.
In the year ended June 30, 1990, downtown casino revenue increased only 0.5%
over the prior year. However, in the following fiscal year, downtown gaming
revenue increased 4.2%, for reasons the Company believes included a general
increase in the number of visitors to Las Vegas and the decreased novelty of
the attractions offered by the mega-casinos on the Strip.
Elsinore also anticipates that the Four Queens and the other downtown casinos
will benefit from the opening of the Fremont Street Experience, currently
expected in the late Fall or Winter of 1995. The Fremont Street Experience is
a cooperative undertaking among the downtown casinos to create a feature
attraction along Fremont Street in downtown Las Vegas. The Fremont Street
Experience will transform four blocks of Fremont Street into a covered
pedestrian mall, connecting the Four Queens and nine other major entertainment
venues that together will offer 17,000 slot machines, over 500 blackjack and
other table games, 41 restaurants and 8,000 hotel rooms. The Fremont Street
Experience will feature a 10-story celestial vault, sound effects and a high
tech light show which will add to the neon signs and marquees for which the
downtown area is already famous. As part of the Fremont Street Experience, a
new 1,600-space parking garage is under construction. The Company believes
that the Fremont Street Experience will become a major attraction in the Las
Vegas area and will result in additional patronage in the downtown market.
Based on the observation of downtown gaming revenue patterns in 1989-1991 and
on the prospective opening of the Fremont Street Experience, the Company
believes that gaming revenues at the Four Queens and at downtown casinos
generally will increase, driven principally by a greater number of gaming and
hotel patrons in the downtown market. However, there is no assurance that
patronage or gaming revenues at downtown casinos or the Four Queens will
increase.
SPOTLIGHT 29 CASINO--PALM SPRINGS, CALIFORNIA. On January 14, 1995, Elsinore
and the 29 Palms Band of Mission Indians ("29 Palms Band") opened the Spotlight
29 Casino ("Spotlight 29"), a 74,000 square foot Class II gaming facility on
tribal lands located near Palm Springs, California. Spotlight 29, which cost
approximately $10 million to develop, features high and low stakes bingo, pull
tabs, poker, Asian card games and other non-house banked card games in a 15,000
square foot gaming area. See "Native American Gaming Projects--Spotlight 29
Casino" below. Pursuant to the terms of the management contract between the 29
Palms Band and Palm Springs East L.P., a partnership of which the Company owns
90%, the Company is to receive management fee revenues equal to approximately
27% of Spotlight 29's earnings from gaming operations, after deducting certain
expenses. In addition, the 29 Palms Band is obligated to repay from its share
of casino earnings a $10 million loan and certain other advances from the
Company to finance the development and construction of Spotlight 29.
During its first six weeks of operations, Spotlight 29's gaming revenues were
significantly lower than anticipated, resulting in a net operating loss through
February 1995 of approximately $1.1 million. See "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Financial Condition--Recent and Expected Losses from Operations." This lower
revenue is believed by the Company to be attributable in part to the marketing
plan of Spotlight 29 taking longer to implement than expected, and from
competition from other Native American gaming facilities in Southern California
that continue to operate electronic gaming machines without an approved compact
with the State of California. See "Native American Gaming Projects--Spotlight
29 Casino" and "--Operation of Class III Gaming Devices by Competitors of
Spotlight 29" below. Pursuant to its obligations under the Spotlight 29
management contract, the Company through March 30, 1995 contributed $1.06
million to the casino to cover working capital shortfalls. There is no
assurance that Spotlight 29 will not continue to experience negative cash flow
in subsequent quarters and that further advances of funding by the Company will
not be required. See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations--Financial Condition -- Decreased
Liquidity."
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In early March 1995, the 29 Palms Band caused electronic gaming machines to
be installed at Spotlight 29. The Company believes the operation of these
machines without a state compact violates the Spotlight 29 management contract
and may violate applicable federal law. See "Native American Gaming Projects -
- Installation of Class III Gaming Devices at Spotlight 29" below. The tribe's
actions at Spotlight 29 may subject the Company to disciplinary action by the
Nevada Gaming Commission. See "Native American Gaming Projects--Proceedings
Before Nevada Gaming Authorities" below. Following the tribe's failure to
comply with the Company's demand to remove the machines, the Company on March
16, 1995 filed an injunctive and declaratory action against the tribe to halt
the use of the machines at the casino premises. In addition, the Company
intends to take action to disengage from managing Spotlight 29 by April 30,
1995, based on the tribe's violations of the management contract, unless prior
to that date the tribe ceases operation of the gaming machines at the casino or
the machines are deemed legal pursuant to federal and state law. See "Native
American Gaming Projects--Probable Disengagement from Spotlight 29 Management
Contract" below.
7 CEDARS CASINO--WASHINGTON STATE. On February 3, 1995, Elsinore and the
Jamestown S'Klallam Tribe ("S'Klallam Tribe") opened the 7 Cedars Casino ("7
Cedars"), a 54,000 square foot Class II and limited Class III gaming facility
on tribal lands fronting U.S. Interstate Highway 101, on the Olympic Peninsula
approximately 70 miles northwest of Seattle. The development cost for 7 Cedars
was approximately $9 million. 7 Cedars' 12,500 square foot gaming area features
Las Vegas-style table games including craps, blackjack, roulette and poker, as
well as bingo, pull tabs and other non-house banked games. Pursuant to the
terms of the management contract between the S'Klallam Tribe and Olympia
Gaming Corporation, the Company's wholly-owned subsidiary, the Company is to
receive management fee revenues equal to 30% of 7 Cedars' earnings from gaming
operations, after deducting certain expenses. In addition, the S'Klallam Tribe
is obligated to repay from its share of casino earnings a $9 million loan from
the Company to finance casino development and construction. See "Native
American Gaming Projects -- 7 Cedars Casino" below.
Because 7 Cedars' opening occurred during the low season for tourism on the
Olympic Peninsula, the Company anticipated the casino would experience a
negative cash flow during its initial months of operations. In February 1995,
7 Cedars had gross revenues of approximately $1.5 million, resulting in an
estimated net operating loss of approximately $300,000, compared to an
anticipated loss for the month of approximately $200,000. 7 Cedars recently
entered into an agreement with a third party providing for furniture, fixtures
and equipment financing in the amount of $760,000. In the event such
financing, together with available cash and revenues from operations, is
insufficient to satisfy the casino's working capital requirements, the Company
would be required, pursuant to the terms of the 7 Cedars management contract,
to advance funds to the casino to cover any shortfalls. The Company
anticipates 7 Cedars' results of operations will improve in the second and
third quarters of 1995, as a result of increased tourism in the region during
that period. However, there is no assurance that these expectations will be
achieved.
MOJAVE VALLEY RESORT AND NASHVILLE NEVADA. Mojave Valley Resort is being
developed by J.F. Temple Development ("Temple"), a developer of resorts in the
Palm Springs area, as a master-planned resort featuring up to seven
casino/hotels, two championship golf courses, a marina, facilities for up to
1,300 recreational vehicles, commercial facilities and approximately 4,000
units of single and multi-family housing. See "Nashville Nevada Resort and
Casino -- Mojave Valley Resort" below. The first project to be completed at
the Resort, a casino/hotel with approximately 300 rooms and owned by the Fort
Mojave Tribe, opened in February 1995.
In May 1994, Elsinore and Temple agreed to develop and own up to four
casino/hotels at Mojave Valley Resort. Elsinore will manage each property
developed under this agreement. Subject to obtaining the necessary debt and
equity financing for the project, the first casino/hotel planned to open will
be the Nashville Nevada. A country and western theme will distinguish the
Nashville Nevada project, which is expected to feature approximately 500 hotel
rooms and 32,500 square feet of gaming space, including approximately 1,050
slot machines, as well as restaurants and other nongaming amenities. The total
project cost of Nashville Nevada is expected to be approximately $65.5 million.
If the necessary financing can be arranged, construction of Nashville Nevada is
expected to begin as soon as practicable thereafter and the Company will
acquire option rights to develop up to three additional casino/hotel projects.
In March 1995, Temple and the Company agreed to extend until September 30,
1995, the date by which the Company must complete its $10 million capital
contribution to the
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Nashville Nevada project, in consideration for which the Company assumed
certain of Temple's payment obligations relating to the Mojave Valley Resort.
There is no assurance, however, that the Company or Temple will be able to
obtain the equity or debt financing necessary to commence construction of the
project by the extended deadline or at all. Accordingly, there is significant
uncertainty whether the Nashville Nevada project will be completed and whether
the Company will maintain the right to develop any additional projects at the
Mojave Valley Resort. See "Nashville Nevada Hotel and Casino -- Uncertainty of
Nashville Nevada Financing" below.
1995 WORKING CAPITAL REQUIREMENTS; INSUFFICIENT LIQUIDITY. For the balance
of 1995, the Company's working capital requirements will include, among other
things, monthly payments to the Internal Revenue Service ("IRS") of $275,000
(increasing to $550,000 on May 1, 1995) for prior period income tax and related
interest; semi-annual interest payments on the First Mortgage Notes of
approximately $3.56 million due on April 1 and October 1, 1995; mandatory
quarterly redemptions of $750,000 principal amount of the Mortgage Notes on
June 30, September 30, and December 31, 1995; quarterly interest payments on
the Mortgage Notes due on June 30, September 30, and December 31,
1995; one or more capital contributions (in addition to $1.06 million
advanced through March 30, 1995) to fund the initial operating expenses of
Spotlight 29 and 7 Cedars; and payment obligations of up to $169,000 in
property taxes and lease expenses relating to the Mojave Valley Resort that the
Company assumed from Temple.
The Company believes the net proceeds of sale of the Convertible Notes,
together with cash on hand and revenues from operations, will enable the
Company to complete its April 1995 debt service obligations. For the remainder
of 1995, however, based upon the Company's recent results of operations and its
projections for future quarters, the Company will require significantly
improved results of operations or additional financing in order to satisfy its
working capital requirements including, among other things, its June, September
and October 1995 debt service obligations. See "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Decreased Liquidity." The Company's final payment of prior period taxes to the
IRS is scheduled to be completed in December 1995, and the Mortgage Notes are
scheduled to be fully repaid by March 31, 1996.
PROSPECTIVE CHANGES IN MANAGEMENT. Effective April 1, 1995, Gary R. Acord
will join the Company's management team as Chief Financial Officer and
Treasurer. Prior to joining the Company, Mr. Acord was managing partner of the
Las Vegas office of KPMG Peat Marwick LLP, where he specialized in serving
gaming industry clients both within and outside Nevada and led the firm's
International Gaming Practice. Mr. Acord will replace James L. White in the
CFO position. In addition, Richard A. LeVasseur, who has served as a Director
and a Senior Vice President of the Company, will leave the Company effective
April 1, 1995. At this time, the company does not intend to replace Mr.
LeVasseur's officer or director positions and will reduce the size of the Board
of Directors from seven to six members to reflect his departure.
Frank L. Burrell, Jr., Chairman and Chief Executive Officer, has informed the
Company's Board of Directors that he will not be a candidate for reelection as
Chief Executive Officer following this year's annual shareholders' meeting on
May 11, 1995. Mr. Burrell will nominate Thomas E. Martin to succeed him as
Chief Executive Officer effective May 11, 1995. Mr. Burrell will remain
Chairman of the Board of the Company. It is anticipated that, effective May 11,
1995, when Mr. Martin becomes Chief Executive Officer, Rodolfo E. Prieto will
assume the role of Chief Operating Officer of the Company.
THE FOUR QUEENS HOTEL AND CASINO
THE FOUR QUEENS
Elsinore, through its wholly owned subsidiary, Four Queens, Inc., owns and
operates the Four Queens Hotel and Casino (the "Four Queens"), located on the
corner of Fremont Street and Casino Center Boulevard in downtown Las Vegas.
The property has been in operation since 1966. The property is accessible via
Interstate
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15 and Interstate 515 and markets to a local population of approximately one
million residents and over 28.2 million visitors a year to Las Vegas.
In 1994, the Company completed a $5 million refurbishment of the Four Queens.
As part of this refurbishment, gaming space was increased to 32,000 square
feet. The casino floor is currently equipped with 1,067 slot machines, 25
blackjack tables, five craps tables, one pai gow poker table, three Caribbean
Stud Poker tables, three Let-It-Ride tables, two roulette wheels, a keno game
and a sports book. The hotel has 704 guest rooms and suites in two towers. In
May 1994, the Company completed a major refurbishment of the North Tower.
Every room received new wall coverings, carpeting, bathroom fixtures, furniture
and fixtures. The hallways and elevators were also renovated. The Four Queens
features four full-serve restaurants. Magnolia's offers a wide variety of
selections and is open 24 hours a day. Hugo's Cellar offers sophisticated
cuisine and an extensive wine list, and has been cited in Zagat's Review as
perhaps "the finest restaurant in Las Vegas". In May 1994, Elsinore opened its
third restaurant, Leilani's Cafe, featuring a Hawaiian theme and food selection
consistent with the Company's efforts to attract patrons from Hawaii. In June
1994, the Company opened Pastina's, which offers a selection of pasta and other
Italian specialties. The Four Queens has three cocktail lounges and an
entertainment lounge, The French Quarter, which presents a variety of
performers. As an additional part of the refurbishment, meeting space in the
Four Queens was doubled to almost 15,000 square feet in 1993. The hotel also
has parking facilities with 560 spaces.
OPERATIONS
The following tables sets forth the contributions from major activities to
the Company's total revenues for the years ended December 31, 1994, 1993 and
1992, respectively.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
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1994 1993 1992
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<S> <C> <C> <C>
(Dollars in Thousands)
Casino(1) $46,270 $51,950 $49,233
Hotel(2) 9,234 9,876 9,694
Food & Beverage(2) 12,693 12,495 12,691
Other(3) 2,020 768 638
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69,935 75,089 72,256
Less Promotional Allowances (7,511) (8,237) (8,258)
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$62,706 $66,852 $63,998
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</TABLE>
(1) Consists of the net win from gaming activities (i.e., the difference
between gaming wins and losses).
(2) Includes revenues from services provided as promotional allowances to
casino customers and others on a complimentary basis.
(3) Consists primarily of interest income, commissions from credit card and
automatic teller cash advances and miscellaneous other income (including
net royalties of $243,000 in 1994, $136,000 in 1993, and $57,000 in 1992
from the licensing of MULTIPLE ACTION "registered trademark" blackjack).
The following table summarizes the primary aspects of the Company's
operations at the Four Queens.
<TABLE>
<CAPTION>
Casino:
<S> <C>
Floor area (square foot) 32,296
Slot machines 1,067
Blackjack tables 25
Craps tables 5
Caribbean Stud Poker tables 3
</TABLE>
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<TABLE>
<S> <C>
Roulette wheels 2
Let-It-Ride tables 3
Pai gow poker tables 1
Keno (seats) 46
Sports book 1
Hotel:
Rooms 704
Meeting areas (square feet) 14,600
Restaurants and entertainment and cocktail lounges:
Restaurants 4
Restaurant seats 454
Entertainment lounges 1
Entertainment lounge seats 147
Cocktail lounges 3
Other:
Gift Shops 1
Parking facilities (cars) 560
</TABLE>
MARKETING
Elsinore has developed a marketing strategy employed for the Four Queens that
emphasizes a high level of customer service, targeted marketing, value-oriented
promotions, club memberships and special events.
CUSTOMER SERVICE. The Company believes that the Four Queens is distinguished
by its friendly "at home" atmosphere and the high level of personalized service
provided to its patrons. The Company strives to maintain the level of service
by actively seeking customer feedback on suggestion cards, by senior floor
personnel asking patrons if their wants are being met, and by employees
engaging in friendly dialogue with the customers in order to reinforce the "at
home" feeling. The Company believes that its focus on customer service is one
of the principal factors contributing to its high level of repeat visits. In
this respect, customer service contributes to significantly reduced marketing
costs, since it is less costly to maintain and cultivate existing customer
relationships than it is to develop new ones. Additionally, the Company
believes that good service results in word-of-mouth endorsement of the Four
Queens by satisfied customers to others.
TARGETED MARKETING. The Company maintains a database of patrons that
includes almost 300,000 names of customers and prospects. The Company has
assembled this database from its players clubs, reservation systems and
tournaments and special events. Using this database, the Company has
identified a segment of loyal core customers; management estimates that 75% of
this group has returned to the Four Queens at least three times each year and
spends an average of two to four days per visit. The Company believes that an
additional benefit of the database is the ability to analyze the effectiveness
of each marketing event in terms of profitability. This analysis aids
management in developing future promotions for which there is a high
probability of success. Finally, the Company publishes a semi-monthly
newsletter which announces upcoming tournaments and special events.
Management believes that the following areas offer the greatest potential for
attracting new customers with the same demographic profile as the Four Queens'
most regular customers:
Southern California Hawaii Texas
Arizona Vancouver, Canada Oklahoma
PROMOTIONS. The Company believes that customers in the downtown Las Vegas
market are attracted to perceived "value" in a gaming vacation. Accordingly,
the Company promotes the value theme in a number of ways, from a 99-cent shrimp
cocktail appetizer and $4.95 prime rib dinner to an assortment of value-
oriented vacation packages.
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CLUB MEMBERSHIPS.
REEL Winners Club---The largest component of the customer database is the
REEL Winners Club, a slot club with over 225,000 members. The objective of
this club is to provide loyal and valuable slot players the opportunity to
accumulate points that may be redeemed for entries into slot tournaments,
bingo sessions and auctions. Special parties and priority room
reservations are also benefits for REEL Winners Club members.
Additionally, the points earned may be used for slot play, scrip for use at
any non-gaming facility at the Four Queens and Spiegel gift certificates.
Maintaining and operating the slot club enables the Company to market
continuously to a proven customer segment which is attracted to casino
gaming and the Four Queens.
VIP Database--Through the visual observation of table game activity on the
casino floor, the Company has developed a database of VIP players based on
their average bet and length of play. The Company continuously builds on
this database in order to target market to a segment of "high limit"
players who enjoy the Four Queens atmosphere. In order to maintain the
loyalty and level of play provided by this customer segment, management has
instituted a very aggressive and generous "comp" plan designed to make the
player's stay as comfortable and as long as possible. Management utilizes
a database to track the player's length of stay, average bet, time played,
estimated amount won or lost, comping limit and comps used during the trip.
This information affords the Company the opportunity to provide the
appropriate level of privileges in order to maintain the loyalty and
satisfaction of this customer segment.
SPECIAL EVENTS. The Four Queens hosts a variety of high and low stakes
table game and other gaming tournaments, including the well known annual Queens
Poker Classic, and caters to its VIP players and core customers by purchasing
and supplying them with complimentary tickets to Las Vegas special events.
THE LAS VEGAS MARKET
The Las Vegas gaming and entertainment market has generally expanded in
recent years. The number of visitors traveling to Las Vegas increased from
11.6 million visitors in 1982 to over 28.2 million visitors in 1994. McCarran
International Airport passenger volume is estimated to have increased 19.4% for
the first seven months of 1994. Expansive themed properties such as Excalibur,
The Mirage, The MGM Grand Hotel and Theme Park, Treasure Island and Luxor have
become destination resorts. Las Vegas is also one of the five fastest growing
cities in the United States and the population has increased from approximately
507,000 in 1982 to approximately one million in 1994. This population increase
has been driven by growth in the gaming industry, relocation of companies to
Las Vegas because of favorable tax conditions and increases in the number of
retirement age residents drawn to Las Vegas primarily by the warm climate,
relatively low cost of living, entertainment options and absence of state
income tax. More than 47,000 jobs are estimated to have been created in Las
Vegas over the 12 months ended December 31, 1994.
Despite the significant increase in the supply of rooms and a series of
competitive developments, including the expansion of gaming in many
jurisdictions nationwide and the introduction of the California lottery, Las
Vegas's hotel occupancy rate exceeded 85% in each of the last eight years and
was 92.6% in 1994. Las Vegas's gaming revenues increased from $1.7 billion in
1984 to $4.0 billion in 1994. The Company believes that several factors,
including the three new destination resorts and the expansion of McCarran
International Airport, will enable Las Vegas to continue to grow.
Each of the three principal segments of the Las Vegas market--the Las Vegas
Strip, the Boulder Strip and Downtown--has exhibited generally steady growth
during the past decade. Set forth below is information concerning revenues and
growth of each of Las Vegas's three principal gaming markets:
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GAMING REVENUE ($000'S)*
<TABLE>
<CAPTION>
LAS VEGAS STRIP DOWNTOWN BOULDER STRIP
------------------- ------------------ ------------------
JUNE FISCAL YEAR REVENUES GROWTH REVENUES GROWTH REVENUES GROWTH
--------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
1985.............. 1,318,568 4.0% 441,023 7.3% NA --
1986.............. 1,371,208 4.0 486,828 10.4 80,328 --
1987.............. 1,597,414 16.5 524,156 7.7 94,203 17.3%
1988.............. 1,739,265 8.9 592,616 13.1 104,161 10.6
1989.............. 2,023,619 16.3 638,506 7.7 121,726 16.9
1990.............. 2,278,666 12.6 641,990 0.5 137,265 12.8
1991.............. 2,626,868 14.8 669,248 4.2 143,307 4.4
1992.............. 2,530,932 (3.3) 646,577 (3.4) 150,854 5.3
1993.............. 2,680,866 5.9 677,702 4.8 161,810 7.3
1994.............. 3,235,716 20.7 674,549 (0.5) 179,042 10.6
Compound Annual
Growth Rate 10.5% 4.8% 10.5%
</TABLE>
----------------
* For casinos with gaming revenue of $1 million and over.
The Las Vegas Strip has demonstrated strong growth, and revenues have
increased at a 10.5% compound annual growth rate to approximately $3.2 billion
in 1994 from $1.3 billion in 1984. Based on 1994 statistics, the 5,000-room
MGM Grand Hotel and Theme Park, the 2,500-room Luxor Hotel and Casino and the
3,000-room Treasure Island Hotel and Casino appear to be drawing more visitors
to Las Vegas.
The downtown market has grown from approximately $441 million in 1985 to
approximately $675 million in 1994 at a compound annual growth rate of 4.8%.
Downtown Las Vegas, with its world famous neon lighting and its 12 major
casinos all located within close proximity of each other, is where Las Vegas
started, and the area continues to attract a significant number of loyal
customers comprised of both visitors to Las Vegas and local residents. The
Company believes many gaming patrons choose to play downtown because the
casinos traditionally offer more liberal slot payouts and better odds on table
games than casinos located on the Las Vegas Strip and provide a more
comfortable and less intimidating environment. In addition, it is much easier
to stroll from one casino to another in the downtown market than on the Strip.
Recent results of the downtown Las Vegas casino operators have been
adversely affected by, among other things, the opening of themed mega-casinos
on the Las Vegas Strip. In the 1989-1991 period, the opening of The Mirage and
Excalibur casino/hotels depressed the growth rate of downtown Las Vegas gaming
revenues. Similarly, the recent openings of the MGM Grand, Luxor and Treasure
Island casino/hotels have had an adverse effect on downtown gaming revenue,
which decreased 0.5% for the 12-month period ended June 30, 1994.
THE FREMONT STREET EXPERIENCE
The casino operators in downtown Las Vegas have formed the Downtown
Progress Association to improve the downtown area. A product of the Downtown
Progress Association's efforts is the Fremont Street Experience, which will
feature a celestial vault and light show. The celestial vault will consist of
a 100-foot high, 100-foot wide, 1,340 foot long space frame spanning Fremont
Street from Main Street to Fourth Street and will be closed to traffic to
create a pedestrian mall. The celestial vault is the framework for a high tech
light show involving 2.3 million reflectors, 600 strobe lights, and laser image
projectors. Nine major entertainment venues, including the Four Queens, that
together offer 17,000 slot machines, over 500 blackjack and other table games,
41 restaurants and 8,000 hotel rooms will be connected by the project. A 1,600
space parking facility is under construction. The goal of Fremont Street
Experience is to create an attraction for gaming customers and other visitors
to Las Vegas,
8
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drawing visitors to the historic downtown area and providing completion for the
larger and newer gaming and entertainment complexes located on or near the
Strip.
The Fremont Street Experience is expected to cost approximately $67
million, $6.7 million of which will be financed by the Las Vegas Convention and
Visitor Association, $28.7 million (consisting of an $18 million equity
investment plus additional room taxes) that will be provided by eight downtown
casino operators (including the Company) and the remainder of which will be
provided by a local bond issuance and matching federal funds. The Company's
share of the initial project costs is approximately $3 million, which funds
have already been contributed by the Company to the project. Construction on
the project began in Spring 1994 and is expected to be completed in late Fall
or Winter of 1995.
The Company and several of the other downtown casino operators will
collectively own the Fremont Street Experience. Elsinore will have a one-sixth
ownership share and will be responsible for a proportionate share of the
project's operating costs.
COMPETITION
The gaming industry in Nevada and elsewhere in the United States is highly
competitive and this competition is increasing as new gaming facilities are
built and additional jurisdictions license gaming establishments. Although the
industry generally has recently been able to absorb additional capacity without
significant loss of revenues to existing establishments, there is no assurance
that gaming in the United States will increase at a rate sufficient to absorb
the additional facilities expected to be constructed. Many of the Company's
actual and potential competitors have greater financial resources, more
diversified operations, and a longer history of successful operation than does
the Company; each of these factors could afford a competitive advantage.
Three new "mega-resorts" opened on the Las Vegas Strip in the fourth
quarter of 1993. These complexes increased the number of rooms in Las Vegas by
approximately 11,000, or 15%. Although the occupancy levels increased slightly
in 1994, as compared to 1993, there can be no assurances that the addition of
such a large number of rooms will not have negative impact on average hotel
occupancy levels in Las Vegas and at the Four Queens, unless visitor volume and
other sources of room demand increase proportionately.
The Company believes that the Four Queens' primary competitors are other
downtown Las Vegas properties, casino hotels located on the Las Vegas Strip and
the Boulder Highway, local neighborhood casinos, Laughlin casinos and casino
properties located near the Nevada/California state line. Additionally, but to
a lesser extent, the Four Queens also completes with state-sponsored lotteries,
on-and off-track betting and other gaming operations located in other
jurisdictions in the U.S. The Company believes that the legalization of gaming
in other states, as well as on various Native American lands including Native
American lands in Arizona, California and Washington has not yet had an adverse
impact on its operations. However, there is no assurance that such gaming in
other jurisdictions will not have an adverse impact on the Company's Las Vegas
operations in the future. In particular, the expansion of casino gaming, in or
near any geographic area from which the Company attracts or expects to attract
a significant number of its customers, such as Hawaii or California, could have
a material adverse affect on the Company's operations.
Casino hotels in Las Vegas generally compete on the basis of promotional
allowances, entertainment, advertising, service provided to patrons, caliber of
personnel, attractiveness of the hotel and the casino areas and related
amenities. The Company has faced greater competition from new and existing Las
Vegas casino/hotels seeking to attract middle market slot machine players, tour
and travel agents, and Las Vegas area residents, each of which is a market the
Company actively seeks to attract to the Four Queens.
Many operators in the downtown Las Vegas market have observed that the new
Las Vegas Strip properties such as MGM Grand and Luxor have been drawing gaming
revenues away from downtown Las Vegas. However, the Company believes that,
like the 1989-1991 period when The Mirage and Excalibur casino/hotels opened,
following an initial period of dilution of downtown Las Vegas patronage, the
entire Las Vegas market could benefit from an overall increase in tourism, with
those benefits being shared downtown. Further, as the Las Vegas Strip
9
<PAGE>
becomes more congested, certain patrons may prefer the ease and relative
friendliness of the downtown market. Additionally, the Company expects that
the Four Queens, along with other downtown operators, will benefit from the
increased tourism that the Company expects will result from the addition of the
Fremont Street Experience.
NATIVE AMERICAN GAMING PROJECTS
BACKGROUND ON NATIVE AMERICAN GAMING
The Company expects the Native American gaming industry to grow as gaming
in general continues to gain popular acceptance as entertainment. In 1988,
Congress passed the federal Indian Gaming Regulatory Act ("IGRA") providing a
legal and regulatory framework for Native American tribes to offer for profit
any games allowed by states. During the six-year period through 1994,
approximately 200 Native American casino facilities, ranging from small bingo
halls to full-fledged gambling houses, were initiated in more than 20 states.
As of February 1995, approximately 100 of these facilities offered Class III
gaming (as defined below) pursuant to tribal-state compacts. Casinos on Native
American lands are subject to the regulatory authority of the federal Native
American Gaming Commission ("NIGC"), tribal regulatory authorities and, where
applicable, state agencies. See "Regulations -- Native American Gaming
Operations" below.
SPOTLIGHT 29 CASINO
FACILITIES. The Company has developed and currently manages Spotlight 29,
a Class II facility on tribal land of the 29 Palms Band. Spotlight 29 opened
to the public on January 14, 1995, at an estimated construction cost of $10
million. The casino is located in Coachella, California, 150 miles southeast of
Los Angeles, 100 miles northeast of San Diego and 20 miles east of Palm
Springs. The area within a 150-mile radius of the project has a population of
over 20 million people. Additionally, the property is within close proximity to
communities in the Coachella Valley including Palm Desert, La Quinta, Rancho
Mirage and Indian Wells. The casino is situated on a 55-acre parcel bordered by
Interstate 10 (approximately 21,000 cars are estimated to pass the site per
day) on one side and Dillon Road (approximately 5,500 cars are estimated to
pass the site per day) on the other. The Company believes that the Spotlight 29
site is an excellent one due to its visibility and accessibility from the
highway and proximity to large population bases.
Spotlight 29 features a modern, comfortable 74,000 square foot gaming
facility that offers bingo, pull-tabs, poker, Asian card games and other non-
house banked games. In addition, since early March 1995, the 29 Palms Band has
been operating video pull-tab gaming machines at Spotlight 29 over the
Company's strong objections. See "Installation of Class III Gaming Devices at
Spotlight 29" below. Two other Native American casinos in the Coachella Valley
offer similar games, but in facilities that are not currently comparable in
size or appearance to Spotlight 29. The bingo area of Spotlight 29 is able to
seat approximately 1,000 people per session in a theater-style circular area
with state-of-the-art lighting and sound designed specifically for high stakes
bingo. The room offers bingo players an environment not currently available at
any other casino in California. In addition, the room is convertible into a
theater/arena for shows and other types of entertainment.
STRUCTURE OF THE MANAGEMENT AGREEMENT. Palm Springs East, L.P., a
partnership of which Elsinore owns 90%, operates and manages Spotlight 29.
Under the management agreement for the facility, Palm Springs East, L.P. is to
receive a management fee equal to 30% of the casino's earnings for gaming
operations after depreciation and interest expenses are deducted (subject to
the 29 Palms Band receiving a $25,000 per month minimum payment) and the tribe
is to receive the remainder of the casino's earnings. In addition, Palm
Springs East, L.P. is to receive a fee for managing the casino's non-gaming
operations equal to $27,000 per month. Under the contract, the combined
management fee cannot exceed 35% of the casino's earnings (after depreciation
and interest expenses are deducted). The management contract for the facility
has an initial term of five years from the date gaming activities commence at
Spotlight 29 and is subject to renewal for an additional two years under
certain circumstances. Under the Palm Springs East, L.P. partnership
agreement, N.A.C.C., a limited partner that initially secured a land lease and
management agreement with the 29 Palms Band, has a 10% ownership interest in
Palm Springs East, L.P. and is entitled to receive 10% of partnership
distributions. In addition, Palm Springs East, L.P.
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is obligated to pay an additional 5% (subject to a minimum payment of $28,450
per month) of the partnership's cash flow as consulting fees to certain
principals of N.A.C.C.
Unless the 29 Palms Band ceases -- voluntarily or by court order -- its
operation of video pull-tab gaming machines at Spotlight 29, the Company
intends to disengage from the Spotlight 29 management contract based upon the
tribe's material and continuing breach of the contract provisions. See
"Probable Disengagement from Spotlight 29 Management Contract" below and "Item
3. Legal Proceedings -- Action Against 29 Palms Band."
Elsinore has loaned $10 million to the 29 Palms Band to finance the
development and construction of Spotlight 29. This loan bears interest at the
rate of 10% per year, is payable solely from the 29 Palms Band's share of the
casino's earnings and will amortize over four years from the date the casino
opened. Pursuant to the management agreement, payments of principal on the
loan and repayments of any operating advances made by the Company to the casino
will (subject to the minimum payment to the tribe described above) be deducted
by Palm Springs East L.P. from the tribe's share of the casino's earnings. On
July 29, 1994, the NIGC approved the management agreement between the 29 Palms
Band and Palm Springs East L.P.
MARKETING. The Company's marketing plan for Spotlight 29 consists of a
multi-phase strategy designed to introduce the property, generate patronage
and, upon achieving a stable level of business, begin to target additional
customer segments and locations. The Company currently is marketing to
customers within a 50-mile radius from the casino. Following the initial
introduction of the property, the Company intends to expand its marketing
efforts to customers within a 100-mile radius, an area which has a total
population of approximately 2.8 million residents. The Company will
concentrate on attracting residents in the surrounding markets by promoting bus
tours and special tournaments. Senior citizens in the area will be a marketing
priority. Elsinore has commenced and will continue to implement training
programs designed to emphasize a high level of customer service, and intends to
expand its use of direct mail marketing, creative advertising, public
relations, special events and promotions. The Company believes that its
experience in using similar strategies at the Four Queens will be beneficial in
managing Spotlight 29.
Since its January 14, 1995 opening, Spotlight 29 has experienced delays in
implementing its marketing plan. Among other things, the 29 Palms Band is still
in the process of obtaining the requisite licenses to commence the sale of
alcoholic beverages at the casino. See "Regulations--Other Laws and
Regulations" below. Although such licensing is a tribal responsibility, the
Company intends to assist the 29 Palms Band in obtaining the Spotlight 29's
beer and wine permit and its hard liquor permit as soon as practicable,
although there can be no assurance as to when or if such permits will be
obtained. The Company believes that the current nonavailability of alcoholic
beverages at Spotlight 29 and the other delays that have been encountered in
implementing the casino's marketing plan have been a factor in the poor initial
results of operations at Spotlight 29. The Company has recently restructured
the Spotlight 29's management team and is pursuing other measures to improve
the casino's marketing efforts. There is no assurance, however, that such
measures will be successful or that additional difficulties and delays with
respect to marketing the new casino will not continue to adversely affect its
results of operations.
THE PALM SPRINGS MARKET. The Spotlight 29 facility is located to the
southeast of Palm Springs. Palm Springs is a desert city in Riverside County
about 120 miles southeast of Los Angeles and is known as a fashionable winter
resort. Total population within a 50-mile radius of the site is approximately
245,000 permanent residents and an additional 100,000 seasonal residents and
total population within a 150-mile radius which includes Los Angeles County and
San Diego County is approximately 20 million people. The Company believes that
a large portion of the casino's customer base will be comprised of residents
residing permanently in Palm Springs. The Company also believes that the
tourist and highway traffic will also contribute significantly to the number of
casino patrons. The Palm Springs and surrounding areas annually attract over 6
million tourists who generate over $1 billion of spending in the local economy.
There are over 16,000 hotel rooms in the Palm Springs area and over 85 golf
courses within 25 miles of the casino site.
The following table presents certain demographic statistics for Spotlight
29's relevant market segments:
11
<PAGE>
<TABLE>
<CAPTION>
50-MILE 100-MILE 150-MILE
RADIUS RADIUS RADIUS
<S> <C> <C> <C>
Total Population 350,000 2,846,000 20,000,000
Total Population Over Age 18 262,000 1,702,000 NA
Average Per Capita Income $ 21,000 $ 14,000 NA
Average Household Income $ 31,600 $ 33,000 NA
</TABLE>
OPERATION OF CLASS III GAMING DEVICES BY COMPETITORS OF SPOTLIGHT 29
As a Class II gaming facility, Spotlight 29 Casino is permitted under the
IGRA to offer Class II games including bingo, pull-tabs and non-house banked
games. Class III games, which include slot machines and other house-banked
games, are permitted under the IGRA on Native American land if conditions
applicable to Class II gaming are met and, in addition, the gaming is in
compliance with the terms of a written agreement ("compact") between the tribal
government and the applicable state government. All compacts between tribes and
states require approval by the Secretary of the United States Department of the
Interior. To date, the State of California has not entered into any tribal-
state compacts permitting Class III gaming (other than off-track betting and
authorized state lottery facilities).
Two casinos operating on tribal lands in the vicinity of Spotlight 29 and
owned by the Cabazon Band and the Morongo Band, respectively, have installed and
are operating Class III gaming devices (primarily slot machines) without an
approved compact with the State of California. Although the total number of such
machines currently in operation is difficult to verify, the Company believes the
Cabazon Band is operating in excess of 500 machines and the Morongo Band
approximately 400 machines. The continuing operation of Class III devices at
these tribal casinos, each of which competes with Spotlight 29 for gaming
customers in Southern California, is regarded by the 29 Palms Band and the
Company as a significant factor in Spotlight 29's poor initial financial
performance.
Based on discussions it has had with representatives of the NIGC, the
Company understands the NIGC does not currently intend to intervene in
situations where Native American casinos in California are operating Class III
gaming devices without a compact. The Company has submitted a written request to
the United States Attorney for the Central District of California requesting
enforcement of the IGRA as to the 29 Palms Band, Cabazon Band and Morongo Band
or, alternatively for a statement as to the enforcement policy of that office
regarding the IGRA. The Company has also requested in writing that the NIGC
initiate appropriate enforcement action against the 29 Palms Band. The Company
will evaluate other potential claims and actions it may pursue seeking the
removal of Class III gaming devices operating in California in violation of the
IGRA. There can be no assurance the NIGC, the United States Attorney or any
other governmental or regulatory authority will act to enforce the IGRA in
California as it relates to Class III devices or that any other rights or
remedies pursued by the Company or Spotlight 29 to halt the unauthorized use of
such devices by Spotlight 29's competitors will succeed.
INSTALLATION OF CLASS III GAMING DEVICES AT SPOTLIGHT 29
In February 1995, the Company learned from discussions with tribal
representatives that the 29 Palms Band was contemplating the installation of
Class III gaming devices at Spotlight 29. Inasmuch as the 29 Palms Band does not
have a tribal-state compact permitting Class III gaming at Spotlight 29, the
Company believes the installation by the tribe of such gaming devices would be
unlawful and constitute a breach of the tribe's obligations under the Spotlight
29 management contract. In late February, in response to the Company's written
objection to the placement of any Class III gaming devices on Spotlight 29
premises, the 29 Palms Band advised the Company that, as the owner of Spotlight
29, the tribe would install such devices if doing so was in the tribe's best
interest and that the tribe believed this position did not conflict with the
terms of the management contract. In early March, 1995, the 29 Palms Band caused
approximately 70 gaming devices to be installed at Spotlight 29 and such devices
currently are in operation. In addition, the Company understands that a shipment
of additional devices intended for use at Spotlight 29 was intercepted and
confiscated by governmental authorities before it reached the casino premises.
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The Company opposes these activities by the 29 Palms Band and in early
March notified the Nevada State Gaming Control Board ("Nevada Board") and the
NIGC that it will not participate in conduct that contravenes the IGRA. On
March 6, 1995, the Company served on the 29 Palms Band a notice and demand that
the operation of the Class III devices without the Company's consent and
compliance with applicable federal law violates the management contract and
that such activity must immediately cease. Following the tribe's failure to
remove the gaming devices, the Company on March 16, 1995 filed suit in the
United States District Court for the Central District of California to enjoin
their operation. See "Item 3. Legal Proceedings -- Action Against 29 Palms
Band." In addition, the Company intends to disengage from managing Spotlight 29
by April 30, 1995, if the gaming devices are not removed, and it is evaluating
other legal procedures and remedies that may be available in response to the
tribe's noncompliance with the management contract and applicable law. See
"Probable Disengagement from Spotlight 29 Management Contract" below.
In March 1995, the Nevada Board conducted two public hearings and a
confidential investigative hearing, and the Nevada Gaming Commission ("Nevada
Commission") conducted a public hearing, into matters surrounding the
operation of Class III gaming devices at Spotlight 29. See "Regulations --
Proceedings Before Nevada Gaming Authorities" below. Pending appropriate
resolution of these matters, the Company will endeavor to maintain a working
relationship with the 29 Palms Band and, unless and until the Spotlight 29
management contract is lawfully terminated, to fully perform its obligations
thereunder.
PROBABLE DISENGAGEMENT FROM SPOTLIGHT 29 MANAGEMENT CONTRACT
In addition to filing its March 16, 1995, suit against the 29 Palms Band
for injunctive and declaratory relief, the Company has informed the 29 Palms
Band that unless the tribe's operation of the Class III devices at Spotlight 29
promptly ceases, the Company will pursue efforts to disengage from the
Spotlight 29 management contract based upon the tribe's material and continuing
breach of the contract provisions. Termination of the management contract will
require negotiation of an arrangement permitting the orderly transfer of
operations to the tribe or another manager, obtaining any necessary approvals
of the NIGC, and providing acceptable terms regarding the buyout of the
Company's interest in the contract as well as the tribe's repayment of the $10
million loan and other advances made by the Company. In addition, since
cessation of the Company's right to manage Spotlight 29 will constitute an
event of default under the Company's debt facilities, termination of the
management contract will require obtaining appropriate consents or waivers from
the holders of the First Mortgage Notes and Mortgage Notes. See "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations --Debt Covenants." The Company believes that termination of the
management contract would not be necessitated in the event the 29 Palms Band,
either voluntarily or by court order, removed the Class III gaming devices from
Spotlight 29 or if the federal courts or the State of California determined
that the operation of such devices at the tribal casino did not violate the
IGRA.
On March 28 and March 30, 1995, the Nevada Board and the Nevada
Commission, respectively, met to consider the Company's application for
approval to register its 20% Mortgage Notes, Series B, due 1996 (the "Mortgage
Note Registration Application"). The Nevada Board recommended that the Mortgage
Note Registration Application be approved on the condition that the Company
file an application by April 4, 1995 (the "License Condition Request"),
requesting imposition of a license condition requiring the Company by April 30,
1995, to terminate the Spotlight 29 management contract and sever its
relationship with the 29 Palms Band. The Nevada Commission approved the
Mortgage Note Registration Application on March 30, 1995. The Company's failure
to timely implement a lawful directive of the Nevada Commission could subject
the Company to disciplinary action, including without limitation the imposition
of fines or the suspension or revocation of the Company's Nevada Gaming
License. See "Regulations--Nevada Gaming Operations" below. However, as noted
above, termination of the management contract without obtaining appropriate
consents or waivers from the Company's noteholders would constitute an event of
default under the debt facilities. The Company intends to solicit appropriate
waivers or consents from its noteholders. There is no assurance, however, that
such waivers or consents can be obtained in a timely manner, on commercially
terms, or at all. In addition, the Company's termination of the contract
without adequate provision, agreed upon by the tribe, for repayment of the
Company's $10 million loan and other advances to the tribe could jeopardize the
likelihood of such repayment. In the event the 29 Palms Band repudiated its
payment obligations to the Company, the Company would be required to pursue
legal remedies against the tribe which ultimately could require commencing
litigation in federal court. Accordingly, in the event the Company terminates
the Spotlight 29 management contract, there is no assurance that the Company
will be adequately compensated for the damages it has incurred as a result of
the tribe's breach or repaid amounts due under the Company's loans and advances
to the tribe.
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7 CEDARS CASINO
FACILITIES. On February 3, 1995, Elsinore and the S'Klallam Tribe opened 7
Cedars, a 54,000 square foot Class II and limited Class III gaming facility on
tribal lands fronting U.S. Interstate Highway 101, on the Olympic Peninsula
approximately 70 miles northwest of Seattle. An estimated four million
tourists visit the Olympic Peninsula annually. The development cost for 7
Cedars was approximately $9 million. 7 Cedars' 12,500 square foot gaming area
features Las Vegas-style table games including craps, blackjack, roulette and
poker, as well as bingo, pull tabs and other non-house banked games. The
casino's Class III games are authorized pursuant to a compact between the
S'Klallam Tribe and the State of Washington, which has been approved by the
Secretary of the Interior. In addition to 7 Cedars' casino operations, the
Company operates a gift shop, a video arcade and dining facilities at the site.
Additionally, the S'Klallam Tribe operates a Native American arts and crafts
shop at the facility.
STRUCTURE OF MANAGEMENT AGREEMENT. Olympia Gaming Corporation, a wholly
owned subsidiary of the Company ("Olympia"), operates and manages 7 Cedars
under a management contract with the S'Klallam Tribe. Under the contract, the
Company will receive a management fee equal to 30% of the casino's earnings
from gaming operations, after depreciation and interest expense (subject to the
S'Klallam Tribe receiving a $25,000 per month minimum payment) and the tribe
will receive the remainder of the casino's earnings. The management contract
has an initial term of five years from the date 7 Cedars opened, subject to
renewal for an additional two years (in some cases at a reduced management fee)
under certain circumstances.
Elsinore loaned $9 million to the S'Klallam Tribe to finance the
development and construction of the 7 Cedars Casino. This loan bears interest
at a rate of 10.9% per annum, is payable solely from casino earnings and will
amortize over five years from the date the casino opened. Pursuant to the
management agreement, payments of principal and repayments of any operating
advances made by the Company to the casino will (subject to the minimum payment
to the tribe described above) be deducted by the Company from the S'Klallam
Tribe's share of 7 Cedars' earnings. On July 29, 1994, the NIGC approved the
management agreement between the S'Klallam Tribe and Olympia.
MARKETING. The Company believes that the physical beauty of the site and
the casino building differentiates 7 Cedars from competing properties. In
addition, the Company has begun implementation of an active marketing plan to
further distinguish 7 Cedars. While the existing tribal casinos in the area
have relied on their regional monopoly, the Company believes that the marketing
techniques it has used at the Four Queens will draw traffic to 7 Cedars. These
techniques include the use of player clubs, frequent visitor drawings, special
events and tournaments. The Company will also emphasize a high level of
customer satisfaction to encourage repeat visits. These programs will
supplement standard brochure distributions and comprehensive customer tracking
systems.
Media will also be a major element in the Company's marketing plan. All
employees have been trained to recognize and use public relations opportunities
and newsworthy happenings. Through this plan, the Company hopes to be able to
use press relations to play a significant role in the development of a player
base. Further, the Company has begun to utilize joint marketing programs with
local businesses that cater to the tourist market as a means of drawing new
customers who are planning to visit the Olympic Peninsula. Examples include
joint promotions with fishing charters, golf courses, restaurants, hotels and
motels and other visitor-oriented businesses.
THE WASHINGTON MARKET. 7 Cedars is located in Clallam County, Washington,
which is located at the northeastern corner of the Olympic Peninsula
approximately 70 miles northwest of Seattle. The state has identified Clallam
County as a rapid growth county, designating it as a "growth management
county." Populations within a 50- and 100-mile radius of the site are
approximately 263,000 and 3 million, respectively. In addition to targeting
the local population in Clallam County, the Company expects also to rely
heavily on tourist traffic which flows through the Olympic Peninsula, one of
the most popular vacation destinations for Washington State residents. Popular
attractions include the Olympic National Park, with over 3.7 million visitors
annually and Sequim Bay
14
<PAGE>
State Park, which attracts between 800,000 and 900,000 visitors annually. The
primary target market of 7 Cedars is Clallam and Jefferson counties which have
a combined population of approximately 76,000 (of which 24% are of retirement
age). 7 Cedars' secondary target market includes Victoria, British Columbia
with a population of approximately 280,000, Kitsap County with a population of
approximately 186,000 and the Seattle/Tacoma area with a population of
approximately 2 million. The Company has in particular targeted the British
Columbia area. Victoria is one hour and forty minutes by ferry and ground
transportation to the site.
The following table presents certain statistics for the total target market
within a 100-mile radius:
<TABLE>
<CAPTION>
TOTAL MARKET
<S> <C>
Total Population 3,004,000
Total Population Over Age 18 2,356,000
Average Per Capita Income $ 14,000
Average Household Income $ 28,000
</TABLE>
COMPETITION. Numerous Native American tribes in the Washington area have
either opened or are considering opening gaming facilities with various
capacities. Currently, the closest competitor to the Company's facility is the
Class II casino located in the City of Poulsbo and operated by the Suquamish
tribe, approximately 15 miles from Seattle. In addition to this facility,
other competition within a 75-mile radius include the Muckleshoot facility
located in Auburn, Washington, approximately 15 miles from Seattle and the
Tulalip facility located in Marysville, Washington, approximately 30 miles from
Seattle. The Muckleshoot tribe currently operates a Class II casino which
offers bingo and pull tabs and has plans to construct a Class III facility.
The Tulalip casino offers both Class II and Class III gaming.
DEPENDENCE ON RELATIONSHIPS WITH NATIVE AMERICAN TRIBES
Good relations with Native American tribes and their officials and
representatives are critical to the Company's ability to manage its Native
American gaming projects. The Company's Native American gaming projects face
certain risks unique to dealing with Native American tribes, including
uncertain applicability of federal and state laws as they relate to tribes and
the sovereignty of Native American tribes. In particular, the Company's filing
of a legal action against the 29 Palms Band to enjoin the operation of Class
III gaming devices at Spotlight 29 if such devices are not removed and its
decision to pursue disengagement from the management contract are likely to
exacerbate the Company's current dispute with the tribe regarding these
devices. See "Installation of Class III Gaming Devices at Spotlight 29" above.
In addition, tribal officials are subject to replacement by appointment or
election. The Company's relationship with a tribe may improve or deteriorate
under new tribal administrations. A deterioration of the Company's relationship
with a tribe for whom the Company manages gaming operations, or with the Native
American community generally, could have a material adverse effect on the
Company including, without limitation, the termination of one or more of the
Company's Native American management contracts.
NASHVILLE NEVADA HOTEL AND CASINO
MOJAVE VALLEY RESORT
Mojave Valley Resort, Inc. ("MVR"), an affiliate of Temple, has a 65-year
lease (subject to renewal at MVR's option for an additional 20 years) with the
Fort Mojave Tribe for development of a prime portion of the Fort Mojave Indian
Reservation as a master planned resort community, the Mojave Valley Resort.
The property is located six miles south of Laughlin, Nevada and 15 miles north
of Needles, California and covers portions of Nevada and Arizona. The Nevada
portion consists of 488 acres with a mile on the Colorado River and the Arizona
portion consists of 800 acres with a 1 1/2 mile river front. MVR and the Fort
Mojave Tribe have secured all required approval rights, including Bureau of
Indian Affairs ratification of the lease, a permit to build a bridge across the
Colorado River and a fully approved Federal Environmental Impact Statement.
The Fort Mojave Tribe
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has established water rights to over 129,000 acre-feet of water per year, and
has granted rights to MVR sufficient to support up to seven casino/hotel sites,
including approximately 5,300 hotel rooms.
MVR plans to develop the 1,300 acres of leased land to create a mixed use,
master planned development, complete with all infrastructure improvements,
including roads, bridges, water, sewer, power and other utilities. The Nevada
portion of the land is expected to feature up to seven river front
casino/hotels with a total of 5,300 rooms, an 18-hole championship golf course,
650 residential and/or timeshare units, a commercial complex and a 1,300 space
recreational vehicle park. The Arizona parcel of Mojave Valley Resort is
expected to offer an additional 18-hole golf course, mobile home and
recreational vehicle parks, a second commercial complex, a marina and 3,400
residential and multifamily units, including affordable housing for casino and
hotel employees. Additionally, the project is expected to help to satisfy a
need for housing in the Laughlin/Bullhead City area.
The first casino and the general infrastructure needs of the project have
been or are being developed by the Fort Mojave Tribe, which has obtained a $33
million loan (with credit enhancement from the Bureau of Indian Affairs) to
fund the development. Infrastructure improvements include the bridge over the
Colorado River, 9.5 miles of two-lane divided highway from Nevada, Arizona and
California to the site, and water, sewer, power and other utilities. Temple
has been hired as the construction manager of the project. In addition, MVR
has provided development and financing assistance, including investments of $5
million to date which have been used for general site preparation work,
including the excavation of finger lakes for the championship golf course. The
first project to be completed at the Resort -- the tribal owned Avi Hotel and
Casino -- opened in February 1995. The Avi Hotel and Casino features a hotel
with approximately 300 rooms and casino space of over 32,500 square feet, with
approximately 700 slot machines and 25 table games.
NASHVILLE NEVADA
PROPOSED FACILITIES. Nashville Nevada Hotel and Casino will be the name of
the second casino/hotel planned for the Mojave Valley Resort, subject to
obtaining the necessary financing (see "Uncertainty of Nashville Nevada
Financing" below). As indicated by the name, a country and western theme will
be reflected in the decor and atmosphere of the casino/hotel. Nashville Nevada
will be located on 24.5 acres of riverfront property. The hotel is currently
expected to have approximately 500 guest rooms and suites. As currently
planned, the casino will be laid out in approximately 32,500 square feet of
space, and will offer approximately 1,050 slot machines and 31 table games, as
well as keno and a sports book. Additional amenities at the casino/hotel will
include a variety of dining choices, other nongaming amenities, and a 25 acre
recreational vehicle park.
STRUCTURE OF AGREEMENTS. MVR has entered into a sublease with Mojave
Valley Resort Casino Company ("MVRCC"), an affiliate of Temple, for a term of
65 years (subject to renewal at Nashville Nevada LLC's option for an additional
20 years) for the development of Nashville Nevada. MVRCC has conditionally
assigned the sublease to Nashville Nevada LLC as part of its capital
contribution to the project. Rent on the property is payable at a rate of
$616,000 per year ground rent plus an incentive rent of 10% of net operating
income, after payment of interest on debt, exceeding $616,000. The sublease is
subject to termination upon, among other things, a failure to make required
rental payments and any material breach of the covenants of the sublessee.
Nashville Nevada will be owned by Nashville Nevada LLC and operated by
Mojave Gaming, a wholly owned subsidiary of Elsinore. Under the operating
agreement for Nashville Nevada LLC, the total estimated project cost for
Nashville Nevada is $65.5 million. As the initial portion of this amount,
Mojave Gaming will be required to make a capital contribution to Nashville
Nevada LLC of $10 million in cash, less the amount of certain expenses in
connection with the project to date; MVRCC has conditionally assigned its
rights as sublessee under the sublease for the project site and will be
required to assume sole liability to pay the minimum rent charges of $616,000
per year for the first two years of the sublease as its capital contributions.
Nashville Nevada LLC will assume the remaining obligations of MVRCC under the
sublease. The parties have agreed that these contributions will be valued at
$10 million and $6 million, and their respective capital accounts will be
credited with such amounts.
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In exchange for these contributions, Mojave Gaming will receive a 70%
membership interest and MVRCC will receive a 30% membership interest in
Nashville Nevada LLC. The profits and losses of Nashville Nevada LLC will
generally be allocated according to these membership interests except as may be
otherwise required by the operating agreement. The operating agreement
contains rules for the allocation of certain adjustments, credits, losses, and
distributions, including a "qualified income offset," "minimum gain chargeback"
provisions, allocation of gain on sale or disposition of certain property of
Nashville Nevada LLC and for differences between the fair market value of the
LLC's property and its adjusted basis. These provisions may have the effect of
allocating expenses and income in ratios different from the 70%--30% ratio
described above.
As a condition to MVRCC's obligation to make its initial capital
contribution, subject to certain contingencies, Mojave Gaming is obliged to
obtain financing of $55.5 million beyond its initial capital contribution for
the construction of the hotel, a casino, and related amenities, without
diluting MVRCC's membership interest or requiring MVRCC or Mojave Gaming to
guarantee the financing or issue any debt. Of this amount, Mojave Gaming
expects to obtain $50 million of project debt financing and $5.5 million of
furniture, fixtures and equipment financing. The contingencies include
obtaining of licenses or exemptions from IGRA approvals and establishing to
Elsinore's satisfaction that necessary infrastructure will be provided by the
Fort Mojave Tribe.
Temple and the Company in March 1995 agreed to extend until September 30,
1995, the date by which the Company must complete its $10 million capital
contribution and obtain the remaining $55 million of non-recourse debt
financing for the Nashville Nevada project. In consideration for such
extension, the Company will assume Temple's obligation to pay approximately
$47,000 in current property taxes, an additional $47,000 in property taxes in
the event the Nashville Nevada project financing is not in place by September
15, 1995, and $75,000 in lease payments relating to the Mojave Valley Resort;
in addition, the Company will loan to Temple up to approximately $150,000 to
enable Temple to pay its requisite share of pre-effective date expenses
regarding the Nashville Nevada project, which loan Temple will be obligated to
repay in the event financing for the project is completed. There is no
assurance, however, that the Company or Temple will be able to obtain the
equity or debt financing necessary to commence construction of the project by
the extended deadline or at all. Accordingly, there is significant uncertainty
whether the Nashville Nevada project will be completed or option rights to
develop additional projects at the Resort will be obtained. See "Uncertainty
of Nashville Nevada Financing" below.
Temple or, at its option, an affiliate of Temple has the exclusive right to
act as the construction manager of the Nashville Nevada project and for any
major capital improvements at Nashville Nevada for ten years from its opening,
on reasonable and customary terms and conditions. Elsinore has the exclusive
right to act as project coordinator for Nashville Nevada (overseeing day-to-day
operations) for ten years from its opening, and will develop and implement a
budget and plan for the organization, service and marketing of the Nashville
Nevada project. The Company will receive as compensation a monthly
administrative fee of the greater of 1% of the project's gross revenues, or
five percent of its net revenues, and will be reimbursed for its out-of-pocket
expenses.
Two percent of Nashville Nevada LLC's gross revenues in the first three
years of its operation, and 3% thereafter, will be deposited into a reserve
account for capital improvements of Nashville Nevada to be made at the
recommendation of Mojave Gaming. The reserve account balance need not exceed
$2 million, annually adjusted according to the consumer price index. Working
capital for Nashville Nevada LLC will be funded by an account holding 2% of
gross revenues up to a cumulative amount of $2 million, adjusted annually in
accordance with the Consumer Price Index. Mojave Gaming is obliged to lend the
Nashville Nevada LLC any shortfall in the account below $2 million, up to
$750,000 outstanding at any one time, at an interest rate equal to the prime
rate plus 4%. Payments from this account will go, in order of priority, to
required reserves, sublease and tax payments, debt service, operating costs,
working capital and reserves, capital reserves, and to payment of
administrative fees to Mojave Gaming.
The existence of Nashville Nevada LLC will be terminated by the failure of
the Company to obtain the required project financing; by the termination of the
sublease for the site; by the cessation of its business; by consent of all
members; by the expulsion, bankruptcy or dissolution of a member, unless all
other members vote to continue Nashville Nevada LLC's existence; or as
otherwise required by the Nevada Limited Liability Company Act. Nashville
Nevada LLC will dissolve no later than June 30, 2024, as required by the Nevada
Limited Liability
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Company Act. At the time of dissolution, its rights as assignee under the
sublease for the project site may be assigned to a successor company or
distributed to one or more of the members in accordance with their capital
account balances at the time of dissolution, as permitted by regulations
governing tribal property then in effect, or may be terminated if such
assignment or distribution is not so permitted.
Upon obtaining the necessary project financing for Nashville Nevada, the
Company will acquire option rights from Temple to develop up to three
additional casino/hotel projects on tribal lands at the Mojave Valley Resort
(the "Development Option").
UNCERTAINTY OF NASHVILLE NEVADA FINANCING
The Nashville Nevada project cost of approximately $65.5 million is
expected to be funded from a $10 million equity infusion from the Company, $50
million in project debt financing, and $5.5 million of furniture, fixtures and
equipment financing. The Company's obligation to arrange this $65.5 million in
financing is a condition to the obligation of a third party participant in the
Mojave Valley Resort project to make its initial capital contribution to the
project. In March 1995, Temple and the Company agreed to extend until
September 30, 1995, the date by which the Company must complete its $10 million
capital contribution to the Nashville Nevada project, in consideration for
which the Company will assume certain of Temple's payment obligations with
respect to the Mojave Valley Resort. There is no assurance, however, that the
Company or Temple will be able to obtain the equity or debt financing necessary
to commence construction of the project by the extended deadline or at all.
Any further extension of the September 30, 1995 deadline will require the
additional consent of the parties to the applicable operating agreements.
There is no assurance such consents or extensions can be obtained on terms
acceptable to the Company or at all.
None of the proceeds of the Equity Offering or the sale of the Convertible
Notes will be used to fund the Company's equity infusion to the Nashville
Nevada project. Instead, the Company will be required to implement one or more
additional equity offerings to raise the required $10 million infusion. In
addition, the Company's existing debt covenants, as well as the escrow of
future financing proceeds required under the Convertible Notes, will restrict
the Company from contributing all or a significant portion of future equity
offering proceeds to Mojave Gaming. See "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations--Debt Covenants." If
the Company is not able to obtain the necessary amounts of equity financing on
a timely basis, the Company will be required to seek an amendment of the terms
of the operating agreements for the Nashville Nevada project reducing the
required capital contribution or further extending the date for obtaining
financing, obtain additional equity investors for the project, or abandon its
participation in the project.
In addition, the Company has based its determination of the expected
project cost for Nashville Nevada upon the proposed terms of the $50 million
debt financing Nashville Nevada LLC currently intends to seek to complete the
project. If Nashville Nevada LLC is unable to obtain the debt financing on the
terms currently contemplated, it may be required to abandon the Nashville
Nevada project unless it can obtain financing on other terms, such as higher
rates of interest, or secure the addition of a third participant. Any such
change could materially and adversely affect the benefit to the Company from
Nashville Nevada LLC and increase the Company's requirement for cash from other
sources. There is no assurance that the Nashville Nevada project can be funded
on the terms currently proposed or on other commercially acceptable terms, or
that any of the additional financing can be obtained in the amounts and by the
dates required in order to proceed with development of Nashville Nevada or any
of the Company's other casino/hotel projects at the Mojave Valley Resort.
ADDITIONAL RISKS REGARDING NASHVILLE NEVADA AND THE MOJAVE VALLEY RESORT
Spotlight 29 and 7 Cedars opened in the first quarter of 1995. If the
necessary financing is obtained, construction of Nashville Nevada is intended
to begin as soon as practicable thereafter. The Company has limited prior
experience in operating and managing multiple casinos simultaneously. In
addition, major construction projects such as Nashville Nevada entail
significant risks, including financing contingencies, shortages of materials,
management personnel and skilled labor, engineering, construction,
environmental, governmental and regulatory problems, work stoppages, weather
interference and unanticipated cost increases, any of which difficulties could
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further increase the cost of or delay or prohibit the construction of Nashville
Nevada. There is no assurance that such construction will occur on schedule or
that the budgeted construction costs will not be exceeded. Substantial
portions of the Mojave Valley Resort, as described herein, will be developed by
affiliates of Temple or third parties with which Temple may reach agreement.
This development will be outside of the control of the Company. Although the
Company, in partnership with Temple, has options to develop up to four of the
seven casinos presently contemplated for the Mojave Valley Resort, it has not
obtained financing or other commitments with respect to any of these projects
and the financing it is currently seeking is intended only for the first of
these casinos. Moreover, if the Nashville Nevada financing is not obtained on
a timely basis, the Company could lose its development option rights for the
additional casino/hotel projects.
The Company understands that Temple currently is facing liquidity problems
which could adversely affect its ability to complete on a timely basis its
financing obligations both with respect to Nashville Nevada and with respect to
other projects at the resort. Any failure by Temple or other third parties to
develop the Mojave Valley Resort according to plan could have a material
adverse effect on the results of operations of Nashville Nevada or other
casinos that the Company may own and/or operate within the Mojave Valley Resort
development.
MARKETING; THE LAUGHLIN MARKET
The Company's marketing strategy for Nashville Nevada will be based on its
experience in operating the Four Queens. The Company will target patrons who
have been or are likely, based on demographics, to be attracted to the Laughlin
market. Elsinore believes that the Mojave Valley Resort is well-positioned as
an intercept location for southern Nevada casino customers. Customers from
Arizona will be able to avoid traffic delays in Bullhead City en route to
Laughlin by utilizing a new bridge across the Colorado River leading through
the Mojave Valley Resort. Customers from Southern California traveling to
Laughlin are able to enter the Mojave Valley Resort on a divided highway that
is an alternative to the two-lane Needles Highway.
Nashville Nevada will be located approximately six miles south of Laughlin,
Nevada. Laughlin is the third largest gaming market in Nevada behind Las Vegas
and Reno. The Laughlin area has witnessed considerable growth in the past
decade. Until 1966, Laughlin consisted solely of an eight-room motel with a
bar, slot machines and a bait shop. At that time, the motel was expanded to
include gaming tables and promotional programs were started. The Pioneer and
the Golden Nugget hotels were built in the early 1970's. In 1981, when Circus
Circus Enterprises, Inc. built the Edgewater Hotel and Casino, Laughlin began
to be recognized as a major gaming destination. Since that time, several
additional major hotels have been built and the number of rooms has expanded
from approximately 431 in 1982 to approximately 10,300 in 1994. The expansion
in casino/hotels has also translated into a growth in gaming revenue as shown
in the table below:
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LAUGHLIN MARKET DATA*
GAMING REVENUE
<TABLE>
<CAPTION>
JUNE FISCAL NUMBER OF NUMBER OF ROOMS OCCUPANCY RATE(1)
YEAR HOTELS ($000'S) GROWTH
<S> <C> <C> <C> <C> <C>
1985 5 124,721 30.3% NA NA
1986 6 174,945 40.3 NA NA
1987 6 209,894 20.0 2,139 96.0%
1988 7 268,791 28.1 3,188 96.0
1989 9 318,004 18.3 3,820 96.0
1990 9 365,893 15.1 4,426 96.2
1991 10 437,461 19.6 7,324 90.5
1992 10 484,148 10.7 8,085 91.3
1993 10 522,672 8.0 8,965 91.6
1994 10 545,370 4.3 10,290 90.0
Compound Annual -- 17.8% 25.2% --
Growth Rate
</TABLE>
* For casinos with gaming revenue of $1 million and over
(1) Calculated based on room-nights available
The vast majority of visitors to Laughlin arrive by car, recreational
vehicle and bus from Southern California and Arizona. Commuter air service
into the Bullhead City airport operates to and from Los Angeles, Phoenix and
San Diego.
COMPETITION
Elsinore believes competition for the Mojave Valley Resort project will
come from the casinos in Laughlin, Nevada and Native American casinos scattered
throughout Arizona and southern California. In addition to the 488 acres
leased to Mojave Valley Resort, the Fort Mojave Tribe has other lands in Nevada
which it has leased or intends to lease for the construction of additional
casinos. Elsinore expects that the intercept location for Nashville Nevada and
the amenities offered by the Mojave Valley Resort and Nashville Nevada will
enable it to compete effectively with the Laughlin casinos. In particular, the
Company believes that the amenities offered at the project (including
championship golf courses and RV parks) cannot be easily duplicated at Laughlin
due to its landlocked configuration and shortage of water. Native American
casinos in both Arizona and California currently offer gaming that is quite
limited in scope: slot machines, bingo and poker in Arizona, but no house-
banked games; and bingo, poker and Asian games in California, but limited slot
machines (which may not be lawful) and no house-banked table games. These
casino operations are generally scattered throughout each state and none
currently offer the resort atmosphere Nashville Nevada is expected to offer.
REGULATIONS
NEVADA GAMING OPERATIONS
The ownership and operation of casino gaming facilities in Nevada are
subject to: (i) the Nevada Gaming Control Act and the regulations promulgated
thereunder (collectively, "Nevada Act"); and (ii) various local regulations.
The Company's gaming operations are subject to the licensing and regulatory
control of the Nevada Commission, the Nevada Board and applicable local
jurisdictions. The Nevada Commission, the Nevada Board and applicable local
jurisdictions are collectively referred to as the "Nevada Gaming Authorities."
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The laws, regulations and supervisory procedures of the Nevada Gaming
Authorities are based upon declarations of public policy which are concerned
with, among other things: (i) the prevention of unsavory or unsuitable persons
from having a direct or indirect involvement with gaming at any time or in any
capacity; (ii) the establishment and maintenance of responsible accounting
practices and procedures; (iii) the maintenance of effective controls over the
financial practices of licensees, including the establishment of minimum
procedures for internal fiscal affairs and the safeguarding of assets and
reports with the Nevada Gaming Authorities; (iv) the prevention of cheating and
fraudulent practices; and (v) the provision of a source of state and local
revenues though taxation and licensing fees. Change in such laws, regulations
and procedures could have an adverse effect on the Company's gaming operations.
The Company is registered by the Nevada Commission as a publicly traded
corporation ("Registered Corporation") and as such, it is required periodically
to submit detailed financial and operating reports to the Nevada Commission and
furnish any other information that the Nevada Commission may require. Pinnacle
Gaming Corporation, a wholly owned subsidiary, is licensed by the Nevada Gaming
Authorities as a manufacturer and distributor of gaming devices. Four Queens,
Inc. ("FQI"), which operates the Four Queens, is licensed by the Nevada Gaming
Authorities. The gaming license requires the periodic payment of fees and
taxes and is not transferable. No person may become a stockholder of, or
receive any percentage of profits from, FQI without first obtaining licenses
and approvals from the Nevada Gaming Authorities. The Company and FQI have
obtained from the Nevada Gaming Authorities the various registrations,
approvals, permits and licenses required in order to engage in gaming
activities in Nevada. Similarly, Nashville Nevada LLC and its affiliates will
be subject to the same licensing and regulatory oversight requirements.
The Nevada Gaming Authorities may investigate any individual who has a
material relationship to, or material involvement with, the Company or FQI 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 FQI must file applications with the Nevada Gaming Authorities and
may be required to be licensed or found suitable by the Nevada Gaming
Authorities. Officers, directors and key employees of the Company who are
actively and directly involved in gaming activities of FQI 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 that
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 to have a
relationship with the Company or FQI the companies involved would have to sever
all relationships with such person. In addition, the Nevada Commission may
require the Company or FQI to terminate the employment of any person who
refuses to file appropriate applications. Determinations of suitability or of
questions pertaining to licensing are not subject to judicial review in Nevada.
The Company and FQI 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 FQI must be reported
to, or approved by, the Nevada Commission.
If it were determined that the Nevada Act was violated by FQI, the gaming
licenses it holds could be limited, conditioned, suspended or revoked, subject
to compliance with certain statutory and regulatory procedures. In addition,
FQI, the Company and the persons involved could be subject to substantial fines
for each separate violation of the Nevada Act at the discretion of the Nevada
Commission. Further, a supervisor could be appointed by the Nevada Commission
to operate the Company's gaming properties and, under certain circumstances,
earnings generated during the supervisor's appointment (except for the
reasonable rental value of the Company's gaming properties) could be forfeited
to the State of Nevada. Limitation, conditioning or suspension of any gaming
license or the appointment of a supervisor could (and revocation of any gaming
license would) materially adversely affect the Company's gaming operations.
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Any beneficial owner of the Company's voting securities, regardless of the
number of shares owned, may be required to file an application, be
investigated, and have his suitability as a beneficial owner of the Company's
voting securities determined if the Nevada Commission has reason to believe
that such ownership would otherwise be inconsistent with the declared policies
of the State of Nevada. The applicant must pay all costs incurred by the
Nevada Gaming Authorities in conducting any such investigation.
The Nevada Act requires any person who acquires more than 5% of the
Company's voting securities to report the acquisition to the Nevada Commission.
The Nevada Act requires that beneficial owners of more than 10% of the
Company's voting securities apply to the Nevada Commission for a finding of
suitability within 30 days after the Chairman of the Nevada Board mails the
written notice requiring such filing. Under certain circumstances, an
"institutional investor," as defined in the Nevada Act, which acquires more
than 10%, but not more than 15%, of the Company's voting securities may apply
to the Nevada Commission for a waiver of such finding of suitability if such
institutional investor holds the voting securities for investment purposes
only. An institutional investor shall not be deemed to hold voting securities
for investment purposes unless the voting securities were acquired and are held
in the ordinary course of business as an institutional investor and not for the
purpose of causing, directly or indirectly, the election of a majority of the
members of the board of directors of the Company, any change in the Company's
corporate charter, bylaws, management, policies or operations of the Company,
or any of its gaming affiliates, or any other action which the Nevada
Commission finds to be inconsistent with holding the Company's voting
securities for investment purposes only. Activities which are not deemed to be
inconsistent with holding voting securities for investment purposes only
include: (i) voting on all matters voted on by stockholders; (ii) making
financial and other inquiries of management of the type normally made by
securities analysts for informational purposes and not to cause a change in its
management, policies or operations; and (iii) such other activities as the
Nevada Commission may determine to be consistent with such investment intent.
If the beneficial owner of voting securities who must be found suitable is a
corporation, partnership or trust, it must submit detailed business and
financial information including a list of beneficial owners. The applicant is
required to pay all costs of investigation.
Any person who fails or refuses to apply for a finding of suitability or a
license within 30 days after being ordered to do so by the Nevada Commission or
the Chairman of the Nevada Board, may be found unsuitable. The same
restrictions apply to a record owner if the record owner, after request, fails
to identify the beneficial owner. Any stockholder found unsuitable and who
holds, directly or indirectly, any beneficial ownership of the common stock of
a Registered Corporation beyond such period of time as may be prescribed by the
Nevada Commission, may be guilty of a criminal offense. The Company is subject
to disciplinary action if, after it receives notice that a person is unsuitable
to be a stockholder or to have any other relationship with the Company or FQI,
the Company (i) pays that person any dividend or interest upon voting
securities of the Company, (ii) allows that person to exercise, directly or
indirectly, any voting right conferred through securities held by that person,
(iii) pays remuneration in any form to that person for services rendered or
otherwise, or (iv) fails to pursue all lawful efforts to require such
unsuitable person to relinquish his voting securities for cash at fair market
value.
The Nevada Commission may, in its discretion, require the holder of any
debt security of a Registered Corporation to file applications, be investigated
and be found suitable to own the debt security of a Registered Corporation. If
the Nevada Commission determines that a person is unsuitable to own such
security, then pursuant to the Nevada Act, the Registered Corporation can be
sanctioned, including the loss of its approvals, if without the prior approval
of the Nevada Commission, it: (i) pays to the unsuitable person any dividend,
interest, or any distribution whatsoever; (ii) recognizes any voting right by
such unsuitable person in connection with such securities; (iii) pays the
unsuitable person remuneration in any form; or (iv) makes any payment to the
unsuitable person by way of principal, redemption, conversion, exchange,
liquidation, or similar transaction.
The Company is required to maintain a current stock ledger in Nevada which
may be examined by the Nevada Gaming Authorities at any time. If any
securities are held in trust by an agent or by a nominee, the record holder may
be required to disclose the identity of the beneficial owner to the Nevada
Gaming Authorities. A failure to make such disclosure may be grounds for
finding the record holder unsuitable. The Company is also required to render
maximum assistance in determining the identity of the beneficial owner. The
Nevada
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Commission has the power to require the Company's stock certificates to bear a
legend indicating that the securities are subject to the Nevada Act. The
Nevada Commission has imposed such a requirement on the Company.
The Company 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. Such approval, if given, does not constitute a finding,
recommendation or approval by the Nevada Commission or the Nevada Board as to
the accuracy or adequacy of the prospectus or the investment merits of the
securities. Any representation to the contrary is unlawful.
Changes in control of the Company through merger, consolidation, stock or
asset acquisitions, management or consulting agreements, or any act or conduct
by a person whereby he obtains control, may not occur without the prior
approval of the Nevada Commission. Entities seeking to acquire control of a
Registered Corporation must satisfy the Nevada Board and Nevada Commission in a
variety of stringent standards prior to assuming control of such Registered
Corporation. The Nevada Commission may also require controlling stockholders,
officers, directors and other persons having a material relationship or
involvement with the entity proposing to acquire control, to be investigated
and licensed as part of the approval process relating to the transaction.
The Nevada Legislature has declared that some corporate acquisitions
opposed by management, repurchases of voting securities and corporate defense
tactics affecting Nevada gaming licenses, and Registered Corporations that are
affiliated with those operations, may be injurious to stable and productive
corporate gaming. The Nevada Commission has established a regulatory scheme to
ameliorate the potentially adverse effects of these business practices upon
Nevada's gaming industry and to further Nevada's policy to: (i) assure the
financial stability of corporate gaming operators and their affiliates; (ii)
preserve the beneficial aspects of conducting business in the corporate form;
and (iii) promote a neutral environment for the orderly governance of corporate
affairs. Approvals are, in certain circumstances, required from the Nevada
Commission before the Company can make exceptional repurchases of voting
securities above the current market price thereof and before a corporate
acquisition opposed by management can be consummated. The Nevada Act also
requires prior approval of a plan of recapitalization proposed by the Company's
Board of Directors in response to a tender offer made directly to the
Registered Corporation's stockholders for the purposes of acquiring control of
the Registered Corporation.
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 operation are
conducted. Depending upon the particular fee or tax involved, these fees and
taxes are payable either monthly, quarterly or annually and are based upon
either: (i) a percentage of the gross revenues received; (ii) the number of
gaming devices operated; or (iii) the number of table games operated. A casino
entertainment tax is also paid by casino operations where entertainment is
furnished in connection with the selling of food or refreshments. Nevada
licensees that hold a license as an operator of a slot route, or a
manufacturer's or distributor's license, must 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.
Licensees are also subject to disciplinary action by the Nevada Commission if
they knowingly violate any laws of the foreign jurisdiction pertaining to the
foreign gaming operation, fail to conduct the foreign gaming operation in
accordance with the standards of honesty and integrity required of Nevada or
its ability to collect gaming taxes and fees, or employ a person in the foreign
operation who has been denied a license or finding of suitability in Nevada on
the ground of personal unsuitability.
23
<PAGE>
PROCEEDINGS BEFORE NEVADA GAMING AUTHORITIES
On March 8, 1995, in connection with its Mortgage Note Registration
Application, the Company appeared at a public hearing before the Nevada Board.
During this hearing, the Board inquired at length concerning the decision of
the 29 Palms Band to install Class III gaming devices at Spotlight 29. See
"Installation of Class III Gaming Devices at Spotlight 29" above. The Nevada
Board questioned the Company regarding its participation, if any, in the
installation and operation of these gaming devices and stated the agency's view
that such operation and installation constituted a violation of California and
federal gaming laws. In this regard, the Nevada Board expressed grave concerns
about the Company's continued "association" with the 29 Palms Band because of
the alleged illegal conduct of the tribe, which the Nevada Board may view as a
violation by the Company of the foreign gaming provisions of the Nevada Gaming
Control Act. At the conclusion of the hearing, the Nevada Board continued
further action on the Mortgage Note Registration Application to a special
meeting of the Nevada Board scheduled for March 28, 1995.
On March 10, 1995, the Company was served with a demand for production of
documents, records and certain demonstrative evidence by March 15, 1995, and
notified to appear before a hearing officer appointed by the Nevada Board for
the purpose of a confidential investigative hearing which was conducted on
March 17, 1995. The purpose of the investigative hearing was to solicit
testimony from the Company's management and examine evidence on confidential
business and financial matters, the Company's dispute with the 29 Palms Band,
and any related violations of the Act or the regulations of the Nevada
Commission.
On March 28, 1995, the Nevada Board conducted a special public meeting on
the Mortgage Note Registration Application. At that meeting, the Company
advised the Board as to the status of the various matters relating to the
dispute with the 29 Palms Band, and disclosed the Company's intent, absent a
dramatic change in circumstances, to terminate the Spotlight 29 management
agreement through a buy out arrangement with the 29 Palms Band. The Company
further advised the Nevada Board that the Company will seek to obtain necessary
waivers or consents from its noteholders. Based on the Company's affirmative
presentation, the Nevada Board unanimously voted to recommend approval of the
Mortgage Note Registration Application to the Nevada Commission, subject to two
conditions. These conditions provide that (1) the Company must quit the
premises of the Spotlight 29 and terminate any direct or indirect association
with the Spotlight 29 by April 30, 1995, unless the video "pull-tab" machines
the License Condition Request currently operated there by the 29 Palms Band are
removed (voluntarily or by court order), made subject to a tribal-state compact
or otherwise deemed legal pursuant to federal and state law; and (2) by April
4, 1995, the Company must file the License Condition Request requesting that
the first condition be made a permanent condition to the license of Four
Queens, Inc.
On March 30, 1995, the Nevada Commission unanimously approved the
recommendation of the Nevada Board, including the enumerated conditions.
Although the Company could avoid compliance with the referenced conditions by
refusing to consummate the transaction contemplated by the approved First
Mortgage Note Application, the Nevada Board publicly advised the Company that
such action could result in the Nevada Board commencing disciplinary action
against the Company. In this regard, both the Nevada Board and Nevada
Commission have indicated that the April 30, 1995, date for termination of the
Company's business relationship with the 29 Palms Band could be extended or
modified based on demonstrable progress in completing an agreement with the
tribe and obtaining NIGC approval of such an agreement, or changed factual or
legal circumstances.
Based on the conduct of the Company, the Nevada Board will have a broad
range of regulatory options that could be taken relative to the Company under
these circumstances. The Nevada Board could process the License Condition
Request in a manner that affords the Company ample opportunity to terminate the
Spotlight 29 management agreement in a constructive and satisfactory manner. If
the Company refuses to file the License Condition Request by the April 4, 1995
deadline, or the Company is unable to terminate the Spotlight 29 management
agreement within a time period acceptable to the Nevada state gaming regulatory
authorities, the Nevada Board could decide to file a complaint for disciplinary
action against the Company and its licensed subsidiaries based on the alleged
violation of the foreign gaming provisions of the Act and related regulations
of the Nevada Commission. A disciplinary complaint may request revocation,
suspension or limitation of a license or other approval, petition for the entry
of an order in the nature of either a mandatory or prohibitory injunction, and
the imposition of administrative fines of not more than $100,000 for each
separate violation of the Act or applicable regulation of the Nevada
Commission. In this regard, the Nevada Board could ask that each day that the
Company continues an "association" with the 29 Palms Band constitutes a
separate violation. Additionally, the Nevada Board could enter an interlocutory
stop order preventing the Company from completing any public offering of its
common stock or other securities in accordance with the prior order of the
Nevada Commission entered October 27, 1994.
Each of these various administrative actions available to the Nevada
Board are subject to review, consideration and final decision by the Nevada
Commission, which agency has the final authority and discretion to approve,
deny or modify the request of the Nevada Board. In certain limited
circumstances, the final decision of the Nevada Commission is subject to
judicial review by the Nevada courts. Moreover, under appropriate regulatory
and financial circumstances, the Nevada Board and the Nevada Commission could
petition a Nevada court for the appointment of a licensed supervisor to assume
the operations of the Four Queen Hotel and Casino.
While the Company intends to fully cooperate with the Nevada Board and
the Nevada Commission, there is no assurance that the Company will be able to
satisfy any or all of the regulatory requirements that these agencies might
impose on the Company. The loss or material limitation of any license or
approval held by the Company in Nevada would, and the imposition of
administrative fines by the Nevada Commission may, have a material adverse
impact on the Company's business and properties.
NATIVE AMERICAN GAMING OPERATIONS
24
<PAGE>
The Company, through its wholly owned subsidiaries and affiliates, has
management contracts to manage casino facilities on tribal lands with the 29
Palms Band near Palm Springs, California and with the S'Klallam Tribe on the
northeast portion of the Olympic Peninsula approximately 70 miles northwest of
Seattle, Washington.
Gaming on Native American lands, including Spotlight 29 and 7 Cedars, is
extensively regulated under federal law, tribal law and/or tribal-state
compacts. Under IGRA, management contracts for Native American gaming
facilities may provide for a management fee for up to 40% of net revenues and a
term of up to seven years if the Chairman of the NIGC determines that capital
investment required and the income projections for the facility merit such
terms. The NIGC has approved the management contracts for both Spotlight 29
and 7 Cedars.
In connection with obtaining NIGC approval for these management contracts,
the Company, its directors, persons with management responsibilities, certain
owners of the Company and certain persons with a financial interest in the
management agreements as determined by the NIGC and tribal regulatory
authorities must provide background information and be investigated by the NIGC
and tribal regulatory authorities, and be approved in order for a management
contract to be approved by the NIGC and for the Company to be issued a license
to operate a gaming facility by tribal regulatory authorities. Persons who
acquire beneficial ownership of the Company's securities may be subject to
certain reporting and qualification procedures established by the NIGC and
tribal regulatory authorities.
The operations and management of the Company's Native American casino
projects are and will be subject to the regulating authority of the NIGC,
tribal regulatory authorities and, where applicable, state agencies. Such
regulatory authorities have jurisdiction to inspect, supervise and audit gaming
operations on Native American lands and where warranted may restrict, suspend
or revoke licenses and approvals granted by the issuing agency. The NIGC and
tribal governments may impose taxes and licensing fees on gaming operations
located on Native American lands.
Should either of the two management contracts be suspended or revoked by
the NIGC, tribal officials or state regulatory agencies, the effect could have
an adverse impact on the business of the Company. Similarly, changes in IGRA,
the governing tribal ordinance or applicable state law could have an adverse
effect on the Company's gaming operations on Native American lands. The NIGC
has advised the Company that the operation of video pull-tab gaming devices by
the 29 Palms Band at Spotlight 29 does not adversely affect the good standing
of the Company before the NIGC.
NASHVILLE NEVADA
The ownership and operation of Nashville Nevada will be subject to
extensive regulation by federal, tribal, and state government authorities.
Nashville Nevada will be located on land within the Nevada portion of the Fort
Mojave Indian Reservation that has been leased by MVR from the Fort Mojave
Tribe. As required by federal law relating to leasing of lands held in trust
by the United States for Native American Tribes, the Secretary of the Interior
acting through the BIA, approved the Nevada lease between the Fort Mojave Tribe
and MVR (the "Lease"). MVR's Arizona lease has been conditionally approved by
the BIA.
MVR has subleased a portion of the land on which Nashville Nevada will be
located to an affiliate of Temple. As required by the Lease, both the BIA and
the Fort Mojave Tribal Council approved the Sublease (the "Sublease"). The
Sublease in turn will be assigned to Nashville Nevada LLC upon closing of the
financing. This assignment of the Sublease has been approved by the Fort
Mojave Tribal Council and by the BIA.
The Fort Mojave Tribal Council has adopted a Tribal Gaming Ordinance that
has been approved by the Chairman of the NIGC and authorizes Class III gaming
on the Nevada portion of the reservation. The Fort Mojave Tribe and the State
of Nevada have entered an Intergovernmental Agreement that has been approved by
the Secretary of Interior as a tribal-state compact relating to Class III
gaming. Under the Intergovernmental Agreement, the tribe has transferred all
civil, criminal, and regulatory authority over gaming, including licensing,
within the Nevada portion of the Fort Mojave Indian Reservation, to the Nevada
Commission. The ownership and operation of Nashville Nevada thus will be
subject to extensive regulation by the Nevada Gaming Authorities. The
25
<PAGE>
Nevada Gaming Authorities have broad powers with respect to the licensing of
casino operations and may revoke, suspend, condition or limit Nashville
Nevada's gaming licenses and approvals, impose substantial fines, and take
other actions, any of which could have a substantial material adverse affect on
Nashville Nevada's business.
Prior to the enactment of IGRA, the Fort Mojave Tribe and the State of
Nevada signed an intergovernmental agreement, subsequently approved by the
Secretary of the United States Department of the Interior as a tribal-state
gaming compact. Under this intergovernmental agreement, all of the tribe's
civil, criminal and regulatory authority over gaming, including licensing, was
transferred to the Nevada Commission. Consequently, gaming operations on the
Nevada property leased from the Fort Mojave Tribe must be authorized, licensed
and regulated by the State of Nevada and not by the tribe. Nashville Nevada
LLC has taken the position that, because the gaming operations on the leased
property are licensed by the State of Nevada and not by the Fort Mojave Tribe,
certain provisions of IGRA which require that a Native American tribe must
receive at least 60% of net revenues (as defined by IGRA) from gaming
operations conducted by any person or entity licensed or authorized by a Native
American tribe to conduct such gaming do not apply to the distribution of
revenues from gaming operations conducted in compliance with the lease from the
Fort Mojave Tribe and the tribal-state compact. The agreements relating to the
Nashville Nevada project do not provide for the Fort Mojave Tribe to receive
60% of net revenues from gaming and any amendment of the agreements to provide
for such receipt would make the project uneconomical for Nashville Nevada LLC
or result in the loss of all of the Company's investment in the project.
IGRA, the Lease, and the Fort Mojave Tribal Gaming Ordinance reserve
certain governmental and other authorities to the Fort Mojave Tribe and the
federal government. Under IGRA, the Fort Mojave Tribal Council may, in its
sole discretion and at any time, revoke its Tribal Gaming Ordinance. Any
person then operating Class III gaming must cease doing so one year from the
date that notice of the tribe's revocation is published in the Federal
Register. The Lease provides that the tribe will take no action to limit Class
III gaming. The Lease preserves the tribe's authority to levy taxes on the
leased premises provided that any fee, taxes or other burden imposed by the
tribe on MVR must not be greater in the aggregate than that imposed by the
State of Nevada on taxpayers located off tribal lands but within Clark County,
Nevada. However, if tribal taxation results in double taxation as a result of
the State of Nevada's authorization to tax tribal lands, full credit for state
taxes will be given against the comparable tribal taxes.
INTERNAL REVENUE SERVICE AND TREASURY REGULATIONS
The IRS requires operators of casinos located in the United States to file
information returns for United States citizens (including names and addresses
of winners) for Keno and slot machine winnings in excess of stipulated amounts.
The IRS also requires casino operators to withhold taxes on certain Keno, bingo
and slot machine winnings of certain non-resident aliens.
The regulations of the Treasury Department and the Nevada Gaming
Authorities require the reporting of currency transactions in excess of $10,000
occurring within a gaming day, including, in certain circumstances,
identification of the customer by name and social security number. This
practice commenced in May 1985, and may have resulted in the loss of gaming
revenue to other jurisdictions where such reporting is not required.
OTHER LAWS AND REGULATIONS
The Four Queens, Spotlight 29 and 7 Cedars each is subject to extensive
state and local regulations and must obtain various licenses and permits,
including those required to sell alcoholic beverages, on a periodic basis. All
licenses are revocable and are not transferable. The agencies involved have
full power to limit, condition, suspend or revoke any such license, and any
such disciplinary action could (and revocation would) have a material adverse
effect upon the operations of the casino. Management believes that FQI has
obtained all required licenses and permits and that the business is conducted
in substantial compliance with applicable laws.
Pursuant to federal law, sales of beer, wine and other intoxicating
beverages ("Liquor") must be in conformance with tribal and state laws. Under
the Nevada law, the sale of Liquor by the drink at gaming facilities is subject
to state regulation and licensing. The Company is licensed to sell Liquor by
the drink at the Four
26
<PAGE>
Queens. The 29 Palms Band has passed a tribal ordinance to permit the sale of
beer and wine by the drink at Spotlight 29. However, the tribal ordinance is
subject to BIA and state approvals. The S'Klallam Tribe has passed a tribal
ordinance to permit the sale of Liquor by the drink at the 7 Cedars Casino.
The tribal ordinance is subject to BIA approval. The Fort Mojave Tribe's
current liquor ordinance authorizes the sale of Liquor at retail but not by the
drink. Elsinore understands the tribe is considering amending its ordinance to
authorize the sale of Liquor by the drink, which has been approved by the BIA.
OTHER BUSINESS INFORMATION
PATENTS
The Company's only significant patent covers MULTIPLE ACTION(R) blackjack,
a faster version of traditional blackjack that was developed by an officer of
the Company. The patent was issued in 1992 and expires in 2017. MULTIPLE
ACTION(R) blackjack permits a player to make three separate bets on his hand,
and the dealer uses a single up-card against the three-player bets. This
results in a higher volume of play.
The Company has licensed MULTIPLE ACTION(R) blackjack to other casinos in
Las Vegas and throughout the United States and at December 31, 1994 had
licensed 82 locations for 128 tables. Revenues from licensing MULTIPLE
ACTION(R) blackjack through December 31, 1994 represented an immaterial part of
the Company's overall revenues.
EMPLOYEES AND LABOR RELATIONS
At December 31, 1994, the Four Queens employed 1,151 persons, of which 37
were covered by collective bargaining agreements which expired in April 1987.
The union employees have continued to work under the terms of an expired
agreement. The Company believes that its relationship with the employees of
the Four Queens is good.
CONTROL PROCEDURES
The Company employs stringent controls, checks and recordkeeping of all
receipts and disbursements in connection with its gaming operations and
believes that its internal controls are in compliance with the laws and
regulations established by the Nevada Gaming Authorities, the Washington State
Gambling Commission, National Indian Gambling Commission, and the respective
tribal gaming commissions. The audit and cash controls employed by the Company
include locked cash boxes, independent counters and observers to perform daily
cash and coin counts, floor observations of the gaming area, closed circuit
television monitoring of critical activities and rapid analysis and resolution
of discrepancies or deviations from normal performance.
CREDIT POLICIES
The Four Queens gaming operations are conducted on a credit as well as cash
basis. The Company believes that it is necessary to extend credit to selected
customers in order to compete effectively with other casino/hotels. Credit
play at the Four Queens accounts for a relatively minor portion of total gaming
activities. Allowances for doubtful accounts are made on the basis of a
subjective analysis of the receivables involved and are charged as an expense
in the period in which such determination are made. Credit is not issued at
the Native American casinos.
CERTAIN INCOME TAX MATTERS
Management has reevaluated transactions which occurred in prior years and
as a result believes the Company possesses a total net operating loss
carryforward which was approximately $101,000,000 at December 31, 1994. As a
result of ownership changes in prior years, Internal Revenue Code Section 382
limits the amount of loss carryforward currently available to offset federal
taxable income. As a result of this Offering, the available amount will be
further limited. At December 31, 1994, the amount of loss carryforward not
limited by Section 382 and
27
<PAGE>
therefore available to offset current federal taxable income was approximately
$38,000,000. These loss carryforwards begin to expire in the year 1999 and
will be completely expired by 2007.
ITEM 2. PROPERTIES.
----------
Except for certain small parcels of land owned in fee and one lease for
approximately 7,000 square feet of casino space that expires on December 31,
1997, the real property underlying the Four Queens is leased pursuant to
several long-term leases, none of which expires before October 31, 2024. The
adjoining garage is occupied under a lease that expires in 2034. Such leases
generally provide for annual minimum rental and adjustments relating to cost of
living. The Four Queens is subject to the mortgage security interest of the
Company's 12.5% First Mortgage Notes Due 2000 (the "First Mortgage Notes)".
(See Notes 5 and 8 of Notes to Consolidated Financial Statements.) The Four
Queens is more fully described under Item 1. The Company does not own any fee
or leasehold interests in the real property underlying Spotlight 29 or 7
Cedars. Pursuant to the Nashville Nevada operating agreement, Nashville Nevada
LLC (of which Mojave Gaming, Inc. is a member) has the right to assume all
rights as sublessee under the sublease for the Nashville Nevada project site,
subject to the satisfactory completion of financing and other contingencies
relating to the project. See "Item 1. Business -- Hotel and Casino --
Structure of Nashville Nevada Agreements."
ITEM 3. LEGAL PROCEEDINGS
-----------------
WARN ACT LITIGATION
The Company is a defendant in two consolidated lawsuits pending in the
federal court for the District of New Jersey, alleging violation by the Company
and certain of its subsidiaries and affiliates of the Worker Adjustment and
Retraining Notification Act ("WARN Act") and breach of contract. The
plaintiffs in the two consolidated cases are (i) former employees of a
casino/hotel in New Jersey formerly affiliated with the Company bringing suit
on behalf of a class of all employees laid off as a result of the casino's
closing and (ii) a union local seeking to represent its members who were laid
off at that time. Plaintiffs claim that there are approximately 1,300 such
employees within the class who seek damages under the WARN Act providing for up
to 60 days' pay and lost benefits and payments for deferred compensation
allegedly due under a contract with certain employees. Damages payable, if
any, will be calculated on the basis of the number of days' notice determined
by the court to have been required under the WARN Act and the wages, benefits
and deferred compensation applicable to each such employee.
The Company has vigorously defended the action on the basis that even if
the WARN Act does apply as a matter of law to a regulatory-forced closing, the
closing was due to unforeseeable circumstances and, accordingly, the notice
given was as timely as practicable, among other grounds. The liability phase
of the trial of the two consolidated lawsuits concluded in August 1993 and no
decision has yet been rendered, although the Company understands a decision may
be rendered at any time. In the event of an adverse decision in the liability
phase, the litigation would thereafter proceed to determine the amount of
damages awarded against the defendants. There is no assurance that the Company
will prevail in this litigation or as to the amount of the damages that might
be awarded against it if the plaintiffs succeed. An adverse decision in this
case could have a material adverse effect on the Company. The Company would
likely need to obtain additional financing to meet its obligations under any
ultimate material judgment against it. There is no assurance that such
financing would be available.
ACTION AGAINST 29 PALMS BAND
On March 16, 1995, Elsinore Corporation, its wholly owned subsidiary, Elsub
Management Corporation, and Palm Springs East Limited Partnership, of which
Elsub Management is the General Partner, filed a complaint against the 29 Palms
Band in the United States District Court for the Central District of
California, case no. CV 95-1669-RG(MCx). The complaint seeks injunctive and
declaratory relief based upon the tribe's breach of the
28
<PAGE>
Spotlight 29 management contract. Plaintiffs allege that the tribe breached
the contract when it installed "pull-tab" video gaming machines at the casino
without the plaintiffs' consent and without any involvement whatsoever by the
plaintiffs in the operation of the machines. The complaint alleges that these
actions violate the terms of the contract which give plaintiffs the exclusive
right to manage and operate the casino and violated the contract's non-compete
provisions. The complaint states that plaintiffs did not, and could not,
consent to the installation and operation of the machines at the casino because
the State of California has expressed a legal position that, because such
machines are Class III gaming devices under the IGRA, their operation on Native
American reservations in California is illegal. Moreover, because plaintiffs
are subject to regulation by Nevada Gaming Authorities which require that
plaintiffs' conduct conform to the laws of the State of California and the
IGRA, plaintiffs' consent to the installation or involvement in the operation
of the gaming devices at Spotlight 29 could subject them to disciplinary action
by the Nevada gaming authorities. Consequently, plaintiffs filed the complaint
to obtain a judicial declaration as to whether "pull-tab" video gaming devices
are legal on tribal lands in California and, unless they are declared legal, to
enjoin the operation of such devices at Spotlight 29.
POULOS/AHERN CLASS ACTIONS
In April and May 1993, two class action lawsuits were filed in the United
States District Court, Middle District of Florida, against 41 manufacturers,
distributors and casino operators of video poker and electronic slot machines,
including the Company. The suits allege that the defendants have engaged in a
course of fraudulent and misleading conduct intended to induce persons to play
such games by collectively misrepresenting how the game machines operate, as
well as the extent to which there is an opportunity to win. It also alleges
violations of the Racketeer Influenced and Corrupt Organizations Act, as well
as claims of common law fraud, unjust enrichment and negligent
misrepresentation, and seeks damages in excess of $6 billion. On December 9,
1994, the Florida Court ordered that the consolidated cases be transferred to
the United States District Court for the District of Nevada. That transfer has
occurred and the Nevada Court has assumed control of the cases. The new case
number is CV-S-94-1126-LDG(RJJ). Numerous defendants (including the Company)
have moved to dismiss the complaint for failure to state a claim. No hearing
has been set on this motion. The plaintiffs have filed a motion seeking to
certify the consolidated actions as a class action. The defendants (including
the Company) have opposed certification of the class. No hearing date has been
set on this motion. Management believes that the claims are wholly without
merit and does not expect that the lawsuit will have a material adverse effect
on the Company's financial statements taken as a whole.
CABAZON TRIBE ACTION
In December 1994, the Cabazon Tribe, which operates a casino on its tribal
lands in the vicinity of the 29 Palms Band, filed a lawsuit against the NIGC in
the Federal District Court for the District of Columbia and unsuccessfully
sought a temporary restraining order to enjoin completion of Spotlight 29. The
Company believes the suit, which alleged violation by the NIGC of certain
environmental law standards, is wholly without merit and will not be litigated
further by the Cabazon Tribe.
MISCELLANEOUS
At December 31, 1994, the Company and its subsidiaries were parties to
various other claims and lawsuits arising in the normal course of business.
While the amounts claimed in some instances are substantial and ultimate
liability with respect to such claims cannot be determined, management is of
the opinion that the resolution of all pending matters will not have a material
adverse effect upon the Company's financial statements taken as a whole.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
No matters were submitted to a vote of the Company's security holders during
the last quarter of the last fiscal year.
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<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
-----------------------------------------------------------------
MATTERS
-------
The Company's common stock, par value $.001 per share (the "Common Stock"), is
traded on the American Stock Exchange and the Pacific Stock Exchange under the
symbol "ELS." The following table sets forth the closing high and low sales
price for the Common Stock on the American Stock Exchange Composite Tape during
each quarter of the last two fiscal years, as reported by the American Stock
Exchange.
Price Range
---------------------
High Low
----------- -------
Year ended December 31, 1994:
First Quarter $6.125 $3.875
Second Quarter 4.563 2.313
Third Quarter 3.500 2.563
Fourth Quarter 2.813 1.813
Year ended December 31, 1993:
First Quarter $3.438 $ .750
Second Quarter 6.750 2.500
Third Quarter 6.875 4.125
Fourth Quarter 8.375 4.250
On March 30, 1995, the number of holders of record of Common Stock was
approximately 4,232.
The Company has never declared or paid, nor does it have any present intention
to declare or pay, cash dividends on its Common Stock. Any determination by the
Board of Directors to pay cash dividends in the future would depend upon
numerous factors such as the Company's earnings, financial condition and capital
requirements. In addition, certain covenants of the First Mortgage Notes
restrict the payment of cash dividends under certain circumstances.
30
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
-----------------------
Set forth below is selected consolidated historical data with respect to the
Company for the five years ended December 31, 1994. This data should be read in
conjunction with the consolidated financial statements and notes thereto set
forth elsewhere herein.
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------
1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
(Dollars in Thousands Except Per Share Amounts, Unaudited)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
- ------------------
Total Assets $ 67,315 $ 71,923 $ 41,961 $ 45,083 $ 51,998
Current Portion
of Long-Term Debt 2,309 204 3,051 3,101 3,212
Long-Term Debt Net of
Current Portion:
Notes Payable 50,791 53,018 28,513 31,181 33,800
Capital Leases 1,290 1,350 1,555 1,939 2,107
Stockholders' Equity
(Deficit) (1,664) 4,567 (182) 1,598 2,246
OPERATIONS DATA:
- ---------------
Revenues (Net) $ 62,706 $ 66,852 $ 63,998 $ 63,031 $ 68,213
======== ======== ======== ======== ========
Income (Loss) Before
Extraordinary Items ($ 10,176) ($ 2,252) ($ 1,780) ($ 573) $ 990
Extraordinary Items:
Gain (Loss) on
Extinguishment of Debt 735 (285) - - (20)
Tax Effect of Loss
Carryforward - - - - 604
-------- -------- --------- -------- --------
Net Income (Loss) ($ 9,441) ($ 2,537) ($ 1,780) ($ 573) $ 1,574
======== ======== ======== ======== ========
Per Share Amounts:
Income (Loss) Before
Extraordinary Items ($ .84) ($ .19) ($ .15) ($ .05) $ .08
Extraordinary Items .06 (.02) - - .05
-------- -------- -------- -------- --------
Net Income (Loss) ($ .78) ($ .21) ($ .15) ($ .05) $ .13
======== ======== ======== ======== ========
Capital Costs:
Depreciation and
Amortization $ 3,990 $ 3,206 $ 3,302 $ 3,691 $ 3,883
Interest Related to Prior-
Period Tax Obligation 885 1,385 213 313 599
Interest Expense 9,086 4,256 3,124 3,858 4,736
-------- -------- -------- -------- --------
$ 13,961 $ 8,847 $ 6,639 $ 7,862 $ 9,218
======== ======== ======== ======== ========
</TABLE>
31
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATION
- ------------
This discussion and analysis should be read in conjunction with the consolidated
financial statements and notes thereto set forth elsewhere herein.
FINANCIAL CONDITION
RECENT AND EXPECTED LOSSES FROM EXISTING OPERATIONS
FOUR QUEENS. Elsinore's historical financial information primarily reflects
the operations of the Four Queens. Although the Company historically has
generated positive cash flow from operations, the Company has experienced net
losses in four of the last five years. In 1994, the results of operations of
the Four Queens were adversely affected by, among other things, increased
competition due to the opening of three large casino/hotels on the Las Vegas
Strip and, to a lesser extent, the refurbishment program at the Four Queens. At
December 31, 1994, the Company's working capital deficit had increased to $10.5
million, from $5.3 million at December 31, 1993. Cash and cash equivalents,
including restricted amounts, decreased $23.7 million to $7.1 million during the
twelve months ended December 31, 1994 (unrestricted cash and cash equivalents
were approximately $3.4 million as of December 31, 1994, as compared to $5.1
million as of December 31, 1993). Elsinore experienced a net loss of $9.4
million and negative cash flow from operations of $3.7 million for the 1994
fiscal year. The results of operations of the Four Queens have continued to be
negatively affected since December 31, 1994 and the Company anticipates this
will be the case at least through the first half of 1995.
SPOTLIGHT 29 CASINO. Spotlight 29 opened to the public on January 14, 1995.
During the first six weeks of Spotlight 29's operations, insufficient revenues
were generated to cover the casino's operating expenses. From the casino's
opening date through February 28, 1995, gross revenues were approximately
$900,000 (compared to projected revenues during this period of $3.7 million),
resulting in an estimated net loss of approximately $1.3 million (compared to a
projected net profit of $600,000). This shortfall is believed by the Company to
be attributable in part to the marketing plan of Spotlight 29 taking longer to
implement than expected, and from competition from other Native American gaming
facilities in Southern California that continue to operate electronic gaming
machines without an approved compact with the State of California in violation
of applicable federal law. Pursuant to its obligations under the Spotlight 29
management contract, the Company through March 30 contributed $1.06 million in
the form of loans to Spotlight 29 to fund its working capital shortfall.
Spotlight 29 is seeking to obtain approximately $700,000 in furniture, fixtures
and equipment financing, although there is no assurance such financing will be
obtained. Based on the trend of the casino's first six weeks of operations, the
Company anticipates that, in the event the Company continues to manage Spotlight
29, it will be required to make one or more additional advances during the
balance of the year to the casino to fund working capital shortfalls. In
addition, there is no assurance that Spotlight 29 will not continue to
experience negative cash flow in subsequent quarters or, if such operating
losses do continue, that the Company will have sufficient working capital to
fund any additional cash contributions that would be required under the
management contract.
7 CEDARS CASINO. 7 Cedars opened to the public on February 3, 1995. In
February 1995, during its first three weeks of operations, 7 Cedars generated
gross revenues of approximately $1.5 million, which was approximately $100,000
less than the $1.6 million of revenues previously projected for the period. The
estimated net loss for the casino for February is estimated to be $300,000,
compared to a budgeted loss for the period of $200,000. Although the Company
anticipates that gaming revenues at 7 Cedars will increase in the second and
third quarters of 1995, as a result of a greater influx of tourists to the
Olympic Peninsula during the spring and summer months, there is no assurance
that 7 Cedars will generate increased gaming revenues or that the casino will
become profitable. See "Uncertainty of Operating Results of New Casino Projects"
below.
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SUBSTANTIAL LEVERAGE AND DEBT SERVICE REQUIREMENTS
As of December 31, 1994, the Company had gross indebtedness of approximately
$61.3 million, inclusive of current maturities (net indebtedness, after
subtracting an aggregate discount of approximately $6.9 million, was
approximately $54.4 million), and the total stockholders' equity had decreased
approximately $400,000 since September 30, 1994, from a deficit of
approximately $1.4 million to a deficit of approximately $1.7 million.
Continuing losses in the first three months of 1995 have further increased the
amount of such deficit.
Substantially all of the Company's outstanding indebtedness for money
borrowed consists of its First Mortgage Notes, its Mortgage Notes and its
Convertible Notes. On December 29, 1994, $3 million of the original $60 million
principal amount of First Mortgage Notes was repurchased by the Company and
retired in exchange for the issuance to the noteholder of 930,000 shares of
Common Stock of the Company (the "Note Exchange"). Debt service requirements on
the First Mortgage Notes currently consist of semi-annual interest payments of
approximately $3.56 million, payments of which in the current fiscal year are
due on April 1 and October 1, 1995, and repayment of principal at maturity in
the year 2000. Debt service requirements on the Mortgage Notes consist of
quarterly interest payments due on March 31, June 30, September 30 and December
31, 1995, and mandatory quarterly redemptions of $750,000 on June 30, September
30 and December 31, 1995. Repayment of remaining principal and accrued interest
on the Mortgage Notes is due on March 31, 1996.
The Company's debt service requirements on the Convertible Notes in 1995 are
limited to a single payment of approximately $115,000 of accrued interest
payable on December 31, 1995. Thereafter, the Convertible Notes will require
quarterly interest payments and mandatory redemptions of $500,000 on March 31,
June 30 and September 30, 1996, with the final payment of principal and accrued
interest due on December 31, 1996.
Although the Company anticipates the net proceeds of sale of its Convertible
Notes, together with cash on hand and revenues from operations, will be
sufficient to cover its March and April 1995 debt service obligations, based on
the Company's results of operations and projections, the Company will not be
able to meet its remaining obligations in 1995 including, among other things,
its June, September and October 1995 debt service obligations, without
significantly improved results of operations or additional financing. See
"Decreased Liquidity" below.
The leveraged nature of the Company's capital structure has placed
significant constraints on its cash position. Among other things, the Company
currently has significantly large cash requirements for debt service, the funds
available for capital expenditures are limited, and the financial covenants and
other restrictions contained in the agreements governing the First Mortgage
Notes, Mortgage Notes and Convertible Notes require the Company to meet certain
financial tests and will limit its ability to borrow additional funds or to
dispose of assets. See "Debt Covenants" below. The Company's ability to meet its
debt service obligations and ultimately to reduce its total debt will be
dependent upon significantly improving the future performance of the Four Queens
and/or Native American casinos, obtaining additional financing, or both.
DECREASED LIQUIDITY
The Company's liquidity has been significantly affected by its substantial
debt service obligations, described above, and its other capital expenditure and
operating requirements, including its obligations to fund working capital
shortfalls at the Native American casinos and to assume payment obligations from
Temple relating to the Mojave Valley Resort, also described above. In addition,
the Company is obligated to pay to the IRS in 1995 a remaining balance of
approximately $4.7 million of prior period taxes and interest, pursuant to an
installment payment plan entered into with the IRS in December 1994 (see
"Liability for Prior Period Tax; IRS Installment Agreement" below). The Company
also may be exposed to liability as a result of pending litigation, previously
reported, alleging WARN Act violations related to the Company's former
affiliated New Jersey casino/hotel operations (see "Pending WARN Act Litigation"
below).
In 1994, the Company's available cash and funds generated from operations
were insufficient to meet its aggregate debt service and capital expenditure and
operating requirements. As a result, the Company did not make the October 1,
1994 interest payment due on the First Mortgage Notes on a timely basis. The
net proceeds raised
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from the issuance of the Mortgage Notes on October 14, 1994, enabled the Company
to make the late interest payment within the grace period permitted under the
First Mortgage Notes Indenture.
In the first quarter of 1995, the Company anticipated that it would require
additional funds to meet its aggregate debt service and capital expenditure
requirements. On January 31, 1995, the Company raised approximately $4 million
(before deducting offering expenses) of additional working capital by issuing
2.5 million shares of its Common Stock pursuant to the Equity Offering. The net
proceeds raised from the offering enabled the Company, among other things, to
make the $1 million payment due to the IRS on February 1, 1995 and to complete
its March 1995 interest payment under the Mortgage Notes. On March 31, 1995, the
Company raised approximately $1.7 million through the sale of the Convertible
Notes. The Company will use the net proceeds thereof for working capital
purposes relating to the Four Queens, Spotlight 29 and 7 Cedars and intends to
apply such proceeds toward completing its April 1995 interest installment on the
First Mortgage Notes.
In addition to the Equity Offering and the sale of Convertible Notes, the
Company will be required to complete additional financing transactions to
provide the capital needed to discharge its debt service obligations and other
working capital requirements during the remainder of 1995. In addition, the
Company intends to raise the $10 million it is required to contribute to the
Nashville Nevada project by completing one or more additional equity offerings
by September 30, 1995. If the Company is unable to obtain additional financing,
it is likely to experience a cash shortfall. In such event, unless an agreement
was reached with the noteholders to reschedule or extend the Company's debt, the
Company would be required to sell assets or seek protection under bankruptcy
laws. In addition, the Company's failure to maintain certain financial ratios or
comply with its other debt covenants would constitute a default under the First
Mortgage Notes and the Mortgage Notes. See "Debt Covenants" below.
LIABILITY FOR PRIOR PERIOD TAX; IRS INSTALLMENT AGREEMENT
In October 1994, the IRS completed and delivered to the Company a final
assessment (the "IRS Assessment") relating to certain adjustments to the
Company's taxable income for the fiscal years ended January 31, 1980, through
December 31, 1983 (which the IRS had under audit). In November 1994, the IRS
filed and recorded a Notice of Tax Lien against the Company and its subsidiaries
in the amount of the IRS Assessment. The IRS Assessment called for the Company
to pay aggregate tax and interest of approximately $5.7 million (exclusive of
interest accruing during any period of repayment), in addition to $3.5 million
the Company deposited with the IRS in March 1991. In the third quarter of 1994,
the Company recorded an additional liability of $377,000 necessary to cover the
full amount of tax and interest identified in the IRS Assessment. The issuance
of the IRS Assessment and the Notice of Tax Lien contravened Elsinore's covenant
under its debt facilities to timely pay its tax liabilities and not to incur
additional liens under its debt facilities; the debt covenant noncompliance was
waived by the noteholders on December 2, 1994. See "Debt Covenants" below.
On December 6, 1994, the Company and the IRS entered into an installment
payment agreement (the "Installment Agreement") pursuant to which the Company
paid the IRS $1 million on February 1, 1995, and an additional $275,000 on March
1, 1995, and will pay the balance of the IRS Assessment, plus additional accrued
interest, in monthly installments of $275,000 (increasing to $550,000 on May 1,
1995) during the remainder of 1995. Elsinore applied a portion of the proceeds
from the Equity Offering toward its initial payment under the Installment
Agreement. However, the proceeds from the Equity Offering will not be
sufficient to enable the Company to both fully pay the IRS Assessment and fully
meet its debt service and capital expenditure requirements in 1995. Although
the Company anticipates that its results of operations in 1995, together with
the proceeds of its proposed sale of the Convertible Notes, will allow the
Company to perform under the IRS Installment Agreement, there is no assurance
that the Company's results of operations will be sufficient to fully perform
under the Installment Agreement, or that
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the IRS will not levy upon the Company's property or take other action to
enforce the tax lien. Such action by the IRS would violate the Company's debt
covenants under the First Mortgage Notes and Mortgage Notes. See "Debt
Covenants."
DEBT COVENANTS
The First Mortgage Notes and the Mortgage Notes are secured by substantially
all of the assets of the Four Queens and a pledge of the capital stock of
Elsinore's material subsidiaries (other than the Company's interest in
developing the Nashville Nevada project). The indenture relating to the First
Mortgage Notes and the purchase agreement relating to the Mortgage Notes contain
covenants relating to the maintenance of the right to manage the Company's
Native American casinos, maintenance of net worth and a fixed charge coverage
ratio, as well as restrictions on, among other things, the incurrence of
additional debt, liens, investments and the payment of dividends. Certain of
these covenants (including the net worth and fixed charge coverage ratio
maintenance covenants) became effective following completion of the Company's
Native American casino projects.
The issuance of the IRS Assessment and the Notice of Tax Lien contravened
Elsinore's debt covenants not to incur additional liens and to pay its taxes in
a timely manner. On December 2, 1994, the Company's noncompliance with these
debt covenants was waived pursuant to the written consent of holders of the
requisite amounts of First Mortgage Notes and Mortgage Notes. As consideration
for the grant of the waiver, the indenture governing the First Mortgage Notes
and the purchase agreement governing the Mortgage Notes were each amended to
require the Company to make available a substantial portion of its excess cash
for the purchase of Mortgage Notes and, thereafter, First Mortgage Notes on the
open market on a quarterly basis.
The Convertible Notes are secured by a pledge of the capital stock of Mojave
Gaming, Inc., the Company's wholly-owned subsidiary ("Mojave Gaming"). The
purchase agreement relating to the Convertible Notes contains covenants which,
among other things, require the Company to hold in escrow up to the first $5
million of proceeds from any future financings; permitted uses of such escrowed
proceeds would be limited to payments on the First Mortgage Notes, Mortgage
Notes and IRS Installment Agreement.
Elsinore intends to implement its required $10 million investment in the
Nashville Nevada project as an investment by Mojave Gaming, Inc. in Nashville
Nevada LLC, a Nevada limited liability company established for that purpose.
Mojave Gaming is not a guarantor of the First Mortgage Notes or the Mortgage
Notes. The Indenture governing the First Mortgage Notes and the purchase
agreement governing the Mortgage Notes restrict Elsinore's ability to make
investments in certain unrestricted subsidiary entities, including Mojave
Gaming. Among other things, the Company would be required by the terms of the
Indenture to retain and not contribute to Mojave Gaming an amount of the net
proceeds from its equity offerings equal to the Company's aggregate quarterly
consolidated net losses since January 1, 1994, as adjusted pursuant to the terms
of the debt covenant. In addition, restrictive covenants in the purchase
agreement governing the Convertible Notes would prevent the Company in most
circumstances from contributing to Mojave Gaming the first $5 million of
proceeds from any future financings. The effect of these covenants will be to
restrict the Company from using a significant portion of the net proceeds from
future equity offerings to fund its investment in Nashville Nevada LLC and, as
such, substantially reduces the likelihood of the Company being able to complete
the financing for the Nashville Nevada project.
Elsinore's ability to comply with the financial covenants contained in its
debt facilities is and will continue to be dependent upon, among other things,
the results of operations of the Four Queens, Spotlight 29 and 7 Cedars. Based
on the recent results of operations of these casinos, and the Company's
expectation as to its operating results for the remainder of 1995, the Company
likely will not be able to comply with certain of these financial covenants when
they become effective in mid-1995. See "Probable Failure to Comply with Debt
Covenants" below.
The Company's failure to cure any future debt covenant noncompliance (in
certain instances following 30 days notice to cure from the noteholders), if not
waived by the holders of the First Mortgage Notes, Mortgage Notes and
Convertible Notes, would result in a default under the applicable note facility
entitling the respective noteholders to accelerate the payment of principal and
accrued interest on the debt. The Company intends to seek appropriate waivers or
consents from the holders of its debt securities with respect to any such
defaults. However, there is no assurance such waivers or consents would be
obtained. Moreover, conditions attached to any grant of such waivers may impose
additional restrictions or financial burdens on the Company. If such waivers or
consents were not obtained, and the Company's outstanding debt was accelerated,
the Company would be required to sell assets or seek protection under bankruptcy
laws.
PROBABLE FAILURE TO COMPLY WITH DEBT COVENANTS
COVERAGE RATIO. The Indenture governing the First Mortgage Notes and the
purchase agreement governing the Mortgage Notes each requires the Company,
commencing June 30, 1995, and as of the last day of each subsequent fiscal
quarter, to maintain a Consolidated Fixed Charges Coverage Ratio ("Coverage
Ratio") of at least 1.5 to 1, and to furnish the
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noteholders with an officer's certificate within fifty days after the end of
each such quarter setting forth the calculations of this ratio and stating that
the Company is in compliance with the covenant. As of the date hereof, the
Coverage Ratio of the Company is approximately .55 to 1. Based on the Company's
results of operations and its projections for the second quarter of 1995, the
Company will not achieve a Coverage Ratio of 1.5 to 1 by June 30, 1995. The
Company's failure to cure such debt covenant noncompliance (following thirty
days notice to cure from the noteholders), if not waived by such noteholders,
would result in a default under the applicable note facility entitling the
noteholders to accelerate the debt. While the Company intends to seek
appropriate waivers or consents in the event of such noncompliance or default,
there is no assurance such waivers or consents would be obtained. See "Debt
Covenants" above.
NET WORTH. In addition, the Indenture governing the First Mortgage Notes
requires the Company, commencing with the second quarter of 1995, to furnish the
noteholders within fifty (50) days after the end of each fiscal quarter a
certificate setting forth the Consolidated Net Worth ("Net Worth") of the
Company at the end of such quarter. If the Net Worth at the end of each of any
two consecutive fiscal quarters is negative, then the Company will be required
to make an irrevocable, unconditional offer to all of the First Mortgage
Noteholders to purchase up to $6 million aggregate principal amount of First
Mortgage Notes at a purchase price equal to 101% of the principal amount
thereof, plus accrued interest. Such purchase offer must remain open for a
period of twenty business days and be completed within five business days
thereafter. In addition, the commencement of such purchase offer would
constitute an event of default under the purchase agreement governing the
Mortgage Notes.
As of the date hereof, the Company's Net Worth is negative. Based on the
recent results of operations and the Company's expectation as to its operating
results for the remainder of 1995, the Company believes it is unlikely it will
achieve a positive Net Worth by the end of either the second or the third
quarter of 1995. In the event the Company's Net Worth remains negative through
the third quarter of 1995, and such covenant noncompliance is not waived by the
noteholders, the Company would not be able to complete the requisite repurchase
of First Mortgage Notes without obtaining additional financing and a waiver of
default under the Mortgage Note facility. There is no assurance such financing
could be obtained on satisfactory terms or at all. See "Decreased Liquidity"
above. While the Company intends to seek appropriate waivers or consents in the
event of such noncompliance or default, there is no assurance such waivers or
consents would be obtained. See "Debt Covenants" above.
TERMINATION OF SPOTLIGHT 29 MANAGEMENT CONTRACT. Under the Indenture governing
the First Mortgage Notes and the purchase agreement governing the Mortgage
Notes, the loss by the Company of the legal right to operate Spotlight 29, and
such loss continuing for more than 90 consecutive days, would constitute an
Event of Default, entitling the noteholders to immediately accelerate the
applicable debt. Under both debt facilities, the holders of a majority of
outstanding notes may consent to the waiver of such an Event of Default. In
connection with the Company's efforts to terminate the Spotlight 29 management
contract and sever its relationship with the 29 Palms Band, the Company intends
to solicit consents from the requisite number of noteholders to the waiver of
any Event of Default that would occur as a result of the contract termination.
There can be no assurance such waivers would be obtained.
PENDING WARN ACT LITIGATION
The trial liability phase of the Company's WARN Act litigation concluded in
August 1993 and, although no decision has yet been rendered, a decision may be
rendered at any time. See "Item 3. Legal Proceedings -- WARN Act Litigation."
There is no assurance that the Company will prevail or as to the amount of the
damages that might be awarded if the plaintiffs succeed. An adverse decision in
this case could have a material adverse effect on the Company. The Company would
likely need to obtain additional financing to meet its obligations under any
ultimate material judgment against the Company. There is no assurance that such
financing would be available.
CONSTRUCTION AND OPERATION OF NEW CASINO PROJECTS
Spotlight 29 opened on January 14, 1995 and 7 Cedars opened on February 3,
1995. The Company has limited prior experience in operating and managing
multiple casinos simultaneously. Construction of
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Nashville Nevada is intended to begin as soon as practicable after the necessary
financing is obtained. However, major construction projects such as Nashville
Nevada entail significant risks, including financing contingencies, shortages of
materials, management personnel and skilled labor, engineering, construction,
environmental, governmental and regulatory problems, work stoppages, weather
interference and unanticipated cost increases, any of which difficulties could
further increase the cost of or delay or prohibit the construction of Nashville
Nevada. There is no assurance that such construction will occur on schedule or
at all, or that the budgeted construction costs will not be exceeded.
UNCERTAINTY OF OPERATING RESULTS OF NEW CASINO PROJECTS
The Company's historical financial information does not include results from
Spotlight 29 and 7 Cedars or Nashville Nevada, if developed. The likelihood of
success of these casinos should be considered in light of the expenses,
difficulties and delays frequently encountered in the development, opening and
management of new casinos, and the competitive and regulatory environment in
which they will operate. Since its January 14, 1995 opening, Spotlight 29 has
experienced difficulties and delays in achieving profitability. See "Item 1.
Business -- Native American Gaming Projects --Spotlight 29 Casino -- Marketing."
In addition, there is no assurance that additional losses, difficulties, delays
and expenses with respect to managing the new casinos will not continue to
adversely affect the results of operations. There can be no assurance,
therefore, that either the Spotlight 29 or 7 Cedars or the Nashville Nevada
project (if developed) will become profitable.
RISKS ASSOCIATED WITH HOTEL/GAMING BUSINESS
The Company is subject to the risks inherent in the hotel and gaming
businesses. Operating results from gaming activity can vary significantly as a
result of a number of factors, including the competitive environment, hotel
occupancy rates, weather, and general economic conditions. Licensed gaming
operations are subject to substantial government regulation. Additionally,
hotel and gaming operations are subject to the imposition of taxes or
assessments by regulatory authorities. A significant change in government
regulations or any new tax or assessment could have a material adverse effect on
the Company's operations. See "Item 1. Business -- Regulations."
RELIANCE ON CERTAIN MARKETS
The Four Queens derives a large portion of its customers from specific
geographic areas including southern California, Arizona, Las Vegas, Hawaii, and
the Midwest. Spotlight 29 and 7 Cedars depend heavily on markets in their
respective local operating areas. Nashville Nevada, if developed, is expected to
depend heavily on the southern California and Arizona markets. Adverse economic
conditions or further expansion of gaming in these markets, as a result of
regulatory change or otherwise, could also significantly and adversely affect
the Company's business. In addition, an increase in fuel costs or transportation
prices or a deterioration of relations with tour and travel agents, as they
affect travel between the Company's facilities and the markets they serve, or
other transportation-related difficulties could also have a material adverse
effect on the Company's operations.
LIQUIDITY AND CAPITAL RESOURCES
WORKING CAPITAL
The Company's working capital deficit at December 31, 1994 increased to
$10,505,000 from $5,300,000 at December 31, 1993. Cash and cash equivalents,
including restricted amounts, decreased $23,738,000 to $7,092,000 during the
twelve months ended December 31, 1994 (unrestricted cash and cash equivalents
were approximately $3,407,000 and current liabilities were approximately
$16,709,000 as of December 31, 1994).
Net cash used by operating activities for the twelve months ended December
31, 1994 was approximately $3,437,000. Major uses of cash during the 1994
fiscal year included payment of $7,446,000 interest on the First Mortgage Notes,
capital expenditures of $4,364,000 for the refurbishment of the Four Queens, an
investment of $1,122,000 for the Company's participation in the Fremont Street
Experience, and capital costs incurred and/or loans made to the respective
tribes in conjunction with the development of the Company's Native American
casino projects
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($7,810,000 for Spotlight 29 and $7,591,000 for 7 Cedars). Approximately
$1,730,000 of the cash used in fiscal 1994 was from the proceeds of the private
placement of the First Mortgage Notes and Mortgage Notes, with the remainder
from available cash.
In October 1993, the Company completed a private placement of the First
Mortgage Notes and warrants to purchase common stock of the Company. The net
proceeds of the offering was approximately $57,400,000, approximately
$26,700,000 of which was used to repay outstanding bank debt. The remaining
$30,700,000 was deposited in segregated accounts pending disbursement for
specified project uses. At December 31, 1994, approximately $3,685,000 of these
funds remained undisbursed and were available for the following uses: (i)
$86,000 to fund the upgrading and refurbishment of the Four Queens, (ii)
$2,190,000 to fund loans and other advances for the purpose of financing the
construction and development of Spotlight 29 and (iii) $1,409,000 to fund loans
and other advances for the purpose of financing the construction and development
of 7 Cedars. The Company anticipates that all of the funds will be utilized for
the intended purposes by the end of the first quarter of 1995.
In October 1994, the Company issued $3,000,000 aggregate principal amount of
its Mortgage Notes. Substantially all of the net proceeds thereof were used for
debt service and working capital purposes, including payment of the October 1994
interest installment due on the First Mortgage Notes. In connection with
issuing the Mortgage Notes, the Company paid certain customary fees and expenses
of the purchasers and issued to the purchasers an aggregate of 126,050 shares of
Common Stock.
In December 1994, the Company redeemed and retired $3 million principal
amount of its First Mortgage Notes, in consideration for which the Company
issued to the noteholder 930,000 shares of Common Stock (the "Note Exchange").
On January 25, 1995, the Company raised approximately $4,000,000 (before
deducting offering expenses) pursuant to the Equity Offering. The net proceeds
of the Equity Offering enabled the Company to discharge various debt service and
other working capital requirements arising during the first quarter of 1995.
On March 31, 1995, the Company sold through a private placement to six
purchasers an aggregate of $1,706,250 principal amount of its Convertible Notes.
The Company's net proceeds of the sale will be for working capital purposes
relating to the Four Queens and Native American casinos, including, without
limitation, the interest payment on the First Mortgage Notes due on April 1,
1995.
LONG-TERM DEBT
The Company's long term debt consists primarily of the First Mortgage Notes,
the Mortgage Notes and the Convertible Notes. See Note 5 of Notes to
Consolidated Financial Statements for a discussion of the terms of the First
Mortgage Notes and Mortgage Notes. The Convertible Notes have an initial
aggregate principal amount of $1,706,250 and bear interest at 7 1/2% per annum,
payable in arrears on December 31, 1995, and March 31, June 30, September 30 and
December 31, 1996. The Convertible Notes mature on December 31, 1996, with
interim mandatory redemptions due on each of March 31, June 30 and September 30,
1996. Optional redemption by the Company is permitted after December 31, 1995 at
a price of 107.5% of principal amount. Each Convertible Note may be converted at
any time into Common Stock at a price equal to $1.125 per share. The Convertible
Notes are secured by a pledge of all outstanding Common Stock of Mojave Gaming,
Inc. The Convertible Notes were issued pursuant to the terms of a Note Purchase
Agreement, dated as of March 30, 1995, between the Company and each purchaser.
LIQUIDITY
Currently, the Company's primary source of liquidity is cash flow from the
operations of the Four Queens. The Four Queens experienced in 1994 a
substantial decrease in gaming revenues, operating results and cash flows (see
"Results of Operations" below), which the Company expects will continue at least
through the first half of 1995. In addition, the Company's liquidity in 1994
was sufficiently affected by its substantial debt service obligations (see
"Financial Condition -- Substantial Leverage and Debt Service Requirements"
above) and in 1995 will be further affected by such obligations and by some or
all of the following items:
IRS Installment Agreement: The Company is obligated to pay the IRS $275,000
per month, increasing to $550,000 per month on May 1, 1995 through December
1995, at which time the IRS Assessment will be fully discharged. See "Financial
Condition --Liability for Prior Period Tax; IRS Installment Agreement" above.
Native American Casino Operating Shortfalls: In addition to the $1,060,000
already advanced to the 29 Palms Band through March 30, 1995, the Company is
required under the Spotlight 29 management contract and the 7 Cedars management
contract to fund working capital shortfalls at either Native American casino.
Depending upon Spotlight 29's future results of operations, its ability to
obtain sufficient equipment lease financing, and the outcome of the current
dispute concerning whether the
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the Company will terminate the Spotlight 29 management contract, the Company
anticipates it may be required to advance additional funds to the 29 Palms Band
in 1995.
Obligations Assumed from Temple: In consideration for certain amendments to
the Nashville Nevada LLC operating contract beneficial to Elsinore, the Company
has assumed and will complete up to approximately $169,000 of Temple's payment
obligations relating to its development of the Mojave Valley Resort. In
addition, the Company has agreed to loan Temple up to $150,000 to fund Temple's
share of certain pre-construction costs at Nashville Nevada, which loans will be
repaid in the event the requisite financing for the project is obtained.
Nashville Nevada Project Expense: As a condition to its participation in the
Nashville Nevada project, Mojave Gaming will be required to make a capital
contribution of $10,000,000 to the venture developing Nashville Nevada on or
before September 30, 1995. There is no assurance that the Company will be able
to obtain the necessary financing for such contribution on commercially
acceptable terms, or at all.
WARN Act Litigation: See "Item 4. Legal Matters. -- WARN Act Litigation"
above. The trial in the liability phase in this matter concluded August 11,
1993. Although no decision has yet been rendered, a decision may be issued at
any time.
Other Projects Expense: The Company continues to explore potential expansion
opportunities both inside and outside Nevada. However, the Company would need
to seek additional debt or equity financing in the event it decides to pursue
any such opportunities.
In 1995, unless the Company's available cash and funds generated from
operations significantly increases or the Company is able to extend its debt
service and/or delay capital expenditure requirements, the Company will need to
obtain additional working capital in order to satisfy its payment obligations
during the year. Moreover, the need for additional capital may be further
increased in the event that (i) a material adverse judgment is rendered against
the Company in the pending WARN Act litigation; (ii) there is any significant
decline in the Company's results of operations; (iii) the development and
opening of the Fremont Street Experience is materially delayed or is subject to
material cost overruns or (iv) the Company is unable to obtain from its
noteholders the requisite waivers of default in connection with the Company's
anticipated termination of the Spotlight 29 management contract or its
anticipated noncompliance with other debt covenants in 1995. Without additional
financing, the Company believes that it is unlikely it will be able to maintain
a level of operating cash flow necessary to satisfy all of its financial
obligations in 1995. To meet these obligations, the Company anticipates it will
have to raise additional working capital, refinance or extend repayment of its
outstanding debt, obtain from the noteholders additional waivers of default or
covenant noncompliance under the First Mortgage Notes, Mortgage Notes and
Convertible Notes, or a combination of the foregoing. There is no assurance that
any of these alternatives could be effected on satisfactory terms. In
particular, certain covenants of the indenture relating to the First Mortgage
Notes and of the purchase agreements relating to the Mortgage Notes and the
Convertible Notes restrict the ability of the Company and its subsidiaries to
incur additional indebtedness or to secure such indebtedness and may impair the
Company's ability to obtain additional debt financing. If these alternatives
prove to be unavailable, Elsinore would be required to sell assets or seek
protection under bankruptcy laws.
RESULTS OF OPERATIONS
During 1994, gaming revenues, as well as the number of visitors to Las Vegas,
increased at a double digit rate when compared to the same period for 1993.
However, the downtown Las Vegas casinos, as a group, experienced slightly
decreased casino win during the period even though occupancy at the downtown
properties continued to be strong. Management believes that the results of the
downtown Las Vegas casinos for 1994 reflect that many of the visitors to
downtown Las Vegas spent at least a portion of their visit, and a proportionate
share of their gaming and entertainment budgets, at the three recently opened
Las Vegas Strip properties.
The Four Queens, not unlike its downtown competition, experienced a decrease in
gaming revenues for 1994. In response, during 1994, management implemented
several steps designed to improve revenues and contain costs, and the Company
continually explores alternatives to improve the Four Queen's competitive
position.
The Company expects to benefit from the Fremont Street Experience, which it
believes will draw additional visitors to the downtown market. The Fremont
Street Experience is currently under construction and is anticipated to be
39
<PAGE>
completed in the late Fall or Winter of 1995. Although construction of the
Fremont Street Experience has been designed to minimize any impact on the
operations of the downtown Las Vegas casinos, there can be no assurance the
construction process will not negatively affect the Company's results of
operations.
1994 Compared to 1993:
- ---------------------
Total revenue, net of promotional allowances, for 1994 decreased $4,146,000 or
6.2% as compared to 1993. Decreased Casino revenue was the primary contributing
factor to the overall decrease in revenues, a portion of which was attributable
to the Company's renovation of approximately 300 of the 700 rooms at the Four
Queens Hotel and Casino during the first quarter of 1994 and a portion of which
was attributable to the discontinuation of a fee-based casino tour operator
program in the second quarter of 1994. However, management believes that the
primary reason for the decrease in revenue is that a portion of the Four Queen's
guests, as well as some of the guests of other downtown Las Vegas properties,
spent at least part of their Las Vegas gaming and entertainment budgets at the
recently opened properties on the Las Vegas Strip. Management's belief is
supported by the fact that, in contrast to the decrease in Casino revenue, hotel
occupancy at the Four Queens in 1994 increased to 92.7% from 92.4% for the prior
year. The Company expects that this phenomenon of decreased Casino revenue
despite steadily high hotel occupancy rates could continue through 1995.
As mentioned above, Casino revenue was affected most significantly and decreased
$5,680,000 (10.9%), while Hotel revenue decreased $642,000 (6.5%). Food and
Beverage revenue increased marginally by $198,000 (1.6%). Interest and Other
revenue increased $1,252,000 primarily because of increased interest income from
the investment of a portion of the proceeds of the First Mortgage Notes.
The decrease in Casino revenue from the comparable prior period resulted
primarily from a $3,502,000 (10.4%) decrease in gross slot revenue and a
$2,372,000 (14.7%) decrease in gross table game revenue. Both the decrease in
slot and table games revenue resulted from decreases in volume of play as well
as win percentage. Compared to the prior year, coin-in for slots decreased
approximately 9.7% and the revenue as a percentage of coin-in decreased one
tenth of a percentage point, while table game drop decreased about 7.8% and the
revenue as a percentage of drop decreased six tenths of a percentage point.
The decrease in Hotel revenue for 1994 as compared to the same period for 1993
was due in part to approximately 7,800 fewer available room nights being
available during the first quarter of 1994 due to refurbishment of the Four
Queens and in part to a 1.4% decrease in the average daily rate per occupied
room. In an effort to bolster lower Casino revenue, management implemented a
special summer room rate to drive-in customers without advance reservations.
While contributing to an increase in hotel occupancy in 1994 compared to 1993,
the promotion effectively lowered the average daily room rate. Management
discontinued the program in September 1994.
Total costs and expenses, excluding interest and depreciation decreased $712,000
(1.2%) for 1994 as compared to 1993. Casino costs and expenses decreased
$1,214,000 (7.2%) from the prior year primarily as a result of management's
decision to eliminate a fee-based player program, run by a third party, that was
no longer deemed profitable. The program was eliminated in April 1994, and
resulted in a reduction in expense of approximately $1,047,000 from the prior
year.
Food and Beverage costs and expenses increased $906,000 (8.7%) for 1994 compared
to 1993 due primarily to increased costs of goods on two loss leaders (prime rib
and shrimp cocktail) in an effort to attract additional casino customers and
thereby increased the number of meals served in the Four Queens' coffee shop by
5.1% in 1994. As a result of the effort to bolster Casino revenue, Food revenue
increased marginally ($280,000) due to the increase in the number of meals
served, but was offset to a great extent because the average price of a meal
decreased approximately 6.1%. However, the volume increase at lower prices was
responsible for an approximately 15.7% increase in the cost of sales.
Management's evaluation of this program resulted in an increase in its loss
leader pricing in late September 1994 in an effort to meet its objectives.
Management will continue to monitor this program and may discontinue or modify
it as necessary to achieve its objectives.
Taxes and licenses decreased $204,000 for 1994 as compared to 1993 due primarily
to lower gaming taxes as a result of the decrease in Casino revenue compared to
the prior year. This decrease was offset partially by increased payroll
40
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taxes as a result of added corporate and development company level staff and
increased FICA due to tip rate adjustments imposed in January 1994 by the IRS.
Interest expense increased $4,330,000 in 1994, substantially due to the impact
of the additional debt incurred in connection with the First Mortgage Notes; the
First Mortgage Notes interest rate, which is higher than the rate for the
retired bank debt (rates of 12.5% and 8.0%, respectively) that was repaid with a
portion of the proceeds of the offering and the amortization of original issue
discount associated therewith, and the impact on both periods of accrued
interest on prior period tax obligation resulting from an audit by the IRS for
the fiscal years ended January 31, 1980 through December 31, 1983 ($885,000 and
$1,385,000, respectively).
1993 Compared to 1992: Total revenues, net of promotional allowances, for the
- ----------------------
year ended December 31, 1993 as compared to the year ended December 31, 1992,
increased $2,854,000, or 4.5%, primarily as a result of an increase in Casino
revenues which increased $2,717,000 (5.5%). Casino revenue increased primarily
due to increases of $3,128,000 (24.7%) in gross Table Game win and $846,000
(2.6%) in gross Slot win that were offset by a $940,000 (68.9%) decrease in
Poker revenue. Approximately 56% of the increase in gross Table Game win was
attributable to the introduction of a new game, Caribbean Stud Poker, in the
first week of April, 1993. The balance of the increase in gross Table Game win
resulted from a volume increase (4.6%) as well as an increase in the win
percentage (5.8%), while the increase in gross Slot win was due to an increase
in the win percentage (2.6%) which was partially offset by a volume decrease
(1.7%). Poker revenue decreased as a result of management's decision to close
the Four Queens' poker room in February, 1993, to allow the Company to convert
casino floor space to accommodate approximately fifty additional slot machines.
Hotel revenues increased $182,000 (1.9%) from the prior year due primarily to
the combined effects of an increase in room occupancy that was offset to some
extent by a decrease in the average daily room rate. Room occupancy increased
to 92.4% for the year ended December 31, 1993 as compared to an occupancy rate
of 87.4% for 1992, while the average daily room rate decreased 96 cents per day
from the prior year.
Food and Beverage revenues decreased $196,000 (1.5%) for 1993 compared to 1992
due to an increase in food revenue that was more than offset by a decrease in
beverage sales. Food sales increased approximately $137,000 (1.7%) due
primarily to an increase in volume, while beverage sales decreased $333,000
(6.9%) due to a decrease in the number of drinks served.
Total costs and expenses, excluding Interest and Depreciation, increased
$683,000 (1.2%) for 1993 compared to 1992. Operating costs and expenses for the
Casino, Hotel and Food and Beverage departments decreased slightly by $339,000
(0.9%). Taxes and Licenses increased by $392,000 and Selling and General &
Administrative increased by $635,000.
The decrease in operating costs and expenses of $339,000 was primarily due to
increased costs of a fee-based Casino Player program, costs of the Reel Winners
Club, increases in cost of sales for Food and Beverage ($215,000) as well as an
increase in Payroll expenses ($273,000) in the Casino department primarily as a
result of the addition of a new game, Caribbean Stud Poker, in April of 1993,
and to a lesser extent an increase in the volume of play. Savings were obtained
as a result of management's decision to close the Four Queens' poker room in
February, 1993 ($615,000, most of which was payroll related) and the elimination
of afternoon entertainment at the Four Queens in January, 1993 ($369,000).
Taxes and Licenses increased to $7,159,000 in 1993, an increase of $392,000
(5.8%) over 1992. Gaming taxes accounted for approximately one half of the
increase (about $190,000) due to additional taxes incurred as a result of
increased Casino revenues. Most of the remainder of the increase in Taxes and
Licenses resulted from a full year's impact in 1993 of an Internal Revenue
Service tip program that was implemented in July, 1992.
Selling, General and Administrative ("SG&A") expenses increased $635,000 (5.6%)
in 1993. Approximately $708,000 of such increase was due to legal fees incurred
as a result of defense costs associated with the WARN Act litigation which
increased to $816,000 in 1993 from $108,000 in 1992.
41
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In addition to the competition for customers, the new entrants to the Las Vegas
gaming market are also in competition with the Four Queens for its experienced
hotel and casino employees. In July, 1993, management, anticipating such
competition for its entry level through middle management employees, granted
options to purchase a total of 229,500 shares of the Company's common stock to
123 key management and supervisory personnel and in September, 1993, granted
additional options to purchase 100 shares of the Company's common stock to each
of the remaining 1,056 non-management employees. As of January 31, 1994, the
Company's loss of employees as a result of the opening of the new properties on
the Las Vegas Strip has been minimal.
Interest related to prior-period tax obligations and income tax expense
increased $1,172,000 for the year ended December 31, 1993 primarily reflecting a
charge to earnings in the third quarter of 1993 as a result of the Company's
estimated tax liability with respect to fiscal years 1980 through 1983. (See
Note 6 to the Notes to Consolidated Financial Statements).
Interest expense increased $1,132,000 (36.2%) in 1993 from the prior year due to
the impact of the additional debt incurred in the private placement of First
Mortgage Notes which bear a higher interest rate (12.5%) than the interest rate
for the bank debt (8.0%) that was repaid with a portion of the proceeds of the
private placement, as well as the amortization of original issue discount
associated with the First Mortgage Notes.
IMPACT OF INFLATION
The Company does not believe that inflation has had a material impact on
operations during the past three years. Increases in labor, food and beverage
or other operating costs, however, could significantly affect the Company's
operations. In the past the Company has generally been able to increase prices
sufficiently to offset any increases in operating costs. The potential adverse
effects on operations of future price increases must be carefully considered,
however, in light of increased competition for the gaming customer.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
The Company's Consolidated Financial Statements and Schedules are listed and
included under Item 14 of this Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
---------------------------------------------------------------
FINANCIAL DISCLOSURE
- --------------------
None.
42
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
----------------------------------------------
See note at Item 13 below.
ITEM 11. EXECUTIVE COMPENSATION
----------------------
See note at Item 13 below.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
See note at Item 13 below.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
The information required by Items 10, 11, 12 and 13 is incorporated herein by
reference from the Company's proxy statement to be filed with the Securities and
Exchange Commission within 120 days after the end of the fiscal year covered by
this report.
43
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
---------------------------------------------------------------
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A. DOCUMENTS FILED AS PART OF THIS REPORT ON BEHALF OF
ELSINORE CORPORATION AND SUBSIDIARIES:
(I) FINANCIAL STATEMENTS:
Independent Auditors' Report F-1
Consolidated Balance Sheets, December 31, 1994 and 1993 F-2
Consolidated Statements of Operations, Years Ended
December 31, 1994, 1993 and 1992 F-3
Consolidated Statements of Stockholders' Equity, (Deficit)
Years Ended December 31, 1994, 1993 and 1992 F-4
Consolidated Statements of Cash Flows, Years Ended
December 31, 1994, 1993 and 1992 F-5
Notes to Consolidated Financial Statements F-7
(II) FINANCIAL STATEMENT SCHEDULES:
Schedule VIII - Valuation and Qualifying Accounts and
Reserves F-22
Schedules other than those listed above are omitted because they are either
not required or not applicable, or the required information is presented in
the Consolidated Financial Statements.
(III) EXHIBITS:
3.1* Amended and Restated Articles of Incorporation of Elsinore
Corporation [3.1](1)
3.2* Amended and Restated Bylaws of Elsinore Corporation (4)
10.1* Sublease, dated May 26, 1964, by and between A. W. Ham, Jr. and
Four Queens, Inc. [10.1](2)
10.2* Amendment of Sublease, dated June, 15, 1964, by and between A.
W. Ham, Jr. and Four Queens, Inc. [10.2] (2)
10.3* Amendment of Sublease, dated February 25, 1965, by and between
A. W. Ham, Jr. and Four Queens, Inc. [10.3](2)
10.4* Amendment of Sublease, dated January 29, 1973, by and between
A. W. Ham, Jr. and Four Queens, Inc. [10.4](2)
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10.5* Supplemental Lease, dated January 29, 1973, by and between A.
W. Ham, Jr. and Four Queens, Inc. [10.5](2)
10.6* Lease Agreement, dated April 25,1972, by and between Bank of
Nevada and Leon H. Rockwell, Jr., as Trustees of Four Queens,
Inc. [10.6](2)
10.7* Lease, dated January 1, 1978, between Findley Company and the
Company [10.7](2)
10.8* Ground Lease, dated October 25, 1983, between Julia E. Albers,
Otto J, Westlake, Guardian, and Four Queens, Inc. [10.8](2)
10.9* Ground Lease, dated October 25, 1983 between Katherine M.
Purkiss and Four Queens, Inc. [10.9](2)
10.10* Ground Lease, dated October 25, 1983 between Otto J. Westlake
and Four Queens, Inc. [10.10](2)
10.11* Indenture of Lease, dated March 28, 1984, by and between the
City of Las Vegas and Four Queens, Inc. [10.11](2)
10.12* Lease Indenture, dated May 1, 1970, by and between Thomas L.
Carroll, et al. and Four Queens, Inc. [10.12](2)
10.13* Memorandum of Lease, dated January 26, 1973, between President
and Board of Trustees of Santa Clara College and Four Queens,
Inc. [10.13](2)
10.14* Elsinore Corporation 1991 Stock Option Plan (the "1991 Plan")
[10.11](1)
10.15* Form of Option Agreement pursuant to the 1991 Plan. [10.21](2)
10.16* Form of Director and Officer Indemnity Agreement. [10.16](11)
10.17* Elsinore Corporation 1993 Long-Term Stock Incentive Plan (the
"1993 Plan"). [10.23](2)
10.18* Form of Option Agreement pursuant to the 1993 Plan. [10.24](2)
10.19* Agreement, dated January 14, 1993, between Jeanne Hood, the
Company and Four Queens, Inc. [10.25](2)
10.20* Amended and Restated Elsinore Corporation Senior Executive
Severance Plan, dated March 15, 1993. [10.26] (2)
10.21* Form of Amended and Restated Senior Executive Severance
Agreement. [10.27](2)
10.22* Agreement, dated April 28, 1992, by and between Four Queens,
Inc., Jeanne Hood, Edward M. Fasulo and Richard A. LeVasseur.
[10.28](2)
10.23* 1995 Short Term Incentive Plan for Senior Executive, adopted
December 16, 1994 [10.23](11)
10.24* Agreement of Limited Partnership, dated January 28, 1993, by
and between ELSUB Management Corporation and Native American
Casino Corporation. [10.30](2)
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10.25* Incentive Consulting Agreement, dated January 28, 1993, by and
among Palm Springs East, L.P. (the "Partnership"), James G.
Brewer, Donald Wright and Sparkesh Enterprises, Ltd. [10.31](2)
10.26* Revised Management Agreement for Gaming Activities, dated
November 11, 1993 by and between Twenty-Nine Palms Band of
Mission Indians and the Partnership [10.26](5)
10.27* Addendum to Revised Management Agreement for Gaming Activities,
dated January 25, 1994, between Twenty-Nine Palms Band of
Mission Indians and the Partnership [10.27](5)
10.28* Loan Agreement dated November 11, 1993, by and between Twenty-
Nine Palms Band of Mission Indians and the Partnership
[10.28](5)
10.29* Gaming Project Development and Management Agreement, dated
September 28, 1993, by and among Olympia Gaming Corporation,
The Jamestown S'Klallam Tribe and JKT Gaming, Inc., a Tribal
Corporation organized and chartered by the Jamestown S'Klallam
Tribe ("JKT Gaming"). [10.29](5)
10.30* Addendum to Gaming Project and Development Management
Agreement, dated January 28, 1994 by and among Olympia Gaming
Corporation, The Jamestown S'Klallam Tribe and JKT Gaming
[10.30](5)
10.31* Loan Agreement, dated November 12, 1993 by and among The
Jamestown S'Klallam Tribe and JKT Gaming [10.31](5)
10.32* First Amendment to Loan Agreement, dated January 28, 1994 by
and among The Jamestown S'Klallam Tribe and JKT Gaming
[10.32](5)
10.33* Purchase Agreement, dated October 8, 1993, among the Company,
the Guarantors named therein and the Purchasers named therein.
[10.1](3)
10.34* Warrant Agreement, dated as of October 8, 1993, between the
Company and First Trust National Association, as warrant agent.
[10.3](3)
10.35* First Mortgage Notes Registration Rights Agreement, dated as of
October 8, 1993, among the Company, the Guarantors named
therein and the Purchasers named therein. [10.4](3)
10.36* Warrant Shares Registration Rights Agreement, dated as of
October 8, 1993, among the Company and the Purchasers named
herein. [10.5](3)
10.37* Amendment No. 1, dated as of April 21, 1994, to Warrant
Agreement, dated as of October 8, 1993, among the Company and
First Trust National Association, as warrant agent [10.2](6)
10.38* Indenture, dated as of October 8, 1993, by and among Elsinore
Corporation, the Guarantors named therein and First Trust
National Association, as trustee, including the form of
Series B Note registered on Form S-4 dated January 6, 1994.
[10.2](3)
10.39* Escrow and Disbursement Agreement, dated as of October 8,
1993,
</TABLE>
46
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among the Company, First Trust National Association and First
Interstate Bank of Nevada, N.A., as escrow agent. [10.6](3)
10.40* Pledge Agreement, as of dated October 8, 1993, from the Company
and ELSUB Management Corporation to First Trust National
Association [10.7](3)
10.41* Deed of Trust, Assignment of Rents and Security Agreement,
dated as of October 8, 1993, by and among Four Queens, Inc.,
Land Title of Nevada, Inc. and First Trust National Association
[10.8](3)
10.42* Assignment of Operating Agreements, dated as of October 8, 1993
by Palm Springs East Limited Partnership to First Trust
National Association. [10.9](3)
10.43* Assignment of Operating Agreements, dated as of October 8, 1993
by Olympia Gaming Corporation to First Trust National
Association. [10.10](3)
10.44* Supplemental Indenture No. 1, dated as of April 21, 1994, to
the Indenture dated as of October 8, 1993, among the Company,
the Guarantors named therein and First Trust National
Association, as trustee. [10.1](6)
10.45* Operating Agreement of Nashville Nevada LLC. [10.52](9)
10.46* Amendment No. 1 to Operating Agreement of Nashville Nevada LLC.
[10.53](9)
10.47* Hotel/Casino Sublease for Owner-Operator between Mojave Valley
Resort, Inc. and Mojave Valley Resort Casino Company.
[10.54](9)
10.48* Installment Agreement (on Form 433-D) dated December 6, 1994 by
and between the Company and the Internal Revenue Service.
[10.55](10)
10.49* Supplemental Indenture No. 2, dated December 14, 1994, to the
Indenture dated as of October 8, 1993 by and among the Company,
the Guarantors named therein and First Trust National
Association, as Trustee. [10.56](10)
10.50* Amendment no. 1 to Note and Stock Purchase Agreement, dated
December 14, 1994 by and among the Company, the Guarantors
named therein and the Purchasers named therein. [10.57](10)
10.51* First Mortgage Note and Common Stock Exchange Agreement, dated
as of December 29, 1994, by and among the Company, Mojave
Partners, L.P., a Delaware limited partnership, and Edward
Herrick, an individual. [10.51](11)
10.52* Amendment to Agreement, dated January 4, 1994, between Jeanne
Hood, the Company and Four Queens, Inc. [10.52](11)
10.53* Employment Agreement, dated December 5, 1994, between Rudy
Prieto and the Company. [10.53] (11)
10.54* Employment Agreement, dated July 1994, between John Cook and
the Company. [10.54.](11)
</TABLE>
47
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10.55* 1993 Long Term Stock Incentive Plan, as amended and restated on
July 1, 1994. [10.55] (11)
10.56 Restated and Amended Elsinore Corporation Senior Executive
Severance Plan, dated as of March 15, 1993
10.57 Form of Senior Executive Severance Agreement by and between the
Company and certain senior executives.
10.58 Amendment No. 2 to Operating Agreement of Nashville Nevada, L.L.C.,
effective as of September 30, 1994, by and among the Company, Mojave
Gaming, Inc., and Mojave Valley Resort Casino Company, and Nashville
Nevada, L.L.C.
10.59 Note Purchase Agreement, dated as of March 30, 1995, between
the Company and Magnolia Partners, L.P., a Delaware limited
partnership.
10.60 Common Stock Registration rights Agreement, dated as of
March 31, 1995, between the Company and Magnolia Partners, L.P.
10.61 Note Purchase Agreement, dated as of March 30, 1995, between
the Company and Mojave Partners, L.P., a Delaware limited
partnership.
10.62 Common Stock Registration Rights Agreement, dated as of
March 31, 1995, between the Company and Mojave Partners, L.P.
10.63 Note Purchase Agreement, dated as of March 30, 1995, between
the Company and G & O Partners, L.P., a Delaware limited
partnership.
10.64 Note Purchase Agreement, dated as of March 30, 1995, between the
Company and GroRan LLC1, a Delaware limited liability company.
10.65 Note Purchase Agreement, dated as of March 30, 1995, between the
Company and Paul Orwicz.
10.66 Note Purchase Agreement, dated as of March 30, 1995, between the
Company and David Ganek.
10.67 Common Stock Registration Rights Agreement, dated as of
March 31, 1995, between the Company and G & O Partners, L.P.,
GroRan LLC1, Paul Orwicz and David Ganek.
10.68 Stock Pledge Agreement, dated March 31, 1995, by and among the
Company, Magnolia Partners, L.P., Mojave Partners, L.P.,
G & O Partners, L.P., GroRan LLC1, Paul Orwicz and David Ganek.
21.1 List of Subsidiaries.
23.1 Consent of KPMG Marwick
27 Financial Data Schedule.
</TABLE>
*Previously filed with the Securities and Exchange Commission as exhibits to the
document shown below under the Exhibit Number indicated in brackets and
incorporated herein by reference and made a part of hereof:
(1) Annual Report on Form 10-K for the year ended December 31, 1991
(2) Annual Report on Form 10-K for the year ended December 31, 1992
(3) Current Report on Form 8-K dated October 19, 1993
(4) Current Report on Form 8-K dated November 12, 1993
(5) Annual Report on Form 10-K for the year ended December 31, 1993
(6) Current Report on Form 8-K dated April 28, 1994
(7) Registration Statement on Form S-4 filed January 6, 1994
(8) Current Report on Form 8-K dated October 24, 1994
(9) Registration Statement on Form S-2 filed October 24, 1994
(10) Amendment No. 2 to Registration Statement on Form S-2 filed
December 23, 1994
(11) Registration State on Form S-4 filed January 23, 1995
48
<PAGE>
B. REPORTS ON FORM 8-K:
During the fourth quarter of 1994, the Company filed the following Current
Reports on Form 8-K:
Form 8-K dated October 24, 1994
Form 8-K dated November 23, 1994
Form 8-K dated December 6, 1994
49
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
ELSINORE CORPORATION
(Registrant)
By: /s/ Thomas E. Martin
-----------------------------------
THOMAS E. MARTIN, President
Dated: March 31, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities as indicated on March 31, 1995.
/s/ Frank L. Burrell, Jr. /s/ Howard Carlson
- --------------------------------- ------------------------------
Frank L. Burrell, Jr. Howard Carlson
Chairman of the Board of Directors Director
and Chief Executive Officer
/s/ Edward M. Fasulo /s/ Julian H. Levi
- --------------------------------- ------------------------------
Edward M. Fasulo Julian H. Levi
Director Director
/s/ Richard A. LeVasseur /s/ Robert A. McKerroll
- --------------------------------- -------------------------------
Richard A. LeVasseur Robert A. McKerroll
Director Director
/s/ Thomas E. Martin /s/ James L. White
- --------------------------------- ---------------------------------
Thomas E. Martin James L. White
President and Director Treasurer, Chief Financial
(Chief Operating Officer) Officer and Chief Accounting
Officer
50
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INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Elsinore Corporation:
We have audited the consolidated financial statements of Elsinore Corporation
and subsidiaries as listed in the accompanying index. In connection with our
audits of the consolidated financial statements, we also have audited the
financial statement schedule as listed in the accompanying index. These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Elsinore Corporation
and subsidiaries as of December 31, 1994 and 1993, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1994, in conformity with generally accepted accounting
principles. Also in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
The accompanying consolidated financial statements and financial statement
schedule have been prepared assuming that the Company will continue as a going
concern. As discussed in Note 14 to the consolidated financial statements, the
Company has suffered recurring losses from operations, has a net capital
deficiency, has a working capital deficiency, must obtain waivers from
noteholders for debt covenant noncompliance in order to avoid default under
terms of the First Mortgage and Mortgage Notes payable, must negotiate the
termination of the management contract with and repayment of advances to a
Native American tribe, and obtain additional financing to meet its obligations,
all of which raise substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note 14. Additionally, as discussed in Note 7, the Company is involved in
certain litigation, the ultimate outcome of which cannot presently be
determined. The consolidated financial statements and financial statement
schedule do not include any adjustments that might result from the outcome of
these uncertainties.
As discussed in Notes 1 and 6 to the consolidated financial statements, the
Company changed its method of accounting for income taxes in 1992 to adopt the
provisions of the Financial Accounting Standards Board's Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes.
KPMG PEAT MARWICK LLP
Las Vegas, Nevada
March 29, 1995
F-1
<PAGE>
ELSINORE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994 AND 1993
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
CURRENT ASSETS:
Cash and Cash Equivalents $ 3,407 $ 5,114
Accounts Receivable, Less Allowance for
Doubtful Accounts of $214 and $200,
Respectively 742 699
Inventories 396 202
Prepaid Expenses 1,659 1,484
-------- --------
Total Current Assets 6,204 7,499
-------- --------
Cash and Cash Equivalents-Restricted (Note 5) 3,685 25,716
Advances to Native American Tribes 16,952 1,044
Casino Development Costs 1,250 948
Investment in Fremont Street Experience (Note 7) 3,000 1,878
Property and equipment, net (Notes 2, 5 & 8) 28,341 27,168
Leasehold acquisition costs, net 2,354 2,560
Deferred charges and other assets (Note 3) 5,529 5,110
-------- --------
$ 67,315 $ 71,923
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts Payable $ 2,088 $ 2,292
Prior period income taxes and related interest (Note 6) 5,870 5,035
Accrued Expenses 6,442 5,268
Current Portion of Long-Term Debt (Note 5) 2,309 204
-------- --------
Total Current Liabilities 16,709 12,799
-------- --------
Long Term Debt, Net of Current Maturities (Note 5) 52,081 54,368
Deferred Income Taxes (Note 6) 189 189
-------- --------
68,979 67,356
Stockholders' (deficit) equity:
Common stock, $.001 par value per share.
Authorized 100,000,000 shares. Issued
13,135,214 and 12,070,017 shares, respectively 13 12
Additional paid in capital 61,346 58,149
Accumulated deficit (63,023) (53,582)
-------- --------
(1,664) 4,579
Less: cost of common shares in treasury of 0 and 7,853,
respectively - (12)
-------- --------
Net stockholders' (deficit) equity (1,664) 4,567
-------- --------
Commitments and contingencies (Notes 7, 8, 9 and 14).
$ 67,315 $ 71,923
======== ========
</TABLE>
See Notes to Consolidated Financial Statements
F-2
<PAGE>
ELSINORE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
REVENUE:
Casino $ 46,270 $ 51,950 $ 49,233
Hotel 9,234 9,876 9,694
Food & Beverage 12,693 12,495 12,691
Interest and Other 2,020 768 638
Promotional Allowances (7,511) (8,237) (8,258)
NET REVENUE 62,706 66,852 63,998
---------- ---------- ----------
COSTS AND EXPENSES:
Casino 15,665 16,879 17,472
Hotel 9,824 10,096 9,991
Food and Beverage 11,272 10,366 10,217
Taxes and Licenses (Note 10) 6,955 7,159 6,767
Selling, General and Administrative 11,892 11,980 11,345
Rent 3,313 3,153 3,158
Depreciation and Amortization 3,990 3,206 3,302
Interest Related to Prior-Period Tax
Obligation (Note 6) 885 1,385 213
Interest (Note 5) 9,086 4,256 3,124
---------- ---------- ----------
TOTAL COSTS AND EXPENSES 72,882 68,480 65,589
---------- ---------- ----------
Loss Before Income Taxes
and Extraordinary Item (10,176) (1,628) (1,591)
Income Tax Expense (Note 6) - (624) (189)
---------- ---------- ----------
Loss Before Extraordinary Item (10,176) (2,252) (1,780)
Extraordinary Item (Note 12) 735 (285) -
---------- ---------- ----------
Net Loss $ (9,441) $ (2,537) $ (1,780)
========== ========== ==========
Loss Per Common and Equivalent Share:
Loss Before Extraordinary Item $ (.84) $ (.19) $ (.15)
Extraordinary Item (Note 12) .06 (.02) -
---------- ---------- ----------
$ (.78) $ (.21) $ (.15)
========== ========== ==========
Weighted Average Number of Common and
Equivalent Shares Outstanding 12,106,778 12,049,430 12,017,164
========== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
F-3
<PAGE>
ELSINORE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Common Stock Additional
---------------------- Paid-In Accumulated Treasury Net Stockholders'
Shares Amount Capital Deficit Stock Equity (Deficit)
------------ ------- ------------ ----------- -------- -----------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE,
DECEMBER 31, 1991 12,025,017 $ 12 $50,930 $(49,265) $(79) $ 1,598
NET LOSS - - - (1,780) - (1,780)
---------- ---- ------- -------- ---- --------
BALANCE,
DECEMBER 31, 1992 12,025,017 12 50,930 (51,045) (79) (182)
ISSUANCE OF TREASURY
STOCK 45,000 - (22) - 67 45
PROCEEDS FROM ISSUANCE
OF LONG-TERM DEBT
ALLOCATED TO STOCK
PURCHASE WARRANTS
(NOTE 5) - - 7,241 - - 7,241
NET LOSS - - - (2,537) - (2,537)
---------- ---- ------- -------- ---- --------
BALANCE,
DECEMBER 31, 1993 12,070,017 12 58,149 (53,582) (12) 4,567
ISSUE STOCK PURCHASE
WARRANTS TO FIRST
MORTGAGE BONDHOLDERS
(NOTE 5) - - 1,125 - - 1,125
ISSUE 17,000 SHARES,
INCLUDING 7,853 SHARES
HELD IN TREASURY, UPON
EXERCISE OF STOCK OPTIONS 9,147 - 3 - 12 15
ISSUE SHARES AS PARTIAL
CONSIDERATION FOR DEBT
(NOTE 5) 126,050 - 268 - - 268
ISSUE SHARES IN EXCHANGE
FOR FIRST MORTGAGE BONDS
(NOTE 12) 930,000 1 1,801 - - 1,802
NET LOSS - - - (9,441) - (9,441)
----------- ---- ------- -------- ---- --------
BALANCE,
DECEMBER 31, 1994 13,135,214 $ 13 $61,346 $(63,023) $ - $(1,664)
=========== ==== ======= ======== ==== =======
</TABLE>
See Notes to Consolidated Financial Statements
F-4
<PAGE>
ELSINORE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
December 31,
---------------------------------
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net Loss $ (9,441) $ (2,537) $(1,780)
Adjustments to Reconcile Net Loss to Net
Cash Provided by Operating Activities:
Depreciation and Amortization 3,990 3,206 3,302
Amortization of Debt Discount
and Issuance Costs 1,171 446 -
Loss on Disposition of Property and
Equipment - 100 -
Extraordinary Item on Extinguishment
of Debt (735) 285 -
Change in Assets and Liabilities:
Decrease (Increase) in Accounts
Receivable (43) (160) 192
Decrease (Increase) in Inventories (194) 124 (71)
Decrease (Increase) in Prepaid
Expenses (175) (107) 4
Decrease (Increase) in
Other Assets 185 (839) 152
Increase (Decrease) in Accounts
Payable (204) (177) 60
Increase (Decrease) in
Prior-Period Income Taxes and
Related Interest 835 2,009 118
Increase in Accrued Expenses 1,174 1,315 1,393
Increase in Deferred Income Taxes - - 189
-------- -------- -------
Net Cash (Used in) Provided by Operating
Activities (3,437) 3,665 3,559
-------- -------- -------
Cash Flows from Investing Activities:
Advances, Native American projects (15,908) (1,044) -
Casino development costs (302) (690) (258)
Investment in Fremont Street Experience (1,122) (1,878) -
Purchase of property & equipment (4,364) (2,511) (861)
-------- -------- -------
Net Cash Used by Investing Activities (21,696) (6,123) (1,119)
-------- -------- -------
Cash Flows from Financing Activities:
Proceeds from Issuance of Long-Term
Debt 3,000 60,208 -
Debt Issuance Costs (1,416) (3,071)
Principal Payments on Long-Term Debt (204) (31,773) (3,102)
Proceeds from Issuance of Common Stock 15 45 -
-------- -------- -------
Net Cash Provided by (Used in)
Financing Activities 1,395 25,409 (3,102)
-------- -------- -------
Net Increase (Decrease) in
Cash and Cash Equivalents (23,738) 22,951 (662)
Cash and Cash Equivalents at
Beginning of Year 30,830 7,879 8,541
-------- -------- -------
Cash and Cash Equivalents at
End of Year (Including Restricted Amounts
of $3,685 and $25,716 as of
December 31, 1994 and 1993, Respectively) $ 7,092 $ 30,830 $ 7,879
======== ======== =======
</TABLE>
See Notes to Consolidated Financial Statements
F-5
<PAGE>
ELSINORE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
The Company paid $7,750,000, $2,270,000, and $3,029,000 for interest in 1994,
1993 and 1992, respectively, and $50,000, $20,000 and $95,000 for income taxes
in 1994, 1993 and 1992, respectively.
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING AND INVESTING ACTIVITIES:
The Company acquired equipment in the amounts of $0, $613,000 and $316,000 in
1994, 1993 and 1992, respectively, which were financed through short-term
installment purchase contracts.
The Company reduced equipment and related accumulated depreciation by
$1,909,000, $195,000 and $913,000 to reflect the write-off of fully depreciated
assets taken out of service during 1994, 1993 and 1992, respectively.
In connection with the Private Placement in 1993 of the Company's 12.5% First
Mortgage Notes due 2000 (See Note 5), the Company recorded a discount on the
notes and increased additional paid-in capital by $7,241,000, the fair market
value of the stock purchase warrants issued with the notes.
In connection with the issuance in 1994 of 750,000 stock purchase warrants, the
Company recorded a discount on the notes and increased additional paid-in
capital by $1,125,000, the fair market value of the stock purchase warrants
issued with the notes.
In connection with the Private Placement in 1994 of the Company's 20.0% Mortgage
Notes due 1996, the Company recorded a discount on the notes and increased
additional paid-in capital by $268,000.
See Notes to Consolidated Financial Statements
F-6
<PAGE>
ELSINORE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of Elsinore
Corporation and its wholly-owned subsidiaries.
All material intercompany balances and transactions have been eliminated in
consolidation.
Accounting for Casino Revenue and Promotional Allowances:
In accordance with industry practice, the Company recognizes as casino revenue
the net win from gaming activities, which is the difference between gaming wins
and losses. The retail value of complimentary food, beverages and hotel
services furnished to customers is included in the respective revenue
classifications and then deducted as promotional allowances. The estimated costs
charged to the casino department related to providing complimentaries were as
follows:
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------
1994 1993 1992
------- ------- -------
(Dollars in Thousands)
<S> <C> <C> <C>
Rooms $2,179 $2,439 $1,988
Food & Beverage 5,022 4,898 4,686
------ ------ ------
Total $7,201 $7,337 $6,674
====== ====== ======
</TABLE>
CASH EQUIVALENTS:
Cash equivalents are comprised of commercial paper and repurchase agreements
which are stated at cost, which approximates market, and have a maturity date of
three months or less at date of purchase.
INVENTORIES:
Inventories are stated at the lower of cost (first-in, first-out) or market.
PROPERTY AND EQUIPMENT:
Property and equipment are stated at cost. Depreciation is provided over the
estimated useful lives of the assets using the straight-line method. Useful
lives range from 8 to 40 years. Equipment held under capital lease is recorded
at the net present value of minimum lease payments at inception and is amortized
over the useful lives of the related assets.
LEASEHOLD ACQUISITION COSTS:
The costs of acquiring leasehold interests are deferred and amortized using the
straight-line method over the lesser of the term of the lease or the useful life
of the property. Accumulated amortization was $4,485 and $4,278 at December 31,
1994 and 1993, respectively.
AMORTIZATION OF DEBT DISCOUNT AND ISSUANCE COSTS:
Original issue discount is amortized over the life of the related indebtedness
using the effective interest method.
Costs associated with the issuance of the debt have been deferred and are being
amortized over the life of the related indebtedness using the straight-line
method.
F-7
<PAGE>
ELSINORE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
CASINO DEVELOPMENT COSTS:
Casino development costs consist of costs incurred by the Company in connection
with the development of the Palm Springs and Washington Casinos (See Note 7) and
legal and other costs incurred to secure the management contracts with the
respective Indian Tribes and to obtain necessary federal and state regulatory
approvals. Pursuant to the respective management contracts, costs incurred by
the Tribes (as defined in the agreements) to construct and develop the casinos
will be loaned to the Tribal enterprises in the form of promissory notes.
Amounts advanced to the Tribes for the years ended December 31, 1994, and 1993
were $16,952,000 and $1,044,000, respectively. Other casino development costs
associated with management of the Native American owned casinos are deferred and
are amortized over the five year terms of the related management contracts.
INCOME TAXES:
In February 1992, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." Statement 109 requires a change from the deferred method of accounting
for income taxes of APB Opinion 11 to the asset and liability method of
accounting for income taxes. Under the asset and liability method of Statement
109, deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Under Statement 109, the effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date.
Effective January 1, 1992, prospectively, the Company adopted Statement 109 and
there was no cumulative effect of that change in the method of accounting for
income taxes in the 1992 consolidated statement of operations.
LOSS PER SHARE:
Loss per share has been computed by dividing net loss by the weighted average
common shares and common share equivalents outstanding during the year.
RECLASSIFICATION:
Certain items in the 1993 and 1992 financial statements have been reclassified
for comparability with the 1994 presentation.
F-8
<PAGE>
ELSINORE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
2. PROPERTY AND EQUIPMENT, NET:
Property and equipment, net, consists of the following:
<TABLE>
<CAPTION>
December 31,
-------------------------
1994 1993
------------- ---------
(Dollars in Thousands)
<S> <C> <C>
Land $ 1,275 $ 1,275
Buildings 39,041 36,861
Equipment 24,121 23,197
Construction in Progress 161 810
-------- -------
64,598 62,143
Less Accumulated Depreciation
and Amortization 36,257 34,975
-------- -------
$ 28,341 $27,168
======== =======
</TABLE>
3. OTHER ASSETS:
Other assets consist of the following:
<TABLE>
<CAPTION>
December 31,
--------------------
1994 1993
-------- -------
(Dollars in Thousands)
<S> <C> <C>
Debt Issuance Costs, Net $ 3,365 $ 2,966
Deposits and Other 2,164 2,144
-------- -------
$ 5,529 $ 5,110
======== =======
</TABLE>
4. ACCRUED EXPENSES:
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
December 31,
--------------------
1994 1993
-------- -------
(Dollars in Thousands)
<S> <C> <C>
Salaries and Wages $ 1,448 $ 1,435
Payroll Taxes and Related Benefits 690 876
Accrued Interest 2,063 1,834
Other 2,241 1,123
-------- -------
$ 6,442 $ 5,268
======== =======
</TABLE>
5. LONG-TERM DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
--------------------
1994 1993
-------- -------
(Dollars in Thousands)
<S> <C> <C>
12.5% First Mortgage Notes Payable,
Net of $6,646 Unamortized Discount $ 50,354 $53,018
20% Mortgage Notes Payable,
Net of $313 Unamortized Discount 2,687 -
Capital Lease Obligations 1,349 1,554
-------- -------
54,390 54,572
Less Current Portion (2,309) (204)
-------- -------
$52,081 $54,368
======== =======
</TABLE>
F-9
<PAGE>
ELSINORE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
FIRST MORTGAGE NOTES
On October 8, 1993, the Company completed a private placement of the Company's
12.5% First Mortgage Notes due 2000 (the "First Mortgage Notes") and warrants
(the "Warrants") to purchase common stock, par value $.001 per share ("Common
Stock"), of the Company. The net proceeds of the offering were approximately
$57.4 million. Approximately $26.7 million of the net proceeds were used to
repay outstanding bank debt and the remaining $30.7 million was deposited in
segregated accounts (the "Escrow Account") pending disbursement pursuant to the
terms of an Escrow and Disbursement Agreement, dated as of October 8, 1993,
among the Company, First Trust National Association (the "Trustee") and First
Interstate Bank of Nevada, N.A., as escrow agent (the "Escrow and Disbursement
Agreement"). The amount of $3,685,000 held in the Escrow Account at December 31,
1994 is included in "Cash and Cash Equivalents --Restricted" in the accompanying
December 31, 1994 consolidated balance sheet. This amount was available for the
following uses: (i) $86,000 to fund the upgrading and refurbishment of the Four
Queens Hotel and Casino, (ii) $2,190,000 to fund loans and other advances for
the purpose of financing the construction and development of the Spotlight 29
Casino, and (iii) $1,409,000 to fund loans and other advances for the purpose of
financing the construction and development of the 7 Cedars Casino. The Company
anticipates that all of the funds will be utilized for the intended purposes by
the end of the first quarter of 1995. In December 1994, $3,000,000 aggregate
principal amount of the First Mortgage Notes were redeemed and retired, in
consideration for which the Company issued to the noteholder 930,000 shares of
Common Stock. At March 15, 1995, the Warrants had an exercise price of $5.29 per
share of Common Stock, will expire on October 8, 1998, and are exercisable for
approximately 3,100,340 shares of Common Stock, subject to certain anti-dilution
adjustments.
MORTGAGE NOTES
On October 14, 1994, the Company completed a private placement of $3,000,000
aggregate principal amount of its 20% Mortgage Notes due 1996 (the "Mortgage
Notes"). Substantially all of the net proceeds thereof were used for debt
service and working capital purposes, including payment of the October 1994
interest installment due on the First Mortgage Notes. In connection with
issuing the Mortgage Notes, the Company paid certain customary fees and expenses
of the purchasers, and issued to the purchasers an aggregate of 126,050 shares
of Common Stock. The purchasers also received registration rights under the
federal securities laws with respect to such shares, which rights were exercised
by the purchasers on March 7, 1995.
TERMS OF SECURITIES
FIRST MORTGAGE NOTES. The First Mortgage Notes have an initial aggregate
principal amount of $60 million ($57 million as of December 30, 1994), bear
interest at an annual rate of 12.5% and mature on October 8, 2000. The First
Mortgage Notes are unconditionally guaranteed (the "FMN Guaranties") as to
principal, premium, if any, and interest by all existing material subsidiaries
(other than Mojave Gaming) and all future subsidiaries of the Company, unless
designated to be unrestricted subsidiaries (the "FMN Guarantors"). The First
Mortgage Notes and the FMN Guaranties will, subject to certain exceptions
(including the Mortgage Notes, as discussed below), rank pari passu with all
existing and future senior indebtedness of the Company and the FMN Guarantors,
respectively. The First Mortgage Notes and the FMN Guaranties were issued
pursuant to the terms of an Indenture (the "Indenture"), dated as of October 8,
1993 among the Company, the FMN Guarantors and the Trustee.
The Indenture contains certain covenants relating to maintenance of the Native
American casino management contracts, maintenance of net worth, and maintenance
F-10
<PAGE>
ELSINORE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
of the specified fixed charge coverage ratio as well as restrictions on, among
other things, the incurrence of additional debt, liens and the payment of
dividends. Certain of these covenants (including the net worth and fixed charge
coverage ratio maintenance covenants) become effective beginning the quarter
after completion of the Company's Native American casino projects, i.e., the
second quarter of 1995.
On April 20, 1994, the company reached an agreement with the holders of the
First Mortgage Notes to amend the Indenture in order to extend the deadlines by
which the Company was required to obtain all federal statutory approvals and to
complete construction and open each of the Native American casinos. All
requisite regulatory approvals were received from the NIGC and both the Palm
Springs Casino and the Washington Casino were completed and opened by the
extended deadlines.
As consideration for obtaining the consent of First Mortgage Noteholders to the
Indenture amendments, the Company issued to First Mortgage Noteholders warrants
(the "Consent Warrants") to purchase an aggregate of 750,000 shares of Common
Stock, at an exercise price of $3.25 per share (the "Exercise Price"). The
Consent Warrants expire on October 8, 1998. The Company is entitled to redeem
the Consent Warrants, unless earlier exercised, at a price equal to their
exercise Price per share at any time from and after the 15th business day
following the mailing of a notice by the Company to the holders of the Consent
Warrants that, from and after April 7, 1996, the closing trading price of the
Common Stock has equaled or exceeded 200% of the Exercise Price for any 20
trading days within a period of any 30 consecutive trading days.
The First Mortgage Notes are secured by (i) a pledge of the stock of all of the
FMN Guarantors and all future subsidiaries of the Company, in each case subject
to obtaining certain required regulatory approvals, and all intercompany notes,
(ii) a first priority security interest in, subject to certain limitations,
substantially all of the assets of Four Queens, Inc., other than equipment and
other assets financed by third party lenders, (iii) a collateral assignment of
all of the Company's rights and interests under the management contracts with
respect to the Palm Springs Casino and the Washington Casino, (iv) an exclusive
security interest in the segregated account in which the proceeds of the
Offering will be held pending disbursement pursuant to the terms of the Escrow
and Disbursement Agreement, (v) an exclusive security interest in the segregated
account in which the proceeds of certain asset sales will be held pending
disbursement pursuant to the terms of the Escrow and Disbursement Agreement, and
(vi) an exclusive security interest in a portion of the segregated account to
fund certain lease payments on behalf of Four Queens, Inc. pursuant to the terms
of the Escrow and Disbursement Agreement.
The First Mortgage Notes are redeemable at the option of the Company, in whole
or in part, at any time on or after October 1, 1996, at a premium to the
principal amount thereof, declining ratably from 106.25% to par on or after
October 1, 1999. Pursuant to the Indenture, the First Mortgage Notes are also
redeemable at par, at any time, upon the occurrence of certain gaming regulatory
events.
Beginning in the years ending after December 31, 1993, the Company will (subject
to certain gaming regulatory requirements) be required to offer to repurchase
the portion of the principal amount of the First Mortgage Notes then outstanding
equal to 50% of the Company's prior fiscal year Excess Available Cash Flow (as
defined in the Indenture), at 101% of the principal amount thereof, plus accrued
interest.
F-11
<PAGE>
ELSINORE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
The Indenture includes other covenants of the Company and the Guarantors
including, among other things, insurance, maintenance of net worth, maintenance
of fixed charge coverage ratio and limitations on: occurrence of additional
indebtedness, liens, change of control, dividends and other restricted payments
and investments, transactions with affiliates, consolidations, mergers and sales
of assets, restrictions on subsidiary dividends, lines of business and use of
proceeds.
MORTGAGE NOTES. The Mortgage Notes have an aggregate principal amount of $3
million and bear interest at 20% per annum, payable quarterly commencing
December 31, 1994. The Mortgage Notes will mature on March 31, 1996 with
interim mandatory redemptions of $750,000 due on each of June 30, September 30,
and December 31, 1995. The Mortgage Notes were issued pursuant to the terms of
a Note and Stock Purchase Agreement (the "Purchase Agreement"), dated as of
October 11, 1994, among the Company, the Guarantors named therein and the
Purchasers named therein. The holders of the Mortgage Notes were granted
certain rights under the Purchase Agreement, substantially similar to those of
the First Mortgage Noteholders under the Indenture, which would require the
Company to repurchase the Mortgage Notes at 101% of their principal amount upon
occurrence of certain events.
Like the First Mortgage Notes, the Mortgage Notes are unconditionally guaranteed
(the "Subsidiary Guarantees") as to principal, premium, if any, and interest by
all existing material subsidiaries (other than Mojave Gaming) and all future
subsidiaries of the Company unless designated to be unrestricted subsidiaries
(the "Guarantors").
In order to induce the Purchasers to purchase the Mortgage Notes and to secure
the Company's and Guarantors' payment and other obligations under the Mortgage
Notes and the Purchase Agreement, the Company (or a Guarantor as applicable)
granted to the Purchasers (i) a first priority security interest in certain
existing and future property of the Company, including the shares of common
stock held by the Company in its subsidiaries, the real property of Four Queens
and substantially all other property previously pledged (or required to be
pledged) as collateral under the Indenture (collectively, the "Purchasers'
Security Interest"), (ii) a first priority lien on the proceeds in the accounts
established under the First Mortgage Notes disbursement and escrow agreement
(the "Purchasers' Lien"), and (iii) an assignment of the income and proceeds
from the casino management contracts and other operating agreements relating to
the Spotlight 29 Casino and the 7 Cedars Casino projects (the "Purchasers'
Assignment"), in addition to certain other rights and remedies under the
Purchase Agreement. The Purchasers' Security Interest, Purchasers' Lien and
Purchasers' Assignment are senior to the liens under the mortgage that secures
the First Mortgage Notes.
The execution, delivery, and performance by the Company and the Guarantors of
the Purchase Agreement, including without limitation the sale of the Mortgage
Notes, conveyance of the Purchasers' Security Interest, Purchasers' Lien, and
Purchasers' Assignment, and issuance of the Subsidiary Guarantees (collectively,
the "Mortgage Note Transactions") required a waiver in accordance with the
provisions of the Indenture, which waiver was obtained in a timely manner.
AGGREGATE PRINCIPAL MATURITIES
Aggregate principal maturities of long term debt as of December 31, 1994 are as
follows:
F-12
<PAGE>
ELSINORE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
Years Ending December 31, (Dollars in Thousands)
- ------------------------- ----------------------
<S> <C>
1995 $ 2,309
1996 795
1997 41
1998 1
1999 2
Thereafter 58,201
Less: Unamortized Discount (6,959)
-------
$54,390
=======
</TABLE>
6. INCOME TAXES:
Income tax expense differed from the amounts computed by applying the U.S.
federal income tax rate of 34% to loss before income taxes and extraordinary
item as a result of the following:
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------
1994 1993 1992
---- ----- -----
(Dollars in Thousands)
<S> <C> <C> <C>
Computed "Expected" Tax Benefit $(3,460) $(554) $(541)
Effect of Loss Carried Forward 554 541
Accrual of Revised Estimate of Prior-
Period Income Taxes 3,460 624 -
Provision for Future Alternative
Minimum Taxes - - 189
------- ----- -----
$ - $ 624 $ 189
======= ===== =====
</TABLE>
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities are presented below:
<TABLE>
<CAPTION>
December 31,
----------------------
1994 1993
---- --------
(Dollars in Thousands)
<S> <C> <C>
Deferred Tax Assets:
Accounts Receivable Principally Due to
Allowance for Doubtful Accounts $ 73 $ 68
Accrued Compensation, Principally Due to
Accrual for Financial Reporting Purposes 530 516
Progressive Slot Accrual 45 107
Interest Accrued on Prior-Period Income Taxes - -
Net Operating Loss Carryforwards 34,328 30,667
General Business Credit Carryforward,
Principally Due to Investment Tax Credit
Generated in Prior Years 640 640
Alternative Minimum Tax (AMT) Credit Carry-
forward from AMT Paid in Prior Years 253 253
Contribution Deduction Carryforward, Principally
Due to Amounts not Deductible in Prior Periods 50 50
Tax Loss Due to Sale of New Jersey
Subsidiaries in Prior Periods 685 731
-------- --------
Total Gross Deferred Tax Assets 36,604 33,032
Less Valuation Allowance (32,402) (28,220)
-------- --------
Net Deferred Tax Assets 4,202 4,812
-------- --------
</TABLE>
F-13
<PAGE>
ELSINORE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
<TABLE>
<S> <C> <C>
Deferred Tax Liabilities:
Plant and Equipment, Principally Due to
Differences in Depreciation (4,391) (4,586)
-------- --------
Prepaid Expenses, Principally Due to
Deduction for Tax Purposes - (415)
-------- --------
Total Gross Deferred Tax Liabilities (4,391) (5,001)
-------- --------
Net Deferred Tax Liability $ (189) $ (189)
======== ========
</TABLE>
Management has re-evaluated transactions which occurred in prior years and
estimated the effects of the IRS examination discussed below and as a result
believes the Company's total net operating loss carryforward for tax purposes is
approximately $101,000,000 at December 31, 1994. As a result of ownership
changes in prior years, Internal Revenue Code Section 382 limits the amount of
loss carryforward currently available to offset federal taxable income. At
December 31, 1994, the amount of loss carryforward not limited by Section 382
and therefore available to offset current federal taxable income is
approximately $38,000,000. The amount of the loss carryforward which is not
limited by Section 382 increases annually by $4,653,000. The loss carryforwards
begin to expire in the year 1999 and will be completely expired by 2007.
The Company has general business tax credit carryforwards for federal income tax
purposes which have also been adjusted to reflect the IRS examination, of
approximately $640,000 which are available to reduce future federal income
taxes, if any, through 1999. In addition, the Company has alternative minimum
tax credit carryforwards of approximately $253,000 which are available to reduce
future federal regular income taxes, if any, over an indefinite period.
The Company and its subsidiaries file a consolidated federal income tax return.
In August 1984, the IRS commenced an examination of the Company's consolidated
income tax returns for the fiscal years ended January 31, 1980, 1981 and 1982,
and in October 1988 commenced examinations of the fiscal year ended January 31,
1983 and the eleven months ended December 31, 1983. As a result of its
examination, the IRS proposed certain adjustments for the fiscal years ended
January 31, 1980, 1981 and 1982 regarding the deductibility of pre-opening costs
associated with the Atlantis facility (a former Atlantic City New Jersey hotel
casino operated by the Company) and utilization of certain investment tax
credits regarding the Four Queens and Atlantis facilities. In October 1994, the
IRS completed and delivered to the Company a final assessment (the "IRS
Assessment") relating to such adjustments and in November 1994, the IRS filed
and recorded a Notice of Tax Lien against the Company and its subsidiaries in
the amount of the IRS Assessment. The IRS Assessment called for the Company to
pay aggregate tax and interest of approximately $5.7 million (exclusive of
interest accruing during any period of repayment), in addition to $3.5 million
the Company deposited with the IRS in March 1991. The Company has accrued a
liability of $5,870,000, as of December 31, 1994 of which approximately
$885,000, $2,009,000, and $213,000, was charged to earnings in the years ended
December 31, 1994, 1993 and 1992, respectively, for taxes and related interest
and the remainder of which was an adjustment to periods prior to 1992. The
Company believes that it has available sufficient net operating loss ("NOL")
carryforwards to satisfy any tax liabilities with respect to periods subsequent
to 1983. On December 6, 1994, the Company and the IRS entered into an
installment payment agreement (the "Installment Agreement") pursuant to which
the Company paid the IRS $1 million on February 1, 1995, and an additional
$275,000 on March 1, 1995, and will pay the balance of the IRS Assessment, plus
additional accrued interest, in monthly
F-14
<PAGE>
ELSINORE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
installments of $275,000 (increasing to $550,000 on May 1, 1995) during the
remainder of 1995.
Of the $2,009,000 of prior-period income taxes and related interest charged to
earnings in the year ended December 31, 1993, $1,743,000 represents a change in
management's estimate of the impact of the aforementioned IRS examinations based
upon additional adjustments brought to management's attention in a revenue
agent's report received in October 1993. The $1,743,000 is comprised of prior
period income taxes of $624,000 and related interest of $1,119,000.
7. COMMITMENTS AND CONTINGENCIES:
FREMONT STREET EXPERIENCE
- -------------------------
The Company and seven other downtown Las Vegas property owners who together
operate ten casinos, have formed the Fremont Street Experience Corporation
(FSEC), a limited liability company of which the Company is a one-sixth owner,
to develop a "celestial vault" over Fremont Street which will be resurfaced and
closed to through traffic from Main Street to Fourth Street to create a
"pedestrian mall" concept. The Company's capital contribution for its one-sixth
ownership of FSEC is $3,000,000, and has been contributed as of January, 1994.
The project, as well as a 1,600 space parking facility, is under construction
with completion expected in late fall or winter of 1995. The investment is
accounted for using the cost method.
LEGAL PROCEEDINGS
- -----------------
The Company is a defendant in two consolidated lawsuits pending in the Federal
Court for the District of New Jersey, alleging violation by the Company and
certain of its subsidiaries and affiliates of the WARN Act and breach of
contract. The Company has vigorously defended the action on, among other
grounds, the basis that the Company is not responsible for claims against
affiliates and even if the WARN Act does apply as a matter of law to a
regulatory-forced closing, such closing, as a matter of fact, was due to
unforeseeable business circumstances and accordingly, the notice given was as
timely as practicable. The trial concluded August 11, 1993 and no decision has
yet been rendered by the court.
On March 16, 1995, Elsinore Corporation, its wholly owned subsidiary, Elsub
Management Corporation, and Palm Springs East Limited Partnership, of which
Elsub Management is the General Partner, filed a complaint against the 29 Palms
Band in the United States District Court for the Central District of California,
case no. CV 95-1669-RG(MCx). The complaint seeks injunctive and declaratory
relief based upon the tribe's breach of the Spotlight 29 management contract.
Plaintiffs allege that the tribe breached the contract when it installed "pull-
tab" video gaming machines at the casino without the plaintiffs' consent and
without any involvement whatsoever by the plaintiffs in the operation of the
machines. The complaint alleges that these actions violated the terms of the
contract which give plaintiffs the exclusive right to manage and operate the
casino and violated the contract's non-compete provisions. The complaint states
that plaintiffs did not, and could not, consent to the installation and
operation of the machines at the casino because the State of California has
expressed a legal position that, because such machines are Class III gaming
devices under the IGRA, their operation on Native American reservations in
California is illegal. Moreover, because plaintiffs are subject to regulation by
Nevada gaming authorities which require that plaintiffs' conduct conform to the
laws of the State of California and the IGRA, plaintiffs' consent to the
installation or involvement in the operation of the gaming devices at Spotlight
29 could subject them to disciplinary action by the Nevada gaming
F-15
<PAGE>
ELSINORE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
authorities. Consequently, plaintiffs filed the complaint to obtain a judicial
declaration as to whether "pull-tab" video gaming devices are legal on tribal
lands in California and, unless they are declared legal, to enjoin the operation
of such devices at Spotlight 29.
In April and May 1993, two class action lawsuits were filed in the United States
District Court, Middle District of Florida, against 41 manufacturers,
distributors and casino operators of video poker and electronic slot machines,
including the Company. The suits allege that the defendants have engaged in a
course of fraudulent and misleading conduct intended to induce persons to play
such games by collectively misrepresenting how the game machines operate, as
well as the extent to which there is an opportunity to win. It also alleges
violations of the Racketeer Influenced and Corrupt Organizations Act, as well as
claims of common law fraud, unjust enrichment and negligent misrepresentation,
and seeks damages in excess of $6 billion. On December 9, 1994, the Florida
Court ordered that the consolidated cases be transferred to the United States
District Court for the District of Nevada. That transfer has occurred and the
Nevada Court has assumed control of the cases. The new case number is CV-S-94-
1126-LDG(RJJ). Numerous defendants (including the Company) have moved to dismiss
the complaint for failure to state a claim. No hearing has been set on this
motion. The plaintiffs have filed a motion seeking to certify the consolidated
actions as a class action. The defendants (including the Company) have opposed
certification of the class. No hearing date has been set on this motion.
Management believes that the claims are wholly without merit and does not expect
that the lawsuit will have a material adverse effect on the Company's financial
statements taken as a whole.
In December, 1994, the Cabazon Tribe, which operates a casino on its tribal
lands in the vicinity of the 29 Palms Band, filed a lawsuit against the NIGC in
the Federal District Court for the District of Columbia and unsuccessfully
sought a temporary restraining order to enjoin completion of Spotlight 29. The
Company believes the suit, which alleged violation by the NIGC of certain
environmental law standards, is wholly without merit and will not be litigated
further by the Cabazon Tribe.
At December 31, 1994, the Company and its subsidiaries were parties to various
other claims and lawsuits arising in the normal course of business. While the
amounts claimed in some instances are substantial and ultimate liability with
respect to such claims cannot be determined, management is of the opinion that
the resolution of all pending matters will not have a material adverse effect
upon the Company's financial statements taken as a whole.
LIABILITY FOR PRIOR PERIOD TAX; IRS INSTALLMENT AGREEMENT
In October 1994, the IRS completed and delivered to the Company a final
assessment (the "IRS Assessment") relating to certain adjustments to the
Company's taxable income for the fiscal years ended January 31, 1980, through
December 31, 1983 (which the IRS had under audit). In November 1994, the IRS
filed and recorded a Notice of Tax Lien against the Company and its subsidiaries
in the amount of the IRS Assessment. The IRS Assessment called for the Company
to pay aggregate tax and interest of approximately $5.7 million (exclusive of
interest accruing during any period of repayment), in addition to $3.5 million
the Company deposited with the IRS in March 1991. In the third quarter of 1994,
the Company recorded an additional liability of $377,000 necessary to cover the
full amount of tax and interest identified in the IRS Assessment. The issuance
of the IRS Assessment and the Notice of Tax Lien contravened Elsinore's covenant
under its debt facilities to timely pay its tax liabilities and not to incur
additional liens under its debt facilities; the debt covenant noncompliance was
waived by the noteholders on December 2, 1994.
F-16
<PAGE>
ELSINORE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
On December 6, 1994, the Company and the IRS entered into an installment payment
agreement (the "Installment Agreement") pursuant to which the Company paid the
IRS $1 million on February 1, 1995, and an additional $275,000 on March 1, 1995,
and will pay the balance of the IRS Assessment, plus additional accrued
interest, in monthly installments of $275,000 (increasing to $550,000 on May 1,
1995) during the remainder of 1995. Elsinore applied a portion of the proceeds
from the Equity Offering toward its initial payment under the Installment
Agreement. However, the proceeds from the Equity Offering will not be
sufficient to enable the Company to both fully pay the IRS Assessment and fully
meet its debt service and capital expenditure requirements in 1995. The Company
anticipates, based upon its recent results of operations, that additional
financing will be required in order for the Company to perform under the IRS
Installment Agreement and satisfy its other working capital requirements in
1995. There is no assurance that such additional financing, if any, will be
sufficient to fully perform under the Installment Agreement, or that the IRS
will not levy upon the Company's property or take other action to enforce the
tax lien. Such action by the IRS would violate the Company's debt covenants
under the First Mortgage Notes and Mortgage Notes.
NATIVE AMERICAN CASINO PROJECTS
PALM SPRINGS. The Company, through its wholly owned subsidiary, Elsub
Management Corporation, is the general partner with a 90% interest in Palm
Springs East Limited Partnership, a limited partnership that has a management
contract with the Twenty-nine Palms Band of Mission Indians to manage a casino
facility (the "Palm Springs Casino") of approximately 74,000 square feet located
on tribal land near Palm Springs, California. This facility cost approximately
$10 million to construct and opened January 14, 1995. Funds for construction of
the facility were secured through the issuance of the 12.5% First Mortgage Notes
due 2000 (See Note 5). As of December 31, 1994, approximately $2,190,000 of
such funds were in an escrow account and were restricted as to their use for the
construction of the Palm Springs Casino facility (See Note 5).
WASHINGTON STATE. The Company, through its wholly owned subsidiary, Olympia
Gaming Corporation ("Olympia Gaming"), has a management contract with the
Jamestown S'Klallam Tribe for the management of a casino facility (the
"Washington Casino") of approximately 54,000 square feet located on tribal land
on the northeast portion of the Olympic Peninsula, 70 miles northwest of
Seattle, Washington. This facility cost approximately $9 million to construct
and opened February 3, 1995. Funds for the construction of the facility were
secured through the issuance of the 12.5% First Mortgage Notes due 2000 (See
Note 5). As of December 31, 1994, $1,409,000 of such funds were in an escrow
account and were restricted as to their use for the construction of the
Washington Casino facility (See Note 5).
MOJAVE VALLEY RESORT AND NASHVILLE NEVADA
Mojave Valley Resort is being developed by J.F. Temple Development ("Temple"), a
developer of resorts in the Palm Springs area, as a master-planned resort
featuring up to seven casino/hotels, two championship golf courses, a marina,
facilities for up to 1,300 recreational vehicles, commercial facilities and
approximately 4,000 units of single and multi-family housing. The resort will
be located on land leased from the Fort Mojave Tribe along the Colorado River at
the southern tip of Nevada, six miles south of Laughlin. Elsinore and Temple
have agreed to develop and own up to four casino/hotels at Mojave Valley Resort.
Elsinore will manage each property developed under this agreement. Subject to
obtaining the necessary debt and equity financing for the project, the first
casino/hotel planned to open will be the Nashville Nevada, which is expected to
feature approximately 500 hotel rooms and 32,500 square feet of gaming space,
including approximately 1,050 slot machines, as well as restaurants and other
F-17
<PAGE>
ELSINORE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
nongaming amenities. The total project cost of Nashville Nevada is expected to
be approximately $65.5 million. If the necessary financing can be arranged,
construction of Nashville Nevada is expected to begin as soon as practicable
thereafter. Upon obtaining the necessary project financing for Nashville
Nevada, the Company will acquire option rights from Temple to develop up to
three additional casino/hotel projects on tribal lands at the Mojave Valley
Resort (the "Development Option").
Temple and the Company have agreed in March 1995 to extend until September 30,
1995, the date by which the Company must complete its $10 million capital
contribution and obtain the remaining $55.5 million of non-recourse debt
financing for the Nashville Nevada project. In consideration for such extension,
the Company will assume Temple's obligation to pay approximately $47,000 in
current property taxes, an additional $47,000 in property taxes in the event the
Nashville Nevada project financing is not in place by September 15, 1995, and
$75,000 in lease payments relating to the Mojave Valley Resort; in addition, the
Company will loan to Temple up to approximately $150,000 to enable Temple to pay
its requisite share of pre-effective date expenses regarding the Nashville
Nevada project, which loan Temple will be obligated to repay if financing for
the project is completed. There is no assurance, however, that the Company or
Temple will be able to obtain the equity or debt financing necessary to commence
construction of the project by the extended deadline or at all. Accordingly,
there is significant uncertainty whether the Nashville Nevada project will be
completed or option rights to develop additional projects at the Resort will be
obtained.
8. LEASES:
All non-cancelable leases have been classified as capital or operating leases.
At December 31, 1994, the Company had leases for real and personal property
which expire in various years through 2075. Under most leasing arrangements,
the Company pays the taxes, insurance, and the operating expenses related to the
leased property. Certain leases on real property provide for adjustments of
rents based on the cost-of-living index. Buildings and equipment leased under
capital leases, included in property and equipment, are as follows:
<TABLE>
<CAPTION>
December 31,
------------------------
1994 1993
----------- ----------
(Dollars in Thousands)
<S> <C> <C>
Building $ 2,051 $ 2,051
Equipment 1,972 1,972
------- --------
4,023 4,023
Less Accumulated Amortization (1,642) (1,355)
------- --------
$ 2,381 $ 2,668
======= ========
</TABLE>
Amortization of assets leased under capital leases is included with depreciation
and amortization expense in the Consolidated Statements of Operations.
The following is a schedule of future minimum lease payments for capital and
operating leases (with initial or remaining terms in excess of one year) as of
December 31, 1994:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
--------- ----------
(Dollars in Thousands)
<S> <C> <C>
Years Ending December 31,
1995 $ 255 $ 3,706
</TABLE>
F-18
<PAGE>
ELSINORE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
<TABLE>
<S> <C> <C>
1996 242 3,710
1997 231 3,573
1998 179 2,737
1999 178 2,292
Thereafter 5,897 102,280
------- --------
Total Minimum Lease Payments 6,982 $118,298
========
Less: Amount Representing Interest
(at imputed rates ranging
from 12.5% to 15.0%) (5,633)
-------
Present Value of Net
Minimum Capital Lease Payments $ 1,349
=======
</TABLE>
9. BENEFIT PLANS:
Four Queens, Inc. makes contributions to several multi-employer pension and
welfare benefit plans covering its union employees, of whom there were 37, 39
and 67 individuals at December 31, 1994, 1993 and 1992, respectively. The plans
provide defined benefits to covered employees. Amounts charged to pension cost
and contributed to the plans for the years 1994, 1993 and 1992 totaled $103,000,
$96,000 and $101,000, respectively. While the Company is liable for its share
of unfunded vested benefits, the Company believes the amount, if any, would not
be material to the consolidated financial statements.
On October 1, 1990, the Company instituted a savings plan qualified under
Section 401(k) of the Internal Revenue Code of 1986, as amended. The savings
plan covers substantially all employees who are not covered by a collective
bargaining unit. Employee contributions to the savings plan are discretionary.
The Company matches and contributes to each employee's account an amount equal
to 25% of the employee's contributions to the savings plan up to a maximum
employee contribution of 8% of each employee's gross compensation. The
Company's contribution was $150,000, $145,000 and $140,000 for 1994, 1993 and
1992, respectively. There were 465, 460 and 465 participants in the savings
plan as of December 31, 1994, 1993 and 1992, respectively.
In 1991, the Board of Directors adopted, and the stockholders approved, the
Elsinore Corporation 1991 Stock Option Plan (the "1991 Plan"). The Board
reserved 600,000 shares of common stock for issuance thereunder. The 1991 Plan
provides for the grant of non-statutory options to purchase common stock to
salaried officers and key employees of the Company and its corporate
subsidiaries. The exercise price for options granted under the 1991 Plan may
not be less than the fair market value of the stock on the date of grant.
On March 15, 1993, the Board of Directors adopted and the stockholders approved,
the Elsinore Corporation 1993 Long-Term Stock Incentive Plan (the "1993 Plan")
and reserved 600,000 shares of common stock for issuance thereunder. On April
8, 1994, the Board of Directors adopted and the shareholders approved an
increase of the number of shares reserved under the 1993 Plan to 1,200,000
shares. The 1993 Plan provides for awards of restricted shares, stock units,
options or stock
F-19
<PAGE>
ELSINORE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
appreciation rights to all employees of the Company and its subsidiaries. Non-
statutory stock options granted under the 1993 Plan generally vest in equal
annual increments over a three-year period.
The following table summarizes option activity through December 31, 1994:
<TABLE>
<CAPTION>
Aggregate
Shares Available Options Average Exercise Value
for Grant Outstanding Price Per Share Combined
--------------------- ---------------------- ------------------- Plans
1991 Plan/1993 Plan 1991 Plan/1993 Plan 1991 Plan/1993 Plan -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1991 444,000 - 156,000 - $1.000 $ - $ 156,000
Shares Reserved - - - - - - -
Options Granted (17,000) - 17,000 - 0.875 - 14,875
Options Exercised - - - - - - -
Options Cancelled 34,000 - (34,000) - 1.000 - (34,000)
-------- -------- ------- --------- ------ ------ ----------
Balance at
December 31, 1992 461,000 - 139,000 - 0.985 - 136,875
Shares Reserved - 600,000 - - - - -
Options Granted (476,000) (626,700) 476,000 626,700 2.760 4.291 4,003,138
Options Exercised - - (45,000) - 1.000 - (45,000)
Options Cancelled 26,500 39,900 (26,500) (39,900) 2.688 4.279 (241,963)
-------- -------- ------- --------- ------ ------ ----------
Balance at
December 31, 1993 11,500 13,200 543,500 586,800 2.456 4.292 3,853,050
Shares Reserved - 600,000 - - - - -
Options Granted (11,500) (817,900) 11,500 817,900 5.375 2.687 $2,198,224
Options Exercised - - (17,000) - 0.875 - (14,875)
Options Cancelled - 64,100 - (64,100) - 5.224 (334,858)
-------- -------- ------- --------- ------ ------ ----------
Balance at
December 31, 1994 0 (140,600) 538,000 1,340,600 $2.623 $3.268 $5,701,541
======== ======== ======== ========= ====== ====== ==========
</TABLE>
At December 31, 1994, options to purchase 1,878,600 shares were outstanding
including 1,340,600 under the 1993 Plan for a total of 1,980,000 authorized
(subject to shareholder approval at the 1995 Annual Shareholders Meeting) for
issuance under such plan. Of such number, 464,596 were exercisable. Through
December 31, 1994, 62,000 options had been exercised.
On March 15, 1993, the Company adopted an Amended and Restated Senior Executive
Severance Plan (the "Severance Plan") and, pursuant thereto, severance
agreements with eight employees of the Company have been executed. The
severance agreements provide (subject to certain limitations) that the covered
employees will receive two times their annual base salaries in the event of
their involuntary termination within two years after a change of control (as
defined in the Severance Plan and related agreements). Pursuant to the
severance agreements, the Company has also agreed, under certain circumstances,
to pay the covered employees, a cash payment equal to the difference (if
positive) between the "fair market value" (as defined in the Severance Plan) of
the Company's common stock and the exercise price of options to purchase common
stock held by such employees.
F-20
<PAGE>
ELSINORE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
10. TAXES AND LICENSES, OTHER THAN INCOME TAXES:
Taxes and licenses, other than income taxes, principally include payroll taxes,
gaming licenses and gross revenue taxes, and are summarized as follows:
Operating Departments
---------------------
(Dollars in Thousands)
Food and
Casino Hotel Beverage Other Total
------ ----- -------- ----- -----
1994 $ 4,710 $ 474 $ 535 $ 1,236 $ 6,955
======= ======= ======= ======= =======
1993 $ 5,028 $ 457 $ 464 $ 1,210 $ 7,159
======= ======= ======= ======= =======
1992 $ 4,748 $ 440 $ 418 $ 1,161 $ 6,767
======= ======= ======= ======= =======
11. TRANSACTIONS WITH RELATED PARTIES:
Attorney fees were paid to a firm of which a former director of the Company is a
partner in the approximate amounts of $6,000, $507,000 and $87,000, for the
years ended December 31, 1994, 1993, and 1992, respectively.
In 1994, approximately $91,000 in fees were paid to two executive officers and
one former executive officer of the Company in conjunction with an agreement
that assigned the rights to the MULTIPLE ACTION "registered trademark" blackjack
patent to the Company. In 1993, such fees amounted to approximately $54,600 to
the three individuals.
12. EXTRAORDINARY ITEM:
On October 8, 1993, the Company repaid the outstanding principal balance and
accrued interest thereon of its mortgage notes payable (See Note 5). The
Company recognized an extraordinary loss of $285,000 as a result of the write-
off of unamortized debt issuance costs. Income taxes are not applicable to this
extraordinary item.
On December 29, 1994, $3 million of the original $60 million principal amount of
First Mortgage Notes was repurchased by the Company and retired in exchange for
the issuance to the noteholder of 930,000 shares of Common Stock of the Company.
The Company recorded an extraordinary gain of $735,000 as a result of this debt
retirement. Income taxes are not applicable to this extraordinary item.
13. SELECTED QUARTERLY DATA (UNAUDITED):
Summarized unaudited interim and annual financial data for the years ended
December 31, 1994, 1993 and 1992 follow (In Thousands, Except Per Share Data):
<TABLE>
<CAPTION>
Quarter Ended Year Ended
-------------------------------------------------------- -----------
3/31/94 6/30/94 9/30/94 12/31/94 12/31/94
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues $ 15,490 $ 16,199 $ 15,782 $ 15,235 $ 62,706
Income (Loss) Before Income Taxes
</TABLE>
F-21
<PAGE>
ELSINORE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
<TABLE>
<S> <C> <C> <C> <C> <C>
And Extraordinary Item (2,040) (2,113) (2,927) (3,096) (10,176)
Income Tax Benefit (Expense) - - - - -
Income (Loss) Before Extraordinary Item (2,040) (2,113) (2.927) (3,096) (10,176)
Extraordinary Item:
Gain on Extinguishment of Debt - - - 735 735
Net Income (Loss) (2,040) (2,113) (2,927) (2,361) (9,441)
Per Common Share and Equivalent Share:
Income (Loss) Before Extraordinary Item (0.17) (0.18) (0.24) (0.25) (0.84)
Net Income (Loss) (0.17) (0.18) (0.24) (0.19) ( 0.78)
=========== =========== =========== =========== ===========
Weighted Average Common and Common
Equivalent Shares Outstanding 12,062,164 12,066,648 12,079,164 12,217,729 12,106,778
=========== =========== =========== =========== ===========
<CAPTION>
Quarter Ended Year Ended
-------------------------------------------------------- -----------
3/31/93 6/30/93 9/30/93 12/31/93 12/31/93
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues $ 16,477 $ 17,210 $ 16,893 $ 16,272 $ 66,852
Income (Loss) Before Income Taxes
And Extraordinary Item 525 1,250 (594) (2,809) (1,628)
Income Tax Benefit (Expense) (28) (65) (646) 115 (624)
Income (Loss) Before Extraordinary Item 497 1,185 (1,240) (2,694) (2,252)
Extraordinary Item:
Loss on Extinguishment of Debt - - - (285) (285)
Net Income (Loss) 497 1,185 (1,240) (2,979) (2,537)
Per Common and Equivalent Share:
Income (Loss) Before
Extraordinary Item 0.04 0.10 (0.10) (0.22) (0.19)
Net Income (Loss) 0.04 0.10 (0.10) (0.25) (0.21)
=========== =========== =========== =========== ===========
Weighted Average Common and Common
Equivalent Shares Outstanding 12,017,164 12,404,315 12,062,164 12,062,164 12,049,430
=========== =========== =========== =========== ===========
<CAPTION>
Quarter Ended Year Ended
-------------------------------------------------------- -----------
3/31/92 6/30/92 9/30/92 12/31/92 12/31/92
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues $ 15,655 $ 15,912 $ 16,432 $ 15,989 $ 63,998
Income (Loss) Before Income Taxes 91 244 280 (2,206) (1,591)
Income Tax Benefit (Expense) - - - (189) (189)
Net Income (Loss) 91 244 280 (2,395) (1,780)
Per Common and Equivalent Share:
Net Income (Loss) 0.01 0.02 0.02 (0.20) (0.15)
=========== =========== =========== =========== ===========
Weighted Average Common and Common
Equivalent Shares Outstanding 12,017,164 12,017,164 12,017,164 12,017,164 12,017,164
=========== =========== =========== =========== ===========
</TABLE>
F-22
<PAGE>
14. FINANCIAL CONDITION, LIQUIDITY AND GOING CONCERN
Recent and Expected Losses from Existing Operations
FOUR QUEENS. Elsinore's historical financial information primarily reflects
the operations of the Four Queens. Although the Company historically has
generated positive cash flow from operations, the Company has experienced net
losses in the last four years. In 1994, the results of operations of
the Four Queens were adversely affected by, among other things, increased
competition due to the opening of three large casino/hotels on the Las Vegas
Strip and, to a lesser extent, the refurbishment program at the Four Queens. At
December 31, 1994, the Company's working capital deficit had increased to $10.5
million. The results of operations of the Four Queens have continued to be
negatively affected since December 31, 1994 and the Company anticipates this
will be the case at least through the first half of 1995.
SPOTLIGHT 29 CASINO. Spotlight 29 opened to the public on January 14, 1995.
During the first six weeks of Spotlight 29's operations, insufficient revenues
were generated to cover the casino's operating expenses. This shortfall is
believed by the Company to be attributable in part to the marketing plan of
Spotlight 29 taking longer to implement than expected, and from competition from
other Native American gaming facilities in Southern California that continue to
operate electronic gaming machines without an approved compact with the State of
California in violation of applicable federal law. Pursuant to its obligations
under the Spotlight 29 management contract, the Company through March 17 lent
$10 million for the casino's construction and advanced $1.0 million in the form
of loans to Spotlight 29 to fund its working capital shortfall. Based on the
trend of the Casino's first six weeks of operations, the Company anticipates
that, in the event the Company continues to manage Spotlight 29, it will be
required to make additional contributions during the balance of 1995 to the
casino to fund working capital shortfalls. In addition, there is no assurance
that Spotlight 29 will not continue to experience negative cash flow in
subsequent quarters or, if such operating losses do continue, that the Company
will have sufficient working capital to fund any additional cash advances that
would be required under the management contract.
In late February, in response to the Company's written objection to the
placement of any Class III gaming devices on Spotlight 29 premises, the 29 Palms
Band advised the Company that, as the owner of Spotlight 29, the tribe would
install such devices if doing so was in the tribe's best interest and that the
tribe believed this position did not conflict with the terms of the management
contract. In early March, 1995, the 29 Palms Band caused approximately 70 gaming
devices to be installed at Spotlight 29 and such devices currently are in
operation.
The Company opposes these activities by the 29 Palms Band and has notified
the Nevada State Gaming Control Board ("Nevada Board") and the NIGC that it will
not participate in conduct that contravenes the IGRA. On March 6, 1995, the
Company served on the 29 Palms Band a notice and demand that the operations of
the Class III devices without the Company's consent and compliance with
applicable federal law violates the management contract and that such activity
must immediately cease. Following the tribe's failure to remove the gaming
devices, the Company on March 16, 1995 filed suit in the United States District
Court for the Central District of California to enjoin their operation.
In March, 1995, the Nevada Board conducted hearings into matters
surrounding the operation of Class III gaming devices at Spotlight 29. The
Company's failure to abide by a directive of the Nevada Board could subject the
Company to disciplinary action, including without limitation, the imposition of
fines or the suspension or revocation of the Company's Nevada gaming license.
In addition to filing its March 16, 1995, suit against the 29 Palms Band
for injunctive and declaratory relief, the Company has informed the 29 Palms
Band that unless the tribe's operation of the Class III devices at Spotlight 29
promptly ceases, the Company will pursue efforts to disengage from the
Spotlight 29 management contract based upon the tribe's material and continuing
breach of the contract provisions. Termination of the management contract will
require negotiation of an arrangement permitting the orderly transfer of
operations to the tribe or another manager, obtaining any necessary approvals
of the NIGC, and providing acceptable terms regarding the buyout of the
Company's interest in the contract as well as the tribe's repayment of the $10
million loan and other advances made by the Company. In addition, since
cessation of the Company's right to manage Spotlight 29 would constitute an
event of default under the Company's debt facilities, termination of the
management contract will require obtaining appropriate consents or waivers from
the holders of the First Mortgage Notes and Mortgage Notes.
7 CEDARS CASINO. In February 1995, during its first three weeks of
operations, 7 Cedars generated a net loss for the casino. Although the Company
anticipates that gaming revenues at 7 Cedars will increase in the second and
third quarters of 1995, as a result of a greater influx of tourists to the
Olympic Peninsula during the spring and summer months, there is no assurance
that 7 Cedars will generate increased gaming revenues or that the casino will
become profitable.
F-23
<PAGE>
LIQUIDITY
Currently, the Company's primary source of liquidity is cash flow from the
operations of the Four Queens. The Four Queens experienced in 1994 a
substantial decrease in gaming revenues, operating results and cash flows, which
the Company expects will continue at least through the first half of 1995. In
addition, the Company's liquidity in 1994 was significantly affected by its
substantial debt service obligations and in 1995 will be further
affected by such obligations and by some or all of the following items:
IRS Installment Agreement: The Company is obligated to pay the IRS $275,000
per month, increasing to $550,000 per month on May 1, 1995 through December
1995, at which time the IRS Assessment will be fully discharged. The Company has
paid the IRS $1,000,000 on February 1, 1995 and an additional $275,000 on March
1, 1995.
Native American Casino Operating Shortfalls: In addition to the approximately
$1 million already advanced to the 29 Palms Band through March 17, 1995, the
Company is required under the Spotlight 29 management contract and the 7 Cedars
management contract to fund working capital shortfalls at either Native American
casino. Depending upon Spotlight 29's future results of operations, its ability
to obtain sufficient equipment lease financing, and the outcome of the current
dispute concerning whether
F-24
<PAGE>
the Company will terminate the Spotlight 29 management contract, the Company
anticipates it may be required to advance additional funds to the 29 Palms Band
in 1995.
Obligations Assumed from Temple: In consideration for certain amendments to
the Nashville Nevada LLC operating contract beneficial to Elsinore, the Company
has assumed and will complete up to approximately $169,000 of Temple's payment
obligations relating to its development of the Mojave Valley Resort. In
addition, the Company has agreed to loan Temple up to $150,000 to fund Temple's
share of certain pre-construction costs at Nashville Nevada, which loans will be
repaid in the event the requisite financing for the project is obtained.
Nashville Nevada Project Expense: As a condition to its participation in the
Nashville Nevada project, Mojave Gaming will be required to make a capital
contribution of $10,000,000 to the venture developing Nashville Nevada on or
before September 30, 1995. There is no assurance that the Company will be able
to obtain the necessary financing for such contribution on commercially
acceptable terms, or at all.
WARN Act Litigation: The trial in the liability phase in this matter
concluded August 11, 1993. Although no decision has yet been rendered, a
decision may be issued at any time.
In 1995, unless the Company's available cash and funds generated from
operations significantly increases or the Company is able to extend its debt
service and/or delay capital expenditure requirements, the Company will need to
obtain additional working capital in order to satisfy its payment obligations
during the year. Moreover, the need for additional capital may be further
increased in the event that (i) a material adverse judgment is rendered against
the Company in the pending WARN Act litigation; (ii) there is any significant
decline in the Company's results of operations; (iii) the development and
opening of the Fremont Street Experience is materially delayed or is subject to
material cost overruns or (iv) the Company is unable to obtain from its
noteholders the requisite waivers or consents in connection with the Company's
termination of the Spotlight 29 management contract or its other anticipated
debt covenant noncompliance. Without additional financing, the Company believes
that it is unlikely it will be able to maintain a level of operating cash flow
necessary to satisfy all of its financial obligations in 1995. To meet these
obligations, the Company anticipates it will have to raise additional working
capital, refinance or extend repayment of its outstanding debt, obtain from the
noteholders additional waivers of default or covenant noncompliance under the
First Mortgage Notes and Mortgage Notes, or a combination of the foregoing.
There is no assurance that any of these alternatives could be effected on
satisfactory terms. In particular, certain covenants of the indenture relating
to the First Mortgage Notes and of the purchase agreement relating to the
Mortgage Notes restrict the ability of the Company and its subsidiaries to incur
additional indebtedness or to secure such indebtedness and may impair the
Company's ability to obtain additional debt financing. If these alternatives
prove to be unavailable, Elsinore would be required to sell assets or seek
protection under bankruptcy laws.
In addition to the Equity Offering completed in January, 1995 and the
Convertible Note offering expected to be funded by March 31, 1995, the Company
intends to complete additional financing transactions to provide the capital
required to discharge its remaining working capital requirements in 1995. In
addition, the Company intends to raise the $10 million it is required to
contribute to the Nashville Nevada project by completing one or more additional
equity offerings by September 30, 1995.
F-25
<PAGE>
SCHEDULE VIII
ELSINORE CORPORATION AND SUBSIDIARIES
SCHEDULE VIII -
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(000'S OMITTED)
<TABLE>
<CAPTION>
BALANCE AT OTHER CHANGES BALANCE AT
BEGINNING OF ADDITIONS ADD (DEDUCT) END OF
CLASSIFICATION PERIOD AT COST DESCRIBE PERIOD
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1994:
- -----------------------------
ALLOWANCE FOR DOUBTFUL
ACCOUNTS $ 200 $ 40 $26 (A) $ 214
ACCUMULATED AMORTIZATION
EXPENSE DEDUCTED FROM LEASEHOLD
ACQUISITION COSTS 4,278 207 - 4,485
YEAR ENDED DECEMBER 31, 1993:
- ----------------------------
ALLOWANCE FOR DOUBTFUL
ACCOUNTS 180 82 62 (A) 200
ACCUMULATED AMORTIZATION EXPENSE
DEDUCTED FROM LEASEHOLD
ACQUISITION COSTS 4,071 207 - 4,375
YEAR ENDED DECEMBER 31, 1992:
- -----------------------------
ALLOWANCE FOR DOUBTFUL
ACCOUNTS 104 135 59 (A) 180
ACCUMULATED AMORTIZATION EXPENSE
DEDUCTED FROM LEASEHOLD
ACQUISITION COSTS 3,865 206 - 4,071
</TABLE>
(A) WRITE-OFF OF UNCOLLECTIBLE ACCOUNTS
F-26
<PAGE>
RESTATED AND AMENDED
--------------------
ELSINORE CORPORATION
--------------------
SENIOR EXECUTIVE SEVERANCE PLAN
-------------------------------
Preamble and Statement of Purpose. The purpose of this Plan is to assure
---------------------------------
the Corporation that it will have the continued dedication of, and the
availability of objective advice and counsel from key executives of the
Corporation notwithstanding the possibility, threat or occurrence of a "Change
of Control" (as defined herein) of the Corporation.
In the event the Corporation receives any proposal from a Person or
considers any transaction which may effect a change in the present control of
the Corporation, the Board of Directors of the Corporation (the "Board")
believes it imperative that the Corporation and the Board be able to rely upon
key executives to continue in their positions and be available for advice, if
requested, without concern that those individuals might be distracted by the
personal uncertainties and risks created thereby.
Should the Corporation consider any transaction or receive any proposal
which might cause a Change of Control, such key executives, in addition to their
regular duties, may be called upon to assist in the assessment of such proposal
or transaction, advice management and the Board as to whether such proposal or
transaction would be in the best interest of the Corporation and its
stockholders, and to take such other actions as the Board might determine to be
appropriate.
1. Eligible Executives. Participants under this Plan shall consist of
-------------------
those key executives of the Corporation and its Subsidiaries (as defined herein)
who are from time to time designated to be included within this Plan by the
Board (the "Participants"). A Participant who the Board determines has ceased
to be a key executive for purposes of the Plan shall cease to be a Participant
in the Plan when notified by the Board of such determination; except that no
such determination that a Participant has ceased to be such a key executive
shall be made (i) within two years after a Change of Control or (ii) during any
period of time when the Corporation has knowledge that steps are being taken
which are reasonably calculated to effect a Change of Control until, in the
opinion of the Board, efforts to effect such Change of Control have been
terminated or abandoned. Any decision by the Board that efforts to effect a
Change of Control have been terminated or abandoned shall be conclusive and
binding on the Participants.
2. Senior Executive Severance Agreement. A Senior Executive Severance
------------------------------------
Agreement (the "Agreement") shall be executed by the Corporation and each
Participant. Each
1
<PAGE>
Agreement entered into pursuant to this Plan shall provide the following:
(a) Severance Payments. In the event of termination of any Participant's
------------------
employment with the Corporation (including one or more of its Subsidiaries)
within two years after a Change of Control for reasons that are involuntary on
the part of the Participant (other than "for cause" or as a consequence of death
or disability) or voluntary (but only if the Participant's duties,
responsibilities, authorities, compensation or job functions have materially
changed or the Participant is demoted), within 90 days after such termination
(i) the Corporation shall make a cash payment to the Participant in an amount
equal to two times the Participant's aggregate base salary (excluding bonus) for
the 12-month period immediately preceding the date of termination plus any and
all accrued salary and accrued vacation pay in the case of the termination of
any such Participant's employment, or such other amount which may be fixed by
the Board in each Participant's Agreement; and (ii) the Participant shall be
entitled to put to the Corporation any and all outstanding options to purchase
shares of the Corporation's common stock, $.001 par value ("Common Stock")
theretofore granted to the Participant pursuant to the Corporation's 1988 Stock
Option Plan, 1993 Long-Term Stock Incentive Plan or any similar plan (the
"Option Plan"), whether or not such options are then immediately exercisable in
accordance with their terms and provided that such options shall not then have
expired, and to receive from the Corporation a cash payment in the amount equal
to the difference (if greater than zero) between the "fair market value" (as
defined in the Option Plan) of the shares of Common Stock covered by the option
and the exercise price thereof.
(b) Other Terms and Conditions. The Agreements to be entered into pursuant
--------------------------
to this Plan shall contain such other terms, provisions and conditions not
inconsistent with this Plan as shall be determined by the Board.
(c) Non-Assignability. Each Participant's rights under this Plan shall be
-----------------
nontransferable except by will or the laws of descent and distribution.
3. Certain Definitions.
-------------------
(a) Change of Control. A "Change of Control" shall be deemed to have taken
-----------------
place if, after March 15, 1993, (i) any Person becomes the beneficial owner (as
such term is defined in Rule 13d-3 promulgated pursuant to the Securities
Exchange Act of 1934, as amended (the "Act")) of securities of the Corporation
having twenty percent (20%) or more of the combined voting power of all classes
of the Corporation's securities entitled to vote in an election of Directors of
the Corporation; (ii) a merger or other business combination with, or sale of
substantially all of the assets of the Corporation to, any Person is effected or
(iii) the persons who are "Disinterested Directors"
2
<PAGE>
of the Corporation cease to constitute a majority of the Board of the
Corporation or any successor to the Corporation.
(b) Disinterested Director. "Disinterested Director" shall mean (i) any
----------------------
Director who (A) has served as a member of the Board for the twenty-four (24)
month period preceding a Change of Control and (B) is not affiliated with any
Person who causes or participates in causing a Change of Control and (ii) any
Director prior to the Change of Control who was initially appointed or elected
to the Board upon recommendation of a majority of Disinterested Directors then
on the Board and is designated a Disinterested Director by the Board.
(c) For Cause. "For cause" shall mean (i) the commission of fraud,
---------
embezzlement or theft against the Corporation or any of its Subsidiaries or
against an employee, customer or business associate of the Corporation or any of
its Subsidiaries or (ii) a conviction of, or guilty plea to, a felony.
(d) Subsidiary. "Subsidiary" shall mean any domestic or foreign
----------
corporation, partnership or entity, a majority of whose equity securities is
owned directly or indirectly by the Corporation or by other Subsidiaries.
(e) Person. "Person" shall have the same meaning as such term has under
------
Section 13(d) of the Act and the regulations promulgated thereunder.
4. Unfunded Plan. The Plan shall be unfunded. Neither the Corporation
-------------
nor the Board shall be required to segregate any assets with respect to benefits
under the Plan. Neither the Corporation nor the Board shall be deemed to be a
trustee of any amounts to be paid under the Plan. Any liability of the
Corporation to the President or any Participant with respect to any benefit
shall be based solely upon any contractual obligations created by the Plan and
the Agreement; no such obligation shall be deemed to be secured by any pledge or
any encumbrance on any property of the Corporation or its Subsidiaries.
5. Termination and Amendment. The Board shall have power at any time, in
-------------------------
its sole discretion, to amend, abandon or terminate this Plan, in whole or in
part; except that no amendment, abandonment or termination shall impair or
abridge the obligations of the Corporation under any agreements previously
entered into pursuant to this Plan.
6. Effective Date. This Plan as amended and restated shall become
--------------
effective as of March 15, 1993.
3
<PAGE>
SENIOR EXECUTIVE SEVERANCE AGREEMENT
------------------------------------
THIS AGREEMENT, by and between ELSINORE CORPORATION, a Nevada corporation
--------------------
(the "Corporation"), and ___________ (the "Executive"),
W I T N E S S E T H:
WHEREAS, the Board of Directors of the Corporation (the "Board") has adopted
and approved the Restated and Amended Elsinore Corporation Senior Executive
Severance Plan dated March 15, 1993 (the "Plan"), pursuant to which certain key
executives of the Corporation and its "Subsidiaries" (as defined in the Plan and
herein) may be designated as participants thereunder; and
WHEREAS, the Executive is a key executive of the Corporation and/or one or
more of its Subsidiaries and has been selected by the Board to be a participant
under the Plan; and
WHEREAS, in the event that there occurs a "Change of Control" (as defined in
the Plan and herein), the Board believes it imperative that the Corporation and
the Board be able to rely upon the Executive to continue in his position and, if
required, to assess any proposal or transaction which would cause a Change of
Control and advise management and the Board as to whether such proposal would be
in the best interest of the Corporation and its stockholders, free from concern
that his recommendations may adversely affect his continued employment:
NOW, THEREFORE, to assure the Corporation that it will have the continued
dedication of the Executive and the availability of his advice and counsel
notwithstanding the possibility, threat or occurrence of a Change of Control of
the Corporation, and to induce the Executive to remain in the employ of the
Corporation and/or one or more of its Subsidiaries, and for other good and
valuable consideration, the receipt, adequacy and sufficiency of which are
hereby acknowledged, the Corporation and the Executive agree as follows:
1. Services During Certain Events. In the event that any steps are taken
------------------------------
which may constitute the possibility, threat or occurrence of a Change of
Control of the Corporation, the Executive agrees that he will not voluntarily
leave the employ of the Corporation or any of its Subsidiaries and will continue
to render services to the Corporation and its Subsidiaries until, in the opinion
of the Board, either efforts to effect a Change of Control have been abandoned
or terminated or until one (1) year after a Change of Control has occurred. Any
decision by the Board that efforts to effect a Change of Control have been
abandoned or terminated shall be conclusive and binding on the Executive.
1
<PAGE>
2. Severance Payments.
------------------
(a) In the event that the Corporation terminates the Executive's employment
or materially either diminishes or reduces his title, compensation, authority,
responsibility, functions or duties with the Corporation and its Subsidiaries
within two (2) years after a Change of Control for any reason other than "for
cause" (as defined herein) or as a consequence of his death or disability, then,
within thirty (30) days after such termination of employment, the Corporation
shall pay to the Executive as compensation for services rendered to the
Corporation and its Subsidiaries cash in an amount equal to two (2) times his
aggregate base salary (excluding bonus) for the twelve (12) month period
immediately preceding the date of termination plus any and all accrued salary,
accrued vacation pay and accrued bonus.
(b) In the event that the Executive's employment is terminated pursuant to
Paragraph 2(a) hereof, then, within ninety (90) days after any such termination,
the Executive shall be entitled to put to the Corporation any and all
outstanding options to purchase shares of the Corporation's common stock, $.001
par value ("Common Stock"), theretofore granted to the Executive pursuant to the
Corporation's 1988 Stock Option Plan, 1993 Long-Term Stock Incentive Plan or any
similar plan (the "Option Plan"), whether or not such options are then
immediately exercisable in accordance with their terms, provided that such
options shall not have then expired, and to receive from the Corporation in
payment therefor a cash payment in the amount equal to the difference (if
greater than zero) between the "fair market value" (as defined in the Option
Plan) of the shares of Common Stock covered by the option and the exercise price
thereof, and upon the Executive's receipt of such payment, such options shall be
deemed to be canceled.
3. Definitions.
-----------
(a) A "Change of Control" shall be deemed to have taken place if, after
March 15, 1993, (i) any Person becomes the beneficial owner (as such term is
defined in Rule 13d-3 promulgated pursuant to the Securities Exchange Act of
1934, as amended (the "Act")) of securities of the Corporation having twenty
percent (20%) or more of the combined voting power of all classes of the
Corporation's securities entitled to vote in an election of Directors of the
Corporation; (ii) a merger or other business combination with, or sale of
substantially all of the assets of the Corporation to, any Person is effected or
(iii) the persons who are "Disinterested Directors" of the Corporation cease to
constitute a majority of the Board of the Corporation or any successor to the
Corporation.
(b) "Disinterested Director" shall mean (i) any Director who (A) has served
as a member of the Board for the twenty-four (24) month period preceding a
Change of Control and (B) is not
2
<PAGE>
affiliated with any Person who causes or participates in causing a Change of
Control and (ii) any Director prior to the Change of Control who was initially
appointed or elected to the Board upon recommendation of a majority of
Disinterested Directors then on the Board and is designated a Disinterested
Director by the Board.
(c) "For cause" shall mean (i) the commission of fraud, embezzlement or
theft against the Corporation or any of its Subsidiaries or against an employee,
customer or business associate of the Corporation or any of its Subsidiaries or
(ii) a conviction of, or guilty plea to, a felony.
(d) "Subsidiary" shall mean any domestic or foreign corporation, partnership
or entity, a majority of whose equity securities is owned directly or indirectly
by the Corporation or by other Subsidiaries.
(e) "Person" shall have the same meaning as such term has under section
13(d) of the Act and the regulations promulgated thereunder.
4. Indemnification. If litigation shall be brought to enforce or
---------------
interpret any provision contained herein, the Corporation, to the extent
permitted by applicable law and the Corporation's Articles of Incorporation, as
amended, hereby agrees to indemnify the Executive for his reasonable attorneys'
fees and disbursements incurred in such litigation, and hereby agrees to pay any
money judgment obtained from the Executive and prejudgment interest on any money
judgment obtained from the Executive.
5. Payment Obligations Absolute. The Corporation's obligation to pay the
----------------------------
Executive the compensation and to make the arrangements provided for herein
shall be absolute and unconditional and shall not be affected by any
circumstances, including, without limitation, any set-off, counterclaim,
recoupment, defense or other right which the Corporation may have against him or
anyone else. All amounts payable by the Corporation hereunder shall be paid
without notice or demand. Each and every payment made hereunder by the
Corporation shall be final, and the Corporation will not seek to recover all or
any part of such payment from the Executive or from whosoever may be entitled
thereto, for any reason whatsoever. The Executive shall not be obligated to
seek other employment in mitigation of the amounts payable or arrangements made
under any provision of this Agreement, and the obtaining of any such other
employment shall in no event effect any reduction of the Corporation's
obligations to make the payments and arrangements required to be made under this
Agreement.
6. Continuing Obligations. The Executive shall retain in confidence any
----------------------
confidential information known to him concerning
3
<PAGE>
the Corporation and its Subsidiaries and their respective businesses so long as
such information is not publicly disclosed.
7. Successors. This Agreement shall be binding upon and inure to the
----------
benefit of the Executive and his estate and the Corporation and any successor of
the Corporation, but neither this Agreement nor any rights arising hereunder may
be assigned or pledged by the Executive.
8. Severability. Any provision in this Agreement which is prohibited or
------------
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
only to the extent of such prohibition or unenforceability without invalidating
or affecting the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
9. Prior Agreements. This Agreement supersedes any prior severance
----------------
agreement between the Executive and the Corporation, which shall be of no
further force and effect whatsoever.
10. Controlling Law. This Agreement shall in all respects by governed by,
---------------
and construed in accordance with, the laws of the State of Nevada, except for
the choice-of-law provisions thereof.
11. Termination. This Agreement shall terminate if, in accordance with the
-----------
Plan, the Board determines that the Executive is no longer a key executive to be
included within the Plan and so notifies the Executive; except that such
determination shall not be made, and if made shall have no effect, (i) within
two (2) years after the Change of Control in question or (ii) during any period
of time when the Corporation has knowledge that steps are being taken that are
reasonably calculated to effect such Change of Control until, in the opinion of
the Board, efforts to effect such Change of Control have been terminated or
abandoned. Any decision by the Board that efforts
4
<PAGE>
to effect a Change of Control have been terminated or abandoned shall be
conclusive and binding on the Executive.
IN WITNESS WHEREOF, the parties have executed this Agreement on the ___ day
of ____, 1993.
ELSINORE CORPORATION
By_______________________________________
Its______________________________________
EXECUTIVE
_________________________________________
5
<PAGE>
AMENDMENT NO. 2 TO THE OPERATING AGREEMENT OF NASHVILLE
NEVADA, L.L.C.
THIS AMENDMENT NO. 2 TO THE OPERATING AGREEMENT OF NASHVILLE NEVADA, L.L.C.
(this "Amendment"), is effective (except as otherwise specified) as of September
30, 1994, by and between MOJAVE GAMING, INC., a Nevada corporation ("Mojave") as
successor in interest to Eagle Gaming, Inc., a Nevada corporation ("Eagle"),
MOJAVE VALLEY RESORT CASINO COMPANY, a Nevada corporation ("MVRCC"), ELSINORE
CORPORATION, a Nevada corporation ("Elsinore") and NASHVILLE NEVADA, L.L.C., a
Nevada limited-liability company ("Nashville Nevada").
PRELIMINARY STATEMENTS
A. Mojave, MVRCC and Elsinore are parties to that certain Operating
Agreement of Nashville Nevada, L.L.C. dated as of May 27, 1994, as modified by
that certain Amendment to the Operating Agreement of Nashville Nevada, L.L.C.
dated as of June 9, 1994 (such documents collectively, the "Operating
Agreement").
B. The parties wish to further modify the Operating Agreement.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Sublease and Option Agreement. Recital B. shall be amended to read as
follows:
MVRCC is an Affiliate (as defined below) of MVR and has entered into
an amended and restated sublease with MVR dated as of August 23, 1994,
approved by the Tribe on August 23, 1994 and by the BIA on October 7,
1994 (the "Sublease"). MVRCC and MVR are also parties to an amended
and restated lease option agreement dated as of October 6, 1994
approved by the Tribe on October 6, 1994 and by the BIA on October 7,
1994 (the "Option Agreement") to sublet up to three (3) additional
parcels of the Leased Land (the "Additional Sites") under the terms
and conditions set forth therein.
2. Capital Contributions. Recital E. shall be amended to read as
follows:
Mojave shall make a capital contribution of Ten Million Dollars
($10,000,000) in the form of cash to the joint venture and MVRCC, as a
capital contribution to the joint venture, shall (i) assign its rights
in the Sublease and (ii) remain solely liable for the Minimum Rent (as
defined therein) charges for the first two (2) years of the Sublease.
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3. Development Option Agreement. The form of Development Option Agreement
set forth as Exhibit "F" to the Agreement shall be deleted in its entirety and
the form of Development Option Agreement attached hereto as Exhibit "A" shall be
substituted in lieu thereof.
4. Annual Operating Budget. Section 1.3 of the Operating Agreement shall
be amended to delete the reference to "July 15, 1995" and to insert "January 31,
1996" in lieu thereof.
5. Annual Plan. Section 1.4 of the Operating Agreement shall be amended
to delete the reference to "July 15, 1995" and to insert "January 31, 1996" in
lieu thereof.
6. Capital Accounts. Section 1.5 of the Operating Agreement shall be
amended to read as follows:
The "Capital Account" of a Member means the capital account of
that Member determined from the inception of the Company strictly in
accordance with the rules set forth in Section 1.704-1(b)(2)(iv) of
the Treasury Regulations.
Subject to the previous paragraph, "Capital Account" means:
(a) The amount of money contributed by the Member to the Company,
increased by: (i) the fair market value of property contributed by the
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Member to the Company, if any (net of liabilities securing such
contributed property that the Company is considered to assume or take
subject to under Section 752 of the Code); and (ii) items of Company
income allocated to the Member, including income and gain exempt from
tax, and decreased by: (iii) the amount of money actually distributed
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or deemed distributed to the Member; (iv) the fair market value of
property distributed to the Member, if any, by the Company (net of
liabilities securing such distributed property that the Member is
considered to assume or take subject to under Section 752 of the
Code); (v) the Member's share of expenditures of the Company described
in Section 705(a)(2)(B) of the Code (including, for this purpose,
losses which are nondeductible under Section 267(a)(1) or Section
707(b) of the Code): (vi) the Member's share of amounts paid or
incurred by the Company to organize the Company or to promote the sale
of (or to sell) an interest in the Company (except to the extent
properly amortizable for tax purposes) and (vii) items of loss and
deduction allocated to the Member.
For this purpose, "income" refers to all items of income
(including all items of gain and including income exempt from tax)
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as properly determined for "book" purposes, and "loss" refers to all
items of loss (including deductions) as properly determined for "book"
purposes. "Book" income and loss shall be determined based on the
value of the Company's assets as set forth on the books of the Company
to the extent permitted and in accordance with the principles of
Section 1.704-1(b)(2)(iv)(d), (f), and (g) of the Treasury
Regulations. To the extent permissible under applicable Treasury
Regulations, the Company will elect to revalue the Capital Accounts of
the Members. Otherwise, book income and loss shall be determined
strictly in accordance with federal income tax principles (including
rules governing depreciation and amortization), applied hypothetically
based on values of Company assets as set forth on the Company books.
7. Operational Standards. Section 1.47 of the Operating Agreement shall
be amended to delete the reference to "July 15, 1995" and to insert "January 31,
1996" in lieu thereof.
8. Assignment and Assumption of Sublease. Section 2.5 of the Operating
Agreement shall be amended to read as follows:
MVRCC has assigned its rights in the Sublease to the Company and the
Company has assumed all of MVRCC's obligations under the Sublease
pursuant to the terms and conditions of that certain Assignment and
Assumption Agreement dated September 9, 1994 (the "Assignment"). The
obligations of MVRCC and the Company under the Assignment are
contingent upon the occurrence of the Effective Date. As part of its
Capital Contribution, MVRCC shall be solely liable, without any
reimbursement from the Company, for Minimum Rent (as defined in the
Sublease) charges for the first two (2) years of the Sublease, and in
the event of any abatement of Minimum Rent pursuant to Paragraph 57 of
the Sublease during the first two (2) years of the Sublease, after the
first two (2) years MVRCC shall continue to be liable for such Minimum
Rent for such longer period so that the total Minimum Rent paid solely
by MVRCC, without reimbursement from the Company, shall equal One
Million Two Hundred Thirty-Two Thousand Dollars ($1,232,000).
9. Assumption of MVR Debts. Article II of the Operating Agreement shall
be amended to add the following as Section 2.16:
The Company shall assume the obligation to pay (i) the sum of Seventy-
Five Thousand Dollars ($75,000) owed by MVR to the Tribe pursuant to
the Ground Lease upon demand of the Tribe; (ii)
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the sum of Forty-seven Thousand Seven Hundred Forty-seven Dollars
($47,747) representing the first installment of the 1995 property
taxes assessed on the Leased Land, which amount shall be paid by the
Company to the Tribe no later than March 31, 1995; and (iii) if the
Effective Date has not occurred prior to September 15, 1995, the sum
of Forty-seven Thousand Seven Hundred Forty-seven Dollars ($47,747)
representing the second installment of the 1995 property taxes
assessed on the Leased Land which amount shall be paid by the Company
to the Tribe on or before September 15, 1995. The expenses set forth
above shall be deemed approved Pre-Effective Date Costs.
10. Mojave Capital Contribution. Section 2.6 of the Operating Agreement
shall be amended as follows:
On the Effective Date, Mojave shall make a Capital Contribution to the
Company in the form of cash of Six Million Dollars ($6,000,000) less
any non-reimbursed amounts previously expended by Mojave or Project
Coordinator on the Pre-Effective Date Costs. Within one (1) year of
the Effective Date, Mojave shall either make the balance of its
Capital Contribution as provided in Section 4.1 of this Agreement
(i.e., Ten Million Dollars ($10,000,000) less any prior Capital
Contributions credited to Mojave) or assign a portion of its
Membership Interest in compliance with Section 8.1 of this Agreement
and cause such assignee to do so; provided, however, that in no event
shall the Membership Interest of MVRCC be reduced. In the event that
the balance of Mojave's Capital Contribution is not made prior to the
first anniversary of the Effective Date, the Membership Interest of
Mojave shall be reduced by ten percent (10%), the Membership Interest
of MVRCC shall be increased by ten percent (10%) and the obligation of
Mojave to make the balance of the Capital Contribution to the Company
shall terminate.
11. Off-Site Improvements. Section 2.9 of the Operating Agreement shall
be amended to delete the reference to "September 15, 1996" and to insert
"September 15, 1997" in lieu thereof and to delete the reference to "February 1,
1997" and to insert "August 1, 1997" in lieu thereof.
12. Opening Date. Section 2.10 of the Operating Agreement shall be
amended to delete the reference to "January 15, 1996" and to insert "September
15, 1996" in lieu thereof and to delete the reference to "July 15, 1996" and to
insert "March 15, 1997" in lieu thereof.
13. Organization, Services, Sales and Marketing Program. Section
3.11(a)(ii)(A) of the Operating Agreement shall be amended to delete the
reference to "July 15, 1995" and to insert "January 31, 1996" in lieu thereof.
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14. Annual Plan Submission. Section 3.11(a)(ii)(D) of the Operating
Agreement shall be amended to delete the reference to "July 15, 1995" and to
insert "January 31, 1996" in lieu thereof.
15. Pre-Effective Date Costs. The second sentence of Section 3.17 of the
Operating Agreement shall be amended effective March 31, 1995 to read as
follows:
Within ten (10) days of the Company's receipt of an invoice for each
such expense, Mojave shall (i) pay to the Company its proportionate
share of such expense based upon its Membership Interest and (ii) pay
the remainder of such expense to the Company which shall be deemed to
be a payment on behalf of MVRCC of such Pre-Effective Date Cost as
well as a non-interest bearing loan to MVRCC which shall be due and
payable to Mojave on the earlier to occur of (x) the Effective Date
if, and only if, the Effective Date occurs, or (y) the receipt by
MVRCC of alternative project financing, if any.
16. Operational Standards. Section 3.11(a)(iii) of the Operating
Agreement shall be amended to delete the reference to "July 15, 1995" and to
insert "January 31, 1996" in lieu thereof.
17. Design, Development and Construction Budget. Section 3.32 of the
Operating Agreement shall be amended to read as follows: "The Design,
Development and Construction Budget shall be as set forth on Exhibit "I"
attached hereto."
18. Additional Contributions. Section 4.3 of the Operating Agreement
shall be amended to read as follows:
Subsequent to execution hereof, all expenses of the Company shall
be paid out of the receipts of the Company. Except for any Capital
Contribution of equity Project Financing made by Mojave pursuant to
Section 4.4, and any Capital Contribution required pursuant to
Sections 2.5, 2.6 and 4.1, no Member shall be obligated or entitled to
make any Capital Contribution.
19. Project Financing. The third sentence of Section 4.4 of the Operating
Agreement shall be amended to read as follows:
Any equity Project Financing obtained by Mojave or any Affiliate of
Mojave which is contributed to the Company shall be contributed to the
Company as equity and shall constitute an additional Capital
Contribution by Mojave.
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The fifth sentence of Section 4.4 of the Operating Agreement shall be
amended to read as follows:
Mojave shall have until September 30, 1995 (which date shall not be
subject to any further extension or modification) to obtain the
Project Financing and the construction of the Project shall be
commenced as soon as is reasonably practicable after receipt of the
Project Financing (but in no event later than sixty (60) days from the
date the Project Financing has been obtained) and diligently pursued
to completion, otherwise the Company shall dissolve pursuant to
Section 9.2 of this Agreement.
20. Contingencies. Section 4.5 of the Operating Agreement shall be
amended to delete the reference to "January 15, 1995" and to insert "September
15, 1995" in lieu thereof. The last sentence of Section 4.5 of the Operating
Agreement shall be amended to delete the reference to "October 1, 1994" and to
insert "September 1, 1995" in lieu thereof.
21. Sublease Impositions Reimbursement. The first sentence of Section 4.6
of the Operating Agreement shall be amended to read as follows:
On the Effective Date, the Company shall reimburse, to the extent
not previously paid by the Company, (i) MVR for any Impositions (as
defined in the Sublease) paid by MVR from the date of the Sublease,
through and including the Commencement Date (as defined in the
Sublease) and (ii) MVRCC for any Impositions (as defined in the
Sublease) paid by MVRCC from the Commencement Date (as defined in the
Sublease) through and including the Effective Date.
22. Gaming Operations. Section 5.3 of the Operating Agreement shall be
amended to delete the reference to "July 15, 1995" and to insert "January 31,
1996" in lieu thereof.
23. Determination of Net Income and Net Losses. Section 6.1 of the
Operating Agreement shall be amended to read as follows:
The Company's net income or net losses for each Fiscal Year shall
be determined (for purposes of Treasury Regulations
promulgated pursuant to Section 704(b) of the Code) as soon as
practicable after the close of that Fiscal Year in accordance with the
accounting principles employed in the preparation of the federal
income tax return filed by the Company for that year, but without any
special provisions for tax exempt or partially tax exempt income.
This Section 6.1 shall not be applicable for determining net income
and net loss for financial reporting purposes.
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24. Company Minimum Gain Chargeback. Section 7.1 of the Operating
Agreement shall be amended to delete the phrase "with a deficit Capital Account
balance at the end of the year." Section 7.1(a) of the Operating Agreement
shall be amended to delete the phrase "on one more" and to insert "one or more"
in lieu thereof.
25. Ordering Rules. Section 7.5 of the Operating Agreement shall be
amended to insert the following as the last sentence thereof:
If the Management Committee determines, after consultation with
tax counsel, that the allocation of any item of income, gain, loss,
deduction or credit is not specified in this Article VII (an
"unallocated item"), or that the allocation of income, gain, loss,
deduction or credit hereunder is clearly inconsistent with the
Members' economic interests in the Company (determined by reference to
the general principles of Treas. Reg. (S)1.704-1(b)(iv), Treas. Reg.
(S)1.704-1(b) generally and the factors set forth in Treas. Reg.
(S)1.704-1(b)(3)(ii)) (a "misallocated item"), then the Management
Committee may allocate such unallocated items, or reallocate such
misallocated items, to reflect such economic interests.
26. Qualified Income Offset. Section 7.6 of the Operating Agreement shall
be amended to read as follows:
No Net Loss shall be allocated to any Member to the extent such
allocation would create a deficit in the Capital Account of such
Member computed after making all Capital Account adjustments for such
year, debiting, as of the end of such year, adjustments, allocations,
and distributions described in Treasury Regulations Section 1.704-
1(b)(2)(ii)(d)(4), (5) or (6) and crediting any amounts such Member is
obligated to restore or is deemed obligated to restore pursuant to
Treasury Regulations Sections 1.704(2)(g)(1) or 1.704-2(i)(5). Any
such Net Loss shall instead be allocated to the other Members, pro
rata in accordance with and to the extent of their positive Capital
Account balances. Notwithstanding any provision of this Agreement to
the contrary (except for Sections 7.1 and 7.2 of this Agreement, which
shall be applied first), if in any taxable year of the Company (or
other period) a Member unexpectedly receives an adjustment, allocation
or distribution described in Treasury Regulations Section 1.704-
1(b)(2)(ii)(d)(4), (5) or (6), or any successor provision thereto, or
an allocation of Net Loss that causes such a deficit balance in the
Capital Account of such Member, such Member will be allocated items of
income or gain to the extent required by Treasury Regulations Section
1.704-1(b)(2)(ii)(d). This provision is intended
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to constitute a "qualified income offset" within the meaning of
Treasury Regulations Section 1.704-1(b)(2)(ii)(d).
27. Restrictions on Transfers of Units. Section 8.1 of the Operating
Agreement shall be amended to (i) delete the phrase "which consent shall not be
unreasonably withheld;" (ii) delete the phrase "such Member may contract to sell
the Membership Interest to a third party,;" and to insert "such Member may
contract to assign (but not substitute the assignee as a Member) to a third
party, in lieu thereof;" and (iii) in each of the two places the phrase "right
to assign (but not substitute)" appears, to read, instead, as follows: "right
to assign (but not substitute the assignee as a Member)".
28. New Members. Section 8.2 of the Operating Agreement shall be amended
to read as follows:
A new Member including, without limitation, a substitute Member
(in either case, a "new Member"), may be admitted only with the
unanimous written consent of the Members, which consent may be
withheld in the sole and arbitrary discretion of such Members. A new
Member may be admitted upon execution of an amendment to this
Agreement and the filing of an amendment to the Articles of
Organization of the Company. Each new Member shall be admitted only
if such new Member has executed an amendment to this Agreement in
which the new Member agrees to be bound by the terms and provisions of
this Agreement as they may be modified by that amendment. A new
Member's Capital Contribution and share of the Company's profits and
losses shall be set forth in an amendment to this Agreement containing
the written consent of the Members agreeing to the admission of the
new Member. Until such time as a transferee is admitted as a new
Member, such transferee by virtue of such transfer shall have no right
to participate in the management of the business and affairs of the
Company or to become a Member.
29. Expulsion of a Member. Section 8.4 of the Operating Agreement shall
be amended to delete the reference to "October 1, 1995" and to insert "October
1, 1996" in lieu thereof.
30. Events of Default. Section 9.1(a) of the Operating Agreement shall be
amended to read as follows: "the failure to pay or make a required payment,
distribution, or contribution hereunder within ten (10) days following written
notice of such default;".
31. Events of Dissolution. Section 9.2(h) of the Operating Agreement
shall be amended to delete the reference to "October 1, 1994" and to insert
"September 1, 1995" in lieu thereof.
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32. Distribution of Assets. Section 9.3(b) of the Operating Agreement
shall be amended to read as follows:
to all the Members, pro rata, in accordance with their "unreturned
Capital Account", to the extent of any unreturned Capital Accounts.
For the purposes of this Section 9.3(b) the phrase "unreturned Capital
Accounts" shall be defined as the amount of cash and the fair market
value of any property contributed to the Company as a Capital
Contribution of a Member (with such property valued pursuant to
Section 1.5 of this Agreement) reduced by the amount of cash and the
fair market value of any property distributed in accordance with
Section 7.7 of this Agreement; and
33. Substitution of Mojave. As between the parties to this Agreement all
references in the Sublease to "Eagle Gaming, Inc." shall be deemed to mean
"Mojave Gaming, Inc." and all references to "Eagle" shall be deemed to mean
"Mojave."
34. Effect. Except as modified by this Amendment, all other terms and
conditions in the Operating Agreement including, without limitation, the
guarantee of Elsinore pursuant to Section 12.12 thereto, shall remain in full
force and effect and this Agreement shall be governed by the provisions thereof.
The parties hereto hereby affirm each and every term of the Operating Agreement
as modified by this Amendment.
35. Binding Nature; Assignments. This Amendment is binding upon and
inures to the benefit of the parties hereto and their respective heirs,
successors and assigns.
36. Governing Law. This Amendment shall be governed by and construed in
accordance with the laws of the State of Nevada.
37. Further Documents and Action. The parties agree to execute and
deliver all such further or instruments and take all action as may be reasonably
necessary or appropriate to carry out the purposes of this Amendment.
38. Executed in Counterparts. This Amendment may be executed in any
number of counterparts, each of which when executed and delivered shall be
deemed to be an original and all of which taken together shall constitute one
and the same agreement.
39. Capitalized Terms. Capitalized terms not defined herein shall have
the meanings ascribed to them in the Operating Agreement.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the day
and year first hereinabove written.
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ELSINORE CORPORATION, A NEVADA MOJAVE GAMING, INC., A NEVADA
CORPORATION CORPORATION
By: By:
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Name: Name:
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Title: Title:
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MOJAVE VALLEY RESORT CASINO NASHVILLE NEVADA, L.L.C., A NEVADA
COMPANY, A NEVADA CORPORATION LIMITED-LIABILITY COMPANY
By: By:
--------------------------------- --------------------------------
Name: Name:
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Title: Title:
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By:
---------------------------------
Name:
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Title:
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EXHIBIT "A"
Development Option Agreement
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DEVELOPMENT OPTION AGREEMENT
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THIS DEVELOPMENT OPTION AGREEMENT (this "Development Agreement") dated as
of ____________________, 199__, is made by and among MOJAVE GAMING, INC., a
Nevada corporation ("Mojave"), ELSINORE CORPORATION, a Nevada corporation
("Elsinore") and MOJAVE VALLEY RESORT CASINO COMPANY, a Nevada corporation
("MVRCC").
RECITALS
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A. Mojave Valley Resort, Inc., a Nevada corporation ("MVR") and the Fort
Mojave Indian Tribe, an Indian Tribe organized in accordance with Section 16 of
the Act of June 18, 1934, 25 U.S.C. Section 476 (the "Tribe") are parties to a
ground lease dated August 21, 1990, as amended by a lease modification agreement
approved by the United States Department of the Interior, Bureau of Indian
Affairs ("BIA") on June 4, 1993, (collectively, the "Ground Lease") for
approximately four hundred eighty-eight (488) acres of land owned by the Tribe
as further described in the Ground Lease (the "Leased Land"). MVR desires to
develop the Leased Land in accordance with the Tribe's master plan for
development (the "Master Plan").
B. MVR and MVRCC are parties to an Amended and Restated Hotel/Casino
Sublease for Owner-Operator dated as of August 23, 1994, approved by the Tribe
on August 23, 1994 and the BIA on October 7, 1994 (the "Sublease") for a certain
portion of the Leased Land consisting of two parcels as further described
therein (the "Site"). Elsinore and MVRCC are parties to a Memorandum of
Understanding dated February 2, 1994 ("MOU") with respect to the development of
the Site (the "Project"). Elsinore has assigned its rights in the MOU to Eagle
Gaming, Inc., a Nevada corporation ("Eagle"), who in turn assigned its rights in
the MOU to Mojave. Elsinore agrees to guarantee the performance of Mojave or
any permitted transferee of Mojave under this Development Agreement.
C. Eagle, Elsinore and MVRCC are parties to an Operating Agreement dated
May 27, 1994, as thereafter amended (the "Agreement") with respect to the
organization of Nashville Nevada, L.L.C., a Nevada limited-liability company
(the "Company") which has been formed to construct, develop and operate the
Project. Eagle has assigned its rights in the Agreement to Mojave. MVRCC has
agreed to assign its rights under the Sublease to the Company pursuant to the
Agreement. The Agreement contemplates the construction of an approximately five
hundred (500) room hotel with a sixty thousand (60,000) square foot casino
containing approximately one thousand (1,000) slot machines and forty (40) table
games (which composition of slot machines and table games may vary from time to
time based upon customer demand) along with an approximately twenty-five (25)
acre recreational vehicle park containing approximately six hundred thirty-four
(634) parking spaces. Capitalized terms not otherwise defined herein shall have
the same meanings as set forth in the Agreement.
D. MVR and MVRCC are parties to a Second Amended and Restated Lease
Option Agreement dated as of October 6, 1994, approved by the Tribe on October
6, 1994 and the BIA on October 7, 1994 (the "Option Agreement") to sublease
portions of the Leased Land known as
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parcel 4 as described in Exhibit "A-1" ("Parcel 4"), parcel 5 as described in
Exhibit "A-2" ("Parcel 5"), parcel 8 as described in Exhibit "A-3" ("Parcel 8"),
and parcel 6 as described in Exhibit "A-4" ("Parcel 6," and together with
Parcels 4, 5, and 8 the "Additional Sites" and each such parcel an "Additional
Site"). The Additional Sites are shown on the site plan attached hereto as
Exhibit "B". Upon exercise of a Sublease Option (as defined in the Option
Agreement) and receipt of the requisite approvals, if any, of the sublease and
assignment, a fee shall be paid to the Tribe (the "Option Fee") as set forth in
the Option Agreement. Mojave and MVRCC contemplate the construction, development
and operation of separate hotel/casino projects on certain of the Additional
Sites in conformance with the Master Plan and in each case consistent with a
design scheme, site plan, landscape plan, and inter-site circulation pattern
which complement the Project and every other hotel/casino project built on an
Additional Site or elsewhere on the Leased Land, pursuant to the terms and
conditions contained herein.
E. Due to the experience of Elsinore and Mojave, as an Affiliate of
Elsinore, in the development and operation of modern, first class hotel/casinos
and in reliance on the unique relationship of the parties, MVRCC hereby grants
to Mojave the Development Option (as defined below) (and such corresponding
rights to Elsinore as set forth herein) upon the terms and conditions set forth
in this Development Agreement.
TERMS OF AGREEMENT
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In consideration of the Agreement, the mutual covenants and conditions set
forth herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. Provided that (i) the Agreement, the Sublease, or the Option Agreement
has not been previously terminated other than by a default of MVRCC or any
Affiliate of MVRCC; (ii) the Company is not then in breach or default of the
Agreement or the Sublease including any event which with the giving of notice or
the lapse of time, or both, would constitute a breach or default (except for any
such event caused by the action or inaction of MVRCC); and (iii) Mojave,
Elsinore or an Affiliate of either of them is not then in breach or default of
the Agreement including any event which with the giving of notice or the lapse
of time, or both, would constitute a breach or default, then Mojave shall have
the option of entering into one (1) or more joint ventures with MVRCC or an
Affiliate of MVRCC to develop Additional Sites ("Development Option") upon the
terms and conditions set forth below, otherwise this Development Agreement shall
terminate:
(a) Mojave shall have a Development Option with respect to Parcel 4
which shall expire on or before 9:00 a.m. P.S.T., January 15, 1997, or one (1)
year following the Opening, whichever is later; provided, however, that at any
time prior to the Opening, should MVRCC or an Affiliate of MVRCC reach an
agreement with a third party or parties for the construction, development and
operation of a hotel/casino to be located on Parcel 4, the Development Option
for Parcel 4 shall terminate upon recordation of the construction financing for
such hotel/casino if the same shall be recorded prior to the Opening and
construction of such hotel/casino shall commence within ninety (90) days
thereafter. In the event of such an
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agreement, a Development Option for Parcel 5 shall be substituted in lieu
thereof which substituted Development Option shall expire on or before 9:00 a.m.
P.S.T., January 15, 1997, or one (1) year following the Opening, whichever is
later. MVRCC hereby assigns to Mojave MVRCC's approval rights under Paragraph
1(a) of the Option Agreement in the event that Parcel 5 is substituted for
Parcel 4. No construction shall be undertaken except under the supervision of an
architect licensed in the State of Nevada. The cost and expense of Mojave's
review of any proposed Building Plan (as defined in the Option Agreement)
required to be furnished pursuant to the Option Agreement shall be paid by
Mojave. To the extent that the time for substituting Parcel 5 for Parcel 4 and
for exercising the Sublease Option (as defined in the Option Agreement) is
extended pursuant to Paragraph 1(a) of the Option Agreement, the time for
substituting Parcel 5 for Parcel 4 and for exercising the Development Option
provided in this subparagraph 1(a) shall be likewise extended.
(b) provided that (i) Mojave has exercised its Development Option as
set forth in subparagraph 1(a) above; (ii) approval of the Tribe and the BIA to
the sublease for Parcel 4 or Parcel 5, as the case may be, has been obtained
within six (6) months following the submission of the sublease for such
approvals; (iii) the hotel/casino to be constructed thereon is open for business
to the public within the time period prescribed by the Joint Venture Agreement
(as defined below) entered into in connection with the exercise of the
Development Option set forth in subparagraph 1(a) above and (iv) Mojave,
Elsinore or any Affiliate of either of them is not then in default (other than a
default caused by MVRCC or an Affiliate of MVRCC) of the Joint Venture Agreement
(as defined below) or of the sublease, entered into in connection with the
Development Option set forth in subparagraph 1(a) above including any event
which with the giving of notice or lapse of time, or both, would constitute a
breach or default, then Mojave shall have a Development Option with respect to
Parcel 5 (or either Parcel 6 or Parcel 8, at the sole option of Mojave, in the
event that Parcel 5 has been substituted by MVRCC in accordance with
subparagraph 1(a) above), which shall expire at 9:00 a.m. P.D.T., July 15, 1998,
or six (6) months following the completion and opening for business to the
public of the hotel/casino to be developed pursuant to the exercise of the
Development Option set forth in subparagraph 1(a) above, whichever is later; and
(c) provided (i) that Mojave has exercised its Development Option as
set forth in subparagraph 1(b) above; (ii) approval of the Tribe and the BIA to
the sublease for Parcel 5, Parcel 6 or Parcel 8, as the case may be, has been
obtained within six (6) months following the submission of the sublease for such
approvals; (iii) the hotel/casino to be constructed thereon is open for business
to the public within the time period prescribed by the Joint Venture Agreement
(as defined below) entered into in connection with the exercise of the
Development Option set forth in subparagraph 1(b) above and (iv) Mojave,
Elsinore or any Affiliate of either of them is not then in default (other than a
default caused by MVRCC or an Affiliate of MVRCC) of the Joint Venture
Agreements (as defined below) or of the subleases, entered into in connection
with the Development Options set forth in subparagraphs 1(a) and 1(b) above
including, any event which with the giving of notice or lapse of time, or both,
would constitute a breach or default, then Mojave shall have a Development
Option with respect to Parcel 8 (or Parcel 6, in the event that Mojave has
exercised its Development Option as set forth in subparagraph 1(b) above as to
Parcel 8) together with the premises designated RV Park #2 as described in
Exhibit "A-5" ("RV
-3-
<PAGE>
Park 2") unless such premises has been subleased for use as a recreational
vehicle park, which shall expire at 9:00 a.m. P.S.T. January 15, 2000, or six
(6) months following the completion and opening for business to the public of
the hotel/casino to be developed pursuant to the exercise of the Development
Option set forth in subparagraph 1(b) above, whichever is later.
2. Upon compliance with the applicable conditions set forth in Paragraph
1 above, a Development Option shall be exercised by Mojave delivering, within
the respective time periods set forth in subparagraphs 1(a), (b) and (c),
written notice to MVRCC identifying the proposed sources for financing of the
respective hotel/casino project, detailing the constituent parts, terms and
timing of such financing and including satisfactory assurances of commitments
therefor, in the manner and at the address set forth in Section 12.1 of the
Agreement. The parties forthwith after any such exercise of a Development Option
by Mojave shall agree upon and execute the Joint Venture Agreement referred to
in Paragraph 3 below.
3. The form of entity utilized by Mojave and MVRCC to develop an
Additional Site ("Development Entity") upon the exercise of a Development Option
by Mojave shall be a Nevada limited-liability company unless otherwise agreed by
the mutual consent of the parties or unless the tax and liability provisions of
Nevada limited-liability companies have materially adversely changed from the
date hereof. Mojave and MVRCC shall promptly enter into an operating agreement
(the "Joint Venture Agreement") governing the ownership, development and
operation of each hotel/casino project, as well as the Development Entity,
containing substantially similar terms and conditions as contained in the
Agreement, including any amendments thereto and as may be adjusted or modified
pursuant to the terms of the Agreement or any such amendment. By way of
illustration and not limitation, a Joint Venture Agreement shall contain
substantially similar terms and conditions as the Agreement relating to time
frames with respect to the rights and obligations of the parties, size and
composition of each hotel/casino project to be built upon an Additional Site,
and appointment of Temple or an Affiliate of Temple as construction manager and
of Elsinore or an Affiliate of Elsinore as project coordinator. Notwithstanding
the foregoing to the contrary, each Joint Venture Agreement shall deviate from
the Agreement as follows:
(a) there will be no requirement to construct an additional
recreational vehicle park except with respect to RV Park 2;
(b) there will be no obligation on the part of MVRCC to complete or
cause the completion of any off-site improvements, as described in Section 2.9
of the Agreement;
(c) the total initial capital contribution to the Development Entity
shall be not less than Ten Million Dollars ($10,000,000) nor more than Twenty
Million Dollars ($20,000,000) (which amounts are based upon the purchasing power
of money as of the date of this Development Agreement and shall be periodically
adjusted with reference to the Consumer Price Index to retain the same
purchasing power);
(d) MVRCC shall receive a fifty percent (50%) equity interest in the
Development Entity in consideration of a capital contribution in the form of the
assignment of the sublease for the subject Additional Site (with the value of
such assignment of the sublease
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<PAGE>
for each Additional Site being Five Million Dollars ($5,000,000) which amount is
based upon the purchasing power of money as of the date of this Development
Agreement and shall be periodically adjusted with reference to the Consumer
Price Index to retain the same purchasing power) and cash in such amount (if
any) as is necessary for the total amount of MVRCC's capital contribution
including said value for the assignment of the sublease to equal fifty percent
(50%) of the total initial capital contribution to the Development Entity.
Mojave shall be obligated to make a cash capital contribution of fifty percent
(50%) of the total initial capital contribution required for the Development
Entity up to a maximum of Ten Million Dollars ($10,000,000) (which amount is
based upon the purchasing power of money as of the date of this Development
Agreement and shall be periodically adjusted with reference to the Consumer
Price Index to retain the same purchasing power) in consideration of the
remaining fifty percent (50%) equity interest;
(e) the total project cost and design, development and construction
budget shall be adjusted to account for any variations in price of building
services and materials at the time of construction and other applicable cost
increases;
(f) the construction manager's fee shall be four percent (4%) of the
design, development and construction budget for the hotel/casino and other
improvements and/or installations subject to the supervision of the construction
manager so long as such fee falls within the range of what is customary and
reasonable for construction management services for construction of a
hotel/casino project of a similar magnitude at that time;
(g) the Joint Venture Agreement shall delete any reference to Pre-
Effective Date or payment of Pre-Effective Date Costs, as the effective date of
the Joint Venture Agreement will be the date that the Joint Venture Agreement is
executed by all parties thereto;
(h) Mojave and MVRCC shall have the unrestricted right to transfer up
to forty percent (40%) of their respective membership interests (i.e. a twenty
percent (20%) membership percentage in the Development Entity) including,
without limitation the unrestricted right of MVRCC to assign (but not
substitute) a five percent (5%) membership percentage in the Development Entity
to George R.A. Johnson or, in his sole discretion, to an entity to be formed and
solely owned by him and/or members of his immediate family;
(i) the Development Entity shall attempt to include, as a component of
the project financing, an amount equal to the Option Fee and, if obtained by the
Development Entity through the project financing, shall be loaned by the
Development Entity to MVRCC upon identical interest rates obtained by the
Development Entity pursuant to the project financing which loan shall be secured
by MVRCC's interest in the Development Entity and repaid to the Development
Entity from the first distributions of the Development Entity to MVRCC (in its
capacity as a member of the Development Entity) other than distributions made to
pay taxes on income which have not been distributed, until such amounts are paid
in full.
(j) the project financing shall be closed and the initial draw request
or other funding has occurred within sixty (60) days after the approval by the
Tribe and BIA of the
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<PAGE>
sublease for such Additional Site; provided, however, that this time period
shall be extended by one (1) day for each day that such funding was delayed due
to a material breach by MVR or an Affiliate of MVR under a construction
management agreement;
(k) the opening of the hotel/casino to be built upon an Additional
Site shall occur within (i) fourteen (14) months of the exercise of the
Development Option for such Additional Site or (ii) sixty (60) days after
completion of construction provided that such sixty (60) day time period shall
be diminished by one (1) day for each day that Mojave or an Affiliate of Mojave
delays completion of construction but in no event more than sixty (60) days,
whichever is later;
(l) notwithstanding anything contained in this Development Agreement
to the contrary, the Option Fee to be expended by MVRCC pursuant to Mojave's
exercise of the Development Option set forth in subparagraph 1(c) above and the
corresponding exercise of MVRCC's Sublease Option (as defined in the Option
Agreement) provided in Paragraph 4 below shall be paid by the Development Entity
to MVRCC on the later of the exercise of such Development Option and Sublease
Option or the organization of the Development Entity provided that the
Development Entity is organized within thirty (30) days from such exercise;
provided, however, that in the event RV Park 2 is not, for any reason, part of
the Development Option set forth in subparagraph 1(c) above except as provided
in subparagraph 3(i), the Option Fee expended by MVRCC pursuant thereto shall be
the sole and exclusive responsibility of MVRCC with no reimbursement from the
Development Entity or Mojave; and
(m) any changes required by law.
4. MVRCC, upon the proper exercise of a Development Option by Mojave
pursuant to the terms hereof, shall (i) exercise its option rights for such
corresponding Additional Site under the Option Agreement and enter into a
sublease for such corresponding Additional Site; (ii) assign its rights in said
sublease to the Development Entity; (iii) promptly submit said sublease for
approval by the Tribe and the BIA; and (v) upon receipt of such approvals pay
any Option Fee required under the Option Agreement.
5. Any additional notices required to be given by a party under this
Development Agreement shall be in writing and duly given as set forth in Section
12.1 of the Agreement.
6. The rights and obligations described in this Development Agreement
shall terminate if (i) Elsinore or an Affiliate of Elsinore ceases to be Project
Coordinator of the Project; (ii) Mojave and/or an Affiliate reduces its
Membership Interest in the Company below forty percent (40%) in the aggregate;
(iii) there is a transfer of a majority interest in Mojave other than a transfer
due to the exercise of a security interest in the stock of Mojave granted to the
holders of Elsinore's convertible subordinated notes to be issued in 1995 (the
"Security Interest"); (iv) there is a change in the control of Mojave other than
a transfer due to the exercise of the Security Interest or Elsinore, with a
"change of control" in Elsinore being defined as a change in the majority of the
Board of Directors within any twelve (12) month period; or (v) the average win
per unit computed by adding the total gaming win amount and dividing such total
by the
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<PAGE>
sum of total games, card games and total slot machines of the Project and
any hotel/casino constructed on an Additional Site pursuant to the exercise of a
Development Option in any Fiscal Year subsequent to the Fiscal Year of Opening
is less than seventy-five percent (75%) of the average win per unit for Clark
County - Laughlin Area casinos with gaming revenue of One Million Dollars
($1,000,000) and over as calculated (as set forth above) from the figures
published in the then most recent State of Nevada Gaming Control Board Gaming
Revenue Report. If the Gaming Revenue Report shall cease to be published, then
for the purposes of this Development Agreement, there shall be substituted for
the Gaming Revenue Report such other publication containing similar information
as the parties shall reasonably agree.
7. Any dispute, controversy, or claim arising out of or relating to this
Development Agreement shall be settled by arbitration held in Las Vegas, Nevada
in accordance with the Commercial Arbitration Rules of the American Arbitration
Association then in effect, except as specifically provided below.
(a) If the matter in controversy shall appear, at the time of the
demand, to equal or exceed One Hundred Thousand Dollars ($100,000.00) (which
amount is based upon the purchasing power of money as of the date of this
Development Agreement and shall be periodically adjusted with reference to the
Consumer Price Index to retain the same purchasing power) then the panel to be
appointed shall consist of three neutral arbitrators; if less than such amount,
one neutral arbitrator.
(b) Subject to the time restrictions set forth below, the arbitrator
shall conduct the arbitration in such a manner (including the allowance of such
discovery as the arbitrator determines is appropriate under the circumstances)
and on such a schedule as the arbitrator deems to be fair and reasonable and to
provide each party with an adequate opportunity to present and support its
position. The arbitrator shall resolve the dispute and give the parties written
notice of his or her decision, with the reasons therefor set out in full, within
thirty (30) days after the arbitrator's selection and shall have ten (10) days
thereafter to reconsider and modify his or her decision if any party so
requests. Thereafter the arbitrator's decision shall be final, binding, and
nonappealable. The arbitrator shall be bound by the terms of this Development
Agreement and applicable law.
(c) The arbitrator shall have authority to award relief under legal or
equitable principles, including interim and preliminary relief. The arbitrator
shall allocate the costs of the arbitration, including the arbitrator's fee,
between the parties upon such basis as the arbitrator deems equitable and, if
the arbitrator determines that any party has proceeded in bad faith or
arbitrarily or capriciously, then the arbitrator shall require that party to
reimburse the other parties for the attorneys' fees and out-of-pocket expenses
incurred by the other party in connection with the arbitration. The arbitrator
shall also award such incidental recovery, such as interest, as required by this
Development Agreement.
(d) Judgment upon the award rendered by the arbitrator may be entered
in any court having personal and subject matter jurisdiction.
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<PAGE>
8. This Development Agreement contains the entire understanding of the
parties with respect to its subject matter and supersedes all prior agreements
and understandings, including without limitation the MOU, between the parties
with respect to such subject matter.
9. This Development Agreement may not be modified, amended, supplemented,
canceled or discharged, except by written instrument executed by all of the
parties. Except for the Development Options, no failure to exercise, and no
delay in exercising, any right, power or privilege under this Development
Agreement shall operate as a waiver, nor shall any single or partial exercise of
any right, power or privilege hereunder preclude the exercise of any other
right, power or privilege. The waiver of any breach of any provision shall not
be deemed to be a waiver of any preceding or succeeding breach of the same or
any other provision, nor shall any waiver be implied from any course of dealing
between or among the parties. No extension of time for performance of any
obligations or other acts under any other agreement shall be deemed to be an
extension of the time for performance of any other obligations or any other
acts. The rights and obligations under this Development Agreement shall bind
and inure to the benefit of the parties (including the respective officers,
directors, employees, agents and Affiliates). The Development Option granted to
Mojave hereunder shall not be transferable either voluntarily or by operation of
law, without the written consent of MVRCC, except that Mojave may transfer to an
Affiliate of Mojave without such consent of MVRCC so long as such Affiliate
assumes in writing all of the duties and obligations of Mojave hereunder. For
the purposes of this paragraph, the sale, issuance or transfer of a controlling
interest in Mojave, or the transfer of a majority interest in or change in the
control of any partnership, trust, unincorporated association, or corporation
which directly or indirectly controls Mojave (which shall be deemed to occur
when a majority of the board of directors of such corporation has been
replaced), shall be deemed a prohibited transfer except for a transfer due to
the exercise of the Security Interest. Notwithstanding the foregoing to the
contrary, the only restriction on Elsinore with respect to this paragraph shall
be a change of majority control upon a change in the majority of the board of
directors within a twelve (12) month period.
10. This Development Agreement may be executed in any number of
counterparts, each of which shall be an original but all of which together shall
constitute one and the same instrument.
11. This Development Agreement shall be construed in accordance with and
governed for all purposes by the laws and public policy of the State of Nevada.
12. If any provision of this Development Agreement or the application of
any such provision to any party or circumstance is held to be inconsistent with
any present or future law, ruling, rule or regulation of any court or
governmental or regulatory authority having jurisdiction over the subject matter
of this Development Agreement, such provision shall be deemed to be modified to
the minimum extent necessary to comply with such law, ruling, rule or
regulation, and the remainder of this agreement or the application of such
provision to persons or circumstances other than those as to which it is held
inconsistent, shall not be affected. If any provision is determined to be
illegal, unenforceable, or void, then such void provision shall be
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<PAGE>
deemed rescinded and each provision not so affected shall enforced to the extent
permitted by law.
13. In no event shall this Development Agreement be construed to grant any
rights to any party other than Mojave and MVRCC and their permitted successors
or assigns.
14. If this Development Agreement is terminated due to the contingencies
contained herein or otherwise rendered void due to the non-occurrence of a
condition subsequent, Mojave shall upon the written request of MVRCC, execute
and deliver to MVRCC a written release, quitclaim deed, or such other instrument
specified by MVRCC, evidencing the termination of this Development Agreement.
Such instrument shall be signed and acknowledged in a form eligible for
recording.
15. This Development Agreement shall, at all times, be subject and
subordinate to the terms of the Option Agreement and Ground Lease. In the event
of any inconsistency between the terms of the Option Agreement and Ground Lease
and the terms of this Development Agreement, the terms of the Option Agreement
shall prevail over the terms of the Development Agreement and the terms of the
Ground Lease shall prevail over the terms of the Development Agreement and
Option Agreement.
16. Elsinore hereby unconditionally guarantees to MVRCC the full and
prompt payment and performance of the obligations of Mojave (or of any Affiliate
of Mojave which assumes the obligations of Mojave) hereunder and indemnifies
MVRCC against any and all loss, damage and expense which MVRCC may sustain as a
result of a breach by Mojave hereof, together with reasonable attorneys fees and
other costs and expenses of enforcement incurred by it in connection with any
matter covered by this guaranty.
17. An Affiliate of MVRCC is in negotiations to obtain a leasehold
interest in certain lands adjoining Parcel 6. In the event that such leasehold
interest is acquired, MVRCC agrees to expand Parcel 6 by adding the premises
described in Exhibit "C" attached hereto consisting of approximately two and
one-half (2.5) acres of land.
18. Notwithstanding anything contained herein to the contrary, as a
material inducement for MVRCC to enter into this Development Agreement and due
to the unique relationship of the parties, Mojave and Elsinore agree that upon
the filing of a petition by or against either of them under the United States
Bankruptcy Code (11 U.S.C. 101 et. seq.) as amended (the "Bankruptcy Code"),
agree that the provisions of Bankruptcy Code (S) 365(c)(1) (as the same may be
amended from time to time) shall govern any assignment of this Development
Agreement.
19. The parties and their respective professional advisors believe that
this Development Agreement is the product of all of their efforts, that it
expresses their agreement and that it should not be interpreted in favor of or
against any party to this Development Agreement.
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<PAGE>
20. Notwithstanding anything in this Development Agreement to the
contrary, the obligation of MVRCC to grant option rights to RV Park 2 and the
corresponding obligation of the Development Entity to pay the Option Fee
pursuant to the exercise of Mojave's Development Option set forth in
subparagraph 1(c) above, shall be contingent upon MVRCC obtaining the approval
of the Tribe and BIA of an amendment to the Option Agreement to allow the grant
of the RV Park 2 option rights as provided in subparagraph 1(c) above. Such
amendment shall be acceptable to Mojave in the exercise of its reasonable
discretion. MVRCC shall use commercially reasonable efforts to obtain the
approvals of the Tribe and BIA set forth in this Development Agreement.
IN WITNESS WHEREOF, the undersigned by their duly authorized
representatives have executed this Development Agreement on the date first above
mentioned.
MOJAVE:
MOJAVE GAMING, INC., a Nevada
corporation
By:
----------------------------------
Its:
---------------------------------
ELSINORE:
ELSINORE CORP., a Nevada corporation
By:
----------------------------------
Its:
---------------------------------
MVRCC:
MOJAVE VALLEY RESORT CASINO COMPANY,
a Nevada corporation
By:
----------------------------------
Its:
---------------------------------
By:
----------------------------------
Its:
---------------------------------
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<PAGE>
_________________________________
NOTE PURCHASE AGREEMENT
DATED AS OF MARCH 30, 1995
REGARDING
7-1/2% CONVERTIBLE SUBORDINATED NOTES
DUE DECEMBER 31, 1996
OF
ELSINORE CORPORATION
_________________________________
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
SECTION 1 Sale and Purchase of Notes........................................ 1
SECTION 2 Representations and Warranties of the Company..................... 2
SECTION 3 Representations and Warranties of Purchaser....................... 7
SECTION 4 Conversion........................................................ 8
4.1 Conversion......................................................... 8
4.2 Mechanics of Conversion............................................ 9
a. Surrender, Election and Payment............................... 9
b. Effective Date................................................ 9
c. Share Certificates............................................ 10
d. Acknowledgment of Obligation.................................. 10
e. Payment of Accrued Interest................................... 10
4.3 Current Conversion Price........................................... 10
4.4 Adjustment of Conversion Price..................................... 11
a. Adjustments for Stock Dividends, Recapitalizations, etc....... 11
b. Adjustments for Certain Other
Distributions................................................. 11
c. Adjustments for Issuances of Additional
Stock......................................................... 12
d. Certain Rules in Applying the Adjustment for
Additional Stock Issuances.................................... 13
(i) Cash Consideration..................................... 13
(ii) Non-Cash Consideration................................. 13
(iii) Options, Warrants, Convertibles, etc................... 13
(iv) Number of Shares Outstanding........................... 15
e. Exclusions from the Adjustment for Additional
Stock Issuances............................................... 15
f. Certification................................................. 15
g. Determination of Market Price................................. 15
h. Other Adjustments............................................. 16
i. Meaning of "Issuance"......................................... 16
4.5 Company's Consolidation or Merger................................... 17
4.6 Notice to Holders of Notes.......................................... 17
SECTION 5 Covenants of the Company.......................................... 18
SECTION 6 Defaults.......................................................... 21
SECTION 7 Conditions to the Obligations of Purchaser........................ 24
SECTION 8 Conditions to Obligations of the Company.......................... 27
SECTION 9 Subordination..................................................... 27
9.1 Agreement to Be Bound.............................................. 27
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
9.2 Priority of Senior Indebtedness.................................. 27
9.3 Liquidation; Dissolution; Bankruptcy............................. 28
9.4 No Prejudice or Impairment; Reinstatement........................ 29
9.5 Subrogation...................................................... 30
9.6 Obligations Unaffected........................................... 31
9.7 Definition of Senior Indebtedness................................ 31
SECTION 10 Exchange of Notes; Accrued Interest;Cancellation of Surrendered
Notes; Replacement............................................... 31
SECTION 11 Prepayment...................................................... 33
11.1 Optional Prepayment.............................................. 33
11.2 Change of Control Event.......................................... 34
SECTION 12 Representations and Indemnities to Survive Delivery............. 35
SECTION 13 Notices; Publicity............................................. 35
SECTION 14 Payment of Expenses............................................ 36
SECTION 15 Successors..................................................... 36
SECTION 16 Partial Unenforceability....................................... 36
SECTION 17 Applicable Law................................................. 36
SECTION 18 General........................................................ 37
SECTION 19 Section Headings; Amendment.................................... 37
</TABLE>
ii
<PAGE>
NOTE PURCHASE AGREEMENT dated as of March 30, 1995, by and between
Elsinore Corporation, a Nevada corporation (the "Company"), and Magnolia
Partners, L.P., a Delaware limited partnership ("Purchaser").
W I T N E S S E T H:
-------------------
In consideration of the mutual covenants and agreements set forth herein
and for other good and valuable consideration the receipt and sufficiency of
which are hereby acknowledged, the parties agree as follows:
SECTION 1 Sale and Purchase of Notes.
--------------------------
a. The Company agrees to sell to Purchaser and, subject to the terms
and conditions hereof and in reliance upon the representations and warranties of
the Company contained herein, Purchaser agrees to purchase on the Closing Date
(as hereinafter defined), a note or notes in the aggregate principal amount of
$1,125,000 (collectively, the "Note"). The aggregate purchase price to be paid
to the Company by Purchaser for the Note is 100% of the principal amount of the
Note to be purchased by the Purchaser. All obligations under the Note will be
secured by a pledge of capital stock of Mojave Gaming, Inc., a wholly-owned
subsidiary of the Company, in the manner specified in the Pledge Agreement
attached hereto as Exhibit B ("Pledge Agreement").
b. As used herein, "Notes" means the aggregate of $1,706,250
principal amount of the Company's 7-1/2% Convertible Subordinated Notes Due
December 31, 1996, issued pursuant to the Purchase Agreements (defined in
Section 1(c)), together with all Notes issued in exchange therefor or
replacement thereof. Each of the Notes will be substantially in the form of the
Note set forth as Exhibit A hereto.
c. The Notes are being sold to Purchaser pursuant to this Agreement
and to other purchasers under other agreements dated as of the date hereof
(collectively the "Purchase Agreements"). The sale of Notes to each purchaser
under each Purchase Agreement is a separate sale, the purchasers are not acting
together or as a group for purposes of such purchase and sale and no purchaser
will have any rights or liabilities under any Purchase Agreement other than the
Purchase Agreement to which it is a party.
d. The closing of the purchase and sale of the Notes will take place
at the offices of Pillsbury Madison & Sutro, 235 Montgomery Street, San
Francisco, CA at 10:00 A.M., Pacific Standard time, on March 31, 1995, or such
other time and date as
1
<PAGE>
shall be mutually agreed to by the Company and Purchaser ("Closing Date").
Subject to the terms and conditions hereof, on the Closing Date (i) the Company
will deliver to Purchaser the Note, as set forth on Annex I hereto, in the form
of Exhibit A hereto in the aggregate principal amount of $1,125,000 and (ii)
upon Purchaser's receipt thereof, Purchaser will deliver to the Company a
certified or official bank check or wire transfer in an amount equal to the
purchase price for the Note payable to the order of the Company in federal or
other next day funds.
SECTION 2 Representations and Warranties of the Company.
---------------------------------------------
The Company hereby represents and warrants to Purchaser that:
a. The execution and delivery by the Company of (i) this Agreement,
(ii) the Note and the Pledge Agreement, and (iii) the Registration Rights
Agreement to be executed and delivered by the Company and Purchaser, in the form
attached as Exhibit C hereto ("Registration Rights Agreement") (collectively,
the "Documents"), the performance by the Company of its obligations thereunder,
the issuance, sale and delivery of the Note and the issuance of Common Stock
upon conversion of the Note have been duly authorized by all requisite corporate
action and will not violate any provision of law, any order of any court or
other agency of government, the Certificate of Incorporation or By-laws of the
Company, or any provision of any indenture, agreement or other instrument to
which the Company or any Subsidiary (as defined in Section 2(d)) or any of the
properties or assets of the Company or any Subsidiary is bound, or conflict
with, result in a breach of or constitute (with due notice or lapse of time or
both) a default under any such indenture, agreement or other instrument, or
result in the creation or imposition of any lien, charge or encumbrance of any
nature whatsoever upon any of the properties or assets of the Company or any
Subsidiary. The Company has full corporate power and authority to enter into
the Documents and to perform the transactions contemplated thereby.
b. This Agreement has been duly executed and delivered by the
Company and constitutes the legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, subject, as to
enforcement of remedies, to applicable bankruptcy, insolvency, reorganization,
moratorium and similar laws from time to time in effect affecting the
enforcement of creditors' rights generally and to general equity principles.
The Pledge Agreement and the Note and the Registration Rights Agreement, when
executed and delivered by the Company as provided in this Agreement, will
constitute legal, valid and binding obligations of the Company, enforceable
against the Company in accordance with their terms.
2
<PAGE>
c. A disclosure memorandum containing all material information with
respect to the business, properties, prospects and financial condition of the
Company and its Subsidiaries as of the date hereof has been delivered to
Purchaser (the "Memorandum"). The information contained in the Memorandum is
true and correct in all material respects as of the date of the Memorandum. The
Memorandum does not contain any untrue statement of a material fact nor does it
omit to state a material fact necessary in order to make the statements made, in
light of the circumstances under which they were made.
d. Except as described in the Memorandum, the Company does not own
or control, directly or indirectly, any corporation, association or other
entity. Each corporation, association or other entity described in the
Memorandum as being owned, directly or indirectly, in whole or in part, is
herein referred to as a "Subsidiary" and all such entities together, are herein
referred to as the "Subsidiaries." The Company has been duly incorporated and
is validly existing as a corporation in good standing under the laws of Nevada,
with full power and authority (corporate and other) to own and lease its
properties and conduct its business as described in the Memorandum; each
Subsidiary has been duly and validly incorporated or otherwise formed pursuant
to the laws of its jurisdiction of formation and, if a corporation, limited
liability company or limited partnership, is in good standing under such laws;
each Subsidiary that is a partnership, limited partnership or limited liability
company is a partnership for United States federal income tax purposes; except
as described in the Memorandum, the Company and each Subsidiary is in possession
of and operating in compliance in all material respects with all authorizations,
licenses, permits, consents, certificates and orders material to the conduct of
its business, all of which are valid and in full force and effect; the Company
and each Subsidiary is duly qualified to do business and in good standing as a
foreign corporation or other entity in each jurisdiction in which the ownership
or leasing of properties or the conduct of its business requires such
qualification, except for jurisdictions in which the failure to so qualify would
not have a material adverse effect upon the Company; and except as described in
the Memorandum, no proceeding has been instituted in any such jurisdiction,
revoking, limiting or curtailing, or seeking to revoke, limit or curtail, such
power and authority or qualification.
e. The Company has authorized and outstanding capital stock as set
forth under the heading "Capitalization" in the Memorandum; the issued and
outstanding shares of Common Stock have been duly authorized and validly issued,
are fully paid and nonassessable, have been issued in compliance with all
federal and state securities laws, were not issued in violation of or
3
<PAGE>
subject to any preemptive rights or other rights to subscribe for or purchase
securities, and conform to the description thereof contained in the Memorandum.
The Company's Board of Directors (i) has reserved for issuance upon conversion
of the Notes up to 2 million shares of the Company's authorized and unissued
Common Stock and, (ii) shall, on an ongoing basis until conversion or maturity
of the Notes, keep reserved such number of shares of the Company's authorized
and unissued Common Stock as shall be necessary for issuance upon conversion of
the Notes. Except as disclosed in or contemplated by the Memorandum and the
financial statements of the Company, and the related notes thereto, included in
the Memorandum, neither the Company nor any Subsidiary has outstanding any
options to purchase, or any preemptive rights or other rights to subscribe for
or to purchase, any securities or obligations convertible into, or any contracts
or commitments to issue or sell, shares of its capital stock or any such
options, rights, convertible securities or obligations. The description of the
Company's stock option, stock bonus and other stock plans or arrangements, and
the options or other rights granted and exercised thereunder, set forth in the
Memorandum and the Company's Proxy Statement relating to its 1995 Annual Meeting
of Stockholders accurately and fairly presents all material information with
respect to such plans, arrangements, options and rights.
f. The unaudited consolidated financial statements and schedules of
the Company and its Subsidiaries, and the related notes thereto, included in the
Memorandum present fairly the financial position of the Company and such
Subsidiaries as of the respective dates of such financial statements and
schedules, and the results of operations and changes in financial position of
the Company and such Subsidiaries for the respective periods covered thereby.
Such statements, schedules and related notes have been prepared in accordance
with generally accepted accounting principles applied on a consistent basis.
g. Except as disclosed in the Memorandum, and except as to defaults
that individually or in the aggregate would not be material to the Company,
neither the Company nor any Subsidiary is in violation or default of any
provision of its articles of incorporation or bylaws, or other organization
documents, and is not in breach of or default with respect to any provision of
any agreement, judgment, decree, order, mortgage, deed of trust, lease,
franchise, license, indenture, permit or other instrument to which it is a party
or by which any of its properties are bound; and there does not exist any state
of facts that constitutes an event of default on the part of the Company or any
Subsidiary as defined in such documents or that, with notice or lapse of time or
both, would constitute such an event of default.
4
<PAGE>
h. Except as described in the Memorandum, the contracts described in
the Memorandum, and all other material contracts, instruments, and other
documents evidencing legal rights and obligations of the Company or any
Subsidiary ("Contracts"), are in full force and effect on the date hereof; and,
except as described in the Memorandum, (i) neither the Company nor any
Subsidiary nor, to the best of the Company's knowledge, any other party is in
breach of or default under any Contract where such breach or default would
permit any party to terminate such Contract or could result in other penalties
having a material adverse effect on the Company; (ii) to the best of the
Company's knowledge, no event has occurred that, upon notice or the passage of
time, would cause such a default to occur; and (iii) the Company does not expect
to be unable or expect any Subsidiary to be unable to comply with any material
provision of any Contract.
i. Except as described in the Memorandum, there are no legal or
governmental actions, suits or proceedings pending, threatened in a writing
received by the Company or a Subsidiary or, to the best of the Company's
knowledge, otherwise threatened to which the Company or any Subsidiary is or may
be a party or of which property owned or leased by the Company or any Subsidiary
is or may be the subject, or related to environmental or discrimination matters,
which actions, suits or proceedings might, individually or in the aggregate,
prevent or adversely affect the transactions contemplated by this Agreement or
result in a material adverse change in the condition (financial or otherwise),
properties, business, results of operations or prospects of the Company or any
Subsidiary; and no labor disturbance by the employees of the Company exists or,
to the best of the Company's knowledge, is imminent that might be expected to
affect adversely such condition, properties, business, results of operations or
prospects. Neither the Company nor any Subsidiary is a party or subject to the
provisions of any material injunction, judgment, decree or order of any court,
regulatory body, administrative agency or other governmental body.
j. The Company or a Subsidiary has good and marketable title to all
the properties and assets reflected as owned in the balance sheet dated December
31, 1994, included in the financial statements hereinabove described, subject to
no lien, mortgage, pledge, charge or encumbrance of any kind except (i) those,
if any, reflected in such financial statements, (ii) the Memorandum, or (iii)
those that are not material in amount and do not adversely affect the use made
and proposed to be made of such property by the Company. The Company and each
Subsidiary holds its leased properties under valid and binding leases, with such
exceptions as are not materially significant in relation to the business of the
Company. The Company and each Subsidiary
5
<PAGE>
owns or leases all such properties as are necessary to its operations as now
conducted.
k. Since the date as of which information is given in the
Memorandum, and except as described in or specifically contemplated by the
Memorandum: (i) neither the Company nor any Subsidiary has incurred any
material liabilities or obligations, indirect, direct or contingent, or engaged
in any other transaction that is not in the ordinary course of business or that
could result in a material reduction in the future earnings or liquidity of the
Company; (ii) neither the Company nor any Subsidiary has sustained any material
loss or interference with its business or properties from fire, flood,
windstorm, accident or other calamity, whether or not covered by insurance;
(iii) neither the Company nor any Subsidiary has paid or declared any dividends
or other distributions with respect to its capital stock and the Company is not
in default in the payment of principal or interest on any outstanding debt or
obligations for money borrowed; (iv) there has not been any change in the
capital stock of the Company (other than as a result of the sale of the Note
hereunder) or indebtedness material to the Company (other than in the ordinary
course of business); and (v) there has not been any material adverse change in
the condition (financial or otherwise), business, properties, results of
operations or prospects of the Company or any Subsidiary.
l. Except as disclosed in or specifically contemplated by the
Memorandum, the Company and each Subsidiary has sufficient trademarks, trade
names, patent rights, copyrights, licenses, approvals and governmental
authorities to conduct its businesses as now conducted; the expiration in
accordance with their terms of any trademarks, trade names, patent rights,
copyrights, licenses, approvals or governmental authorizations would not have a
material adverse effect on the condition (financial or otherwise), business,
results of operations or prospects of the Company or any Subsidiary; and except
as described in the Memorandum the Company has no knowledge of any material
infringement by it or its Subsidiaries of trademark, trade name rights, patent
rights, copyrights, licenses, trade secret or other similar rights of others
that has not been resolved, and there is no claim being made against the Company
or any Subsidiary regarding trademark, trade name, patent, copyright, license,
trade secret or other infringement that could have a material adverse effect on
the condition (financial or otherwise), business, results of operations or
prospects of the Company.
m. The Company and each Subsidiary and, to the Company's knowledge,
each employee of the Company or any Subsidiary, acting in that capacity, is
conducting business in compliance with all applicable laws, rules and
regulations of
6
<PAGE>
the jurisdictions in which it or such Subsidiary is conducting business,
including, without limitation, all applicable local, state and federal
environmental laws and regulations, except where failure to be so in compliance
would not materially adversely affect the condition (financial or otherwise),
business, results of operations or prospects of the Company.
n. The Company and the Subsidiaries have filed all necessary
federal, state and foreign income and franchise tax returns and except as
described in the Memorandum, have paid all taxes shown as due thereon; and,
except as described in the Memorandum, the Company has no knowledge of any tax
deficiency that has been or might be asserted or threatened against the Company
or the Subsidiaries that would materially and adversely affect the business,
operations, or properties of the Company.
o. The Company is not an "investment company" within the meaning of
the Investment Company Act of 1940, as amended.
p. The Company and the Subsidiaries maintain insurance of the types
and in the amounts generally deemed adequate for their respective businesses,
including, but not limited to, insurance covering real and personal property
owned or leased by the Company or such Subsidiary against theft, damage,
destruction, acts of vandalism and all other risks customarily insured against,
all of which insurance is in full force and effect.
q. Neither the Company nor any of the Subsidiaries has at any time
during the last five years (i) made any unlawful contribution to any candidate
for foreign office, or failed to disclose fully any contribution in violation of
law or (ii) made any payment to any federal or state governmental officer or
official, or other person charged with similar public or quasi-public duties,
other than payments required or permitted by the laws of the United States of
any jurisdiction thereof.
r. No officer of the Company or any Subsidiary has been determined
to be unsuitable by any gaming regulatory authority nor, to the best of the
Company's knowledge, has any process with a view to any such determination
(other than a routine review of the qualifications of any such person) been
initiated by any such authority.
SECTION 3 Representations and Warranties of Purchaser.
-------------------------------------------
Purchaser hereby represents and warrants to the Company that:
a. Purchaser is a validly existing limited partnership in good
standing under the laws of Delaware.
7
<PAGE>
Purchaser has full power and authority to enter into this Agreement and perform
the transactions contemplated hereby. This Agreement has been duly authorized,
executed and delivered by Purchaser and constitutes a valid and binding
obligation of Purchaser in accordance with its terms.
b. Purchaser is an accredited investor as that term is defined in
Regulation D promulgated under the Securities Act of 1933, as amended (the "1933
Act") and has such knowledge and experience in financial and business matters as
to be capable of evaluating the merits and risks of the purchase of the Note.
The Note is being acquired for Purchaser's own account for investment and not
with a view to, or for resale in connection with, any distribution, and no other
person has or will have any right to acquire any beneficial interest therein.
Purchaser understands and agrees that it must bear the economic risk of an
investment in the Note for an indefinite period of time because the Note not
been registered under the 1933 Act or under the securities laws of any state or
other jurisdiction and, therefore, cannot be resold, pledged, assigned or
otherwise disposed of unless the Note is subsequently registered for sale under
the 1933 Act and the applicable securities laws of such states, or unless an
exemption from registration is available. Purchaser acknowledges that a
restrictive legend will be placed on the Note and each certificate representing
shares of Common Stock issued upon conversion of the Note and a notation shall
be made in the appropriate records of the Company indicating that the Note and
share certificates are subject to restrictions on transfer under the 1933 Act.
Purchaser has received and reviewed the Memorandum. Purchaser acknowledges that
it has had the opportunity to ask questions of and receive answers from the
Company concerning the terms and conditions of the offering described in the
Memorandum, and to obtain any additional information it requested from the
Company.
SECTION 4 Conversion.
----------
4.1 Conversion.
----------
a. The holder of a Note shall have the right, at the option of such
holder, at any time to convert, subject to the terms and provisions of this
Section 4, the unpaid principal amount of the Note or any portion thereof, in
minimum increments of $1,000, and any accrued and unpaid interest on such Note,
into fully paid and non-assessable shares of Common Stock of the Company or any
capital stock or other securities into which such Common Stock shall have been
changed or any capital stock or other securities resulting from a
reclassification thereof ("Shares"). Such conversion of a Note to Shares shall
be made at an amount per Share (of principal of such Note and/or of accrued and
unpaid interest if specified by the holder) which is
8
<PAGE>
equal to the then current conversion price, as further described below. Every
Note shall continue to be convertible, in whole or in part, even though the
Company or a holder may have given notice of prepayment with respect to such
Note or any part thereof pursuant to Section 11 hereof, so long as such Note and
the holder's election to convert shall have been delivered to the Company
pursuant to Section 4.2(a) hereof prior to the date fixed for such prepayment.
b. For convenience, the conversion pursuant to this Section 4 of all
or a portion of the principal amount of a Note (and/or of accrued and unpaid
interest if elected by the holder) into Shares is herein sometimes referred to
as the "conversion" of the Note. For purposes of this Section 4, "Business Day"
means any day other than a Saturday, Sunday or legal holiday, on which banks in
the location of the office of the Company identified in Section 13 are open for
business.
4.2 Mechanics of Conversion.
-----------------------
a. Surrender, Election and Payment. The then unpaid principal
-------------------------------
amount of each Note (and/or any accrued and unpaid interest on such Note) may be
converted by the holder thereof, in whole or in part, during normal business
hours on any Business Day by surrender of the Note, accompanied by written
evidence of the holder's election to convert the Note or portion thereof, to the
Company at its office designated in Section 13 hereof (or, if such conversion is
in connection with an underwritten public offering of Shares, at the location at
which the underwriting agreement requires that such Shares be delivered).
Payment of the conversion price for the Shares specified in such election shall
be made by applying an aggregate amount of principal of the Note and/or, if
elected by the holder, of accrued and unpaid interest equal to the amount
obtained by multiplying (i) the number of Shares specified in such election by
(ii) the then current conversion price. Such holder shall thereupon be entitled
to receive the number of Shares specified in such election rounded to the
nearest whole share.
b. Effective Date. Each conversion of a Note pursuant to Section
--------------
4.2(a) hereof shall be deemed to have been effected immediately prior to the
close of business on the Business Day on which such Note shall have been
surrendered to the Company as provided in Section 4.2(a) hereof (except that if
such conversion is in connection with an underwritten public offering of Shares,
then such conversion shall be deemed to have been effected upon such surrender),
and such conversion shall be at the current conversion price in effect at such
time. On each such day that the conversion of a Note is deemed effected, the
person or persons in whose name or names any certificate or certificates for
Shares are issuable upon such conversion, as
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<PAGE>
provided in Section 4.2(c) hereof, shall be deemed to have become the holder or
holders of record thereof.
c. Share Certificates. As promptly as practicable after the
------------------
conversion of a Note, in whole or in part, and in any event within five Business
Days thereafter (unless such conversion is in connection with an underwritten
public offering of Shares, in which event concurrently with such conversion),
the Company at its expense (including the payment by it of any applicable issue,
stamp or other taxes, other than any income taxes) will cause to be issued in
the name of and delivered to the holder thereof, or as such holder may direct, a
certificate or certificates for the number of Shares to which such holder shall
be entitled upon such conversion.
d. Acknowledgment of Obligation. The Company will, at the time of
----------------------------
or at any time after each conversion of a Note, upon the request of the holder
thereof or of any Shares issued upon such conversion, acknowledge in writing its
continuing obligation to afford to such holder all rights to which such holder
shall continue to be entitled under the Documents; provided, that if any such
holder shall fail to make any such request, the failure shall not affect the
continuing obligation of the Company to afford such rights to such holder.
e. Payment of Accrued Interest. Within five Business Days after
---------------------------
receipt of any Note and an election to convert all or a portion of the principal
amount of such Note under Section 4.2(a) hereof, the Company will pay to the
holder of such Note any unpaid interest, accrued to the date of conversion of
such Note, on the principal amount so converted, except to the extent that the
amount of such interest has also been converted into Shares.
4.3 Current Conversion Price.
------------------------
The term "conversion price" shall mean initially the lower of $1.125
or the average of the daily closing prices for the Common Stock for the 5
consecutive trading days immediately prior to the Closing Date, subject to
adjustment as set forth in Section 4.4. For purposes of determining the initial
conversion price described in the preceding sentence, the "closing price" for
each day shall be the last reported sale price regular way or, in case no such
sale takes place on such day, the average of the closing bid and asked prices
regular way, in either case as reported by the American Stock Exchange. The
term "current conversion price" as used herein shall mean the conversion price,
as the same may be adjusted from time to time as hereinafter provided, in effect
at any given time. In determining the current conversion price, the result
shall be expressed to the nearest $0.01, but any such lesser amount shall be
carried
10
<PAGE>
forward and shall be considered at the time of (and together with) the next
subsequent adjustment which, together with any adjustments to be carried
forward, shall amount to $0.01 per Share or more.
4.4 Adjustment of Conversion Price.
------------------------------
The conversion price shall be subject to adjustment, from time to
time, as follows:
a. Adjustments for Stock Dividends, Recapitalizations, etc. In case
--------------------------------------------------------
the Company shall, after the Closing Date, (i) pay a stock dividend or make a
distribution (on or in respect of its Common Stock) in shares of its Common
Stock, (ii) subdivide the outstanding shares of its Common Stock, (iii) combine
the outstanding shares of its Common Stock into a smaller number of shares, or
(iv) issue by reclassification of shares of its Common Stock, any shares of
capital stock of the Company, then, in any such case, the current conversion
price in effect immediately prior to such action shall be adjusted to a price
such that if the holder of a Note were to convert such Note in full immediately
after such action, such holder would be entitled to receive the number of shares
of capital stock of the Company which the holder would have owned immediately
following such action had such Note been converted immediately prior thereto
(with any record date requirement being deemed to have been satisfied), and, in
any such case, such conversion price shall thereafter be subject to further
adjustments under this Section 4. An adjustment made pursuant to this Section
4.4(a) shall become effective retroactively immediately after the record date in
the case of a dividend or distribution and shall become effective immediately
after the effective date in the case of a subdivision, combination or
reclassification.
b. Adjustments for Certain Other Distributions. In case the Company
-------------------------------------------
shall, after the Closing Date, fix a record date for the making of a
distribution to holders of its Common Stock (including any such distribution
made in connection with a consolidation or merger in which the Company is the
continuing corporation) of (i) assets (other than cash dividends paid out of
retained earnings of the Company (determined under generally accepted accounting
principles consistently applied)), (ii) evidences of indebtedness or other
securities (except for its Common Stock) of the Company or of any entity other
than the Company, or (iii) subscription rights, options or warrants to purchase
any of the foregoing assets or securities, whether or not such rights, options
or warrants are immediately exercisable (all such distributions referred to in
clauses (i), (ii) and (iii) being hereinafter collectively referred to as
"Distributions on Common Stock"), the Company shall set aside in an escrow
reasonably acceptable to the holders of Notes, and suitably invested for the
11
<PAGE>
benefit of the holders of Notes, the Distribution on Common Stock to which they
would have been entitled if they had converted all of the Notes held by them for
the Company's Common Stock immediately prior to the record date for the purpose
of determining stockholders entitled to receive such Distribution on Common
Stock and any such Distribution on Common Stock (together with any earnings
while escrowed) shall thereafter be distributed from time to time out of such
escrow to persons converting Notes (immediately upon conversion).
c. Adjustments for Issuances of Additional Stock. Subject to the
---------------------------------------------
exceptions referred to in Section 4.4(e) hereof, in case the Company shall at
any time or from time to time after the Closing Date issue any additional shares
of Common Stock ("Additional Common Stock"), for a consideration per share
either (I) less than the then current Market Price per share of the Common Stock
(determined as provided in Section 4.4(g) hereof), immediately prior to the
issuance of such Additional Common Stock, or (II) without consideration, then
(in the case of either clause (I) or (II)), and thereafter successively upon
each such issuance, the current conversion price shall forthwith be reduced to a
price equal to the price determined by multiplying such current conversion price
by a fraction, of which:
(a) the numerator shall be (i) the number of shares of the
Company's Common Stock outstanding when the then current conversion
price became effective plus (ii) the number of shares of Common Stock
which the aggregate amount of consideration, if any, received by the
Company upon all issuances of Common Stock, since the current
conversion price became effective (including the consideration, if
any, received for such Additional Common Stock) would purchase at the
then current Market Price per share of the Common Stock, and
(b) the denominator shall be (i) the number of shares of Common
Stock outstanding when the current conversion price became effective
plus (ii) the number of shares of Common Stock issued since the
current conversion price became effective (including the number of
shares of such Additional Common Stock);
provided, however, that such adjustment shall be made only if such
adjustment results in a current conversion price less than the current
conversion price in effect immediately prior to the issuance of such
Additional Common Stock. The Company may, but shall not be required to,
make any adjustment of the current conversion price if the amount of such
adjustment shall be less than one percent of the current conversion price
immediately prior to such adjustment, but any adjustment that would
otherwise be
12
<PAGE>
required then to be made which is not so made shall be carried forward and
shall be made at the time of (and together with) the next subsequent
adjustment which, together with any adjustments so carried forward, shall
amount to not less than one percent of the current conversion price
immediately prior to such adjustment.
d. Certain Rules in Applying the Adjustment for Additional Stock
-------------------------------------------------------------
Issuances. For purposes of any adjustment as provided in Section 4.4(c) hereof,
- ---------
the following provisions shall also be applicable:
(i) Cash Consideration. In case of the issuance of Additional
------------------
Common Stock for cash, the consideration received by the Company therefor
shall (subject to the last sentence of Section 4.4(g) hereof) be deemed to
be the aggregate consideration paid by the persons to whom such Additional
Common Stock is issued.
(ii) Non-Cash Consideration. In case of the issuance of
----------------------
Additional Common Stock for a consideration other than cash, or a
consideration a part of which shall be other than cash, the amount of the
consideration other than cash so received or to be received by the Company
shall be deemed to be the value of such consideration at the time of its
receipt by the Company as determined in good faith by the Board of
Directors of the Company, except that where the non-cash consideration
consists of the cancellation, surrender or exchange of outstanding
obligations of the Company (or where such obligations are otherwise
converted into shares of Common Stock), the value of the non-cash
consideration shall be deemed to be the principal amount of, and any and
all interest relating to, the obligations cancelled, surrendered,
satisfied, exchanged or converted. If the Company receives consideration,
part or all of which consists of publicly traded securities (i.e., in lieu
of cash), the value of such non-cash consideration shall be the aggregate
market value of such securities (based on the latest reported sale price
regular way) as of the close of the day immediately preceding the date of
their receipt by the Company.
(iii) Options, Warrants, Convertibles, etc. In case of the
-------------------------------------
issuance, whether by distribution or sale to holders of its Common Stock or
to others, by the Company of (i) any security (other than the Notes) that
is convertible into Common Stock or (ii) any rights, options or warrants to
purchase Common Stock (except as stated in Section 4.4(e) hereof), if
inclusion thereof in calculating adjustments under this Section 4.4 would
result in a current conversion price lower than if excluded, the Company
shall be deemed
13
<PAGE>
to have issued, for the consideration described below, the number of shares
of Common Stock into which such convertible security may be converted when
first convertible, or the number of shares of Common Stock deliverable upon
the exercise of such rights, options or warrants when first exercisable, as
the case may be (and such shares shall be deemed to be Additional Common
Stock for purposes of Section 4.4(c) hereof). The consideration deemed to
be received by the Company at the time of the issuance of such convertible
securities or such rights, options or warrants shall be the consideration
so received determined as provided in Section 4.4(d)(i) and (ii) hereof,
plus (x) any consideration or adjustment payment to be received by the
Company in connection with such conversion and, as applicable, (y) the
aggregate price at which shares of Common Stock are to be delivered upon
the exercise of such rights, options or warrants when first exercisable
(or, if no price is specified and such shares are to be delivered at an
option price related to the market value of the subject Common Stock an
aggregate option price bearing the same relation to the market value of the
subject Common Stock at the time such rights, options or warrants were
granted). If, subsequently, (1) such number of shares into which such
convertible security is convertible, or which are deliverable upon the
exercise of such rights, options or warrants, is increased or (2) the
conversion or exercise price of such convertible security, rights, options
or warrants is decreased, then the calculations under the preceding two
sentences (and any resulting adjustment to the current conversion price
under Section 4.4(c) hereof) with respect to such convertible security,
rights, options or warrants, as the case may be, shall be recalculated as
of the time of such issuance but giving effect to such changes (but any
such recalculation shall not result in the current conversion price being
higher than that which would be calculated without regard to such
issuance). On the expiration or termination of such rights, options or
warrants, or rights to convert, the conversion price hereunder shall be
readjusted (up or down as the case may be) to such current conversion price
as would have been obtained had the adjustments made with respect to the
issuance of such rights, options, warrants or convertible securities been
made upon the basis of the delivery of only the number of shares of Common
Stock actually delivered upon the exercise of such rights, options or
warrants or upon the conversion of any such securities and at the actual
exercise or conversion prices (but any such recalculation shall not result
in the current conversion price being higher than that which would be
calculated without regard to such issuance).
14
<PAGE>
(iv) Number of Shares Outstanding. The number of shares of
----------------------------
Common Stock as at the time outstanding shall exclude all shares of Common
Stock then owned or held by or for the account of the Company but shall
include the aggregate number of shares of Common Stock at the time
deliverable in respect of the convertible securities, rights, options and
warrants referred to in Section 4.4(d)(3) and 4.4(e) hereof; provided, that
to the extent that such rights, options, warrants or conversion privileges
are not exercised, such shares of Common Stock shall be deemed to be
outstanding only until the expiration dates of the rights, warrants,
options or conversion privileges or the prior cancellation thereof.
e. Exclusions from the Adjustment for Additional Stock Issuances.
-------------------------------------------------------------
No adjustment of the current conversion price under Section 4.4(c) hereof shall
be made as a result of or in connection with:
(i) the issuance of the Notes, any Shares upon conversion of the
Notes or the issuance of any shares of Common Stock pursuant to Section
6(c) hereof; or
(ii) the issuance of Common Stock to officers, directors or
employees of the Company or any Subsidiary, or the grant to or exercise by
any such persons of options to purchase Common Stock, under bona fide
employee benefit plans, or pursuant to an employment agreement or
consulting agreement, which plan or agreement has been adopted or approved
by the Board of Directors of the Company and, when required by law,
approved by the holders of Common Stock (but only to the extent that the
aggregate number of shares excluded hereby and issued pursuant to such
plans and agreements shall not at any time exceed 15% of the Common Stock
outstanding).
f. Certification. Whenever the current conversion price is adjusted
-------------
as provided in this Section 4.4, the Company will promptly obtain a certificate
of the Company's President or Chief Financial Officer setting forth the current
conversion price as so adjusted, the computation of such adjustment and a brief
statement of the facts accounting for such adjustment, and will mail to the
holders of the Notes a copy of such certificate.
g. Determination of Market Price. For the purpose of any
-----------------------------
computation under this Section 4, the current "Market Price" per share of the
Common Stock on any date shall be deemed to be the average of the daily closing
prices for the 10 consecutive trading days before such date (subject to the last
sentence of this Section 4.4(g)). The closing price for each day shall be the
last reported sale price regular way or, in case no
15
<PAGE>
such sale takes place on such day, the average of the closing bid and asked
prices regular way, in either case on the principal national securities exchange
on which the Company's Common Stock is listed or admitted to trading, or if the
Common Stock is not listed or admitted to trading on any national securities
exchange, the average of the highest reported bid and lowest reported asked
prices as furnished by the National Association of Securities Dealers Inc.,
Automated Quotation System. If the closing price cannot be so determined, then
the Market Price shall be determined (x) by the written agreement of the Company
and the holders of Notes representing a majority of the Shares then obtainable
from the conversion of outstanding Notes, or (y) in the event that no such
agreement is reached within 20 days after the event giving rise to the need to
determine the Market Price, by the agreement of two arbitrators, one of whom
shall be selected by the Company and the other of whom shall be selected by such
majority holders or (z) if the two arbitrators so selected fail to agree within
20 days, by a third arbitrator selected by the mutual agreement of the other two
(with all costs and expenses of any arbitrators to be paid by the Company). The
Company shall cooperate, and shall provide all necessary information and
assistance, to permit any determination under the preceding clauses (x), (y) or
(z). If the Company conducts an underwritten public offering of the Company's
Common Stock which is conducted in compliance with any applicable agreements,
and if such public offering either raises at least $3 million of net proceeds to
the Company and/or selling shareholders thereunder or was initiated under the
Registration Rights Agreement at the demand of a holder of Notes or of Shares,
then for purposes of Section 4.4(c) hereof the Company shall be deemed to have
issued such shares of its Common Stock sold in such underwritten public offering
for a consideration per share equal to the then current Market Price per share.
h. Other Adjustments. In case any event shall occur as to which any
-----------------
of the provisions of this Section 4.4 are not strictly applicable but the
failure to make any adjustment would not fairly protect the conversion rights
represented by the Notes in accordance with the essential intent and principles
of this Section 4.4, then, in each such case, the Company shall request its
independent public accountants to render an opinion upon the adjustment, if any,
on a basis consistent with the essential intent and principles established in
this Section 4.4, necessary to preserve, without dilution, the conversion rights
represented by the Notes. Upon receipt of such opinion, the Company will
promptly mail copies thereof to the holders of the Notes and shall make the
adjustments described therein.
i. Meaning of "Issuance". References in this Agreement to
---------------------
"issuances" of stock by the Company include
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issuances by the Company of previously unissued shares and issuances or other
transfers by the Company of treasury stock.
4.5 Company's Consolidation or Merger.
---------------------------------
Without limiting the covenants of the Company contained in Section 5
hereof, if the Company shall at any time consolidate with or merge into another
corporation (where the Company is not the continuing corporation after such
merger or consolidation), or the Company shall sell, transfer or lease all or
substantially all of its assets, or the Company shall change its Shares into
property other than capital stock, then, in any such case, the holder of a Note
shall thereupon (and thereafter) be entitled to receive, upon the conversion of
such Note in whole or in part, the securities or other property to which (and
upon the same terms and with the same rights as) a holder of the number of
Shares deliverable upon conversion of such Note would have been entitled if such
conversion had occurred immediately prior to such consolidation or merger, such
sale of assets or such change, and such conversion rights shall thereafter
continue to be subject to further adjustments under this Section 4. The Company
shall take such steps in connection with such consolidation or merger, such sale
of assets or such change as may be necessary to assure such holder that the
provisions of the Notes and this Agreement shall thereafter be applicable in
relation to any securities or property thereafter deliverable upon the
conversion of the Notes, including, but not limited to, obtaining a written
obligation to supply such securities or property upon such conversion and to be
so bound by the Notes.
4.6 Notice to Holders of Notes.
--------------------------
In case at any time
a. the Company shall take any action which would require an
adjustment in the current conversion price pursuant to Section 4.4(a), (c) or
(h); or
b. the Company shall authorize the granting to the holders of its
Common Stock of any Distributions on Common Stock as set forth in Section
4.4(b); or
c. there shall occur any Change of Control Event (as defined in
Section 11.2);
then, in any one or more of such cases, the Company shall give written notice to
the holders of the Notes, not less than 20 days before any record date or other
date set for definitive action, of the date on which such action, distribution,
reorganization, reclassification, change, sale, transfer, lease, consolidation,
merger, dissolution, liquidation or winding-up shall take place,
17
<PAGE>
as the case may be. Such notice shall also set forth such facts as shall
indicate the effect of any such action (to the extent such effect may be known
at the date of such notice) on the current conversion price and the kind and
amount of the shares and other securities and property deliverable upon
conversion of the Notes. Such notice shall also specify any date as of which
the holders of the Common Stock of record shall be entitled to exchange their
Common Stock for securities or other property deliverable upon any such
reorganization, reclassification, change, sale, transfer, lease, consolidation,
merger, dissolution, liquidation or winding-up, as the case may be.
SECTION 5 Covenants of the Company.
------------------------
The Company covenants and agrees with Purchaser as follows:
a. The Company shall use its best efforts to cause the consummation
of the transactions contemplated hereby in accordance with the terms and
conditions set forth in the Documents.
b. Until the later of the date that all Notes are paid in full or
converted into Shares or December 31, 1996, the Company will furnish to the
holder(s) of the Note and the Shares: (i) concurrent with distribution to the
Company's stockholders, copies of the Annual Report of the Company containing
the balance sheet of the Company as of the close of such fiscal year and
statements of income, stockholders' equity and cash flows for the year then
ended and the opinion thereon of the Company's independent public accountants;
(ii) as soon as practicable after the filing thereof, copies of each proxy
statement, Annual Report on Form 10-K, Quarterly Report on Form 10-Q, Report on
Form 8-K or other report filed by the Company with the Commission, the NASD or
any securities exchange; and (iii) concurrent with distribution to the Company's
stockholders, copies of any report or communication of the Company mailed
generally to holders of its Common Stock.
c. The Company will use its best efforts to cause the Common Stock
to continue to be listed on the American Stock Exchange or to become listed on
the New York Stock Exchange or designated for quotation as a national market
system security on the National Association of Securities Dealers, Inc.
Automated Quotation System.
d. Until the earlier of (i) December 31, 1996, (ii) prepayment or
repayment of all principal and interest due under the Note, or (iii) the date on
which, following a conversion of the Note in accordance with Section 4 hereof,
Purchaser ceases
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to be the record holder of 50% or more of the Shares issued upon such
conversion:
(i) Upon the written request of Purchaser delivered to the
Company, the Company will take the actions necessary to appoint to the
Board of Directors of the Company a person designated by Purchaser;
(ii) The Company will grant Purchaser, on an ongoing basis, (a)
reasonable access to its books and records, (b) the right to meet with and
call meetings of Company management, (c) the right to attend, or have its
advisors or representatives attend, and address meetings of the Board of
Directors of the Company; the Company shall effect promptly the changes in
executive officer positions described in the "Management" section of the
Memorandum;
(iii) The Company will promptly advise Purchaser of any event
that represents a material adverse change in its business, properties or
financial condition and of any suit or proceeding commenced or threatened
against the Company, which, if adversely determined, could result in such a
material adverse change; and the Company will promptly advise Purchaser of
the outcome of or any material developments in currently pending
litigation;
(iv) The Company will advise Purchaser on a weekly basis of all
cash payments of $50,000 or more made by the Company or any Subsidiary to
any person, group or entity during that week and any payments made to any
person, group or entity over the previous four-week period that total
$50,000 or more;
(v) All proceeds to the Company from any future debt or equity
financings by the Company, up to a $5 million aggregate maximum, will be
deposited by the Company in an escrow account with such escrow agent and
pursuant to such escrow instructions as shall be mutually agreed by the
Company and Purchaser at the time of such financings. The proceeds from
such financings will be used solely for payment of principal and interest
due under the Company's 12.5% First Mortgage Notes due 2000 (the "First
Mortgage Notes") and under the Company's 20% Mortgage Notes due 1996 (the
"Mortgage Notes") and for payment of amounts, adjustments and assessments
due under the IRS Assessment (as defined in the Memorandum).
e. Until the later of the date that all Notes are paid in full or
converted into Shares or December 31, 1996, the holder(s) of the Note and/or the
Shares shall have the right to purchase such holder's Proportionate Percentage
of any future
19
<PAGE>
Eligible Offering. For the purposes of this Section 5(e), "Proportionate
Percentage" means, with respect to such holder, as of any date, the result
(expressed as a percentage) obtained by dividing (i) the number of Shares owned
by such holder as of such date plus the number of Shares into which such
holder's Note as of such date would be convertible; by (ii) the total number of
shares of Common Stock outstanding as of such date. "Eligible Offering" means
an offer by the Company to sell for cash, shares of Common Stock or any security
convertible into or exchangeable for, or carrying rights or options to purchase,
shares of Common Stock, other than an offering of securities by the Company (i)
to employees, officers and/or directors in connection with or pursuant to any
bona fide employee benefit or compensation plan or pursuant to an employment or
consulting agreement, which plan or agreement has been adopted or approved by
the Board of Directors of the Company; or (ii) in connection with any Change of
Control Event (as defined in Section 11.2). The Company shall, before issuing
any securities pursuant to an Eligible Offering, give written notice thereof to
the holders of the Note and/or the Shares. Such notice shall specify the
security or securities the Company proposes to issue and the consideration that
the Company intends to receive therefor. For a period of 20 days following the
date of such notice, each holder shall be entitled, by written notice to the
Company, to elect to purchase all or any part of the holder's Proportionate
Percentage of the securities being sold in the Eligible Offering. In the event
that a holder does not make the election pursuant to this Section 5(e) to
purchase its Proportionate Percentage of securities included in an Eligible
Offering within such 20 day period, then the Company may issue such securities
to the proposed purchasers in the Eligible Offering, but only for a
consideration payable in cash not less than, and otherwise on terms no more
favorable to such purchasers than, that set forth in the Company's notice and
only within 90 days after the end of such 20 day period. In the event that any
such offer is accepted by the holder, the Company shall sell to the holder and
the holder shall purchase from the Company, for the consideration and on the
terms set forth in the notice described herein, the securities that the holder
shall have elected to purchase.
f. The net proceeds received by the Company from the sale of the
Notes will not be used by the Company to fund expenditures for, or contracts for
expenditures with respect to, any fixed assets or improvements, or for
replacements, substitutions or additions thereto, or to fund any expenditures
with respect to any lease to which the Company or a Subsidiary is party as
lessee, or by which it is bound, under which it leases any property (real,
personal or mixed) from any lessor other than the Company or a Subsidiary, and
which either is required to be capitalized in accordance with generally accepted
accounting principles, or, even if not so required to be
20
<PAGE>
capitalized, shall have (or have had), at the time first entered into, an
initial term of greater than three years (including leases of shorter duration
which are or were extendible to a total term greater than three years at the
option of the lessor.
g. For so long as any of the Notes are outstanding, the Company will
maintain an office where Notes may be presented for payment, exchange, or
conversion as provided in this Agreement. Such office initially shall be the
office of the Company identified in Section 13 hereof, which place may from time
to time be changed by notice to the holders of all Notes then outstanding.
SECTION 6 Defaults.
--------
a. Any of the following shall constitute an "Event of Default":
(i) the Company defaults in the payment of (A) any part of the
principal of or premium, if any, on any of the Notes, when the same shall
become due and payable, whether at maturity or at a date fixed for
prepayment or by acceleration or otherwise or (B) the interest on any of
the Notes, when the same shall become due and payable; and such default in
the payment of principal, premium or interest shall have continued for 15
days; or
(ii) an "Event of Default" as such term is defined under the
First Mortgage Notes, or the Mortgage Notes or a payment default under the
IRS Assessment and such default continues unremedied for 15 days; or
(iii) the Company defaults in the performance of any of the
covenants contained in Section 5 hereof or of any covenant contained in the
Pledge Agreement or Registration Rights Agreement and such default
continues unremedied for 30 days; or
(iv) any representation or warranty by the Company in the
Documents or in any certificate delivered by the Company pursuant thereto
proves to have been incorrect in any material respect when made; or
(v) a final judgment or order (other than with respect to the
WARN Act Litigation described in the Memorandum) which, either alone or
together with other final judgments or orders against the Company and its
Subsidiaries, exceeds an aggregate of $1 million is rendered by a court of
competent jurisdiction against the Company or any Subsidiary and such
judgment or order shall have
21
<PAGE>
continued undischarged or unstayed for 30 days after entry thereof; or
(viii) the Company or any Subsidiary make an assignment for the
benefit of creditors, or admit in writing its inability to pay its debts;
or a receiver or trustee is appointed for the Company or any Subsidiary or
for substantially all of its assets and, if appointed without its consent,
such appointment is not discharged or stayed within 30 days; or proceedings
under any law relating to bankruptcy, insolvency or the reorganization or
relief of debtors are instituted by or against the Company or any
Subsidiary, and, if contested by it, are not dismissed or stayed within 30
days; or any writ of attachment or execution or any similar process is
issued or levied against the Company or any Subsidiary or any significant
part of its property and is not released, stayed, bonded or vacated within
30 days after its issue or levy; or the Company or any Subsidiary takes
corporate action in furtherance of any of the foregoing.
b. If an Event of Default occurs, then and in each such event
Purchaser may at any time (unless all Events of Default shall theretofore have
been waived or remedied) at its option, by written notice to the Company,
declare the Note to be due and payable. Upon any such declaration, the Note
shall forthwith immediately mature and become due and payable, together with
interest accrued thereon and an "Additional Amount" (as defined below), all
without presentment, demand, protest or notice, all of which are hereby waived.
"Additional Amount" shall mean, with respect to any Note, as of the date of
repayment of such Note after such acceleration, an amount equal to the
Redemption Premium that would be payable if the Company had elected to prepay
such Note pursuant to Section 11 hereof at the time of such repayment. However,
if, at any time after the principal of the Note shall so become due and payable
and prior to the date of maturity stated in the Note, all arrears of principal
and interest on the Note (with interest at the rate specified in the Note on any
overdue principal and any overdue premium and, to the extent legally
enforceable, on any overdue interest) shall be paid to the holders of the Note
by or for the account of the Company, then Purchaser, by written notice or
notices to the Company, may waive such Event of Default and its consequences and
rescind or annul such declaration, but no such waiver shall extend to or affect
any subsequent Event of Default or impair any right or remedy resulting
therefrom.
c. If an Event of Default occurs, then and in each such event and in
addition to the foregoing rights, Purchaser shall have the right to:
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<PAGE>
(i) purchase from the Company shares of the Company's authorized
but unissued Common Stock at a per share price equal to 75% of the Market
Price on the date of the Event of Default; provided that, the number of
shares of Common Stock that Purchaser shall be entitled to purchase
pursuant to this Section 6(c) shall not exceed the quotient obtained by
dividing $3 million by such per share purchase price; and
(ii) cause the Company to take such action as may be required to
cause one additional director designated by Purchaser to be appointed to
the Board of Directors of the Company.
Upon the occurrence of an Event of Default, Purchaser may elect to purchase the
shares of Common Stock described in this Section 6(c) by delivering written
notice to the Company of such election and a description of the cash payment
terms and the timetable for closing the issue and purchase of such shares. The
cash payment terms and the closing date for such purchase shall be within the
sole discretion of Purchaser which terms and date shall be reasonable. The
Company shall effect the issuance and sale of such shares promptly in accordance
with the schedule identified by Purchaser in such notice.
d. In case any one or more Events of Default shall occur and be
continuing,
(i) Purchaser may proceed to protect and enforce its rights by an
action at law, suit in equity or other appropriate proceeding, whether for
the specific performance of any agreement contained in the Documents or for
an injunction against a violation of any of the terms thereof, or in aid of
the exercise of any power granted thereby or by law or for any other remedy
(including, without limitation, damages), and
(ii) the Company will pay to Purchaser in addition to any
interest or premium otherwise required, such further amount as shall be
sufficient to cover any and all costs and expenses of enforcement and
collection, including, without limitation, reasonable attorneys' fees and
expenses.
e. Purchaser shall, in addition to other remedies provided by law,
have the right and remedy to have the provisions of the Documents specifically
enforced by any court having equity jurisdiction, it being acknowledged and
agreed that any breach or threatened breach of the provisions of the Documents
will cause irreparable injury to Purchaser and that money damages will not
provide an adequate remedy. Nothing contained herein shall be construed as
prohibiting Purchaser from pursuing any other
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<PAGE>
remedies available to Purchaser for such breach or threatened breach, including,
without limitation, the recovery of damages from the Company.
SECTION 7 Conditions to the Obligations of Purchaser.
------------------------------------------
The obligations of Purchaser to purchase and pay for the Note on the
Closing Date shall be subject to the following conditions:
a. The Company's independent public accountants, KPMG Peat Marwick,
LLP, shall have completed the audit of the Company's financial statements for
the year ended December 31, 1994, copies of such audited financial statements
shall have been delivered to Purchaser and such audit shall have revealed no
material changes in the financial condition of the Company from the financial
condition presented in the unaudited financial statements for the same period
included in the Memorandum;
b. There shall not have been instituted by or against the Company or
any Subsidiary proceedings under any law relating to bankruptcy, insolvency or
reorganization or relief of debtors, nor shall the Company or any Subsidiary
have made a general assignment for the benefit of creditors, admitted in writing
its inability to pay its debts as they mature, appointed or had appointed for it
a receiver or trustee, or had any writ of attachment or execution or any similar
process issued or levied against it; no such matters shall be threatened or
pending nor shall the Company or any Subsidiary have taken any corporate action
in furtherance of any of the foregoing;
c. There shall be no investigation, action, suit or proceeding at
law or in equity or by or before any governmental instrumentality or other
agency pending or threatened against the Company or any officer, director or key
employee of the Company other than as disclosed in the Memorandum;
d. The Company will hold in good standing all licenses, permits and
grants of authority from the Nevada Gaming Commission, the Nevada State Gaming
Control Board, the National Indian Gaming Commission (collectively, the "Gaming
Authorities") and any other federal, state or local agency or authority
necessary for the operation of its business and properties; except as disclosed
in the Memorandum, no revocations or terminations of such licenses, permits,
authority or approvals shall be pending or threatened nor shall the Company be
aware of any facts or circumstances that would give rise to any such revocation
or termination;
e. All approvals, consents, permits and authorizations of third
parties, local, state and federal
24
<PAGE>
regulatory agencies and authorities and the Company required to carry out the
transactions contemplated herein shall have been received;
f. Since the date of the Memorandum (a) there shall not have been
any change in the capital stock of the Company other than pursuant to the
exercise of outstanding options and warrants disclosed in the Memorandum or any
material change in the indebtedness (other than in the ordinary course of
business) of the Company; (b) no material verbal or written agreement or other
transaction shall have been entered into by the Company that is not in the
ordinary course of business that could result in a material reduction in the
future earnings of the Company; (c) no loss or damage (whether or not insured)
to the property of the Company shall have been sustained that materially and
adversely affects the business, financial condition, results of operations or
prospects of the Company; (d) except as described in the Memorandum, no legal or
governmental action, suit or proceeding affecting the Company that is material
to the Company or that affects or may affect the transactions contemplated
herein shall have been instituted or threatened; and (e) there shall not have
been any material change in the business, financial condition, management,
results of operations or prospects of the Company that makes it impractical or
inadvisable in the judgment of Purchaser to proceed with the purchase of the
Note.
g. The lease financing transaction with T&W Leasing relating to the
7 Cedars casino in the appropriate amount of $690,000 shall have closed.
h. The Company shall have made public announcement of the proposed
management changes described in the "Management" section of the Memorandum and
shall cause those changes to occur in the manner and on the dates described in
the Memorandum.
i. Purchaser shall have received a certificate of the Company
executed by the Chairman of the Board or the President of the Company, dated the
Closing Date to the effect that:
(i) The representations and warranties of the Company set forth
in Section 2 of this Agreement are true and correct as of the date of this
Agreement and the representations and warranties set forth in the Documents
are true and correct as of the Closing Date and the Company has complied
with all the agreements and satisfied all the conditions on its part to be
performed or satisfied on or prior to the Closing Date;
(ii) Each of the respective signers of the certificate has
carefully examined the Memorandum; in his
25
<PAGE>
opinion and to the best of his knowledge, the Memorandum does not contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein
not misleading; and
(iii) Since the date as of which information is given in the
Memorandum, and except as disclosed in or contemplated thereby, there has
not been any material adverse change or a development involving a material
adverse change in the condition (financial or otherwise), business,
properties, results of operations, management or prospects of the Company
or any Subsidiary; and except as described in the Memorandum, no legal or
governmental action, suit or proceeding is pending or threatened against
the Company or any Subsidiary that is material to the Company, whether or
not arising from transactions in the ordinary course of business, or that
may adversely affect the transactions contemplated by this Agreement; since
such dates and except as so disclosed, neither the Company nor any
Subsidiary has entered into any verbal or written agreement or other
transaction that is not in the ordinary course of business or that can
reasonably be expected to result in a material reduction in the future
earnings of the Company or any Subsidiary or incurred any material
liability or obligation, direct, contingent or indirect, made any change in
its capital stock, made any material change in its short-term debt or
funded debt or repurchased or otherwise acquired any of the Company's
capital stock; and the Company has not declared or paid any dividend, or
made any other distribution, upon its outstanding capital stock payable to
stockholders of record on a date prior to the Closing Date.
j. Purchaser shall have received opinions dated the Closing Date and
addressed to Purchaser from Pillsbury Madison & Sutro, and Lionel Sawyer &
Collins, counsel for the Company, in form and substance satisfactory to
Purchaser.
k. The Pledge Agreement and the Registration Rights Agreement in the
forms attached hereto as Exhibits B and C, respectively, shall have been
executed and delivered by the parties thereto.
l. Purchase Agreements for an aggregate of $1,675,000 principal
amount of Notes (inclusive of the principal amount of the Note being purchased
by Purchaser hereunder) shall have been executed and delivered by the parties
thereto and such purchases and sales shall have closed prior to or
simultaneously with the transactions hereunder.
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<PAGE>
SECTION 8 Conditions to Obligations of the Company.
----------------------------------------
The obligations of the Company to issue the Note on the Closing Date
shall be subject to the following conditions:
a. The Company shall have received a certificate of Purchaser
executed by its General Partner and dated the Closing Date to the effect that
the representations and warranties of Purchaser set forth in Section 3 of this
Agreement are true and correct as of the date of this Agreement and as of the
Closing Date and Purchaser has complied with all the agreements and satisfied
all the conditions on its part to be performed or satisfied on or prior to the
Closing Date; and
b. All approvals, consents, permits and authorizations of third
parties, local, state and federal regulatory agencies and authorities relating
to Purchaser and required to carry out the transactions contemplated herein
shall have been received.
SECTION 9 Subordination.
-------------
9.1 Agreement to Be Bound. The Note shall, to the extent and in the
---------------------
manner hereinafter set forth, be subordinated and subject in right of payment to
the prior payment in full of all Senior Indebtedness. Each holder of a Note,
whether upon original issue or upon transfer or assignment thereof, by its
acceptance thereof agrees that the Note shall be subject to the provisions
contained in this Section 9. The subordination provisions of this Section 9
shall be for the benefit of the holders of the Senior Indebtedness and may be
enforced directly by such holders.
9.2 Priority of Senior Indebtedness.
-------------------------------
a. No payment on account of principal of, premium, if any, or
interest on the Note, shall be made, and no assets shall be applied to the
purchase or other acquisition or retirement of the Note (other than a conversion
pursuant to Section 4 hereof), for a period (the "Payment Blockage Period") of
(i) 180 days after both of the following have occurred (A) the principal amount
of any Senior Indebtedness in excess of $100,000 in aggregate principal amount
shall have been accelerated upon an event of default thereunder and (B) written
notice of such acceleration shall have been given by the Company or by holders
of Senior Indebtedness to the holders of the Note, stating that this Section
9.2(a) is therefore applicable; provided, that any Payment Blockage Period
arising as a result of this Section 9.2 shall terminate immediately upon the
payment in full of such accelerated Senior Indebtedness or the rescission or
annulment of such acceleration or if such Senior Indebtedness is no longer
27
<PAGE>
outstanding; provided, further, that under no circumstances shall there be more
than one Payment Blockage Period in any 365 consecutive day period. As used in
this Section 9.2(a), an "event of default" is an event of default (x) as
defined in any Senior Indebtedness or in the instrument under which the same is
outstanding and (y) which would permit the acceleration of such Senior
Indebtedness prior to its maturity.
b. In the event that any money, property or securities is received
by the holder of a Note in violation of Section 9.2(a) or the terms or
conditions of any instrument governing the Senior Indebtedness, the holder
thereof shall hold the same in trust for the benefit of the holders of Senior
Indebtedness, and shall deliver the same in kind to the Company.
9.3 Liquidation; Dissolution; Bankruptcy.
------------------------------------
a. Upon any payment or distribution of assets of the Company
(whether in cash, property or securities) to creditors upon any dissolution or
winding-up or total or partial liquidation or reorganization of the Company,
whether voluntary or involuntary or in any bankruptcy, insolvency, receivership
or similar proceeding regarding the Company, all amounts due or to become due
upon all Senior Indebtedness then outstanding shall first be paid in full before
the holders of the Note shall be entitled to receive any assets so paid or
distributed in respect thereof (but without restricting the rights of holders
under Section 4 hereof); provided, that with respect to the foregoing, the
holders of the Note may receive (and shall be entitled to retain) securities
that are subordinate to (at least to the extent that the Note is subordinate to
Senior Indebtedness pursuant to the terms hereof) the payment of all Senior
Indebtedness then outstanding. Upon any such dissolution or winding-up or
liquidation, reorganization or other proceeding, any payment or distribution of
assets of the Company of any kind or character, whether in cash, property or
securities, to which the holders of the Note would be entitled, except for these
provisions, shall be paid by the Company or by any receiver, trustee in
bankruptcy, liquidating trustee, agent or other person making such payment or
distribution directly to the holders of Senior Indebtedness which was then
outstanding (pro rata to each of such holders on the basis of the respective
amounts (to the extent known) of Senior Indebtedness then held by such holders,
to the extent necessary to pay all such Senior Indebtedness which was then
outstanding in full, after giving effect to any concurrent payment or
distribution to or for the holders of Senior Indebtedness, before any payment or
distribution is made to the holders of the Note (but subject to the proviso to
the preceding sentence).
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<PAGE>
b. Each holder of a Note by its acceptance hereof (x) irrevocably
authorizes and empowers (but without imposing any obligation on) each holder of
any Senior Indebtedness at the time outstanding, under (and only under) the
circumstances set forth in Section 9.3(a), if the holder of a Note shall fail to
do so prior to 20 days before the expiration of the time to do so, to file and
prove all claims of such holder for its ratable share of payments or
distributions in respect of the Note which is required to be paid or delivered
to the holders of Senior Indebtedness as provided in Section 9.3(a), in the name
of each such holder of the Note or otherwise, as such holder of Senior
Indebtedness may determine to be necessary or appropriate for the enforcement of
the provisions of Section 9.3(a), and the holder of a Note may amend any such
claims regarding the Note before or after such 20th day (but not in a manner
inconsistent with the rights of holders of Senior Indebtedness under this
Section 9 other than this Section 9.3(b)) whether such claims are filed by such
holder of a Note or are filed, pursuant to this Section 9.3(b), by any holder of
Senior Indebtedness; and (y) under (and only under) the circumstances set forth
in Section 9.3(a), agrees to execute and deliver to each holder of Senior
Indebtedness all such further instruments confirming the authorization
hereinabove set forth, and all such powers of attorney, proofs of claim,
assignments of claim and other instruments, and to take all such other action,
as may be reasonably requested by such holder in order to enable such holder to
enforce all claims upon or in respect of such Note holder's ratable share of
payments or distributions in respect of the Note. Nothing in this Section
9.3(b), or any other provision hereof, shall give or be construed to give the
holder of any Senior Indebtedness any right to vote any Note, or any related
claim, or any portion of such Note or such claim, or to exercise any approval
rights, whether in connection with any resolution, arrangement, plan of
reorganization, compromise, settlement, election of trustees or otherwise.
Holders of Senior Indebtedness shall not create any liability to any person on
the part of any holders of Notes in connection with the exercise of any rights
granted under this Section 9.3(b).
9.4 No Prejudice or Impairment; Reinstatement.
-----------------------------------------
a. No right of any present or future holders of any Senior
Indebtedness to enforce subordination as herein provided shall at any time in
any way be prejudiced or impaired (i) by any act or failure to act on the part
of the Company, including without limitation any merger or consolidation of the
Company into or with any other person, or any sale, lease or transfer of any or
all of the assets of the Company to any other person, (ii) by any act (in good
faith) or failure (in good faith) to act by any such holder of Senior
Indebtedness, including, without limitation, the failure by such holder to
perfect a security
29
<PAGE>
interest in any security for the payment of Senior Indebtedness or (iii) by any
noncompliance by the Company with the terms and provisions of the Documents
regardless of any knowledge thereof that any such holder may have or be
otherwise charged with. The holders of the Senior Indebtedness may, without in
any way affecting the subordination hereunder, at any time or from time to time
and in their absolute discretion, change the manner, place, time or other terms
of payment of, or renew or alter, any Senior Indebtedness, or in each case in
accordance with the terms of the applicable agreement or instrument governing
the Senior Indebtedness modify or supplement any agreement or instrument
governing or evidencing such Senior Indebtedness or any other document referred
to therein, or exercise or refrain from exercising any of their rights under the
Senior Indebtedness, including, without limitation, waiver of default thereunder
and release of any collateral securing such Senior Indebtedness, all without
notice to or assent from the holders of the Note. The absence of any notice to,
or knowledge by, any holder of a Note of the existence or occurrence of any of
the matters or events set forth in this paragraph (a) shall not impair or
otherwise affect the rights of the holders of Senior Indebtedness against
holders of the Note under the subordination provisions of this Section 9.
b. The provisions of this Section 9 shall continue to be effective,
or be reinstated, as the case may be, if at any time any payment in respect of
any Senior Indebtedness is rescinded or must otherwise be restored or returned
by the holders of such Senior Indebtedness upon the occurrence of any event
described in Section 9.3 hereof, or upon or as a result of the appointment of a
receiver, intervenor or conservator of, or trustee or similar officer for, the
Company or any substantial part of its property, all as though such payment had
not been made.
9.5 Subrogation. Subject to the payment in full of all Senior
-----------
Indebtedness, the holders of the Note shall be subrogated to the rights of the
holders of Senior Indebtedness to receive payments or distributions of assets of
the Company made on the Senior Indebtedness until the principal of, premium, if
any, and interest on (and any other amounts due with respect to) the Note and
all other amounts due under the Documents shall be paid in full; provided, that
any holder of a Note shall have the right, in its sole discretion, to waive such
subrogation rights without affecting such holder's rights with respect to a Note
held by such holder or under the Documents (which rights shall continue in full
force and effect). For the purposes of such subrogation, no payments or
distributions to the holders of Senior Indebtedness of any cash, property or
securities to which the holders of the Note would be entitled except for the
provisions of this Section 9 shall, as among the Company, its creditors
30
<PAGE>
other than the holders of Senior Indebtedness, and the holders of the Note, be
deemed to be a payment by the Company to or on account of Senior Indebtedness,
it being understood that these provisions in this Section 9 are, and are
intended, solely for the purpose of defining the relative rights of the holders
of the Note, on the one hand, and the holders of Senior Indebtedness, on the
other hand.
9.6 Obligations Unaffected. Nothing contained in this Section 9 is
----------------------
intended to or shall impair as among the Company, its creditors other than the
holders of Senior Indebtedness, and the holders of the Note, the obligation of
the Company, which shall be absolute and unconditional, to pay to the holders of
the Note the principal of, premium, if any, and interest on the Note, as and
when the same shall become due and payable in accordance with its terms, or to
affect the relative rights of the holders of the Note and creditors of the
Company other than the holders of Senior Indebtedness. Nothing herein shall
prevent a holder of the Note from exercising any remedies otherwise permitted by
applicable law upon the occurrence of an Event of Default, subject to the
rights, if any, under these provisions of the holders of Senior Indebtedness,
and nothing herein shall prevent the conversion of the Note (or any part
thereof) in accordance with the Note and this Agreement.
9.7 Definition of Senior Indebtedness. The term "Senior Indebtedness"
---------------------------------
shall mean the principal of, premium, if any, and interest on indebtedness of
the Company for borrowed money whether such indebtedness is currently
outstanding or hereafter incurred, and any renewals, modifications, refundings
or extensions of any such indebtedness, unless under the provisions of the
instrument creating or evidencing any such indebtedness, or pursuant to which
the same is outstanding, it is provided that such indebtedness is subordinate in
right of payment to any other indebtedness of the Company (including, without
limitation, the Notes); provided, that Senior Indebtedness shall not include (i)
any obligations under any provision of any agreement or instrument regarding
such Senior Indebtedness in respect of (x) fees or reimbursement of expenses or
(y) penalties or additional interest charged on account of overdue payments of
principal, interest or other payments, (ii) any indebtedness owing to any
Subsidiary or to any other affiliate (of the Company or of any Subsidiary),
(iii) any obligation, to any person, of any affiliate of the Company or of any
Subsidiary (other than an obligation of the Company or of a Subsidiary), which
obligation is assumed or guaranteed by the Company or any Subsidiary.
SECTION 10 Exchange of Notes; Accrued Interest; Cancellation of Surrendered
----------------------------------------------------------------
Notes; Replacement.
- ------------------
31
<PAGE>
a. Subject to Section 3 hereof, at any time at the request of any
holder of a Note delivered to the Company at its office identified in Section 13
hereof, the Company at its expense (except for any transfer tax or any other tax
arising out of the exchange) will issue and deliver to or upon the order of the
holder in exchange therefor a new Note, in such denomination or denominations as
such holder may request, in aggregate principal amount equal to the unpaid
principal amount of the Note surrendered and substantially in the form thereof,
dated as of the date to which interest has been paid on the Note surrendered
(or, if no interest has yet been so paid thereon, then dated the date of the
Note so surrendered) and payable to such person or persons or order as may be
designated by such holder.
b. In the event that any Note is surrendered to the Company upon the
conversion of all or a portion of any Note, or upon a prepayment under Section
11 hereof, the Company shall pay all accrued and unpaid interest on such Note or
such portion thereof and thereupon interest shall cease to accrue upon that
portion of the principal amount of such Note which was used for conversion or
which was prepaid, and the right to receive, and any right or obligation to
make, any prepayment on such portion of the principal amount pursuant to Section
11 hereof shall terminate all upon the date of such conversion or prepayment and
upon presentation and surrender of such Note to the Company.
c. Upon the conversion in whole or in part of any Note or upon any
prepayment under Section 11 hereof, if only a portion of the principal amount of
a Note is used in such conversion or is prepaid, then such Note shall be
surrendered to the Company and the Company shall simultaneously execute and
deliver to or on the order of the holder thereof, at the expense of the Company,
a new Note in principal amount equal to the unused or unpaid portion of such
Note.
d. Any Note or portion thereof that has been converted, or that has
been prepaid under Section 11 hereof, shall be cancelled by the Company and no
Note shall be issued in lieu of the principal amount so converted or prepaid.
e. Upon receipt of evidence satisfactory to the Company of the loss,
theft, destruction or mutilation of any Note and, in the case of any such loss,
theft or destruction, upon delivery of an indemnity agreement reasonably
satisfactory to the Company (if requested by the Company), or in the case of any
such mutilation, upon surrender of such Note (which surrendered Note shall be
cancelled by the Company), the Company will issue a new Note of like tenor in
lieu of such lost, stolen, destroyed or mutilated Note as if the lost, stolen,
destroyed or mutilated Note were then surrendered for exchange.
32
<PAGE>
SECTION 11 Prepayment.
----------
11.1 Optional Prepayment.
-------------------
a. Subject to the other provisions of this Section 11, at any time
during the period beginning on January 1, 1996 and ending on December 30, 1996
the Company may prepay all or part of the principal amount of outstanding Notes
at a price equal to (1) the aggregate principal amount of the Notes to be
prepaid, plus (2) all accrued and unpaid interest on the principal amount of the
Notes to be prepaid, plus (3) a premium (the "Redemption Premium") equal to 7-
1/2% of the principal amount being prepaid. The right of the Company to prepay
Notes pursuant to this Section 11.1(a) shall be conditioned upon its giving
notice of prepayment, signed by its President and Treasurer, to the holders of
Notes not less than 20 days and not more than 60 days prior to the date upon
which the prepayment is to be made specifying (i) the holder of each Note to be
prepaid, (ii) the aggregate principal amount being prepaid, (iii) the date of
such prepayment, (iv) the accrued and unpaid interest (to but not including the
date upon which the prepayment is to be made) and (v) the Redemption Premium
with respect to such prepayment. Notice of prepayment having been so given, the
aggregate principal amount of the Notes so specified in such notice, all accrued
and unpaid interest thereon and the Redemption Premium on such aggregate
principal amount shall all become due and payable on the specified prepayment
date.
b. Upon the occurrence of any Change of Control Event (as defined in
Section 11.2, each holder of a Note shall have the right, at such holder's
option, to require the Company to prepay such holder's Note in whole or in part
at a price equal to: (1) the aggregate principal amount of the Note to be
prepaid, plus (2) all accrued and unpaid interest on the principal amount of the
Note to be prepaid, plus (3) an amount equal to 7-1/2% of the principal amount
being prepaid. The option under this Section 11.1(b) shall be exercised by
written notice to the Company given at any time from and after the 30th day
before such Change of Control Event through the 90th day after such Change of
Control Event (or, if later, through the 90th day after such holder receives
written notice from the Company of such Change of Control Event). Promptly (and
in any event within 10 days) after the occurrence of any Change of Control
Event, and not more than 30 days before such Change of Control Event, the
Company shall give written notice to each holder of a Note notifying each such
holder of the occurrence of such Change of Control Event and informing each such
holder of its right to exercise an option to require a prepayment under this
Section 11.1(b).
c. If any prepayment under this Section 11.1 does not repay in full
the aggregate principal amount of all Notes then
33
<PAGE>
outstanding, then the aggregate amount of such prepayment of the principal
amount of Notes shall be allocated among all Notes at the time outstanding, in
proportion, as nearly as practicable, to the respective unpaid principal amounts
of such Notes.
11.2 Change of Control Event. For purposes of this Section 11, "Change of
-----------------------
Control Event" means the occurrence of any of the following events:
a. any person or group (within the meaning of Section 13(d)(3) of
the Securities Exchange Act of 1934 ("1934 Act") together with any affiliates
and associates of any such person or member of such group (within the meaning of
Rule 12b-2 under the 1934 Act) ("Person") shall at any time beneficially own
(within the meaning of Rule 13d-3 under the 1934 Act) shares of Common Stock of
the Company which represents in excess of either (A) 40% of the total votes
entitled to be cast by all outstanding shares of the Common Stock of the Company
or (B) 40% of all outstanding shares of the Common Stock of the Company;
provided, that a Change of Control Event shall not be deemed to have occurred
under this clause (a) (without limiting the application of clause (b), (c), (d)
or (e) below), solely by reason of such beneficial ownership of over 40% under
the preceding clause (A) or (B) being held by one or more persons who both (x)
are officers and directors of the Company on the Closing Date and (y)
beneficially owned on the Closing Date at least one percent of the shares of the
Company's Common Stock outstanding on the Closing Date (the foregoing being
described as an "acquisition of control"); or
b. the Company is materially or completely liquidated or is the
subject of any voluntary or involuntary dissolution or winding-up; or
c. the Company proceeds to acquire its Common Stock (or undertakes a
corporate reorganization or recapitalization or other action) if the effect of
such action would be either (i) to reduce substantially or to eliminate any
public market for the shares of the Company's Common Stock or (ii) to remove the
Company from registration with the Commission under the 1934 Act or (iii) to
require the Company to make a filing under Section 13(e) of the 1934 Act or (iv)
to cause a delisting of the Company's Common Stock from the American Stock
Exchange or such other national securities exchange or quotations service on
which the Common Stock is listed or quoted; or
d. the sale, lease, transfer or other disposition of all or
substantially all of the consolidated assets of the Company and its Subsidiaries
in a single transaction or series of related transactions; or
34
<PAGE>
e. The Company acquires control of any Person and such acquisition,
in the determination of the holder of the Note, results in a material diminution
in the value of the Company's Common Stock.
f. During any period of 12 consecutive months after the Closing
Date, individuals who at the beginning of such period constitute the Board of
Directors of the Company (together with any new directors whose election by such
Board or whose nomination for election by the shareholders of the Company was
approved by a vote of a majority of the directors then still in office who were
either directors at the beginning of such period or whose election or nomination
for election was previously so approved), cease for any reason to constitute a
majority of the Board of Directors of the Company then in office.
SECTION 12 Representations and Indemnities to Survive Delivery.
---------------------------------------------------
The respective indemnities, agreements, representations, warranties
and other statements of the Company, of its officers and of Purchaser set forth
in or made pursuant to this Agreement will remain in full force and effect,
regardless of any investigation made by or on behalf of the Purchaser or the
Company or any of its or their partners, officers or directors or any
controlling person, as the case may be, until December 31, 1996.
SECTION 13 Notices; Publicity.
------------------
All communications hereunder shall be in writing and, (i) if sent to
Purchaser, shall be mailed, delivered or telegraphed and confirmed to you at
1290 Avenue of the Americas, New York, New York 10104, Attention: Harry C.
Hagerty, III, with a copy to Stoel Rives, 900 SW Fifth Avenue, Portland, Oregon
97204, Attention: John J. Halle, Esq.; and (ii) if sent to the Company shall be
mailed, delivered or telegraphed and confirmed to the Company at Elsinore
Corporation, 202 East Fremont Street, Las Vegas, Nevada 89101, Attention:
Ernest L. East, with a copy to Pillsbury Madison & Sutro, 235 Montgomery Street,
San Francisco, California 94104, Attention: Gregg F. Vignos, Esq. The Company
or Purchaser may change the address for receipt of communications hereunder by
giving notice to the others. No party will issue or approve any news release,
public filing or other announcement concerning the transactions described herein
without the prior approval of the other parties as to the content of the
announcement and its release, which approval will not be unreasonably withheld.
35
<PAGE>
SECTION 14 Payment of Expenses.
-------------------
a. In addition to costs incurred by the Company in connection with
the transactions contemplated hereby, the Company will pay all reasonable out-
of-pocket expenses of Purchaser (including fees of counsel) in connection with
these transactions. The Company shall reimburse Purchaser for such expenses
promptly upon receipt from Purchaser of statements detailing such expenses.
b. The Company shall pay all reasonable out-of-pocket expenses of
Purchaser (including fees of counsel) in connection with any actions Purchaser
must reasonably take in connection with any comment, application, approval or
licensure process or procedure required by the Gaming Authorities as a result of
or in connection with these transactions ("Regulatory Expenses"); provided,
however, the Company will not be required to reimburse Purchaser for Regulatory
Expenses if such reimbursement would violate applicable state law or the rules
and regulations of the Gaming Authorities.
SECTION 15 Successors.
----------
This Agreement will inure to the benefit of and be binding upon the
parties hereto and to the benefit of the officers and directors and controlling
persons thereof, and in each case their respective successors, personal
representatives and assigns, and no other person will have any right or
obligation hereunder. No such assignment shall relieve any party of its
obligations hereunder.
SECTION 16 Partial Unenforceability.
------------------------
The invalidity or unenforceability of any section, paragraph or
provision of this Agreement shall not affect the validity or enforceability of
any other section, paragraph or provision hereof. If any section, paragraph or
provision of this Agreement is for any reason determined to be invalid or
unenforceable, there shall be deemed to be made such minor changes (and only
such minor changes) as are necessary to make it valid and enforceable.
SECTION 17 Applicable Law.
--------------
This Agreement shall be governed by and construed in accordance with
the internal laws of (and not the laws pertaining to conflicts of laws) of the
State of New York.
36
<PAGE>
SECTION 18 General.
-------
This Agreement constitutes the entire agreement of the parties to this
Agreement and supersedes all prior written or oral and all contemporaneous oral
agreements, understandings and negotiations with respect to the subject matter
hereof. This Agreement may be executed in counterparts, each one of which shall
be an original, and all of which shall constitute one and the same document.
SECTION 19 Section Headings; Amendment.
---------------------------
The section headings in this Agreement are for the convenience of the
parties only and will not affect the construction or interpretation of this
Agreement. This Agreement may be amended or modified, and the observance of any
term of this Agreement may be waived, only by a writing signed by the Company
and Purchaser.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first above written.
MAGNOLIA PARTNERS, L.P. ELSINORE CORPORATION
By: Elsco, Inc.
Its General Partner
By /s/ Harry C. Hagerty, III By /s/ Thomas E. Martin
-------------------------- -----------------------------
Harry C. Hagerty, III Name Thomas E. Martin
Its President Title President
37
<PAGE>
Schedule of Exhibits and Annex
------------------------------
Exhibit A Promissory Note
Exhibit B Stock Pledge Agreement
Exhibit C Registration Rights Agreement
Annex I Designation of Note Denominations
38
<PAGE>
REGISTRATION RIGHTS AGREEMENT
-----------------------------
THIS REGISTRATION RIGHTS AGREEMENT is made and entered into as of March 31,
1995, by and among ELSINORE CORPORATION, a Nevada corporation (the "Company"),
--------------------
and MAGNOLIA PARTNERS, L.P., a Delaware limited partnership (the "Purchaser").
----------------------
This Agreement is made pursuant to the Note Purchase Agreement, dated as of
March 30, 1995, between the Company and the Purchaser (the "Purchase
Agreement"). The execution of this Agreement is a condition to the closing of
the transactions contemplated by the Purchase Agreement.
The parties hereby agree as follows:
1. Definitions.
-----------
As used in this Agreement, the following terms shall have the following
meanings:
Advice: As defined in the last paragraph of Section 6 hereof.
------
Affiliate of any specified person shall mean any other person directly or
---------
indirectly controlling or controlled by or under direct or indirect common
control with such specified person. For the purposes of this definition,
"control," when used with respect to any person, means the power to direct the
management and policies of such person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"affiliated," "controlling" and "controlled" have meanings correlative to the
foregoing.
Agreement: This Registration Rights Agreement, as the same may be amended,
---------
supplemented or modified from time to time in accordance with the terms hereof.
Business Day: Any day except Saturday, Sunday and any day which shall be a
------------
legal holiday or a day on which banking institutions in the state of New York
generally are authorized or required by law or other government actions to
close.
Common Stock: As defined in the Purchase Agreement.
------------
Company: Elsinore Corporation, a Nevada corporation, and any successor
-------
corporation thereto.
Demand Notice: As defined in Section 2 hereof.
-------------
Demand Registration: As defined in Section 3 hereof.
-------------------
Effectiveness Date: The date each Demand Registration Statement becomes
------------------
effective, which date shall not be later than
1
<PAGE>
the 130th day following the Company's receipt of the Demand Notice.
Effectiveness Period: As defined in Section 3(a) hereof.
--------------------
Exchange Act: The Securities Exchange Act of 1934, as amended, and the
------------
rules and regulations of the SEC promulgated pursuant thereto.
Filing Date: The date the Demand Registration is filed, which shall be no
-----------
later than the forty-fifth day following the Company's receipt of the Demand
Notice.
Indemnified Party: As defined in Section 8(c) hereof.
-----------------
Indemnifying Party: As defined in Section 8(c) hereof.
------------------
Losses: As defined in Section 8(a) hereof.
------
Note: The $1,125,000 aggregate principal amount of the Company's 7 1/2%
----
Convertible Subordinated Notes due December 31, 1996 being issued to the
Purchaser pursuant to the Purchase Agreement.
Piggyback Registration: As defined in Section 4.
----------------------
Proceeding: An action, claim, suit or proceeding (including, without
----------
limitation, an investigation or partial proceeding, such as a deposition),
whether commenced or threatened.
Prospectus: The prospectus included in any Registration Statement
----------
(including, without limitation, a prospectus that discloses information
previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A promulgated pursuant to the Securities
Act), as amended or supplemented by any prospectus supplement, with respect to
the terms of the offering of any portion of the Registrable Securities covered
by such Registration Statement, and all other amendments and supplements to the
Prospectus, including post-effective amendments, and all material incorporated
by reference or deemed to be incorporated by reference in such Prospectus.
Registrable Securities: Each of the Shares (including each share of Common
----------------------
Stock of the Company issued as (or issuable upon the conversion or exercise of
any warrant, right or other security which is issued as) a dividend or other
distribution with respect to, or in exchange for or in replacement of the notes
or the Shares) until (i) it has been registered effectively pursuant to the
Securities Act and disposed of in accordance with the Registration Statement
covering it, or (ii) it is sold by the holder thereof pursuant to Rule 144 (or
any similar provisions then in effect).
2
<PAGE>
Registration Statement: Any registration statement of the Company that
----------------------
covers any of the Shares pursuant to the provisions of this Agreement, including
the Prospectus, amendments and supplements to such registration statement or
Prospectus, including pre- and post-effective amendments, all exhibits thereto,
and all material incorporated by reference or deemed to be incorporated by
reference in such registration statement.
Rule 144: Rule 144 promulgated by the SEC pursuant to the Securities Act,
--------
as such Rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the SEC having substantially the same effect as such Rule.
Rule 144A: Rule 144A promulgated by the SEC pursuant to the Securities Act,
---------
as such Rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the SEC having substantially the same effect as such Rule.
SEC: The Securities and Exchange Commission.
---
Securities Act: The Securities Act of 1933, as amended, and the rules and
--------------
regulations promulgated by the SEC thereunder.
Shares: The shares of Common Stock of the Company issuable to the Purchaser
------
(i) upon conversion of the Note pursuant to the Purchase Agreement and (ii) upon
the exercise of the Purchaser's right to purchase Common Stock pursuant to
Section 6(c) of the Purchase Agreement.
Special Counsel: Any special counsel to the holders of Registrable
---------------
Securities, for which holders of Registrable Securities will be reimbursed
pursuant to Section 7.
underwritten registration or underwritten offering: A registration in
--------------------------------------------------
connection with which securities of the Company are sold to an underwriter for
reoffering to the public pursuant to an effective Registration Statement.
2. Demand Registrations.
--------------------
(a) Requests for Registration. On or after the date hereof, and subject to
-------------------------
the provisions of Section 2(c) hereof, the Purchaser shall have the right at any
time by written request to the Company (the "Demand Notice"), to require the
Company to register under and in accordance with the provisions of the
Securities Act all, but not less than all, Registrable Securities then
outstanding (a "Registration").
(b) Filing and Effectiveness. The Company shall file the Demand
------------------------
Registration as soon as practicable following its receipt of the Demand Notice
but in no event later than the Filing Date, and shall cause the same to be
declared effective by the SEC as soon as practicable after the date of filing
but in no event later than the Effectiveness Date.
3
<PAGE>
(c) Number of Registrations.
-----------------------
(i) The holders of Registrable Securities pursuant to this Section 2
shall be entitled to request one and only one Demand Registration unless
such Demand Registration does not become effective or is not maintained
effective as required hereunder, for reasons including, among other things,
the exercise of registration rights by Company securityholders other than
the holders of Registrable Securities, in which case the holders of
Registrable Securities shall be entitled to an additional Demand
Registration for each such Demand Registration that does not so become
effective or continue effective.
(ii) With respect to a Demand Registration filed or to be filed
pursuant to this Section 2, if the Company's Board of Directors shall
determine, in its good faith reasonable judgment, that to maintain the
effectiveness of such registration statement or to permit such registration
statement to become effective (or, if no registration statement has yet been
filed, to file such a registration statement) would be significantly
disadvantageous to the Company's financial condition or business (a
"Disadvantageous Condition") in light of the existence, or in anticipation,
of any material acquisition or financing activity involving the Company or
any subsidiary, the material terms of which have not been publicly
disclosed, the Company may, until such Disadvantageous Condition no longer
exists (but not with respect to more than one occasion involving more than
60 days), cause such registration statement to be withdrawn and the
effectiveness of such registration statement to be terminated or, if no
registration statement has yet been filed, elect not to file such
registration statement. If the Company determines to take any action
pursuant to the preceding sentence, the Company shall deliver a notice to
any holders selling Registrable Securities pursuant to an effective
registration statement to such effect. Upon the receipt of any such notice,
such persons shall forthwith discontinue use of the prospectus contained in
such registration statement and, if so directed by the Company, shall
deliver to the Company all copies of the prospectus then covering such
Registrable Securities current at the time of receipt of such notice. If
any Disadvantageous Condition shall cease to exist, the Company shall
promptly notify any holders who shall have ceased selling Registrable
Securities pursuant to an effective registration statement as a result of
such Disadvantageous Condition to such effect, and shall disclose in
reasonable detail the nature and outcome of such Disadvantageous Condition.
The Company shall, if any registration statement shall
4
<PAGE>
have been withdrawn, file, at such time as it in good faith deems
appropriate, a new registration statement covering the Registrable
Securities that were covered by such withdrawn registration statement, and
the effectiveness of such registration statement shall be maintained for
such time as may be necessary so that the period of effectiveness of such
new registration statement, when aggregated with the period during which
such withdrawn registration statement was effective, shall be such time as
may be otherwise required by this Agreement. For purposes of this Section
2(c), a Disadvantageous Condition shall cease to exist on the date the
Company makes public disclosure of the acquisition or financing activity
giving rise to the Disadvantageous Condition.
(d) Selection of Underwriters. If a requested registration pursuant to this
-------------------------
Section 2 involves an underwritten offering, the underwriter or underwriters
that will manage such underwriting shall be selected by the holders of a
majority of shares of the Registrable Securities as to which registration has
been requested, provided however that nothing in this section shall be deemed to
obligate the Company to register the Registrable Securities pursuant to an
underwritten offering.
3. Registration.
------------
If a Demand Notice is delivered as contemplated by Section 2, then the
Company shall prepare and file, as promptly as reasonably practicable
thereafter, with the SEC a Registration Statement under the Securities Act
covering all of the Registrable Securities requested by Holders to be included
therein (the "Demand Registration"). In the case of each Demand Notice, the
Company shall (i) file a Registration Statement relating to the Demand
Registration with the SEC on or prior to the Filing Date, (ii) cause the Demand
Registration to become effective under the Securities Act as soon as practicable
following the Filing Date, but not later than the Effectiveness Date, and (iii)
keep the Demand Registration continuously effective under the Securities Act
until (the "Effectiveness Period") (A) 180 days following the date on which the
Demand Registration becomes effective (subject to extension pursuant the last
paragraph of Section 6 hereof) or (B) if sooner, the date following the date
that all Registrable Securities covered by the Demand Registration have been
sold pursuant thereto; provided that the Effectiveness Period shall be extended
--------
to the extent required to permit dealers to comply with the applicable
prospectus delivery requirements under Rule 174 under the Securities Act.
4. Piggyback Registration.
----------------------
(a) Right to Piggyback. If at any time the Company proposes to file a
------------------
registration statement, including a shelf
5
<PAGE>
registration, pursuant to the Securities Act with respect to an offering of any
class of equity securities, whether or not for its own account (other than a
registration (i) on Form S-8 or any successor or similar forms, (ii) relating to
equity securities issuable upon exercise of employee stock options or in
connection with any employee benefit or similar plan of the Company, (iii)
pursuant to a registration under Section 2 or (iv) on Form S-4 or any successor
or form similar for the purpose of registering a bona fide transaction of a type
described by Rule 145(a)(1) or 145(a)(2) promulgated pursuant to the Securities
Act), then the Company shall give written notice of such proposed filing to the
holders of Registrable Securities at least 20 days before the anticipated filing
date (the "Piggyback Notice"). The Piggyback Notice shall offer such holders the
opportunity to register such amount of Registrable Securities as each such
holder may request (a "Piggyback Registration"). Subject to Section 4(b) hereof,
the Company shall include in each such Piggyback Registration all Registrable
Securities requested to be included in such offering. The holders of Registrable
Securities shall be permitted to withdraw all or part of the Registrable
Securities from a Piggyback Registration at any time prior to the effective date
of such Piggyback Registration.
(b) Priority on Piggyback Registrations. The Company shall cause the
-----------------------------------
managing underwriters of a proposed underwritten offering of securities to
permit holders of Registrable Securities requested to be included in the
registration for such offering to include all such Registrable Securities on the
same terms and conditions as any similar securities, if any, of the Company
included therein. Notwithstanding the foregoing, if the managing underwriters
of such underwritten offering determine in good faith in writing to the Company
and each of the holders of Registrable Securities that the total amount of
securities that such holders and the Company propose to include in such offering
is such as would materially and adversely affect the success of such offering,
then in the event that such Piggyback Registration is a primary registration on
behalf of the Company only, the amount of securities to be offered for the
account of holders of Registrable Securities shall be reduced or limited pro
rata amongst such holders and amongst any other holders (excluding the Company)
of securities of the same class included in such Registration Statement, in each
case in proportion to the respective amounts of securities owned and previously
included in such Registration Statement to the extent necessary to reduce the
total amount of securities to be included in such offering to the amount
recommended by such managing underwriters.
(c) Number of Registrations. The holders of Registerable Securities
-----------------------
pursuant to this section 4 shall be entitled to request not more than two
Piggyback Registrations unless a Piggyback Registration does not become
effective or is not maintained effective as required hereunder, for reasons
including, among other things, the determination of the managing underwriters of
an underwritten offering that all or part of the
6
<PAGE>
Registerable Securities cannot be included in such offering, in which case the
holders of Registrable Securities shall be entitled to an additional Piggyback
Registration for each such Piggyback Registration that does not so become
effective or continue effective or for each such registerable security excluded
from the offering.
5. Hold-Back Agreements.
--------------------
(a) Restrictions on Sale by Holders of Registrable Securities. Except in
---------------------------------------------------------
connection with the exercise of its Piggyback Registration rights, each holder
of Registrable Securities agrees, if requested (pursuant to a timely written
notice) by the managing underwriters or other managers in an underwritten
offering (which, for purposes of this Section shall include a Rule 144A
offering) of the Company's Common Stock, not to effect any private sale or
distribution (including a sale pursuant to Rule 144(k) and Rule 144A, but
excluding non-public sales to any of its affiliates, officers, directors,
employees and controlling persons) of any of the Shares (except as part of such
underwritten offering), during the period beginning 10 days prior to, and ending
120 days after, the closing date of the underwritten or private offering.
The foregoing provisions shall not apply to any holder of Registrable
Securities if such holder is prevented by applicable statute or regulation from
entering into any such agreement.
(b) Restrictions on Public Sale by the Company and Others. The Company
-----------------------------------------------------
agrees without the written consent of the managing underwriters in an
underwritten offering of Registrable Securities covered by a Registration
Statement filed pursuant to Section 3 hereof, not to effect any public or
private sale or distribution of any of its common stock, or any options, rights,
warrants to purchase, or securities exchangeable or convertible into, shares of
common stock of the Company, including a sale pursuant to Regulation D or Rule
144A under the Securities Act, during the period beginning 10 days prior to, and
ending 90 days after, the closing date of each underwritten offering made
pursuant to such Registration Statement (provided, however, that such period
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shall be extended by the number of days from and including the date of the
giving of any notice pursuant to Section 6(c) hereof to and including the date
when each seller of Registrable Securities covered by such Registration
Statement shall have received the copies of the supplemented or amended
Prospectus contemplated by Section 6(k) hereof).
6. Registration Procedures.
-----------------------
In connection with the Company's registration obligations hereunder, the
Company shall:
(a) no fewer than 10 Business Days prior to the initial filing of a
Registration Statement or
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<PAGE>
Prospectus and no fewer than two Business Days prior to the filing of any
amendment or supplement thereto (including any document that would be
incorporated or deemed to be incorporated therein by reference), furnish to
the holders of the Registrable Securities relating to such Registration
Statement, their Special Counsel and the managing underwriters, if any,
copies of all such documents proposed to be filed, which documents (other
than those incorporated or deemed to be incorporated by reference) will be
subject to the review of such holders, their Special Counsel and such
underwriters, if any, and cause the officers and directors of the Company,
counsel to the Company and independent certified public accountants to the
Company to respond to such inquiries as shall be necessary, in the opinion
of respective counsel to such holders and such underwriters, to conduct a
reasonable investigation within the meaning of the Securities Act; provided,
--------
further, that the Company shall not be deemed to have kept a Registration
-------
Statement effective during the applicable period if it voluntarily takes any
action that results in selling holders of the Registrable Securities covered
thereby not being able to sell such Registrable Securities pursuant to
Federal securities laws during that period (and the time period during which
such Registration Statement is required to remain effective hereunder shall
be extended by the number of days during which such selling holders of
Registrable Securities are not able to sell Registrable Securities) unless
such action is required under applicable law or regulation or court order.
The Company shall not file any such Registration Statement or Prospectus or
any amendments or supplements thereto to which the holders of a majority of
the Registrable Securities relating to such Registration Statement, their
Special Counsel, or the managing underwriters, if any, shall reasonably
object on a timely basis; provided, however, that the Company shall not be
-------- -------
prohibited from making any such filing that is necessary, in the opinion of
outside counsel to the Company, to comply with applicable law;
(b) prepare and file with the SEC such amendments, including post-
effective amendments, to each Registration Statement as may be necessary to
keep such Registration Statement continuously effective for the applicable
time period; cause the related Prospectus to be supplemented by any required
Prospectus supplement, and as so supplemented to be filed pursuant to Rule
424 (or any similar provisions then in force) under the Securities Act; and
comply with the provisions of the Securities Act and the Exchange Act with
respect to the disposition of all securities covered by such Registration
Statement
8
<PAGE>
during such period in accordance with the intended methods of
disposition by the sellers thereof set forth in such Registration Statement
as so amended or in such Prospectus as so supplemented;
(c) notify the holders of Registrable Securities to be sold, their
Special Counsel and the managing underwriters, if any, promptly (and in the
case of (i) (A) in no event less than two Business Days prior to such
filing) and (if requested by any such Person), confirm such notice in
writing, (i) (A) when a Prospectus or any Prospectus supplement or post-
effective amendment is proposed to be filed, and (B) with respect to a
Registration Statement or any post-effective amendment, when the same has
become effective, (ii) of any request by the SEC or any other Federal or
state governmental authority for amendments or supplements to a Registration
Statement or related Prospectus or for additional information, (iii) of the
issuance by the SEC of any stop order suspending the effectiveness of a
Registration Statement or the initiation of any proceedings for that
purpose, (iv) if at any time any of the representations and warranties of
the Company contained in any agreement (including any underwriting
agreement) contemplated hereby cease to be true and correct in all material
respects, (v) of the receipt by the Company of any notification with respect
to the suspension of the qualification or exemption from qualification of
any of the Registrable Securities for sale in any jurisdiction, or the
initiation or threatening of any proceeding for such purpose, and (vi) of
the happening of any event that makes any statement made in such
Registration Statement or related Prospectus or any document incorporated or
deemed to be incorporated therein by reference untrue in any material
respect or that requires the making of any changes in such Registration
Statement, Prospectus or documents so that, in the case of the Registration
Statement, it will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary
to make the statements therein, not misleading, and that in the case of the
Prospectus, it will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which
they were made, not misleading;
(d) use their reasonable best efforts to avoid the issuance of, or, if
issued, obtain the withdrawal of any order suspending the effectiveness of a
Registration Statement, or the lifting of any suspension of the
qualification (or exemption from
9
<PAGE>
qualification) of any of the Registrable Securities for sale in any
jurisdiction, at the earliest practicable moment;
(e) if a Demand Registration is filed pursuant to Section 3 and, if
requested by the managing underwriter, if any, or the holders of a majority
in principal amount of the Registrable Securities being sold in connection
with an underwritten offering, (i) promptly incorporate in a Prospectus
supplement or post-effective amendment such information as the managing
underwriters, if any, and such holders agree should be included therein, and
(ii) make all required filings of such Prospectus supplement or such post-
effective amendment as soon as practicable after the Company have received
notification of the matters to be incorporated in such Prospectus supplement
or post-effective amendment; provided, however, that the Company shall not
-------- -------
be required to take any action pursuant to this Section 6(e) that would, in
the opinion of outside counsel for the Company, violate applicable law;
(f) furnish to each holder of Registrable Securities, their Special
Counsel and each managing underwriter, if any, without charge, at least one
conformed copy of each Registration Statement and each amendment thereto,
including financial statements and schedules, all documents incorporated or
deemed to be incorporated therein by reference, and all exhibits to the
extent requested by each holder (including those previously furnished or
incorporated by reference) as soon as practicable after the filing of such
documents with the SEC;
(g) deliver to each holder of Registrable Securities, their Special
Counsel, and the underwriters, if any, without charge, as many copies of the
Prospectus or Prospectuses (including each form of prospectus) and each
amendment or supplement thereto as such Persons reasonably request; and the
Company hereby consents to the use of such Prospectus and each amendment or
supplement thereto by each of the selling holders of Registrable Securities
and the underwriters, if any, in connection with the offering and sale of
the Registrable Securities covered by such Prospectus and any amendment or
supplement thereto;
(h) prior to any public offering of Registrable Securities, use its
reasonable best efforts to register or qualify or cooperate with the holders
of Registrable Securities to be sold or tendered for, the underwriters, if
any, and their respective counsel in connection with the registration or
qualification (or
10
<PAGE>
exemption from such registration or qualification) of such
Registrable Securities for offer and sale under the securities or Blue Sky
laws of such jurisdictions within the United States as any holder or
underwriter reasonably requests in writing; keep each such registration or
qualification (or exemption therefrom) effective during the period such
Registration Statement is required to be kept effective and do any and all
other acts or things necessary or advisable to enable the disposition in
such jurisdictions of the Registrable Securities covered by the applicable
Registration Statement; provided, however, that the Company shall not be
required to qualify generally to do business in any jurisdiction where it is
not then so qualified or to take any action that would subject it to general
service of process in any such jurisdiction where it is not then so subject
or subject the Company to any tax in any such jurisdiction where it is not
then so subject;
(i) cooperate with the holders and the managing underwriters, if any,
to facilitate the timely preparation and delivery of certificates
representing Registrable Securities to be sold, which certificates shall not
bear any restrictive legends and shall be in a form eligible for deposit
with The Depository Trust Company and to enable such Registrable Securities
to be in such denominations and registered in such names as the managing
underwriters, if any, or holders may request at least two Business Days
prior to any sale of Registrable Securities;
(j) use its reasonable best efforts to cause the Registrable Securities
covered by the Registration Statement to be registered with or approved by
such other governmental agencies or authorities within the United States,
except as may be required solely as a consequence of the nature of such
selling holder's business, in which case the Company shall cooperate in all
reasonable respects with the filing of such Registration Statement and the
granting of such approvals as may be necessary to enable the seller or
sellers thereof or the underwriters, if any, to consummate the disposition
of such Registrable Securities; provided, however, that the Company shall
-------- -------
not be required to register the Registrable Securities in any jurisdiction
that would subject it to general service of process in any such jurisdiction
where it is not then so subject or subject the Company to any tax in any
such jurisdiction where it is not then so subject or to require the Company
to qualify to do business in any jurisdiction where it is not then so
qualified;
11
<PAGE>
(k) upon the occurrence of any event contemplated by Paragraph
6(c)(vi), as promptly as practicable, prepare a supplement or amendment,
including a post-effective amendment, to each Registration Statement or a
supplement to the related Prospectus or any document incorporated or deemed
to be incorporated therein by reference, and file any other required
document so that, as thereafter delivered, such Prospectus will not contain
an untrue statement of a 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 under which they were made, not misleading;
(l) use its reasonable best efforts to cause all Registrable Securities
relating to such Registration Statement to be listed on each securities
exchange, if any, on which similar securities issued by the Company are then
listed;
(m) enter into such agreements (including an underwriting agreement in
form, scope and substance as is customary in underwritten offerings) and
take all such other reasonable actions in connection therewith (including
those reasonably requested by the managing underwriters, if any, or the
holders of a majority of the Registrable Securities being sold) in order to
expedite or facilitate the disposition of such Registrable Securities, and
in such connection, whether or not an underwriting agreement is entered into
and whether or not the registration is an underwritten registration, (i)
make such representations and warranties to the holders of such Registrable
Securities and the underwriters, if any, with respect to the business of the
Company and its subsidiaries, and the Registration Statement, Prospectus and
documents, if any, incorporated or deemed to be incorporated by reference
therein, in each case, in form, substance and scope as are customarily made
by issuers to underwriters in underwritten offerings, and confirm the same
if and when requested; (ii) obtain opinions of counsel to the Company and
updates thereof (which counsel and opinions (in form, scope and substance)
shall be reasonably satisfactory to the managing underwriters, if any, and
Special Counsel to the holders of the Registrable Securities being sold),
addressed to each selling holder of Registrable Securities and each of the
underwriters, if any, covering the matters customarily covered in opinions
requested in underwritten offerings and such other matters as may be
reasonably requested by such Special Counsel and underwriters; (iii) obtain
"cold comfort" letters and updates thereof from the independent certified
public accountants of the Company (and, if
12
<PAGE>
necessary, any other independent certified public accountants of any
subsidiary of the Company or of any business acquired by the Company for
which financial statements and financial data is, or is required to be,
included in the Registration Statement), addressed to each selling holder of
Registrable Securities and each of the underwriters, if any, such letters to
be in customary form and covering matters of the type customarily covered in
"cold comfort" letters in connection with underwritten offerings; (iv) if an
underwriting agreement is entered into, the same shall contain
indemnification provisions and procedures no less favorable to the selling
holders and the underwriters, if any, than those set forth in Section 8
hereof (or such other provisions and procedures acceptable to holders of a
majority of the holders of Registrable Securities covered by such
Registration Statement and the managing underwriters); and (v) deliver such
documents and certificates as may be reasonably requested by the holders of
a majority of the Registrable Securities being sold, their Special Counsel
and the managing underwriters, if any, to evidence the continued validity of
the representations and warranties made pursuant to clause 6(m)(i) above and
to evidence compliance with any customary conditions contained in the
underwriting agreement or other agreement entered into by the Company;
(n) make available for inspection by a representative of the holders of
Registrable Securities being sold, any underwriter participating in any such
disposition of Registrable Securities, if any, and any attorney, consultant
or accountant retained by such selling holders or underwriter, at the
offices where normally kept, during reasonable business hours, all financial
and other records, pertinent corporate documents and properties of the
Company, and its subsidiaries, and cause the officers, directors, agents and
employees of the Company and its subsidiaries to supply all information in
each case reasonably requested by any such representative, underwriter,
attorney, consultant or accountant in connection with such Registration
Statement; and
(o) comply with all applicable rules and regulations of the SEC and
make generally available to their securityholders earning statements
satisfying the provisions of Section 11(a) of the Securities Act and Rule
158 thereunder (or any similar rule promulgated under the Securities Act),
no later than 45 days after the end of any 12-month period (or 90 days after
the end of any 12-month period if such period is a fiscal year) (i)
commencing at the end of any fiscal quarter in which Registrable Securities
are sold to
13
<PAGE>
underwriters in a firm commitment or reasonable efforts underwritten
offering and (ii) if not sold to underwriters in such an offering,
commencing on the first day of the first fiscal quarter of the Company after
the effective date of a Registration Statement, which statement shall cover
said 12-month periods, or end shorter periods as is consistent with the
requirements of Rule 158.
The Company may require each seller of Registrable Securities as to which
any registration is being effected to furnish to the Company such information
regarding the distribution of such Registrable Securities as is required by law
to be disclosed in the applicable Registration Statement and the Company may
exclude from such registration the Registrable Securities of any seller who
unreasonably fails to furnish such information within a reasonable time after
receiving such request.
If any such Registration Statement refers to any holder by name or otherwise
as the holder of any securities of the Company, then such holder shall have the
right to require, in the event that such reference to such holder by name or
otherwise is not required by the Securities Act or any similar federal statute
then in force, the deletion of the reference to such holder in any amendment or
supplement to the Registration Statement filed or prepared subsequent to the
time that such reference ceases to be required.
Each holder of Registrable Securities agrees by registration of such
Registrable Securities that, upon receipt of any notice from the Company of the
happening of any event of the kind described in Section 6(c)(ii), 6(c)(iii),
6(c)(v) or 6(c)(vi) hereof, such holder will forthwith discontinue disposition
of such Registrable Securities covered by such Registration Statement or
Prospectus until such holder's receipt of the copies of the supplemented or
amended Prospectus contemplated by Section 6(k) hereof, or until it is advised
in writing (the "Advice") by the Company that the use of the applicable
Prospectus may be resumed, and, in either case, has received copies of any
additional or supplemental filings that are incorporated or deemed to be
incorporated by reference in such Prospectus. If the Company shall give any
such notice, the time periods mentioned in Section 3 hereof shall be extended by
the number of days during such periods from and including the date of the giving
of such notice to and including the date when each seller of Registrable
Securities covered by such Registration Statement shall have received (x) the
copies of the supplemented or amended Prospectus contemplated by Section 6(k)
hereof or (y) the Advice, and, in either case, has received copies of any
additional or supplemental filings that are incorporated or deemed to be
incorporated by reference in such Prospectus.
7. Registration Expenses.
---------------------
14
<PAGE>
(a) All fees and expenses incident to the performance of or compliance with
this Agreement by the Company shall be borne by the Company whether or not any
Registration Statement is filed or becomes effective and whether or not any
securities are issued or sold pursuant to any Registration Statement (unless
such Registration Statement is not filed or does not become effective or
securities are not issued or sold pursuant to such Registration Statement as a
result of any action by the holders of Registrable Securities requesting such
registration). The fees and expenses referred to in the foregoing sentence
shall include, without limitation, (i) all registration and filing fees
(including, without limitation, fees and expenses (A) with respect to filings
required to be made with the National Association of Securities Dealers, Inc.
and (B) in compliance with securities or Blue Sky laws (including without
limitation and in addition to that provided for in (b) below, fees and
disbursements of counsel for the underwriters or holders in connection with Blue
Sky qualifications of the Registrable Securities and determination of the
eligibility of the Registrable Securities for investment under the laws of such
jurisdictions as the managing underwriters, if any, or holders of a majority of
Registrable Securities may designate), (ii) printing expenses (including,
without limitation, expenses of printing certificates for Registrable Securities
in a form eligible for deposit with The Depository Trust Company and of printing
prospectuses if the printing of prospectuses is requested by the managing
underwriters, if any, (iii) messenger, telephone and delivery expenses, (iv)
fees and disbursements of counsel for the Company and Special Counsel for the
holders (in accordance with the provisions of Section 7(b) hereof), (v) fees and
disbursements of all independent certified public accountants (including,
without limitation, the expenses of any special audit and "cold comfort" letters
required by or incident to such performance), (vi) underwriters' fees and
expenses (excluding discounts, commissions or fees of underwriters, selling
brokers, dealer managers or similar securities industry professionals relating
to the sale or distribution of the Registrable Securities (collectively,
"Selling Expenses"), which shall be borne solely by the holders of the
Registrable Securities, (vii) Securities Act liability insurance, if the Company
so desires such insurance, and (viii) fees and expenses of all other persons
retained by the Company. In addition, the Company shall pay its internal
expenses (including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties), the expense of
any annual audit, the fees and expenses incurred in connection with the listing
of the securities to be registered on any securities exchange on which similar
securities issued by the Company are then listed and rating agency fees (plus
any local counsel, deemed appropriate by the holders of a majority of the
Registrable Securities).
(b) In connection with any Registration hereunder, the Company shall
reimburse the holders of the Registrable Securities being registered in such
registration for the reasonable fees and
15
<PAGE>
disbursements of not more than one firm of attorneys chosen by the holders of a
majority of the Registrable Securities.
8. Indemnification.
---------------
(a) Indemnification by the Company. The Company shall, notwithstanding
------------------------------
termination of this Agreement and without limitation as to time, indemnify and
hold harmless each holder of Registrable Securities, the officers, directors,
agents, investment advisors and employees of each of them, each Person who
controls any such holder (within the meaning of Section 15 of the Securities Act
or Section 20 of the Exchange Act) and the officers, directors, agents and
employees of each such controlling person, to the fullest extent lawful, from
and against any and all losses, claims, damages, liabilities, costs (including,
without limitation, costs of preparation and reasonable attorneys' fees) and
expenses (collectively, "Losses"), as incurred, arising out of or based upon any
untrue or alleged untrue statement of a material fact contained in any
Registration Statement, Prospectus or form of prospectus or in any amendment or
supplement thereto or in any preliminary prospectus, or arising out of or based
upon any omission or alleged omission of a material fact required to be stated
therein or necessary to make the statements therein (in the case of any
Prospectus or form of prospectus or supplement thereto, in light of the
circumstances under which they were made) not misleading, except to the extent,
that such are finally judicially determined to have been based upon information
regarding such Holder furnished in writing to the Company by or on behalf of
such holder expressly for use therein, and that such information was reasonably
relied on by the Company in the preparation thereof; provided, however, that the
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Company shall not be liable to the extent that (A) any such Losses arise out of
or are based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in any preliminary prospectus if (i) having previously
been furnished by the Company with copies of the Prospectus on a timely basis,
such holder failed to send or deliver a copy of the Prospectus with or prior to
the delivery of written confirmation of the sale by such holder of a Registrable
Security to the person asserting such Losses who purchased such Registrable
Security that is the subject thereof and (ii) the Prospectus would have
adequately corrected such untrue statement or alleged untrue statement or such
omission or alleged omission or (B) any such Losses arise primarily out of or
are based primarily upon an untrue statement or alleged untrue statement or
omission or alleged omission in the Prospectus, if such untrue statement or
alleged untrue statement, omission or alleged omission is adequately corrected
in an amendment or supplement to the Prospectus (such that there is no longer
any untrue statement of a material fact in the Prospectus or omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading) and if, having previously been furnished by the Company
with copies of the
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<PAGE>
Prospectus as so amended or supplemented on a timely basis, the holder of
Registrable Securities thereafter failed to deliver such Prospectus as so
amended or supplemented prior to or concurrently with the sale of a Registrable
Security to the person asserting such Losses who purchased such Registrable
Security that is the subject thereof from such holder. In the event Registrable
Securities are to be registered in an underwritten offering pursuant to a Demand
Registration, the Company will indemnify, subject to commercially reasonable
terms, the managing underwriter(s) of such offering.
(b) Indemnification by Holder of Registrable Securities. In connection with
---------------------------------------------------
any Registration Statement in which a holder of Registrable Securities is
participating, such holder of Registrable Securities shall furnish to the
Company in writing such information regarding such holder's ownership of
securities of the Company as the Company reasonably requests for use in
connection with any Registration Statement or Prospectus and agrees to indemnify
and hold harmless the Company and its directors, officers, agents and employees,
each Person who controls the Company (within the meaning of Section 15 of the
Securities Act and Section 20 of the Exchange Act), and the directors, officers,
agents or employees of such controlling persons, to the fullest extent lawful,
from and against all Losses (as determined by a court of competent jurisdiction
in a final judgment not subject to appeal or review) arising out of or based
upon any untrue statement of a material fact contained in any Registration
Statement, Prospectus, or form of prospectus, or arising out of or based upon
any omission of a material fact required to be stated therein or necessary to
make the statements therein not misleading to the extent, but only to the
extent, that such untrue statement or omission is contained in any information
so furnished in writing by such holder to the Company expressly for use in such
Registration Statement or Prospectus and that such information was reasonably
relied upon by the Company in preparation of such Registration Statement,
Prospectus or form of prospectus. In no event shall the liability of any selling
holder of Registrable Securities hereunder be greater in amount than the dollar
amount of the proceeds received by such holder upon the sale of the Registrable
Securities giving rise to such indemnification obligation.
(c) Conduct of Indemnification Proceedings. If any Proceeding shall be
--------------------------------------
brought or asserted against any person entitled to indemnity hereunder (an
"Indemnified Party"), such Indemnified Party promptly shall so notify the person
from whom indemnity is sought (the "Indemnifying Party") in writing, and the
Indemnifying Party shall assume the defense thereof, including the employment of
counsel reasonably satisfactory to the Indemnified Party and the payment of all
fees and expenses incurred in connection with the defense thereof; provided,
that the failure of any Indemnified Party to give such notice shall not relieve
the Indemnifying Party of its obligations pursuant to this Agreement, except to
the extent that it shall be finally
17
<PAGE>
determined by a court of competent jurisdiction (which determination is not
subject to appeal or further review) that such failure shall have materially
prejudiced the Indemnifying Party.
Any such Indemnified Party shall have the right to employ separate counsel
in any such action, claim or proceeding and to participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense of
such Indemnified Party or Parties unless: (1) the Indemnifying Party has agreed
to pay such fees and expenses; or (2) the Indemnifying Party shall have failed
promptly to assume the defense of such action, claim or proceeding and to employ
counsel reasonably satisfactory to such Indemnified Party in any such action,
claim or proceeding; or (3) the named parties to any such action, claim or
proceeding (including any impleaded parties) include both such Indemnified Party
and the Indemnifying Party, and such Indemnified Party shall have been advised
in writing by counsel that a conflict of interest may exist if such counsel
represents such Indemnified Party and the Indemnifying Party (in which case, if
such Indemnified Party notifies the Indemnifying Parties in writing that it
elects to employ separate counsel at the expense of the Indemnifying Parties,
the Indemnifying Parties shall not have the right to assume the defense thereof
and such counsel retained by the Indemnified Party shall be at the expense of
the Indemnifying Party), it being understood, however, that, the Indemnifying
Party shall not, in connection with any one such action or proceeding or
separate but substantially similar or related actions or proceedings in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the fees and expenses of more than one separate firm of attorneys (in
addition to any local counsel) at any time for all such Indemnified Parties,
which firm shall be designated in writing by the Indemnified Parties. The
Indemnifying Party shall not be liable for any settlement of any such Proceeding
effected without its written consent, which consent shall not be unreasonably
withheld. No Indemnifying Party shall, without the prior written consent of the
Indemnified Party, effect any settlement of any proceeding unless such
settlement includes an unconditional release of such Indemnified Party from all
liability on claims that are or may be the subject matter of such proceeding.
All fees and expenses of the Indemnified Party (including reasonable fees
and expenses to the extent incurred in connection with investigating or
preparing to defend such action or proceeding in a manner not inconsistent with
this Section 8) shall be paid to the Indemnified Party, as incurred, within 10
Business Days of written notice thereof to the Indemnifying Party (regardless of
whether it is ultimately determined that an Indemnified Party is not entitled to
indemnification hereunder; provided, that the Indemnifying Party may require
--------
such Indemnified Party to undertake to reimburse all such fees and expenses to
the extent it is finally judicially determined that
18
<PAGE>
such Indemnified Party is not entitled to indemnification hereunder).
(d) Contribution. If a claim by an Indemnified Party for indemnification
------------
under Section 8(a) or 8(b) hereof is found unenforceable in a final judgment by
a court of competent jurisdiction (not subject to further appeal) (even though
the express provisions hereof provide for indemnification in such case), then
each applicable Indemnifying Party, in lieu of indemnifying such Indemnified
Party, shall contribute to the amount paid or payable by such Indemnified Party
as a result of such Losses, in such proportion as is appropriate to reflect the
relative fault of the Indemnifying Party and Indemnified Party in connection
with the actions, statements or omissions that resulted in such Losses as well
as any other relevant equitable considerations. The relative fault of such
Indemnifying Party and Indemnified Party shall be determined by reference to,
among other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or omission
or alleged omission of a material fact, has been taken or made by, or relates to
information supplied by, such Indemnifying Party or Indemnified Party, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such action, statement or omission. The amount paid or
payable by a party as a result of any Losses shall be deemed to include, subject
to the limitations set forth in Section 8(c), any legal or other fees or
expenses reasonably incurred by such party in connection with any investigation
or Proceeding.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 8(d) were determined by pro rata
--- ----
allocation or by any other method of allocation that does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 8(d), an Indemnifying Party that
is a holder of Registrable Securities shall not be required to contribute any
amount in excess of the amount by which the total price at which the securities
sold by such Indemnifying Party and distributed to the public
were offered to the public exceeds the amount of any damages that such
Indemnifying Party has otherwise been required to pay by reason of such untrue
or alleged untrue statement or omission or alleged omission. No person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any Person who was not
guilty of such fraudulent misrepresentation.
9. Rule 144.
--------
The Company shall use its best efforts to file the reports required to be
filed by them under the Securities Act and the Exchange Act in a timely manner
and, if at any time the Company is not required to file such reports, it will,
upon the request of any holder of Registrable Securities, make publicly
available
19
<PAGE>
other information so long as necessary to permit sales of their securities
pursuant to Rule 144. The Company further covenants that it will take such
further action as any holder of Registrable Securities may reasonably request,
all to the extent required from time to time to enable such holder to sell
Registrable Securities without registration under the Securities Act within the
limitation of the exemption provided by Rule 144. Upon the request of any holder
of Registrable Securities, the Company shall deliver to such holder a written
statement as to whether it has complied with such requirements. Notwithstanding
the foregoing, nothing in this Section 9 shall be deemed to require the Company
to register any of its securities pursuant to the Exchange Act.
10. Underwritten Registrations.
--------------------------
If any of the Registrable Securities covered by any Demand Registration are
to be sold in an underwritten offering, the investment banker or investment
bankers and manager or managers that will manage the offering will be selected
by the holders of a majority of such Registrable Securities included in such
offering.
No person may participate in any underwritten registration hereunder unless
such Person (a) agrees to sell such person's Registrable Securities on the basis
reasonably provided in any underwriting arrangements approved by the persons
entitled hereunder to approve such arrangements and (b) completes and executes
all questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents reasonably required under the terms of such underwriting
arrangements.
11. Miscellaneous.
-------------
(a) Remedies. In the event of a breach by the Company, or by a holder of
--------
Registrable Securities, of any of their obligations under this Agreement, each
holder of Registrable Securities or the Company, as the case may be, in addition
to being entitled to exercise all rights granted by law, including recovery of
damages, will be entitled to specific performance of its rights under this
Agreement. The Company, and each holder of Registrable Securities, agree that
monetary damages would not be adequate compensation for any loss incurred by
reason of a breach by it of any of the provisions of this Agreement and hereby
further agrees that, in the event of any action for specific performance in
respect of such breach, it shall waive the defense that a remedy at law would be
adequate.
(b) No Inconsistent Agreements. The Company has not entered into, as of
--------------------------
the date hereof, nor shall the Company, on or after the date of this Agreement,
enter into, any agreement with respect to its securities that is inconsistent
with the rights granted to the holders of Registrable Securities in this
Agreement or otherwise conflicts with the provisions hereof.
20
<PAGE>
Except for (i) the Registration Rights Agreement dated October 14, 1994,
pertaining to the Company's 20% Mortgage Notes due 1996 ("Mortgage Notes"), (ii)
the Registration Rights Agreement dated October 14, 1994, pertaining to the
shares of Common Stock issued to the purchasers of the Mortgage Notes, (iii) the
Warrant Shares Registration Rights Agreement dated as of October 8, 1993 by and
among the Company and the purchasers of its 12-1/2% First Mortgage Notes due
2000 (collectively, the "Prior Rights Agreements"), the Company has not
previously entered into any agreement granting to any Person any registration
rights still exercisable on the date hereof with respect to any of its
securities. The rights of the holders of Registrable Securities set forth herein
are subject in all respects to the prior rights, if any, granted to the
purchasers under the Prior Rights Agreements and shall be construed and applied
hereunder so as not to be in conflict or inconsistent with the provisions of the
Prior Rights Agreements. The Purchaser acknowledges that on the date hereof the
Company has entered into registration rights agreements substantially similar to
this Agreement with each other purchaser of its 7 1/2% Convertible Subordinated
Notes due December 31, 1996 being issued on the date hereof, and Purchaser
acknowledges that the rights granted under such agreements are not in conflict
or inconsistent with the provisions of this Agreement. Without limiting the
generality of the foregoing, without the written consent of the holders of a
majority of the then outstanding Registrable Securities, the Company shall not
grant to any person the right to request the Company to register any securities
of the Company under the Securities Act unless the rights so granted are subject
in all respects to the prior rights of the holders of Registrable Securities set
forth herein, and are not otherwise in conflict or inconsistent with the
provisions of this Agreement.
(c) No Piggyback on Registrations. The Company will not, and none of its
-----------------------------
securityholders (other than the holders of Registerable Securities in such
capacity pursuant to the applicable Section hereof) may, include securities of
the Company or such securityholders in any Demand Registration (except to the
extent that the inclusion of such securities by the Company or such
securityholders would not, in the good faith opinion of the managing underwriter
selected by the holders of Registrable Securities, adversely affect the success
of the offering proposed to be made by holders of Registrable Securities).
(d) Amendments and Waivers. The provisions of this Agreement, including the
----------------------
provisions of this sentence, may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may not be given,
unless the Company has obtained the written consent of the holders of a majority
of the then outstanding of Registrable Securities; provided, however, that, for
-------- -------
the purpose of this Agreement, Registrable Securities that are owned, directly
or indirectly, by the Company or an Affiliate of the Company are not deemed
outstanding. Notwithstanding the foregoing, a waiver or consent
21
<PAGE>
to depart from the provisions hereof with respect to a matter that relates
exclusively to the rights of holders of Registrable Securities whose securities
are being sold pursuant to a Registration Statement and that does not directly
or indirectly affect the rights of other holders of Registrable Securities may
be given by holders of a majority of the Registrable Securities being sold by
such holders pursuant to such Registration Statement; provided, however, that
-------- -------
the provisions of this sentence may not be amended, modified, or supplemented
except in accordance with the provisions of the immediately preceding sentence.
(e) Notices. All notices and other communications provided for herein shall
-------
be made in writing by hand-delivery, next-day air courier, certified first-class
mail, return receipt requested, telex or facsimile to:
(i) the intended recipient at the "Address for Notices" specified
below its name on the signature pages hereof, or
(ii) if to any other person who is then the registered holder of any
Registrable Securities, to the address of such holder as it appears in the
stock register of the Company.
Except as otherwise provided in this Agreement, all such communications
shall be deemed to have been duly given: when delivered by hand, if personally
delivered; one business day after being timely delivered to a next-day air
courier; five business days after being deposited in the mail, postage prepaid,
if mailed; when answered back, if telexed; and when receipt is acknowledged by
the recipient's telecopier machine, if telecopied.
(f) Successors and Assigns. This Agreement shall inure to the benefit of
----------------------
and be binding upon the successors and permitted assigns of each of the parties
and shall inure to the benefit of each holder of any Registrable Securities.
The Company may not assign their rights or obligations hereunder without the
prior written consent of each holder of any Registrable Securities.
Notwithstanding the foregoing, no transferee shall have any of the rights
granted under this Agreement until such transferee shall acknowledge its rights
and obligations hereunder by a signed written statement of such transferee's
acceptance of such rights and obligations.
(g) Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and, all of which taken
together shall constitute one and the same Agreement.
22
<PAGE>
(h) Governing Law; Submission to Jurisdiction; Waiver of Jury Trial.
---------------------------------------------------------------
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN
THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. THE
COMPANY HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY NEW YORK STATE
COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK OR ANY FEDERAL
COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK IN RESPECT OF
ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, AND
IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND
UNCONDITIONALLY, JURISDICTION OF THE AFORESAID COURTS. THE COMPANY IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW,
TRIAL BY JURY AND ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING
OF THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH
COURT AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH
COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. NOTHING HEREIN SHALL AFFECT
THE RIGHT OF ANY HOLDER OF A REGISTRABLE SECURITY TO SERVE PROCESS IN ANY MANNER
PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST
THE COMPANY IN ANY OTHER JURISDICTION.
(i) Severability. The remedies provided herein are cumulative and not
------------
exclusive of any remedies provided by law. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their reasonable efforts to find and employ an alternative
means to achieve the same or substantially the same result as that contemplated
by such term, provision, covenant or restriction. It is hereby stipulated and
declared to be the intention of the parties that they would have executed the
remaining terms, provisions, covenants and restrictions without including any of
such that may be hereafter declared invalid, illegal, void or unenforceable.
(j) Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof. All
references made in this Agreement to "Section" or "paragraph" refer to such
Section or paragraph in this Agreement unless expressly stated otherwise.
(k) Attorneys' Fees. In any action or proceeding brought to enforce any
---------------
provision of this Agreement, or where any provision hereof or thereof is validly
asserted as a defense, the prevailing party, as determined by the court, shall
be entitled to recover reasonable attorneys' fees in addition to any other
available remedy.
23
<PAGE>
(l) Termination. Provided at least 50% of the Notes issued on the date
-----------
hereof repaid, redeemed or converted into Shares, this Agreement shall terminate
and be of no further force and effect from and after the earliest of (w) the
date on which 33% or less of the Registrable Securities remain outstanding (x)
with respect to any holder of Registrable Securities, the date on which all of
the Shares held by such holder may be sold pursuant to Rule 144(k), (y) with
respect to
24
<PAGE>
any holder of Registrable Securities, the date on which all of the Shares held
by such holder may be sold in a three-month period pursuant to Rule 144, and (z)
10 years from the date hereof; provided, however, with respect to clauses (x)
-------- -------
and (y) of this subsection 12(1) that this Agreement shall not terminate until
such time as the Company shall have delivered to each of the holders of Shares
an opinion of counsel of the Company stating that the conditions contained in
such clause (x) or (y) have been satisfied.
IN WITNESS WHEREOF, the parties hereto have caused this Registration Rights
Agreement to be duly executed, all as of the day first written above.
ELSINORE CORPORATION
By /s/ Thomas E. Martin
-------------------------------
Thomas E. Martin
President
PURCHASER:
MAGNOLIA PARTNERS, L.P.
By /s/ Harry Hagerty
--------------------------------
Harry C. Hagerty, III,
as General Partner
25
<PAGE>
_________________________________
NOTE PURCHASE AGREEMENT
DATED AS OF MARCH 30, 1995
REGARDING
7-1/2% CONVERTIBLE SUBORDINATED NOTES
DUE DECEMBER 31, 1996
OF
ELSINORE CORPORATION
_________________________________
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
SECTION 1 Sale and Purchase of Notes........................................ 1
SECTION 2 Representations and Warranties of the Company..................... 2
SECTION 3 Representations and Warranties of Purchaser....................... 7
SECTION 4 Conversion........................................................ 8
4.1 Conversion......................................................... 8
4.2 Mechanics of Conversion............................................ 9
a. Surrender, Election and Payment............................... 9
b. Effective Date................................................ 9
c. Share Certificates............................................ 10
d. Acknowledgment of Obligation.................................. 10
e. Payment of Accrued Interest................................... 10
4.3 Current Conversion Price........................................... 10
4.4 Adjustment of Conversion Price..................................... 11
a. Adjustments for Stock Dividends, Recapitalizations, etc....... 11
b. Adjustments for Certain Other
Distributions................................................. 11
c. Adjustments for Issuances of Additional
Stock......................................................... 12
d. Certain Rules in Applying the Adjustment for
Additional Stock Issuances.................................... 13
(i) Cash Consideration..................................... 13
(ii) Non-Cash Consideration................................. 13
(iii) Options, Warrants, Convertibles, etc................... 13
(iv) Number of Shares Outstanding........................... 15
e. Exclusions from the Adjustment for Additional
Stock Issuances............................................... 15
f. Certification................................................. 15
g. Determination of Market Price................................. 15
h. Other Adjustments............................................. 16
i. Meaning of "Issuance"......................................... 16
4.5 Company's Consolidation or Merger................................... 17
4.6 Notice to Holders of Notes.......................................... 17
SECTION 5 Covenants of the Company.......................................... 18
SECTION 6 Defaults.......................................................... 21
SECTION 7 Conditions to the Obligations of Purchaser........................ 24
SECTION 8 Conditions to Obligations of the Company.......................... 27
SECTION 9 Subordination..................................................... 27
9.1 Agreement to Be Bound.............................................. 27
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
9.2 Priority of Senior Indebtedness.................................. 27
9.3 Liquidation; Dissolution; Bankruptcy............................. 28
9.4 No Prejudice or Impairment; Reinstatement........................ 29
9.5 Subrogation...................................................... 30
9.6 Obligations Unaffected........................................... 31
9.7 Definition of Senior Indebtedness................................ 31
SECTION 10 Exchange of Notes; Accrued Interest;Cancellation of Surrendered
Notes; Replacement............................................... 31
SECTION 11 Prepayment...................................................... 33
11.1 Optional Prepayment.............................................. 33
11.2 Change of Control Event.......................................... 34
SECTION 12 Representations and Indemnities to Survive Delivery............. 35
SECTION 13 Notices; Publicity............................................. 35
SECTION 14 Payment of Expenses............................................ 36
SECTION 15 Successors..................................................... 36
SECTION 16 Partial Unenforceability....................................... 36
SECTION 17 Applicable Law................................................. 36
SECTION 18 General........................................................ 37
SECTION 19 Section Headings; Amendment.................................... 37
</TABLE>
ii
<PAGE>
NOTE PURCHASE AGREEMENT dated as of March 30, 1995, by and between
Elsinore Corporation, a Nevada corporation (the "Company"), and Mojave
Partners, L.P., a Delaware limited partnership ("Purchaser").
W I T N E S S E T H:
-------------------
In consideration of the mutual covenants and agreements set forth herein
and for other good and valuable consideration the receipt and sufficiency of
which are hereby acknowledged, the parties agree as follows:
SECTION 1 Sale and Purchase of Notes.
--------------------------
a. The Company agrees to sell to Purchaser and, subject to the terms
and conditions hereof and in reliance upon the representations and warranties of
the Company contained herein, Purchaser agrees to purchase on the Closing Date
(as hereinafter defined), a note or notes in the aggregate principal amount of
$300,000 (collectively, the "Note"). The aggregate purchase price to be paid
to the Company by Purchaser for the Note is 100% of the principal amount of the
Note to be purchased by the Purchaser. All obligations under the Note will be
secured by a pledge of capital stock of Mojave Gaming, Inc., a wholly-owned
subsidiary of the Company, in the manner specified in the Pledge Agreement
attached hereto as Exhibit B ("Pledge Agreement").
b. As used herein, "Notes" means the aggregate of $1,706,250
principal amount of the Company's 7-1/2% Convertible Subordinated Notes Due
December 31, 1996, issued pursuant to the Purchase Agreements (defined in
Section 1(c)), together with all Notes issued in exchange therefor or
replacement thereof. Each of the Notes will be substantially in the form of the
Note set forth as Exhibit A hereto.
c. The Notes are being sold to Purchaser pursuant to this Agreement
and to other purchasers under other agreements dated as of the date hereof
(collectively the "Purchase Agreements"). The sale of Notes to each purchaser
under each Purchase Agreement is a separate sale, the purchasers are not acting
together or as a group for purposes of such purchase and sale and no purchaser
will have any rights or liabilities under any Purchase Agreement other than the
Purchase Agreement to which it is a party.
d. The closing of the purchase and sale of the Notes will take place
at the offices of Pillsbury Madison & Sutro, 235 Montgomery Street, San
Francisco, CA at 10:00 A.M., Pacific Standard time, on March 31, 1995, or such
other time and date as
1
<PAGE>
shall be mutually agreed to by the Company and Purchaser ("Closing Date").
Subject to the terms and conditions hereof, on the Closing Date (i) the Company
will deliver to Purchaser the Note, as set forth on Annex I hereto, in the form
of Exhibit A hereto in the aggregate principal amount of $1,125,000 and (ii)
upon Purchaser's receipt thereof, Purchaser will deliver to the Company a
certified or official bank check or wire transfer in an amount equal to the
purchase price for the Note payable to the order of the Company in federal or
other next day funds.
SECTION 2 Representations and Warranties of the Company.
---------------------------------------------
The Company hereby represents and warrants to Purchaser that:
a. The execution and delivery by the Company of (i) this Agreement,
(ii) the Note and the Pledge Agreement, and (iii) the Registration Rights
Agreement to be executed and delivered by the Company and Purchaser, in the form
attached as Exhibit C hereto ("Registration Rights Agreement") (collectively,
the "Documents"), the performance by the Company of its obligations thereunder,
the issuance, sale and delivery of the Note and the issuance of Common Stock
upon conversion of the Note have been duly authorized by all requisite corporate
action and will not violate any provision of law, any order of any court or
other agency of government, the Certificate of Incorporation or By-laws of the
Company, or any provision of any indenture, agreement or other instrument to
which the Company or any Subsidiary (as defined in Section 2(d)) or any of the
properties or assets of the Company or any Subsidiary is bound, or conflict
with, result in a breach of or constitute (with due notice or lapse of time or
both) a default under any such indenture, agreement or other instrument, or
result in the creation or imposition of any lien, charge or encumbrance of any
nature whatsoever upon any of the properties or assets of the Company or any
Subsidiary. The Company has full corporate power and authority to enter into
the Documents and to perform the transactions contemplated thereby.
b. This Agreement has been duly executed and delivered by the
Company and constitutes the legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, subject, as to
enforcement of remedies, to applicable bankruptcy, insolvency, reorganization,
moratorium and similar laws from time to time in effect affecting the
enforcement of creditors' rights generally and to general equity principles.
The Pledge Agreement and the Note and the Registration Rights Agreement, when
executed and delivered by the Company as provided in this Agreement, will
constitute legal, valid and binding obligations of the Company, enforceable
against the Company in accordance with their terms.
2
<PAGE>
c. A disclosure memorandum containing all material information with
respect to the business, properties, prospects and financial condition of the
Company and its Subsidiaries as of the date hereof has been delivered to
Purchaser (the "Memorandum"). The information contained in the Memorandum is
true and correct in all material respects as of the date of the Memorandum. The
Memorandum does not contain any untrue statement of a material fact nor does it
omit to state a material fact necessary in order to make the statements made, in
light of the circumstances under which they were made.
d. Except as described in the Memorandum, the Company does not own
or control, directly or indirectly, any corporation, association or other
entity. Each corporation, association or other entity described in the
Memorandum as being owned, directly or indirectly, in whole or in part, is
herein referred to as a "Subsidiary" and all such entities together, are herein
referred to as the "Subsidiaries." The Company has been duly incorporated and
is validly existing as a corporation in good standing under the laws of Nevada,
with full power and authority (corporate and other) to own and lease its
properties and conduct its business as described in the Memorandum; each
Subsidiary has been duly and validly incorporated or otherwise formed pursuant
to the laws of its jurisdiction of formation and, if a corporation, limited
liability company or limited partnership, is in good standing under such laws;
each Subsidiary that is a partnership, limited partnership or limited liability
company is a partnership for United States federal income tax purposes; except
as described in the Memorandum, the Company and each Subsidiary is in possession
of and operating in compliance in all material respects with all authorizations,
licenses, permits, consents, certificates and orders material to the conduct of
its business, all of which are valid and in full force and effect; the Company
and each Subsidiary is duly qualified to do business and in good standing as a
foreign corporation or other entity in each jurisdiction in which the ownership
or leasing of properties or the conduct of its business requires such
qualification, except for jurisdictions in which the failure to so qualify would
not have a material adverse effect upon the Company; and except as described in
the Memorandum, no proceeding has been instituted in any such jurisdiction,
revoking, limiting or curtailing, or seeking to revoke, limit or curtail, such
power and authority or qualification.
e. The Company has authorized and outstanding capital stock as set
forth under the heading "Capitalization" in the Memorandum; the issued and
outstanding shares of Common Stock have been duly authorized and validly issued,
are fully paid and nonassessable, have been issued in compliance with all
federal and state securities laws, were not issued in violation of or
3
<PAGE>
subject to any preemptive rights or other rights to subscribe for or purchase
securities, and conform to the description thereof contained in the Memorandum.
The Company's Board of Directors (i) has reserved for issuance upon conversion
of the Notes up to 2 million shares of the Company's authorized and unissued
Common Stock and, (ii) shall, on an ongoing basis until conversion or maturity
of the Notes, keep reserved such number of shares of the Company's authorized
and unissued Common Stock as shall be necessary for issuance upon conversion of
the Notes. Except as disclosed in or contemplated by the Memorandum and the
financial statements of the Company, and the related notes thereto, included in
the Memorandum, neither the Company nor any Subsidiary has outstanding any
options to purchase, or any preemptive rights or other rights to subscribe for
or to purchase, any securities or obligations convertible into, or any contracts
or commitments to issue or sell, shares of its capital stock or any such
options, rights, convertible securities or obligations. The description of the
Company's stock option, stock bonus and other stock plans or arrangements, and
the options or other rights granted and exercised thereunder, set forth in the
Memorandum and the Company's Proxy Statement relating to its 1995 Annual Meeting
of Stockholders accurately and fairly presents all material information with
respect to such plans, arrangements, options and rights.
f. The unaudited consolidated financial statements and schedules of
the Company and its Subsidiaries, and the related notes thereto, included in the
Memorandum present fairly the financial position of the Company and such
Subsidiaries as of the respective dates of such financial statements and
schedules, and the results of operations and changes in financial position of
the Company and such Subsidiaries for the respective periods covered thereby.
Such statements, schedules and related notes have been prepared in accordance
with generally accepted accounting principles applied on a consistent basis.
g. Except as disclosed in the Memorandum, and except as to defaults
that individually or in the aggregate would not be material to the Company,
neither the Company nor any Subsidiary is in violation or default of any
provision of its articles of incorporation or bylaws, or other organization
documents, and is not in breach of or default with respect to any provision of
any agreement, judgment, decree, order, mortgage, deed of trust, lease,
franchise, license, indenture, permit or other instrument to which it is a party
or by which any of its properties are bound; and there does not exist any state
of facts that constitutes an event of default on the part of the Company or any
Subsidiary as defined in such documents or that, with notice or lapse of time or
both, would constitute such an event of default.
4
<PAGE>
h. Except as described in the Memorandum, the contracts described in
the Memorandum, and all other material contracts, instruments, and other
documents evidencing legal rights and obligations of the Company or any
Subsidiary ("Contracts"), are in full force and effect on the date hereof; and,
except as described in the Memorandum, (i) neither the Company nor any
Subsidiary nor, to the best of the Company's knowledge, any other party is in
breach of or default under any Contract where such breach or default would
permit any party to terminate such Contract or could result in other penalties
having a material adverse effect on the Company; (ii) to the best of the
Company's knowledge, no event has occurred that, upon notice or the passage of
time, would cause such a default to occur; and (iii) the Company does not expect
to be unable or expect any Subsidiary to be unable to comply with any material
provision of any Contract.
i. Except as described in the Memorandum, there are no legal or
governmental actions, suits or proceedings pending, threatened in a writing
received by the Company or a Subsidiary or, to the best of the Company's
knowledge, otherwise threatened to which the Company or any Subsidiary is or may
be a party or of which property owned or leased by the Company or any Subsidiary
is or may be the subject, or related to environmental or discrimination matters,
which actions, suits or proceedings might, individually or in the aggregate,
prevent or adversely affect the transactions contemplated by this Agreement or
result in a material adverse change in the condition (financial or otherwise),
properties, business, results of operations or prospects of the Company or any
Subsidiary; and no labor disturbance by the employees of the Company exists or,
to the best of the Company's knowledge, is imminent that might be expected to
affect adversely such condition, properties, business, results of operations or
prospects. Neither the Company nor any Subsidiary is a party or subject to the
provisions of any material injunction, judgment, decree or order of any court,
regulatory body, administrative agency or other governmental body.
j. The Company or a Subsidiary has good and marketable title to all
the properties and assets reflected as owned in the balance sheet dated December
31, 1994, included in the financial statements hereinabove described, subject to
no lien, mortgage, pledge, charge or encumbrance of any kind except (i) those,
if any, reflected in such financial statements, (ii) the Memorandum, or (iii)
those that are not material in amount and do not adversely affect the use made
and proposed to be made of such property by the Company. The Company and each
Subsidiary holds its leased properties under valid and binding leases, with such
exceptions as are not materially significant in relation to the business of the
Company. The Company and each Subsidiary
5
<PAGE>
owns or leases all such properties as are necessary to its operations as now
conducted.
k. Since the date as of which information is given in the
Memorandum, and except as described in or specifically contemplated by the
Memorandum: (i) neither the Company nor any Subsidiary has incurred any
material liabilities or obligations, indirect, direct or contingent, or engaged
in any other transaction that is not in the ordinary course of business or that
could result in a material reduction in the future earnings or liquidity of the
Company; (ii) neither the Company nor any Subsidiary has sustained any material
loss or interference with its business or properties from fire, flood,
windstorm, accident or other calamity, whether or not covered by insurance;
(iii) neither the Company nor any Subsidiary has paid or declared any dividends
or other distributions with respect to its capital stock and the Company is not
in default in the payment of principal or interest on any outstanding debt or
obligations for money borrowed; (iv) there has not been any change in the
capital stock of the Company (other than as a result of the sale of the Note
hereunder) or indebtedness material to the Company (other than in the ordinary
course of business); and (v) there has not been any material adverse change in
the condition (financial or otherwise), business, properties, results of
operations or prospects of the Company or any Subsidiary.
l. Except as disclosed in or specifically contemplated by the
Memorandum, the Company and each Subsidiary has sufficient trademarks, trade
names, patent rights, copyrights, licenses, approvals and governmental
authorities to conduct its businesses as now conducted; the expiration in
accordance with their terms of any trademarks, trade names, patent rights,
copyrights, licenses, approvals or governmental authorizations would not have a
material adverse effect on the condition (financial or otherwise), business,
results of operations or prospects of the Company or any Subsidiary; and except
as described in the Memorandum the Company has no knowledge of any material
infringement by it or its Subsidiaries of trademark, trade name rights, patent
rights, copyrights, licenses, trade secret or other similar rights of others
that has not been resolved, and there is no claim being made against the Company
or any Subsidiary regarding trademark, trade name, patent, copyright, license,
trade secret or other infringement that could have a material adverse effect on
the condition (financial or otherwise), business, results of operations or
prospects of the Company.
m. The Company and each Subsidiary and, to the Company's knowledge,
each employee of the Company or any Subsidiary, acting in that capacity, is
conducting business in compliance with all applicable laws, rules and
regulations of
6
<PAGE>
the jurisdictions in which it or such Subsidiary is conducting business,
including, without limitation, all applicable local, state and federal
environmental laws and regulations, except where failure to be so in compliance
would not materially adversely affect the condition (financial or otherwise),
business, results of operations or prospects of the Company.
n. The Company and the Subsidiaries have filed all necessary
federal, state and foreign income and franchise tax returns and except as
described in the Memorandum, have paid all taxes shown as due thereon; and,
except as described in the Memorandum, the Company has no knowledge of any tax
deficiency that has been or might be asserted or threatened against the Company
or the Subsidiaries that would materially and adversely affect the business,
operations, or properties of the Company.
o. The Company is not an "investment company" within the meaning of
the Investment Company Act of 1940, as amended.
p. The Company and the Subsidiaries maintain insurance of the types
and in the amounts generally deemed adequate for their respective businesses,
including, but not limited to, insurance covering real and personal property
owned or leased by the Company or such Subsidiary against theft, damage,
destruction, acts of vandalism and all other risks customarily insured against,
all of which insurance is in full force and effect.
q. Neither the Company nor any of the Subsidiaries has at any time
during the last five years (i) made any unlawful contribution to any candidate
for foreign office, or failed to disclose fully any contribution in violation of
law or (ii) made any payment to any federal or state governmental officer or
official, or other person charged with similar public or quasi-public duties,
other than payments required or permitted by the laws of the United States of
any jurisdiction thereof.
r. No officer of the Company or any Subsidiary has been determined
to be unsuitable by any gaming regulatory authority nor, to the best of the
Company's knowledge, has any process with a view to any such determination
(other than a routine review of the qualifications of any such person) been
initiated by any such authority.
SECTION 3 Representations and Warranties of Purchaser.
-------------------------------------------
Purchaser hereby represents and warrants to the Company that:
a. Purchaser is a validly existing limited partnership in good
standing under the laws of Delaware.
7
<PAGE>
Purchaser has full power and authority to enter into this Agreement and perform
the transactions contemplated hereby. This Agreement has been duly authorized,
executed and delivered by Purchaser and constitutes a valid and binding
obligation of Purchaser in accordance with its terms.
b. Purchaser is an accredited investor as that term is defined in
Regulation D promulgated under the Securities Act of 1933, as amended (the "1933
Act") and has such knowledge and experience in financial and business matters as
to be capable of evaluating the merits and risks of the purchase of the Note.
The Note is being acquired for Purchaser's own account for investment and not
with a view to, or for resale in connection with, any distribution, and no other
person has or will have any right to acquire any beneficial interest therein.
Purchaser understands and agrees that it must bear the economic risk of an
investment in the Note for an indefinite period of time because the Note not
been registered under the 1933 Act or under the securities laws of any state or
other jurisdiction and, therefore, cannot be resold, pledged, assigned or
otherwise disposed of unless the Note is subsequently registered for sale under
the 1933 Act and the applicable securities laws of such states, or unless an
exemption from registration is available. Purchaser acknowledges that a
restrictive legend will be placed on the Note and each certificate representing
shares of Common Stock issued upon conversion of the Note and a notation shall
be made in the appropriate records of the Company indicating that the Note and
share certificates are subject to restrictions on transfer under the 1933 Act.
Purchaser has received and reviewed the Memorandum. Purchaser acknowledges that
it has had the opportunity to ask questions of and receive answers from the
Company concerning the terms and conditions of the offering described in the
Memorandum, and to obtain any additional information it requested from the
Company.
SECTION 4 Conversion.
----------
4.1 Conversion.
----------
a. The holder of a Note shall have the right, at the option of such
holder, at any time to convert, subject to the terms and provisions of this
Section 4, the unpaid principal amount of the Note or any portion thereof, in
minimum increments of $1,000, and any accrued and unpaid interest on such Note,
into fully paid and non-assessable shares of Common Stock of the Company or any
capital stock or other securities into which such Common Stock shall have been
changed or any capital stock or other securities resulting from a
reclassification thereof ("Shares"). Such conversion of a Note to Shares shall
be made at an amount per Share (of principal of such Note and/or of accrued and
unpaid interest if specified by the holder) which is
8
<PAGE>
equal to the then current conversion price, as further described below. Every
Note shall continue to be convertible, in whole or in part, even though the
Company or a holder may have given notice of prepayment with respect to such
Note or any part thereof pursuant to Section 11 hereof, so long as such Note and
the holder's election to convert shall have been delivered to the Company
pursuant to Section 4.2(a) hereof prior to the date fixed for such prepayment.
b. For convenience, the conversion pursuant to this Section 4 of all
or a portion of the principal amount of a Note (and/or of accrued and unpaid
interest if elected by the holder) into Shares is herein sometimes referred to
as the "conversion" of the Note. For purposes of this Section 4, "Business Day"
means any day other than a Saturday, Sunday or legal holiday, on which banks in
the location of the office of the Company identified in Section 13 are open for
business.
4.2 Mechanics of Conversion.
-----------------------
a. Surrender, Election and Payment. The then unpaid principal
-------------------------------
amount of each Note (and/or any accrued and unpaid interest on such Note) may be
converted by the holder thereof, in whole or in part, during normal business
hours on any Business Day by surrender of the Note, accompanied by written
evidence of the holder's election to convert the Note or portion thereof, to the
Company at its office designated in Section 13 hereof (or, if such conversion is
in connection with an underwritten public offering of Shares, at the location at
which the underwriting agreement requires that such Shares be delivered).
Payment of the conversion price for the Shares specified in such election shall
be made by applying an aggregate amount of principal of the Note and/or, if
elected by the holder, of accrued and unpaid interest equal to the amount
obtained by multiplying (i) the number of Shares specified in such election by
(ii) the then current conversion price. Such holder shall thereupon be entitled
to receive the number of Shares specified in such election rounded to the
nearest whole share.
b. Effective Date. Each conversion of a Note pursuant to Section
--------------
4.2(a) hereof shall be deemed to have been effected immediately prior to the
close of business on the Business Day on which such Note shall have been
surrendered to the Company as provided in Section 4.2(a) hereof (except that if
such conversion is in connection with an underwritten public offering of Shares,
then such conversion shall be deemed to have been effected upon such surrender),
and such conversion shall be at the current conversion price in effect at such
time. On each such day that the conversion of a Note is deemed effected, the
person or persons in whose name or names any certificate or certificates for
Shares are issuable upon such conversion, as
9
<PAGE>
provided in Section 4.2(c) hereof, shall be deemed to have become the holder or
holders of record thereof.
c. Share Certificates. As promptly as practicable after the
------------------
conversion of a Note, in whole or in part, and in any event within five Business
Days thereafter (unless such conversion is in connection with an underwritten
public offering of Shares, in which event concurrently with such conversion),
the Company at its expense (including the payment by it of any applicable issue,
stamp or other taxes, other than any income taxes) will cause to be issued in
the name of and delivered to the holder thereof, or as such holder may direct, a
certificate or certificates for the number of Shares to which such holder shall
be entitled upon such conversion.
d. Acknowledgment of Obligation. The Company will, at the time of
----------------------------
or at any time after each conversion of a Note, upon the request of the holder
thereof or of any Shares issued upon such conversion, acknowledge in writing its
continuing obligation to afford to such holder all rights to which such holder
shall continue to be entitled under the Documents; provided, that if any such
holder shall fail to make any such request, the failure shall not affect the
continuing obligation of the Company to afford such rights to such holder.
e. Payment of Accrued Interest. Within five Business Days after
---------------------------
receipt of any Note and an election to convert all or a portion of the principal
amount of such Note under Section 4.2(a) hereof, the Company will pay to the
holder of such Note any unpaid interest, accrued to the date of conversion of
such Note, on the principal amount so converted, except to the extent that the
amount of such interest has also been converted into Shares.
4.3 Current Conversion Price.
------------------------
The term "conversion price" shall mean initially the lower of $1.125
or the average of the daily closing prices for the Common Stock for the 5
consecutive trading days immediately prior to the Closing Date, subject to
adjustment as set forth in Section 4.4. For purposes of determining the initial
conversion price described in the preceding sentence, the "closing price" for
each day shall be the last reported sale price regular way or, in case no such
sale takes place on such day, the average of the closing bid and asked prices
regular way, in either case as reported by the American Stock Exchange. The
term "current conversion price" as used herein shall mean the conversion price,
as the same may be adjusted from time to time as hereinafter provided, in effect
at any given time. In determining the current conversion price, the result
shall be expressed to the nearest $0.01, but any such lesser amount shall be
carried
10
<PAGE>
forward and shall be considered at the time of (and together with) the next
subsequent adjustment which, together with any adjustments to be carried
forward, shall amount to $0.01 per Share or more.
4.4 Adjustment of Conversion Price.
------------------------------
The conversion price shall be subject to adjustment, from time to
time, as follows:
a. Adjustments for Stock Dividends, Recapitalizations, etc. In case
--------------------------------------------------------
the Company shall, after the Closing Date, (i) pay a stock dividend or make a
distribution (on or in respect of its Common Stock) in shares of its Common
Stock, (ii) subdivide the outstanding shares of its Common Stock, (iii) combine
the outstanding shares of its Common Stock into a smaller number of shares, or
(iv) issue by reclassification of shares of its Common Stock, any shares of
capital stock of the Company, then, in any such case, the current conversion
price in effect immediately prior to such action shall be adjusted to a price
such that if the holder of a Note were to convert such Note in full immediately
after such action, such holder would be entitled to receive the number of shares
of capital stock of the Company which the holder would have owned immediately
following such action had such Note been converted immediately prior thereto
(with any record date requirement being deemed to have been satisfied), and, in
any such case, such conversion price shall thereafter be subject to further
adjustments under this Section 4. An adjustment made pursuant to this Section
4.4(a) shall become effective retroactively immediately after the record date in
the case of a dividend or distribution and shall become effective immediately
after the effective date in the case of a subdivision, combination or
reclassification.
b. Adjustments for Certain Other Distributions. In case the Company
-------------------------------------------
shall, after the Closing Date, fix a record date for the making of a
distribution to holders of its Common Stock (including any such distribution
made in connection with a consolidation or merger in which the Company is the
continuing corporation) of (i) assets (other than cash dividends paid out of
retained earnings of the Company (determined under generally accepted accounting
principles consistently applied)), (ii) evidences of indebtedness or other
securities (except for its Common Stock) of the Company or of any entity other
than the Company, or (iii) subscription rights, options or warrants to purchase
any of the foregoing assets or securities, whether or not such rights, options
or warrants are immediately exercisable (all such distributions referred to in
clauses (i), (ii) and (iii) being hereinafter collectively referred to as
"Distributions on Common Stock"), the Company shall set aside in an escrow
reasonably acceptable to the holders of Notes, and suitably invested for the
11
<PAGE>
benefit of the holders of Notes, the Distribution on Common Stock to which they
would have been entitled if they had converted all of the Notes held by them for
the Company's Common Stock immediately prior to the record date for the purpose
of determining stockholders entitled to receive such Distribution on Common
Stock and any such Distribution on Common Stock (together with any earnings
while escrowed) shall thereafter be distributed from time to time out of such
escrow to persons converting Notes (immediately upon conversion).
c. Adjustments for Issuances of Additional Stock. Subject to the
---------------------------------------------
exceptions referred to in Section 4.4(e) hereof, in case the Company shall at
any time or from time to time after the Closing Date issue any additional shares
of Common Stock ("Additional Common Stock"), for a consideration per share
either (I) less than the then current Market Price per share of the Common Stock
(determined as provided in Section 4.4(g) hereof), immediately prior to the
issuance of such Additional Common Stock, or (II) without consideration, then
(in the case of either clause (I) or (II)), and thereafter successively upon
each such issuance, the current conversion price shall forthwith be reduced to a
price equal to the price determined by multiplying such current conversion price
by a fraction, of which:
(a) the numerator shall be (i) the number of shares of the
Company's Common Stock outstanding when the then current conversion
price became effective plus (ii) the number of shares of Common Stock
which the aggregate amount of consideration, if any, received by the
Company upon all issuances of Common Stock, since the current
conversion price became effective (including the consideration, if
any, received for such Additional Common Stock) would purchase at the
then current Market Price per share of the Common Stock, and
(b) the denominator shall be (i) the number of shares of Common
Stock outstanding when the current conversion price became effective
plus (ii) the number of shares of Common Stock issued since the
current conversion price became effective (including the number of
shares of such Additional Common Stock);
provided, however, that such adjustment shall be made only if such
adjustment results in a current conversion price less than the current
conversion price in effect immediately prior to the issuance of such
Additional Common Stock. The Company may, but shall not be required to,
make any adjustment of the current conversion price if the amount of such
adjustment shall be less than one percent of the current conversion price
immediately prior to such adjustment, but any adjustment that would
otherwise be
12
<PAGE>
required then to be made which is not so made shall be carried forward and
shall be made at the time of (and together with) the next subsequent
adjustment which, together with any adjustments so carried forward, shall
amount to not less than one percent of the current conversion price
immediately prior to such adjustment.
d. Certain Rules in Applying the Adjustment for Additional Stock
-------------------------------------------------------------
Issuances. For purposes of any adjustment as provided in Section 4.4(c) hereof,
- ---------
the following provisions shall also be applicable:
(i) Cash Consideration. In case of the issuance of Additional
------------------
Common Stock for cash, the consideration received by the Company therefor
shall (subject to the last sentence of Section 4.4(g) hereof) be deemed to
be the aggregate consideration paid by the persons to whom such Additional
Common Stock is issued.
(ii) Non-Cash Consideration. In case of the issuance of
----------------------
Additional Common Stock for a consideration other than cash, or a
consideration a part of which shall be other than cash, the amount of the
consideration other than cash so received or to be received by the Company
shall be deemed to be the value of such consideration at the time of its
receipt by the Company as determined in good faith by the Board of
Directors of the Company, except that where the non-cash consideration
consists of the cancellation, surrender or exchange of outstanding
obligations of the Company (or where such obligations are otherwise
converted into shares of Common Stock), the value of the non-cash
consideration shall be deemed to be the principal amount of, and any and
all interest relating to, the obligations cancelled, surrendered,
satisfied, exchanged or converted. If the Company receives consideration,
part or all of which consists of publicly traded securities (i.e., in lieu
of cash), the value of such non-cash consideration shall be the aggregate
market value of such securities (based on the latest reported sale price
regular way) as of the close of the day immediately preceding the date of
their receipt by the Company.
(iii) Options, Warrants, Convertibles, etc. In case of the
-------------------------------------
issuance, whether by distribution or sale to holders of its Common Stock or
to others, by the Company of (i) any security (other than the Notes) that
is convertible into Common Stock or (ii) any rights, options or warrants to
purchase Common Stock (except as stated in Section 4.4(e) hereof), if
inclusion thereof in calculating adjustments under this Section 4.4 would
result in a current conversion price lower than if excluded, the Company
shall be deemed
13
<PAGE>
to have issued, for the consideration described below, the number of shares
of Common Stock into which such convertible security may be converted when
first convertible, or the number of shares of Common Stock deliverable upon
the exercise of such rights, options or warrants when first exercisable, as
the case may be (and such shares shall be deemed to be Additional Common
Stock for purposes of Section 4.4(c) hereof). The consideration deemed to
be received by the Company at the time of the issuance of such convertible
securities or such rights, options or warrants shall be the consideration
so received determined as provided in Section 4.4(d)(i) and (ii) hereof,
plus (x) any consideration or adjustment payment to be received by the
Company in connection with such conversion and, as applicable, (y) the
aggregate price at which shares of Common Stock are to be delivered upon
the exercise of such rights, options or warrants when first exercisable
(or, if no price is specified and such shares are to be delivered at an
option price related to the market value of the subject Common Stock an
aggregate option price bearing the same relation to the market value of the
subject Common Stock at the time such rights, options or warrants were
granted). If, subsequently, (1) such number of shares into which such
convertible security is convertible, or which are deliverable upon the
exercise of such rights, options or warrants, is increased or (2) the
conversion or exercise price of such convertible security, rights, options
or warrants is decreased, then the calculations under the preceding two
sentences (and any resulting adjustment to the current conversion price
under Section 4.4(c) hereof) with respect to such convertible security,
rights, options or warrants, as the case may be, shall be recalculated as
of the time of such issuance but giving effect to such changes (but any
such recalculation shall not result in the current conversion price being
higher than that which would be calculated without regard to such
issuance). On the expiration or termination of such rights, options or
warrants, or rights to convert, the conversion price hereunder shall be
readjusted (up or down as the case may be) to such current conversion price
as would have been obtained had the adjustments made with respect to the
issuance of such rights, options, warrants or convertible securities been
made upon the basis of the delivery of only the number of shares of Common
Stock actually delivered upon the exercise of such rights, options or
warrants or upon the conversion of any such securities and at the actual
exercise or conversion prices (but any such recalculation shall not result
in the current conversion price being higher than that which would be
calculated without regard to such issuance).
14
<PAGE>
(iv) Number of Shares Outstanding. The number of shares of
----------------------------
Common Stock as at the time outstanding shall exclude all shares of Common
Stock then owned or held by or for the account of the Company but shall
include the aggregate number of shares of Common Stock at the time
deliverable in respect of the convertible securities, rights, options and
warrants referred to in Section 4.4(d)(3) and 4.4(e) hereof; provided, that
to the extent that such rights, options, warrants or conversion privileges
are not exercised, such shares of Common Stock shall be deemed to be
outstanding only until the expiration dates of the rights, warrants,
options or conversion privileges or the prior cancellation thereof.
e. Exclusions from the Adjustment for Additional Stock Issuances.
-------------------------------------------------------------
No adjustment of the current conversion price under Section 4.4(c) hereof shall
be made as a result of or in connection with:
(i) the issuance of the Notes, any Shares upon conversion of the
Notes or the issuance of any shares of Common Stock pursuant to Section
6(c) hereof; or
(ii) the issuance of Common Stock to officers, directors or
employees of the Company or any Subsidiary, or the grant to or exercise by
any such persons of options to purchase Common Stock, under bona fide
employee benefit plans, or pursuant to an employment agreement or
consulting agreement, which plan or agreement has been adopted or approved
by the Board of Directors of the Company and, when required by law,
approved by the holders of Common Stock (but only to the extent that the
aggregate number of shares excluded hereby and issued pursuant to such
plans and agreements shall not at any time exceed 15% of the Common Stock
outstanding).
f. Certification. Whenever the current conversion price is adjusted
-------------
as provided in this Section 4.4, the Company will promptly obtain a certificate
of the Company's President or Chief Financial Officer setting forth the current
conversion price as so adjusted, the computation of such adjustment and a brief
statement of the facts accounting for such adjustment, and will mail to the
holders of the Notes a copy of such certificate.
g. Determination of Market Price. For the purpose of any
-----------------------------
computation under this Section 4, the current "Market Price" per share of the
Common Stock on any date shall be deemed to be the average of the daily closing
prices for the 10 consecutive trading days before such date (subject to the last
sentence of this Section 4.4(g)). The closing price for each day shall be the
last reported sale price regular way or, in case no
15
<PAGE>
such sale takes place on such day, the average of the closing bid and asked
prices regular way, in either case on the principal national securities exchange
on which the Company's Common Stock is listed or admitted to trading, or if the
Common Stock is not listed or admitted to trading on any national securities
exchange, the average of the highest reported bid and lowest reported asked
prices as furnished by the National Association of Securities Dealers Inc.,
Automated Quotation System. If the closing price cannot be so determined, then
the Market Price shall be determined (x) by the written agreement of the Company
and the holders of Notes representing a majority of the Shares then obtainable
from the conversion of outstanding Notes, or (y) in the event that no such
agreement is reached within 20 days after the event giving rise to the need to
determine the Market Price, by the agreement of two arbitrators, one of whom
shall be selected by the Company and the other of whom shall be selected by such
majority holders or (z) if the two arbitrators so selected fail to agree within
20 days, by a third arbitrator selected by the mutual agreement of the other two
(with all costs and expenses of any arbitrators to be paid by the Company). The
Company shall cooperate, and shall provide all necessary information and
assistance, to permit any determination under the preceding clauses (x), (y) or
(z). If the Company conducts an underwritten public offering of the Company's
Common Stock which is conducted in compliance with any applicable agreements,
and if such public offering either raises at least $3 million of net proceeds to
the Company and/or selling shareholders thereunder or was initiated under the
Registration Rights Agreement at the demand of a holder of Notes or of Shares,
then for purposes of Section 4.4(c) hereof the Company shall be deemed to have
issued such shares of its Common Stock sold in such underwritten public offering
for a consideration per share equal to the then current Market Price per share.
h. Other Adjustments. In case any event shall occur as to which any
-----------------
of the provisions of this Section 4.4 are not strictly applicable but the
failure to make any adjustment would not fairly protect the conversion rights
represented by the Notes in accordance with the essential intent and principles
of this Section 4.4, then, in each such case, the Company shall request its
independent public accountants to render an opinion upon the adjustment, if any,
on a basis consistent with the essential intent and principles established in
this Section 4.4, necessary to preserve, without dilution, the conversion rights
represented by the Notes. Upon receipt of such opinion, the Company will
promptly mail copies thereof to the holders of the Notes and shall make the
adjustments described therein.
i. Meaning of "Issuance". References in this Agreement to
---------------------
"issuances" of stock by the Company include
16
<PAGE>
issuances by the Company of previously unissued shares and issuances or other
transfers by the Company of treasury stock.
4.5 Company's Consolidation or Merger.
---------------------------------
Without limiting the covenants of the Company contained in Section 5
hereof, if the Company shall at any time consolidate with or merge into another
corporation (where the Company is not the continuing corporation after such
merger or consolidation), or the Company shall sell, transfer or lease all or
substantially all of its assets, or the Company shall change its Shares into
property other than capital stock, then, in any such case, the holder of a Note
shall thereupon (and thereafter) be entitled to receive, upon the conversion of
such Note in whole or in part, the securities or other property to which (and
upon the same terms and with the same rights as) a holder of the number of
Shares deliverable upon conversion of such Note would have been entitled if such
conversion had occurred immediately prior to such consolidation or merger, such
sale of assets or such change, and such conversion rights shall thereafter
continue to be subject to further adjustments under this Section 4. The Company
shall take such steps in connection with such consolidation or merger, such sale
of assets or such change as may be necessary to assure such holder that the
provisions of the Notes and this Agreement shall thereafter be applicable in
relation to any securities or property thereafter deliverable upon the
conversion of the Notes, including, but not limited to, obtaining a written
obligation to supply such securities or property upon such conversion and to be
so bound by the Notes.
4.6 Notice to Holders of Notes.
--------------------------
In case at any time
a. the Company shall take any action which would require an
adjustment in the current conversion price pursuant to Section 4.4(a), (c) or
(h); or
b. the Company shall authorize the granting to the holders of its
Common Stock of any Distributions on Common Stock as set forth in Section
4.4(b); or
c. there shall occur any Change of Control Event (as defined in
Section 11.2);
then, in any one or more of such cases, the Company shall give written notice to
the holders of the Notes, not less than 20 days before any record date or other
date set for definitive action, of the date on which such action, distribution,
reorganization, reclassification, change, sale, transfer, lease, consolidation,
merger, dissolution, liquidation or winding-up shall take place,
17
<PAGE>
as the case may be. Such notice shall also set forth such facts as shall
indicate the effect of any such action (to the extent such effect may be known
at the date of such notice) on the current conversion price and the kind and
amount of the shares and other securities and property deliverable upon
conversion of the Notes. Such notice shall also specify any date as of which
the holders of the Common Stock of record shall be entitled to exchange their
Common Stock for securities or other property deliverable upon any such
reorganization, reclassification, change, sale, transfer, lease, consolidation,
merger, dissolution, liquidation or winding-up, as the case may be.
SECTION 5 Covenants of the Company.
------------------------
The Company covenants and agrees with Purchaser as follows:
a. The Company shall use its best efforts to cause the consummation
of the transactions contemplated hereby in accordance with the terms and
conditions set forth in the Documents.
b. Until the later of the date that all Notes are paid in full or
converted into Shares or December 31, 1996, the Company will furnish to the
holder(s) of the Note and the Shares: (i) concurrent with distribution to the
Company's stockholders, copies of the Annual Report of the Company containing
the balance sheet of the Company as of the close of such fiscal year and
statements of income, stockholders' equity and cash flows for the year then
ended and the opinion thereon of the Company's independent public accountants;
(ii) as soon as practicable after the filing thereof, copies of each proxy
statement, Annual Report on Form 10-K, Quarterly Report on Form 10-Q, Report on
Form 8-K or other report filed by the Company with the Commission, the NASD or
any securities exchange; and (iii) concurrent with distribution to the Company's
stockholders, copies of any report or communication of the Company mailed
generally to holders of its Common Stock.
c. The Company will use its best efforts to cause the Common Stock
to continue to be listed on the American Stock Exchange or to become listed on
the New York Stock Exchange or designated for quotation as a national market
system security on the National Association of Securities Dealers, Inc.
Automated Quotation System.
d. Until the earlier of (i) December 31, 1996, (ii) prepayment or
repayment of all principal and interest due under the Note, or (iii) the date on
which, following a conversion of the Note in accordance with Section 4 hereof,
Purchaser ceases
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to be the record holder of 50% or more of the Shares issued upon such
conversion:
(i) Upon the written request of Purchaser delivered to the
Company, the Company will take the actions necessary to appoint to the
Board of Directors of the Company a person designated by Purchaser;
(ii) The Company will grant Purchaser, on an ongoing basis, (a)
reasonable access to its books and records, (b) the right to meet with and
call meetings of Company management, (c) the right to attend, or have its
advisors or representatives attend, and address meetings of the Board of
Directors of the Company; the Company shall effect promptly the changes in
executive officer positions described in the "Management" section of the
Memorandum;
(iii) The Company will promptly advise Purchaser of any event
that represents a material adverse change in its business, properties or
financial condition and of any suit or proceeding commenced or threatened
against the Company, which, if adversely determined, could result in such a
material adverse change; and the Company will promptly advise Purchaser of
the outcome of or any material developments in currently pending
litigation;
(iv) The Company will advise Purchaser on a weekly basis of all
cash payments of $50,000 or more made by the Company or any Subsidiary to
any person, group or entity during that week and any payments made to any
person, group or entity over the previous four-week period that total
$50,000 or more;
(v) All proceeds to the Company from any future debt or equity
financings by the Company, up to a $5 million aggregate maximum, will be
deposited by the Company in an escrow account with such escrow agent and
pursuant to such escrow instructions as shall be mutually agreed by the
Company and Purchaser at the time of such financings. The proceeds from
such financings will be used solely for payment of principal and interest
due under the Company's 12.5% First Mortgage Notes due 2000 (the "First
Mortgage Notes") and under the Company's 20% Mortgage Notes due 1996 (the
"Mortgage Notes") and for payment of amounts, adjustments and assessments
due under the IRS Assessment (as defined in the Memorandum).
e. Until the later of the date that all Notes are paid in full or
converted into Shares or December 31, 1996, the holder(s) of the Note and/or the
Shares shall have the right to purchase such holder's Proportionate Percentage
of any future
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<PAGE>
Eligible Offering. For the purposes of this Section 5(e), "Proportionate
Percentage" means, with respect to such holder, as of any date, the result
(expressed as a percentage) obtained by dividing (i) the number of Shares owned
by such holder as of such date plus the number of Shares into which such
holder's Note as of such date would be convertible; by (ii) the total number of
shares of Common Stock outstanding as of such date. "Eligible Offering" means
an offer by the Company to sell for cash, shares of Common Stock or any security
convertible into or exchangeable for, or carrying rights or options to purchase,
shares of Common Stock, other than an offering of securities by the Company (i)
to employees, officers and/or directors in connection with or pursuant to any
bona fide employee benefit or compensation plan or pursuant to an employment or
consulting agreement, which plan or agreement has been adopted or approved by
the Board of Directors of the Company; or (ii) in connection with any Change of
Control Event (as defined in Section 11.2). The Company shall, before issuing
any securities pursuant to an Eligible Offering, give written notice thereof to
the holders of the Note and/or the Shares. Such notice shall specify the
security or securities the Company proposes to issue and the consideration that
the Company intends to receive therefor. For a period of 20 days following the
date of such notice, each holder shall be entitled, by written notice to the
Company, to elect to purchase all or any part of the holder's Proportionate
Percentage of the securities being sold in the Eligible Offering. In the event
that a holder does not make the election pursuant to this Section 5(e) to
purchase its Proportionate Percentage of securities included in an Eligible
Offering within such 20 day period, then the Company may issue such securities
to the proposed purchasers in the Eligible Offering, but only for a
consideration payable in cash not less than, and otherwise on terms no more
favorable to such purchasers than, that set forth in the Company's notice and
only within 90 days after the end of such 20 day period. In the event that any
such offer is accepted by the holder, the Company shall sell to the holder and
the holder shall purchase from the Company, for the consideration and on the
terms set forth in the notice described herein, the securities that the holder
shall have elected to purchase.
f. The net proceeds received by the Company from the sale of the
Notes will not be used by the Company to fund expenditures for, or contracts for
expenditures with respect to, any fixed assets or improvements, or for
replacements, substitutions or additions thereto, or to fund any expenditures
with respect to any lease to which the Company or a Subsidiary is party as
lessee, or by which it is bound, under which it leases any property (real,
personal or mixed) from any lessor other than the Company or a Subsidiary, and
which either is required to be capitalized in accordance with generally accepted
accounting principles, or, even if not so required to be
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<PAGE>
capitalized, shall have (or have had), at the time first entered into, an
initial term of greater than three years (including leases of shorter duration
which are or were extendible to a total term greater than three years at the
option of the lessor.
g. For so long as any of the Notes are outstanding, the Company will
maintain an office where Notes may be presented for payment, exchange, or
conversion as provided in this Agreement. Such office initially shall be the
office of the Company identified in Section 13 hereof, which place may from time
to time be changed by notice to the holders of all Notes then outstanding.
SECTION 6 Defaults.
--------
a. Any of the following shall constitute an "Event of Default":
(i) the Company defaults in the payment of (A) any part of the
principal of or premium, if any, on any of the Notes, when the same shall
become due and payable, whether at maturity or at a date fixed for
prepayment or by acceleration or otherwise or (B) the interest on any of
the Notes, when the same shall become due and payable; and such default in
the payment of principal, premium or interest shall have continued for 15
days; or
(ii) an "Event of Default" as such term is defined under the
First Mortgage Notes, or the Mortgage Notes or a payment default under the
IRS Assessment and such default continues unremedied for 15 days; or
(iii) the Company defaults in the performance of any of the
covenants contained in Section 5 hereof or of any covenant contained in the
Pledge Agreement or Registration Rights Agreement and such default
continues unremedied for 30 days; or
(iv) any representation or warranty by the Company in the
Documents or in any certificate delivered by the Company pursuant thereto
proves to have been incorrect in any material respect when made; or
(v) a final judgment or order (other than with respect to the
WARN Act Litigation described in the Memorandum) which, either alone or
together with other final judgments or orders against the Company and its
Subsidiaries, exceeds an aggregate of $1 million is rendered by a court of
competent jurisdiction against the Company or any Subsidiary and such
judgment or order shall have
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<PAGE>
continued undischarged or unstayed for 30 days after entry thereof; or
(viii) the Company or any Subsidiary make an assignment for the
benefit of creditors, or admit in writing its inability to pay its debts;
or a receiver or trustee is appointed for the Company or any Subsidiary or
for substantially all of its assets and, if appointed without its consent,
such appointment is not discharged or stayed within 30 days; or proceedings
under any law relating to bankruptcy, insolvency or the reorganization or
relief of debtors are instituted by or against the Company or any
Subsidiary, and, if contested by it, are not dismissed or stayed within 30
days; or any writ of attachment or execution or any similar process is
issued or levied against the Company or any Subsidiary or any significant
part of its property and is not released, stayed, bonded or vacated within
30 days after its issue or levy; or the Company or any Subsidiary takes
corporate action in furtherance of any of the foregoing.
b. If an Event of Default occurs, then and in each such event
Purchaser may at any time (unless all Events of Default shall theretofore have
been waived or remedied) at its option, by written notice to the Company,
declare the Note to be due and payable. Upon any such declaration, the Note
shall forthwith immediately mature and become due and payable, together with
interest accrued thereon and an "Additional Amount" (as defined below), all
without presentment, demand, protest or notice, all of which are hereby waived.
"Additional Amount" shall mean, with respect to any Note, as of the date of
repayment of such Note after such acceleration, an amount equal to the
Redemption Premium that would be payable if the Company had elected to prepay
such Note pursuant to Section 11 hereof at the time of such repayment. However,
if, at any time after the principal of the Note shall so become due and payable
and prior to the date of maturity stated in the Note, all arrears of principal
and interest on the Note (with interest at the rate specified in the Note on any
overdue principal and any overdue premium and, to the extent legally
enforceable, on any overdue interest) shall be paid to the holders of the Note
by or for the account of the Company, then Purchaser, by written notice or
notices to the Company, may waive such Event of Default and its consequences and
rescind or annul such declaration, but no such waiver shall extend to or affect
any subsequent Event of Default or impair any right or remedy resulting
therefrom.
c. If an Event of Default occurs, then and in each such event and in
addition to the foregoing rights, Purchaser shall have the right to:
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<PAGE>
(i) purchase from the Company shares of the Company's authorized
but unissued Common Stock at a per share price equal to 75% of the Market
Price on the date of the Event of Default; provided that, the number of
shares of Common Stock that Purchaser shall be entitled to purchase
pursuant to this Section 6(c) shall not exceed the quotient obtained by
dividing $3 million by such per share purchase price; and
(ii) cause the Company to take such action as may be required to
cause one additional director designated by Purchaser to be appointed to
the Board of Directors of the Company.
Upon the occurrence of an Event of Default, Purchaser may elect to purchase the
shares of Common Stock described in this Section 6(c) by delivering written
notice to the Company of such election and a description of the cash payment
terms and the timetable for closing the issue and purchase of such shares. The
cash payment terms and the closing date for such purchase shall be within the
sole discretion of Purchaser which terms and date shall be reasonable. The
Company shall effect the issuance and sale of such shares promptly in accordance
with the schedule identified by Purchaser in such notice.
d. In case any one or more Events of Default shall occur and be
continuing,
(i) Purchaser may proceed to protect and enforce its rights by an
action at law, suit in equity or other appropriate proceeding, whether for
the specific performance of any agreement contained in the Documents or for
an injunction against a violation of any of the terms thereof, or in aid of
the exercise of any power granted thereby or by law or for any other remedy
(including, without limitation, damages), and
(ii) the Company will pay to Purchaser in addition to any
interest or premium otherwise required, such further amount as shall be
sufficient to cover any and all costs and expenses of enforcement and
collection, including, without limitation, reasonable attorneys' fees and
expenses.
e. Purchaser shall, in addition to other remedies provided by law,
have the right and remedy to have the provisions of the Documents specifically
enforced by any court having equity jurisdiction, it being acknowledged and
agreed that any breach or threatened breach of the provisions of the Documents
will cause irreparable injury to Purchaser and that money damages will not
provide an adequate remedy. Nothing contained herein shall be construed as
prohibiting Purchaser from pursuing any other
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<PAGE>
remedies available to Purchaser for such breach or threatened breach, including,
without limitation, the recovery of damages from the Company.
SECTION 7 Conditions to the Obligations of Purchaser.
------------------------------------------
The obligations of Purchaser to purchase and pay for the Note on the
Closing Date shall be subject to the following conditions:
a. The Company's independent public accountants, KPMG Peat Marwick,
LLP, shall have completed the audit of the Company's financial statements for
the year ended December 31, 1994, copies of such audited financial statements
shall have been delivered to Purchaser and such audit shall have revealed no
material changes in the financial condition of the Company from the financial
condition presented in the unaudited financial statements for the same period
included in the Memorandum;
b. There shall not have been instituted by or against the Company or
any Subsidiary proceedings under any law relating to bankruptcy, insolvency or
reorganization or relief of debtors, nor shall the Company or any Subsidiary
have made a general assignment for the benefit of creditors, admitted in writing
its inability to pay its debts as they mature, appointed or had appointed for it
a receiver or trustee, or had any writ of attachment or execution or any similar
process issued or levied against it; no such matters shall be threatened or
pending nor shall the Company or any Subsidiary have taken any corporate action
in furtherance of any of the foregoing;
c. There shall be no investigation, action, suit or proceeding at
law or in equity or by or before any governmental instrumentality or other
agency pending or threatened against the Company or any officer, director or key
employee of the Company other than as disclosed in the Memorandum;
d. The Company will hold in good standing all licenses, permits and
grants of authority from the Nevada Gaming Commission, the Nevada State Gaming
Control Board, the National Indian Gaming Commission (collectively, the "Gaming
Authorities") and any other federal, state or local agency or authority
necessary for the operation of its business and properties; except as disclosed
in the Memorandum, no revocations or terminations of such licenses, permits,
authority or approvals shall be pending or threatened nor shall the Company be
aware of any facts or circumstances that would give rise to any such revocation
or termination;
e. All approvals, consents, permits and authorizations of third
parties, local, state and federal
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<PAGE>
regulatory agencies and authorities and the Company required to carry out the
transactions contemplated herein shall have been received;
f. Since the date of the Memorandum (a) there shall not have been
any change in the capital stock of the Company other than pursuant to the
exercise of outstanding options and warrants disclosed in the Memorandum or any
material change in the indebtedness (other than in the ordinary course of
business) of the Company; (b) no material verbal or written agreement or other
transaction shall have been entered into by the Company that is not in the
ordinary course of business that could result in a material reduction in the
future earnings of the Company; (c) no loss or damage (whether or not insured)
to the property of the Company shall have been sustained that materially and
adversely affects the business, financial condition, results of operations or
prospects of the Company; (d) except as described in the Memorandum, no legal or
governmental action, suit or proceeding affecting the Company that is material
to the Company or that affects or may affect the transactions contemplated
herein shall have been instituted or threatened; and (e) there shall not have
been any material change in the business, financial condition, management,
results of operations or prospects of the Company that makes it impractical or
inadvisable in the judgment of Purchaser to proceed with the purchase of the
Note.
g. The lease financing transaction with T&W Leasing relating to the
7 Cedars casino in the appropriate amount of $690,000 shall have closed.
h. The Company shall have made public announcement of the proposed
management changes described in the "Management" section of the Memorandum and
shall cause those changes to occur in the manner and on the dates described in
the Memorandum.
i. Purchaser shall have received a certificate of the Company
executed by the Chairman of the Board or the President of the Company, dated the
Closing Date to the effect that:
(i) The representations and warranties of the Company set forth
in Section 2 of this Agreement are true and correct as of the date of this
Agreement and the representations and warranties set forth in the Documents
are true and correct as of the Closing Date and the Company has complied
with all the agreements and satisfied all the conditions on its part to be
performed or satisfied on or prior to the Closing Date;
(ii) Each of the respective signers of the certificate has
carefully examined the Memorandum; in his
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<PAGE>
opinion and to the best of his knowledge, the Memorandum does not contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein
not misleading; and
(iii) Since the date as of which information is given in the
Memorandum, and except as disclosed in or contemplated thereby, there has
not been any material adverse change or a development involving a material
adverse change in the condition (financial or otherwise), business,
properties, results of operations, management or prospects of the Company
or any Subsidiary; and except as described in the Memorandum, no legal or
governmental action, suit or proceeding is pending or threatened against
the Company or any Subsidiary that is material to the Company, whether or
not arising from transactions in the ordinary course of business, or that
may adversely affect the transactions contemplated by this Agreement; since
such dates and except as so disclosed, neither the Company nor any
Subsidiary has entered into any verbal or written agreement or other
transaction that is not in the ordinary course of business or that can
reasonably be expected to result in a material reduction in the future
earnings of the Company or any Subsidiary or incurred any material
liability or obligation, direct, contingent or indirect, made any change in
its capital stock, made any material change in its short-term debt or
funded debt or repurchased or otherwise acquired any of the Company's
capital stock; and the Company has not declared or paid any dividend, or
made any other distribution, upon its outstanding capital stock payable to
stockholders of record on a date prior to the Closing Date.
j. Purchaser shall have received opinions dated the Closing Date and
addressed to Purchaser from Pillsbury Madison & Sutro, and Lionel Sawyer &
Collins, counsel for the Company, in form and substance satisfactory to
Purchaser.
k. The Pledge Agreement and the Registration Rights Agreement in the
forms attached hereto as Exhibits B and C, respectively, shall have been
executed and delivered by the parties thereto.
l. Purchase Agreements for an aggregate of $1,675,000 principal
amount of Notes (inclusive of the principal amount of the Note being purchased
by Purchaser hereunder) shall have been executed and delivered by the parties
thereto and such purchases and sales shall have closed prior to or
simultaneously with the transactions hereunder.
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<PAGE>
SECTION 8 Conditions to Obligations of the Company.
----------------------------------------
The obligations of the Company to issue the Note on the Closing Date
shall be subject to the following conditions:
a. The Company shall have received a certificate of Purchaser
executed by its General Partner and dated the Closing Date to the effect that
the representations and warranties of Purchaser set forth in Section 3 of this
Agreement are true and correct as of the date of this Agreement and as of the
Closing Date and Purchaser has complied with all the agreements and satisfied
all the conditions on its part to be performed or satisfied on or prior to the
Closing Date; and
b. All approvals, consents, permits and authorizations of third
parties, local, state and federal regulatory agencies and authorities relating
to Purchaser and required to carry out the transactions contemplated herein
shall have been received.
SECTION 9 Subordination.
-------------
9.1 Agreement to Be Bound. The Note shall, to the extent and in the
---------------------
manner hereinafter set forth, be subordinated and subject in right of payment to
the prior payment in full of all Senior Indebtedness. Each holder of a Note,
whether upon original issue or upon transfer or assignment thereof, by its
acceptance thereof agrees that the Note shall be subject to the provisions
contained in this Section 9. The subordination provisions of this Section 9
shall be for the benefit of the holders of the Senior Indebtedness and may be
enforced directly by such holders.
9.2 Priority of Senior Indebtedness.
-------------------------------
a. No payment on account of principal of, premium, if any, or
interest on the Note, shall be made, and no assets shall be applied to the
purchase or other acquisition or retirement of the Note (other than a conversion
pursuant to Section 4 hereof), for a period (the "Payment Blockage Period") of
(i) 180 days after both of the following have occurred (A) the principal amount
of any Senior Indebtedness in excess of $100,000 in aggregate principal amount
shall have been accelerated upon an event of default thereunder and (B) written
notice of such acceleration shall have been given by the Company or by holders
of Senior Indebtedness to the holders of the Note, stating that this Section
9.2(a) is therefore applicable; provided, that any Payment Blockage Period
arising as a result of this Section 9.2 shall terminate immediately upon the
payment in full of such accelerated Senior Indebtedness or the rescission or
annulment of such acceleration or if such Senior Indebtedness is no longer
27
<PAGE>
outstanding; provided, further, that under no circumstances shall there be more
than one Payment Blockage Period in any 365 consecutive day period. As used in
this Section 9.2(a), an "event of default" is an event of default (x) as
defined in any Senior Indebtedness or in the instrument under which the same is
outstanding and (y) which would permit the acceleration of such Senior
Indebtedness prior to its maturity.
b. In the event that any money, property or securities is received
by the holder of a Note in violation of Section 9.2(a) or the terms or
conditions of any instrument governing the Senior Indebtedness, the holder
thereof shall hold the same in trust for the benefit of the holders of Senior
Indebtedness, and shall deliver the same in kind to the Company.
9.3 Liquidation; Dissolution; Bankruptcy.
------------------------------------
a. Upon any payment or distribution of assets of the Company
(whether in cash, property or securities) to creditors upon any dissolution or
winding-up or total or partial liquidation or reorganization of the Company,
whether voluntary or involuntary or in any bankruptcy, insolvency, receivership
or similar proceeding regarding the Company, all amounts due or to become due
upon all Senior Indebtedness then outstanding shall first be paid in full before
the holders of the Note shall be entitled to receive any assets so paid or
distributed in respect thereof (but without restricting the rights of holders
under Section 4 hereof); provided, that with respect to the foregoing, the
holders of the Note may receive (and shall be entitled to retain) securities
that are subordinate to (at least to the extent that the Note is subordinate to
Senior Indebtedness pursuant to the terms hereof) the payment of all Senior
Indebtedness then outstanding. Upon any such dissolution or winding-up or
liquidation, reorganization or other proceeding, any payment or distribution of
assets of the Company of any kind or character, whether in cash, property or
securities, to which the holders of the Note would be entitled, except for these
provisions, shall be paid by the Company or by any receiver, trustee in
bankruptcy, liquidating trustee, agent or other person making such payment or
distribution directly to the holders of Senior Indebtedness which was then
outstanding (pro rata to each of such holders on the basis of the respective
amounts (to the extent known) of Senior Indebtedness then held by such holders,
to the extent necessary to pay all such Senior Indebtedness which was then
outstanding in full, after giving effect to any concurrent payment or
distribution to or for the holders of Senior Indebtedness, before any payment or
distribution is made to the holders of the Note (but subject to the proviso to
the preceding sentence).
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<PAGE>
b. Each holder of a Note by its acceptance hereof (x) irrevocably
authorizes and empowers (but without imposing any obligation on) each holder of
any Senior Indebtedness at the time outstanding, under (and only under) the
circumstances set forth in Section 9.3(a), if the holder of a Note shall fail to
do so prior to 20 days before the expiration of the time to do so, to file and
prove all claims of such holder for its ratable share of payments or
distributions in respect of the Note which is required to be paid or delivered
to the holders of Senior Indebtedness as provided in Section 9.3(a), in the name
of each such holder of the Note or otherwise, as such holder of Senior
Indebtedness may determine to be necessary or appropriate for the enforcement of
the provisions of Section 9.3(a), and the holder of a Note may amend any such
claims regarding the Note before or after such 20th day (but not in a manner
inconsistent with the rights of holders of Senior Indebtedness under this
Section 9 other than this Section 9.3(b)) whether such claims are filed by such
holder of a Note or are filed, pursuant to this Section 9.3(b), by any holder of
Senior Indebtedness; and (y) under (and only under) the circumstances set forth
in Section 9.3(a), agrees to execute and deliver to each holder of Senior
Indebtedness all such further instruments confirming the authorization
hereinabove set forth, and all such powers of attorney, proofs of claim,
assignments of claim and other instruments, and to take all such other action,
as may be reasonably requested by such holder in order to enable such holder to
enforce all claims upon or in respect of such Note holder's ratable share of
payments or distributions in respect of the Note. Nothing in this Section
9.3(b), or any other provision hereof, shall give or be construed to give the
holder of any Senior Indebtedness any right to vote any Note, or any related
claim, or any portion of such Note or such claim, or to exercise any approval
rights, whether in connection with any resolution, arrangement, plan of
reorganization, compromise, settlement, election of trustees or otherwise.
Holders of Senior Indebtedness shall not create any liability to any person on
the part of any holders of Notes in connection with the exercise of any rights
granted under this Section 9.3(b).
9.4 No Prejudice or Impairment; Reinstatement.
-----------------------------------------
a. No right of any present or future holders of any Senior
Indebtedness to enforce subordination as herein provided shall at any time in
any way be prejudiced or impaired (i) by any act or failure to act on the part
of the Company, including without limitation any merger or consolidation of the
Company into or with any other person, or any sale, lease or transfer of any or
all of the assets of the Company to any other person, (ii) by any act (in good
faith) or failure (in good faith) to act by any such holder of Senior
Indebtedness, including, without limitation, the failure by such holder to
perfect a security
29
<PAGE>
interest in any security for the payment of Senior Indebtedness or (iii) by any
noncompliance by the Company with the terms and provisions of the Documents
regardless of any knowledge thereof that any such holder may have or be
otherwise charged with. The holders of the Senior Indebtedness may, without in
any way affecting the subordination hereunder, at any time or from time to time
and in their absolute discretion, change the manner, place, time or other terms
of payment of, or renew or alter, any Senior Indebtedness, or in each case in
accordance with the terms of the applicable agreement or instrument governing
the Senior Indebtedness modify or supplement any agreement or instrument
governing or evidencing such Senior Indebtedness or any other document referred
to therein, or exercise or refrain from exercising any of their rights under the
Senior Indebtedness, including, without limitation, waiver of default thereunder
and release of any collateral securing such Senior Indebtedness, all without
notice to or assent from the holders of the Note. The absence of any notice to,
or knowledge by, any holder of a Note of the existence or occurrence of any of
the matters or events set forth in this paragraph (a) shall not impair or
otherwise affect the rights of the holders of Senior Indebtedness against
holders of the Note under the subordination provisions of this Section 9.
b. The provisions of this Section 9 shall continue to be effective,
or be reinstated, as the case may be, if at any time any payment in respect of
any Senior Indebtedness is rescinded or must otherwise be restored or returned
by the holders of such Senior Indebtedness upon the occurrence of any event
described in Section 9.3 hereof, or upon or as a result of the appointment of a
receiver, intervenor or conservator of, or trustee or similar officer for, the
Company or any substantial part of its property, all as though such payment had
not been made.
9.5 Subrogation. Subject to the payment in full of all Senior
-----------
Indebtedness, the holders of the Note shall be subrogated to the rights of the
holders of Senior Indebtedness to receive payments or distributions of assets of
the Company made on the Senior Indebtedness until the principal of, premium, if
any, and interest on (and any other amounts due with respect to) the Note and
all other amounts due under the Documents shall be paid in full; provided, that
any holder of a Note shall have the right, in its sole discretion, to waive such
subrogation rights without affecting such holder's rights with respect to a Note
held by such holder or under the Documents (which rights shall continue in full
force and effect). For the purposes of such subrogation, no payments or
distributions to the holders of Senior Indebtedness of any cash, property or
securities to which the holders of the Note would be entitled except for the
provisions of this Section 9 shall, as among the Company, its creditors
30
<PAGE>
other than the holders of Senior Indebtedness, and the holders of the Note, be
deemed to be a payment by the Company to or on account of Senior Indebtedness,
it being understood that these provisions in this Section 9 are, and are
intended, solely for the purpose of defining the relative rights of the holders
of the Note, on the one hand, and the holders of Senior Indebtedness, on the
other hand.
9.6 Obligations Unaffected. Nothing contained in this Section 9 is
----------------------
intended to or shall impair as among the Company, its creditors other than the
holders of Senior Indebtedness, and the holders of the Note, the obligation of
the Company, which shall be absolute and unconditional, to pay to the holders of
the Note the principal of, premium, if any, and interest on the Note, as and
when the same shall become due and payable in accordance with its terms, or to
affect the relative rights of the holders of the Note and creditors of the
Company other than the holders of Senior Indebtedness. Nothing herein shall
prevent a holder of the Note from exercising any remedies otherwise permitted by
applicable law upon the occurrence of an Event of Default, subject to the
rights, if any, under these provisions of the holders of Senior Indebtedness,
and nothing herein shall prevent the conversion of the Note (or any part
thereof) in accordance with the Note and this Agreement.
9.7 Definition of Senior Indebtedness. The term "Senior Indebtedness"
---------------------------------
shall mean the principal of, premium, if any, and interest on indebtedness of
the Company for borrowed money whether such indebtedness is currently
outstanding or hereafter incurred, and any renewals, modifications, refundings
or extensions of any such indebtedness, unless under the provisions of the
instrument creating or evidencing any such indebtedness, or pursuant to which
the same is outstanding, it is provided that such indebtedness is subordinate in
right of payment to any other indebtedness of the Company (including, without
limitation, the Notes); provided, that Senior Indebtedness shall not include (i)
any obligations under any provision of any agreement or instrument regarding
such Senior Indebtedness in respect of (x) fees or reimbursement of expenses or
(y) penalties or additional interest charged on account of overdue payments of
principal, interest or other payments, (ii) any indebtedness owing to any
Subsidiary or to any other affiliate (of the Company or of any Subsidiary),
(iii) any obligation, to any person, of any affiliate of the Company or of any
Subsidiary (other than an obligation of the Company or of a Subsidiary), which
obligation is assumed or guaranteed by the Company or any Subsidiary.
SECTION 10 Exchange of Notes; Accrued Interest; Cancellation of Surrendered
----------------------------------------------------------------
Notes; Replacement.
- ------------------
31
<PAGE>
a. Subject to Section 3 hereof, at any time at the request of any
holder of a Note delivered to the Company at its office identified in Section 13
hereof, the Company at its expense (except for any transfer tax or any other tax
arising out of the exchange) will issue and deliver to or upon the order of the
holder in exchange therefor a new Note, in such denomination or denominations as
such holder may request, in aggregate principal amount equal to the unpaid
principal amount of the Note surrendered and substantially in the form thereof,
dated as of the date to which interest has been paid on the Note surrendered
(or, if no interest has yet been so paid thereon, then dated the date of the
Note so surrendered) and payable to such person or persons or order as may be
designated by such holder.
b. In the event that any Note is surrendered to the Company upon the
conversion of all or a portion of any Note, or upon a prepayment under Section
11 hereof, the Company shall pay all accrued and unpaid interest on such Note or
such portion thereof and thereupon interest shall cease to accrue upon that
portion of the principal amount of such Note which was used for conversion or
which was prepaid, and the right to receive, and any right or obligation to
make, any prepayment on such portion of the principal amount pursuant to Section
11 hereof shall terminate all upon the date of such conversion or prepayment and
upon presentation and surrender of such Note to the Company.
c. Upon the conversion in whole or in part of any Note or upon any
prepayment under Section 11 hereof, if only a portion of the principal amount of
a Note is used in such conversion or is prepaid, then such Note shall be
surrendered to the Company and the Company shall simultaneously execute and
deliver to or on the order of the holder thereof, at the expense of the Company,
a new Note in principal amount equal to the unused or unpaid portion of such
Note.
d. Any Note or portion thereof that has been converted, or that has
been prepaid under Section 11 hereof, shall be cancelled by the Company and no
Note shall be issued in lieu of the principal amount so converted or prepaid.
e. Upon receipt of evidence satisfactory to the Company of the loss,
theft, destruction or mutilation of any Note and, in the case of any such loss,
theft or destruction, upon delivery of an indemnity agreement reasonably
satisfactory to the Company (if requested by the Company), or in the case of any
such mutilation, upon surrender of such Note (which surrendered Note shall be
cancelled by the Company), the Company will issue a new Note of like tenor in
lieu of such lost, stolen, destroyed or mutilated Note as if the lost, stolen,
destroyed or mutilated Note were then surrendered for exchange.
32
<PAGE>
SECTION 11 Prepayment.
----------
11.1 Optional Prepayment.
-------------------
a. Subject to the other provisions of this Section 11, at any time
during the period beginning on January 1, 1996 and ending on December 30, 1996
the Company may prepay all or part of the principal amount of outstanding Notes
at a price equal to (1) the aggregate principal amount of the Notes to be
prepaid, plus (2) all accrued and unpaid interest on the principal amount of the
Notes to be prepaid, plus (3) a premium (the "Redemption Premium") equal to 7-
1/2% of the principal amount being prepaid. The right of the Company to prepay
Notes pursuant to this Section 11.1(a) shall be conditioned upon its giving
notice of prepayment, signed by its President and Treasurer, to the holders of
Notes not less than 20 days and not more than 60 days prior to the date upon
which the prepayment is to be made specifying (i) the holder of each Note to be
prepaid, (ii) the aggregate principal amount being prepaid, (iii) the date of
such prepayment, (iv) the accrued and unpaid interest (to but not including the
date upon which the prepayment is to be made) and (v) the Redemption Premium
with respect to such prepayment. Notice of prepayment having been so given, the
aggregate principal amount of the Notes so specified in such notice, all accrued
and unpaid interest thereon and the Redemption Premium on such aggregate
principal amount shall all become due and payable on the specified prepayment
date.
b. Upon the occurrence of any Change of Control Event (as defined in
Section 11.2, each holder of a Note shall have the right, at such holder's
option, to require the Company to prepay such holder's Note in whole or in part
at a price equal to: (1) the aggregate principal amount of the Note to be
prepaid, plus (2) all accrued and unpaid interest on the principal amount of the
Note to be prepaid, plus (3) an amount equal to 7-1/2% of the principal amount
being prepaid. The option under this Section 11.1(b) shall be exercised by
written notice to the Company given at any time from and after the 30th day
before such Change of Control Event through the 90th day after such Change of
Control Event (or, if later, through the 90th day after such holder receives
written notice from the Company of such Change of Control Event). Promptly (and
in any event within 10 days) after the occurrence of any Change of Control
Event, and not more than 30 days before such Change of Control Event, the
Company shall give written notice to each holder of a Note notifying each such
holder of the occurrence of such Change of Control Event and informing each such
holder of its right to exercise an option to require a prepayment under this
Section 11.1(b).
c. If any prepayment under this Section 11.1 does not repay in full
the aggregate principal amount of all Notes then
33
<PAGE>
outstanding, then the aggregate amount of such prepayment of the principal
amount of Notes shall be allocated among all Notes at the time outstanding, in
proportion, as nearly as practicable, to the respective unpaid principal amounts
of such Notes.
11.2 Change of Control Event. For purposes of this Section 11, "Change of
-----------------------
Control Event" means the occurrence of any of the following events:
a. any person or group (within the meaning of Section 13(d)(3) of
the Securities Exchange Act of 1934 ("1934 Act") together with any affiliates
and associates of any such person or member of such group (within the meaning of
Rule 12b-2 under the 1934 Act) ("Person") shall at any time beneficially own
(within the meaning of Rule 13d-3 under the 1934 Act) shares of Common Stock of
the Company which represents in excess of either (A) 40% of the total votes
entitled to be cast by all outstanding shares of the Common Stock of the Company
or (B) 40% of all outstanding shares of the Common Stock of the Company;
provided, that a Change of Control Event shall not be deemed to have occurred
under this clause (a) (without limiting the application of clause (b), (c), (d)
or (e) below), solely by reason of such beneficial ownership of over 40% under
the preceding clause (A) or (B) being held by one or more persons who both (x)
are officers and directors of the Company on the Closing Date and (y)
beneficially owned on the Closing Date at least one percent of the shares of the
Company's Common Stock outstanding on the Closing Date (the foregoing being
described as an "acquisition of control"); or
b. the Company is materially or completely liquidated or is the
subject of any voluntary or involuntary dissolution or winding-up; or
c. the Company proceeds to acquire its Common Stock (or undertakes a
corporate reorganization or recapitalization or other action) if the effect of
such action would be either (i) to reduce substantially or to eliminate any
public market for the shares of the Company's Common Stock or (ii) to remove the
Company from registration with the Commission under the 1934 Act or (iii) to
require the Company to make a filing under Section 13(e) of the 1934 Act or (iv)
to cause a delisting of the Company's Common Stock from the American Stock
Exchange or such other national securities exchange or quotations service on
which the Common Stock is listed or quoted; or
d. the sale, lease, transfer or other disposition of all or
substantially all of the consolidated assets of the Company and its Subsidiaries
in a single transaction or series of related transactions; or
34
<PAGE>
e. The Company acquires control of any Person and such acquisition,
in the determination of the holder of the Note, results in a material diminution
in the value of the Company's Common Stock.
f. During any period of 12 consecutive months after the Closing
Date, individuals who at the beginning of such period constitute the Board of
Directors of the Company (together with any new directors whose election by such
Board or whose nomination for election by the shareholders of the Company was
approved by a vote of a majority of the directors then still in office who were
either directors at the beginning of such period or whose election or nomination
for election was previously so approved), cease for any reason to constitute a
majority of the Board of Directors of the Company then in office.
SECTION 12 Representations and Indemnities to Survive Delivery.
---------------------------------------------------
The respective indemnities, agreements, representations, warranties
and other statements of the Company, of its officers and of Purchaser set forth
in or made pursuant to this Agreement will remain in full force and effect,
regardless of any investigation made by or on behalf of the Purchaser or the
Company or any of its or their partners, officers or directors or any
controlling person, as the case may be, until December 31, 1996.
SECTION 13 Notices; Publicity.
------------------
All communications hereunder shall be in writing and, (i) if sent to
Purchaser, shall be mailed, delivered or telegraphed and confirmed to you at
1290 Avenue of the Americas, New York, New York 10104, Attention: Harry C.
Hagerty, III, with a copy to Stoel Rives, 900 SW Fifth Avenue, Portland, Oregon
97204, Attention: John J. Halle, Esq.; and (ii) if sent to the Company shall be
mailed, delivered or telegraphed and confirmed to the Company at Elsinore
Corporation, 202 East Fremont Street, Las Vegas, Nevada 89101, Attention:
Ernest L. East, with a copy to Pillsbury Madison & Sutro, 235 Montgomery Street,
San Francisco, California 94104, Attention: Gregg F. Vignos, Esq. The Company
or Purchaser may change the address for receipt of communications hereunder by
giving notice to the others. No party will issue or approve any news release,
public filing or other announcement concerning the transactions described herein
without the prior approval of the other parties as to the content of the
announcement and its release, which approval will not be unreasonably withheld.
35
<PAGE>
SECTION 14 Payment of Expenses.
-------------------
a. In addition to costs incurred by the Company in connection with
the transactions contemplated hereby, the Company will pay all reasonable out-
of-pocket expenses of Purchaser (including fees of counsel) in connection with
these transactions. The Company shall reimburse Purchaser for such expenses
promptly upon receipt from Purchaser of statements detailing such expenses.
b. The Company shall pay all reasonable out-of-pocket expenses of
Purchaser (including fees of counsel) in connection with any actions Purchaser
must reasonably take in connection with any comment, application, approval or
licensure process or procedure required by the Gaming Authorities as a result of
or in connection with these transactions ("Regulatory Expenses"); provided,
however, the Company will not be required to reimburse Purchaser for Regulatory
Expenses if such reimbursement would violate applicable state law or the rules
and regulations of the Gaming Authorities.
SECTION 15 Successors.
----------
This Agreement will inure to the benefit of and be binding upon the
parties hereto and to the benefit of the officers and directors and controlling
persons thereof, and in each case their respective successors, personal
representatives and assigns, and no other person will have any right or
obligation hereunder. No such assignment shall relieve any party of its
obligations hereunder.
SECTION 16 Partial Unenforceability.
------------------------
The invalidity or unenforceability of any section, paragraph or
provision of this Agreement shall not affect the validity or enforceability of
any other section, paragraph or provision hereof. If any section, paragraph or
provision of this Agreement is for any reason determined to be invalid or
unenforceable, there shall be deemed to be made such minor changes (and only
such minor changes) as are necessary to make it valid and enforceable.
SECTION 17 Applicable Law.
--------------
This Agreement shall be governed by and construed in accordance with
the internal laws of (and not the laws pertaining to conflicts of laws) of the
State of New York.
36
<PAGE>
SECTION 18 General.
-------
This Agreement constitutes the entire agreement of the parties to this
Agreement and supersedes all prior written or oral and all contemporaneous oral
agreements, understandings and negotiations with respect to the subject matter
hereof. This Agreement may be executed in counterparts, each one of which shall
be an original, and all of which shall constitute one and the same document.
SECTION 19 Section Headings; Amendment.
---------------------------
The section headings in this Agreement are for the convenience of the
parties only and will not affect the construction or interpretation of this
Agreement. This Agreement may be amended or modified, and the observance of any
term of this Agreement may be waived, only by a writing signed by the Company
and Purchaser.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first above written.
MOJAVE PARTNERS, L.P. ELSINORE CORPORATION
By: Woodhaven Investors, Inc.,
Its General Partner
By /s/ Ted Herreck By /s/ Thomas E. Martin
------------------------- ------------------------------
Edward Herreck Name Thomas E. Martin
Its President Title President
37
<PAGE>
Schedule of Exhibits and Annex
------------------------------
Exhibit A Promissory Note
Exhibit B Stock Pledge Agreement
Exhibit C Registration Rights Agreement
Annex I Designation of Note Denominations
38
<PAGE>
REGISTRATION RIGHTS AGREEMENT
-----------------------------
THIS REGISTRATION RIGHTS AGREEMENT is made and entered into as of March 31,
1995, by and among ELSINORE CORPORATION, a Nevada corporation (the "Company"),
--------------------
and MOJAVE PARTNERS, L.P., a Delaware limited partnership (the "Purchaser").
----------------------
This Agreement is made pursuant to the Note Purchase Agreement, dated as of
March 30, 1995, between the Company and the Purchaser (the "Purchase
Agreement"). The execution of this Agreement is a condition to the closing of
the transactions contemplated by the Purchase Agreement.
The parties hereby agree as follows:
1. Definitions.
-----------
As used in this Agreement, the following terms shall have the following
meanings:
Advice: As defined in the last paragraph of Section 6 hereof.
------
Affiliate of any specified person shall mean any other person directly or
---------
indirectly controlling or controlled by or under direct or indirect common
control with such specified person. For the purposes of this definition,
"control," when used with respect to any person, means the power to direct the
management and policies of such person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"affiliated," "controlling" and "controlled" have meanings correlative to the
foregoing.
Agreement: This Registration Rights Agreement, as the same may be amended,
---------
supplemented or modified from time to time in accordance with the terms hereof.
Business Day: Any day except Saturday, Sunday and any day which shall be a
------------
legal holiday or a day on which banking institutions in the state of New York
generally are authorized or required by law or other government actions to
close.
Common Stock: As defined in the Purchase Agreement.
------------
Company: Elsinore Corporation, a Nevada corporation, and any successor
-------
corporation thereto.
Demand Notice: As defined in Section 2 hereof.
-------------
Demand Registration: As defined in Section 3 hereof.
-------------------
Effectiveness Date: The date each Demand Registration Statement becomes
------------------
effective, which date shall not be later than
1
<PAGE>
the 130th day following the Company's receipt of the Demand Notice.
Effectiveness Period: As defined in Section 3(a) hereof.
--------------------
Exchange Act: The Securities Exchange Act of 1934, as amended, and the
------------
rules and regulations of the SEC promulgated pursuant thereto.
Filing Date: The date the Demand Registration is filed, which shall be no
-----------
later than the forty-fifth day following the Company's receipt of the Demand
Notice.
Indemnified Party: As defined in Section 8(c) hereof.
-----------------
Indemnifying Party: As defined in Section 8(c) hereof.
------------------
Losses: As defined in Section 8(a) hereof.
------
Note: The $1,125,000 aggregate principal amount of the Company's 7 1/2%
----
Convertible Subordinated Notes due December 31, 1996 being issued to the
Purchaser pursuant to the Purchase Agreement.
Piggyback Registration: As defined in Section 4.
----------------------
Proceeding: An action, claim, suit or proceeding (including, without
----------
limitation, an investigation or partial proceeding, such as a deposition),
whether commenced or threatened.
Prospectus: The prospectus included in any Registration Statement
----------
(including, without limitation, a prospectus that discloses information
previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A promulgated pursuant to the Securities
Act), as amended or supplemented by any prospectus supplement, with respect to
the terms of the offering of any portion of the Registrable Securities covered
by such Registration Statement, and all other amendments and supplements to the
Prospectus, including post-effective amendments, and all material incorporated
by reference or deemed to be incorporated by reference in such Prospectus.
Registrable Securities: Each of the Shares (including each share of Common
----------------------
Stock of the Company issued as (or issuable upon the conversion or exercise of
any warrant, right or other security which is issued as) a dividend or other
distribution with respect to, or in exchange for or in replacement of the notes
or the Shares) until (i) it has been registered effectively pursuant to the
Securities Act and disposed of in accordance with the Registration Statement
covering it, or (ii) it is sold by the holder thereof pursuant to Rule 144 (or
any similar provisions then in effect).
2
<PAGE>
Registration Statement: Any registration statement of the Company that
----------------------
covers any of the Shares pursuant to the provisions of this Agreement, including
the Prospectus, amendments and supplements to such registration statement or
Prospectus, including pre- and post-effective amendments, all exhibits thereto,
and all material incorporated by reference or deemed to be incorporated by
reference in such registration statement.
Rule 144: Rule 144 promulgated by the SEC pursuant to the Securities Act,
--------
as such Rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the SEC having substantially the same effect as such Rule.
Rule 144A: Rule 144A promulgated by the SEC pursuant to the Securities Act,
---------
as such Rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the SEC having substantially the same effect as such Rule.
SEC: The Securities and Exchange Commission.
---
Securities Act: The Securities Act of 1933, as amended, and the rules and
--------------
regulations promulgated by the SEC thereunder.
Shares: The shares of Common Stock of the Company issuable to the Purchaser
------
(i) upon conversion of the Note pursuant to the Purchase Agreement and (ii) upon
the exercise of the Purchaser's right to purchase Common Stock pursuant to
Section 6(c) of the Purchase Agreement.
Special Counsel: Any special counsel to the holders of Registrable
---------------
Securities, for which holders of Registrable Securities will be reimbursed
pursuant to Section 7.
underwritten registration or underwritten offering: A registration in
--------------------------------------------------
connection with which securities of the Company are sold to an underwriter for
reoffering to the public pursuant to an effective Registration Statement.
2. Demand Registrations.
--------------------
(a) Requests for Registration. On or after the date hereof, and subject to
-------------------------
the provisions of Section 2(c) hereof, the Purchaser shall have the right at any
time by written request to the Company (the "Demand Notice"), to require the
Company to register under and in accordance with the provisions of the
Securities Act all, but not less than all, Registrable Securities then
outstanding (a "Registration").
(b) Filing and Effectiveness. The Company shall file the Demand
------------------------
Registration as soon as practicable following its receipt of the Demand Notice
but in no event later than the Filing Date, and shall cause the same to be
declared effective by the SEC as soon as practicable after the date of filing
but in no event later than the Effectiveness Date.
3
<PAGE>
(c) Number of Registrations.
-----------------------
(i) The holders of Registrable Securities pursuant to this Section 2
shall be entitled to request one and only one Demand Registration unless
such Demand Registration does not become effective or is not maintained
effective as required hereunder, for reasons including, among other things,
the exercise of registration rights by Company securityholders other than
the holders of Registrable Securities, in which case the holders of
Registrable Securities shall be entitled to an additional Demand
Registration for each such Demand Registration that does not so become
effective or continue effective.
(ii) With respect to a Demand Registration filed or to be filed
pursuant to this Section 2, if the Company's Board of Directors shall
determine, in its good faith reasonable judgment, that to maintain the
effectiveness of such registration statement or to permit such registration
statement to become effective (or, if no registration statement has yet been
filed, to file such a registration statement) would be significantly
disadvantageous to the Company's financial condition or business (a
"Disadvantageous Condition") in light of the existence, or in anticipation,
of any material acquisition or financing activity involving the Company or
any subsidiary, the material terms of which have not been publicly
disclosed, the Company may, until such Disadvantageous Condition no longer
exists (but not with respect to more than one occasion involving more than
60 days), cause such registration statement to be withdrawn and the
effectiveness of such registration statement to be terminated or, if no
registration statement has yet been filed, elect not to file such
registration statement. If the Company determines to take any action
pursuant to the preceding sentence, the Company shall deliver a notice to
any holders selling Registrable Securities pursuant to an effective
registration statement to such effect. Upon the receipt of any such notice,
such persons shall forthwith discontinue use of the prospectus contained in
such registration statement and, if so directed by the Company, shall
deliver to the Company all copies of the prospectus then covering such
Registrable Securities current at the time of receipt of such notice. If
any Disadvantageous Condition shall cease to exist, the Company shall
promptly notify any holders who shall have ceased selling Registrable
Securities pursuant to an effective registration statement as a result of
such Disadvantageous Condition to such effect, and shall disclose in
reasonable detail the nature and outcome of such Disadvantageous Condition.
The Company shall, if any registration statement shall
4
<PAGE>
have been withdrawn, file, at such time as it in good faith deems
appropriate, a new registration statement covering the Registrable
Securities that were covered by such withdrawn registration statement, and
the effectiveness of such registration statement shall be maintained for
such time as may be necessary so that the period of effectiveness of such
new registration statement, when aggregated with the period during which
such withdrawn registration statement was effective, shall be such time as
may be otherwise required by this Agreement. For purposes of this Section
2(c), a Disadvantageous Condition shall cease to exist on the date the
Company makes public disclosure of the acquisition or financing activity
giving rise to the Disadvantageous Condition.
(d) Selection of Underwriters. If a requested registration pursuant to this
-------------------------
Section 2 involves an underwritten offering, the underwriter or underwriters
that will manage such underwriting shall be selected by the holders of a
majority of shares of the Registrable Securities as to which registration has
been requested, provided however that nothing in this section shall be deemed to
obligate the Company to register the Registrable Securities pursuant to an
underwritten offering.
3. Registration.
------------
If a Demand Notice is delivered as contemplated by Section 2, then the
Company shall prepare and file, as promptly as reasonably practicable
thereafter, with the SEC a Registration Statement under the Securities Act
covering all of the Registrable Securities requested by Holders to be included
therein (the "Demand Registration"). In the case of each Demand Notice, the
Company shall (i) file a Registration Statement relating to the Demand
Registration with the SEC on or prior to the Filing Date, (ii) cause the Demand
Registration to become effective under the Securities Act as soon as practicable
following the Filing Date, but not later than the Effectiveness Date, and (iii)
keep the Demand Registration continuously effective under the Securities Act
until (the "Effectiveness Period") (A) 180 days following the date on which the
Demand Registration becomes effective (subject to extension pursuant the last
paragraph of Section 6 hereof) or (B) if sooner, the date following the date
that all Registrable Securities covered by the Demand Registration have been
sold pursuant thereto; provided that the Effectiveness Period shall be extended
--------
to the extent required to permit dealers to comply with the applicable
prospectus delivery requirements under Rule 174 under the Securities Act.
4. Piggyback Registration.
----------------------
(a) Right to Piggyback. If at any time the Company proposes to file a
------------------
registration statement, including a shelf
5
<PAGE>
registration, pursuant to the Securities Act with respect to an offering of any
class of equity securities, whether or not for its own account (other than a
registration (i) on Form S-8 or any successor or similar forms, (ii) relating to
equity securities issuable upon exercise of employee stock options or in
connection with any employee benefit or similar plan of the Company, (iii)
pursuant to a registration under Section 2 or (iv) on Form S-4 or any successor
or form similar for the purpose of registering a bona fide transaction of a type
described by Rule 145(a)(1) or 145(a)(2) promulgated pursuant to the Securities
Act), then the Company shall give written notice of such proposed filing to the
holders of Registrable Securities at least 20 days before the anticipated filing
date (the "Piggyback Notice"). The Piggyback Notice shall offer such holders the
opportunity to register such amount of Registrable Securities as each such
holder may request (a "Piggyback Registration"). Subject to Section 4(b) hereof,
the Company shall include in each such Piggyback Registration all Registrable
Securities requested to be included in such offering. The holders of Registrable
Securities shall be permitted to withdraw all or part of the Registrable
Securities from a Piggyback Registration at any time prior to the effective date
of such Piggyback Registration.
(b) Priority on Piggyback Registrations. The Company shall cause the
-----------------------------------
managing underwriters of a proposed underwritten offering of securities to
permit holders of Registrable Securities requested to be included in the
registration for such offering to include all such Registrable Securities on the
same terms and conditions as any similar securities, if any, of the Company
included therein. Notwithstanding the foregoing, if the managing underwriters
of such underwritten offering determine in good faith in writing to the Company
and each of the holders of Registrable Securities that the total amount of
securities that such holders and the Company propose to include in such offering
is such as would materially and adversely affect the success of such offering,
then in the event that such Piggyback Registration is a primary registration on
behalf of the Company only, the amount of securities to be offered for the
account of holders of Registrable Securities shall be reduced or limited pro
rata amongst such holders and amongst any other holders (excluding the Company)
of securities of the same class included in such Registration Statement, in each
case in proportion to the respective amounts of securities owned and previously
included in such Registration Statement to the extent necessary to reduce the
total amount of securities to be included in such offering to the amount
recommended by such managing underwriters.
(c) Number of Registrations. The holders of Registerable Securities
-----------------------
pursuant to this section 4 shall be entitled to request not more than two
Piggyback Registrations unless a Piggyback Registration does not become
effective or is not maintained effective as required hereunder, for reasons
including, among other things, the determination of the managing underwriters of
an underwritten offering that all or part of the
6
<PAGE>
Registerable Securities cannot be included in such offering, in which case the
holders of Registrable Securities shall be entitled to an additional Piggyback
Registration for each such Piggyback Registration that does not so become
effective or continue effective or for each such registerable security excluded
from the offering.
5. Hold-Back Agreements.
--------------------
(a) Restrictions on Sale by Holders of Registrable Securities. Except in
---------------------------------------------------------
connection with the exercise of its Piggyback Registration rights, each holder
of Registrable Securities agrees, if requested (pursuant to a timely written
notice) by the managing underwriters or other managers in an underwritten
offering (which, for purposes of this Section shall include a Rule 144A
offering) of the Company's Common Stock, not to effect any private sale or
distribution (including a sale pursuant to Rule 144(k) and Rule 144A, but
excluding non-public sales to any of its affiliates, officers, directors,
employees and controlling persons) of any of the Shares (except as part of such
underwritten offering), during the period beginning 10 days prior to, and ending
120 days after, the closing date of the underwritten or private offering.
The foregoing provisions shall not apply to any holder of Registrable
Securities if such holder is prevented by applicable statute or regulation from
entering into any such agreement.
(b) Restrictions on Public Sale by the Company and Others. The Company
-----------------------------------------------------
agrees without the written consent of the managing underwriters in an
underwritten offering of Registrable Securities covered by a Registration
Statement filed pursuant to Section 3 hereof, not to effect any public or
private sale or distribution of any of its common stock, or any options, rights,
warrants to purchase, or securities exchangeable or convertible into, shares of
common stock of the Company, including a sale pursuant to Regulation D or Rule
144A under the Securities Act, during the period beginning 10 days prior to, and
ending 90 days after, the closing date of each underwritten offering made
pursuant to such Registration Statement (provided, however, that such period
-------- -------
shall be extended by the number of days from and including the date of the
giving of any notice pursuant to Section 6(c) hereof to and including the date
when each seller of Registrable Securities covered by such Registration
Statement shall have received the copies of the supplemented or amended
Prospectus contemplated by Section 6(k) hereof).
6. Registration Procedures.
-----------------------
In connection with the Company's registration obligations hereunder, the
Company shall:
(a) no fewer than 10 Business Days prior to the initial filing of a
Registration Statement or
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<PAGE>
Prospectus and no fewer than two Business Days prior to the filing of any
amendment or supplement thereto (including any document that would be
incorporated or deemed to be incorporated therein by reference), furnish to
the holders of the Registrable Securities relating to such Registration
Statement, their Special Counsel and the managing underwriters, if any,
copies of all such documents proposed to be filed, which documents (other
than those incorporated or deemed to be incorporated by reference) will be
subject to the review of such holders, their Special Counsel and such
underwriters, if any, and cause the officers and directors of the Company,
counsel to the Company and independent certified public accountants to the
Company to respond to such inquiries as shall be necessary, in the opinion
of respective counsel to such holders and such underwriters, to conduct a
reasonable investigation within the meaning of the Securities Act; provided,
--------
further, that the Company shall not be deemed to have kept a Registration
-------
Statement effective during the applicable period if it voluntarily takes any
action that results in selling holders of the Registrable Securities covered
thereby not being able to sell such Registrable Securities pursuant to
Federal securities laws during that period (and the time period during which
such Registration Statement is required to remain effective hereunder shall
be extended by the number of days during which such selling holders of
Registrable Securities are not able to sell Registrable Securities) unless
such action is required under applicable law or regulation or court order.
The Company shall not file any such Registration Statement or Prospectus or
any amendments or supplements thereto to which the holders of a majority of
the Registrable Securities relating to such Registration Statement, their
Special Counsel, or the managing underwriters, if any, shall reasonably
object on a timely basis; provided, however, that the Company shall not be
-------- -------
prohibited from making any such filing that is necessary, in the opinion of
outside counsel to the Company, to comply with applicable law;
(b) prepare and file with the SEC such amendments, including post-
effective amendments, to each Registration Statement as may be necessary to
keep such Registration Statement continuously effective for the applicable
time period; cause the related Prospectus to be supplemented by any required
Prospectus supplement, and as so supplemented to be filed pursuant to Rule
424 (or any similar provisions then in force) under the Securities Act; and
comply with the provisions of the Securities Act and the Exchange Act with
respect to the disposition of all securities covered by such Registration
Statement
8
<PAGE>
during such period in accordance with the intended methods of
disposition by the sellers thereof set forth in such Registration Statement
as so amended or in such Prospectus as so supplemented;
(c) notify the holders of Registrable Securities to be sold, their
Special Counsel and the managing underwriters, if any, promptly (and in the
case of (i) (A) in no event less than two Business Days prior to such
filing) and (if requested by any such Person), confirm such notice in
writing, (i) (A) when a Prospectus or any Prospectus supplement or post-
effective amendment is proposed to be filed, and (B) with respect to a
Registration Statement or any post-effective amendment, when the same has
become effective, (ii) of any request by the SEC or any other Federal or
state governmental authority for amendments or supplements to a Registration
Statement or related Prospectus or for additional information, (iii) of the
issuance by the SEC of any stop order suspending the effectiveness of a
Registration Statement or the initiation of any proceedings for that
purpose, (iv) if at any time any of the representations and warranties of
the Company contained in any agreement (including any underwriting
agreement) contemplated hereby cease to be true and correct in all material
respects, (v) of the receipt by the Company of any notification with respect
to the suspension of the qualification or exemption from qualification of
any of the Registrable Securities for sale in any jurisdiction, or the
initiation or threatening of any proceeding for such purpose, and (vi) of
the happening of any event that makes any statement made in such
Registration Statement or related Prospectus or any document incorporated or
deemed to be incorporated therein by reference untrue in any material
respect or that requires the making of any changes in such Registration
Statement, Prospectus or documents so that, in the case of the Registration
Statement, it will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary
to make the statements therein, not misleading, and that in the case of the
Prospectus, it will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which
they were made, not misleading;
(d) use their reasonable best efforts to avoid the issuance of, or, if
issued, obtain the withdrawal of any order suspending the effectiveness of a
Registration Statement, or the lifting of any suspension of the
qualification (or exemption from
9
<PAGE>
qualification) of any of the Registrable Securities for sale in any
jurisdiction, at the earliest practicable moment;
(e) if a Demand Registration is filed pursuant to Section 3 and, if
requested by the managing underwriter, if any, or the holders of a majority
in principal amount of the Registrable Securities being sold in connection
with an underwritten offering, (i) promptly incorporate in a Prospectus
supplement or post-effective amendment such information as the managing
underwriters, if any, and such holders agree should be included therein, and
(ii) make all required filings of such Prospectus supplement or such post-
effective amendment as soon as practicable after the Company have received
notification of the matters to be incorporated in such Prospectus supplement
or post-effective amendment; provided, however, that the Company shall not
-------- -------
be required to take any action pursuant to this Section 6(e) that would, in
the opinion of outside counsel for the Company, violate applicable law;
(f) furnish to each holder of Registrable Securities, their Special
Counsel and each managing underwriter, if any, without charge, at least one
conformed copy of each Registration Statement and each amendment thereto,
including financial statements and schedules, all documents incorporated or
deemed to be incorporated therein by reference, and all exhibits to the
extent requested by each holder (including those previously furnished or
incorporated by reference) as soon as practicable after the filing of such
documents with the SEC;
(g) deliver to each holder of Registrable Securities, their Special
Counsel, and the underwriters, if any, without charge, as many copies of the
Prospectus or Prospectuses (including each form of prospectus) and each
amendment or supplement thereto as such Persons reasonably request; and the
Company hereby consents to the use of such Prospectus and each amendment or
supplement thereto by each of the selling holders of Registrable Securities
and the underwriters, if any, in connection with the offering and sale of
the Registrable Securities covered by such Prospectus and any amendment or
supplement thereto;
(h) prior to any public offering of Registrable Securities, use its
reasonable best efforts to register or qualify or cooperate with the holders
of Registrable Securities to be sold or tendered for, the underwriters, if
any, and their respective counsel in connection with the registration or
qualification (or
10
<PAGE>
exemption from such registration or qualification) of such
Registrable Securities for offer and sale under the securities or Blue Sky
laws of such jurisdictions within the United States as any holder or
underwriter reasonably requests in writing; keep each such registration or
qualification (or exemption therefrom) effective during the period such
Registration Statement is required to be kept effective and do any and all
other acts or things necessary or advisable to enable the disposition in
such jurisdictions of the Registrable Securities covered by the applicable
Registration Statement; provided, however, that the Company shall not be
required to qualify generally to do business in any jurisdiction where it is
not then so qualified or to take any action that would subject it to general
service of process in any such jurisdiction where it is not then so subject
or subject the Company to any tax in any such jurisdiction where it is not
then so subject;
(i) cooperate with the holders and the managing underwriters, if any,
to facilitate the timely preparation and delivery of certificates
representing Registrable Securities to be sold, which certificates shall not
bear any restrictive legends and shall be in a form eligible for deposit
with The Depository Trust Company and to enable such Registrable Securities
to be in such denominations and registered in such names as the managing
underwriters, if any, or holders may request at least two Business Days
prior to any sale of Registrable Securities;
(j) use its reasonable best efforts to cause the Registrable Securities
covered by the Registration Statement to be registered with or approved by
such other governmental agencies or authorities within the United States,
except as may be required solely as a consequence of the nature of such
selling holder's business, in which case the Company shall cooperate in all
reasonable respects with the filing of such Registration Statement and the
granting of such approvals as may be necessary to enable the seller or
sellers thereof or the underwriters, if any, to consummate the disposition
of such Registrable Securities; provided, however, that the Company shall
-------- -------
not be required to register the Registrable Securities in any jurisdiction
that would subject it to general service of process in any such jurisdiction
where it is not then so subject or subject the Company to any tax in any
such jurisdiction where it is not then so subject or to require the Company
to qualify to do business in any jurisdiction where it is not then so
qualified;
11
<PAGE>
(k) upon the occurrence of any event contemplated by Paragraph
6(c)(vi), as promptly as practicable, prepare a supplement or amendment,
including a post-effective amendment, to each Registration Statement or a
supplement to the related Prospectus or any document incorporated or deemed
to be incorporated therein by reference, and file any other required
document so that, as thereafter delivered, such Prospectus will not contain
an untrue statement of a 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 under which they were made, not misleading;
(l) use its reasonable best efforts to cause all Registrable Securities
relating to such Registration Statement to be listed on each securities
exchange, if any, on which similar securities issued by the Company are then
listed;
(m) enter into such agreements (including an underwriting agreement in
form, scope and substance as is customary in underwritten offerings) and
take all such other reasonable actions in connection therewith (including
those reasonably requested by the managing underwriters, if any, or the
holders of a majority of the Registrable Securities being sold) in order to
expedite or facilitate the disposition of such Registrable Securities, and
in such connection, whether or not an underwriting agreement is entered into
and whether or not the registration is an underwritten registration, (i)
make such representations and warranties to the holders of such Registrable
Securities and the underwriters, if any, with respect to the business of the
Company and its subsidiaries, and the Registration Statement, Prospectus and
documents, if any, incorporated or deemed to be incorporated by reference
therein, in each case, in form, substance and scope as are customarily made
by issuers to underwriters in underwritten offerings, and confirm the same
if and when requested; (ii) obtain opinions of counsel to the Company and
updates thereof (which counsel and opinions (in form, scope and substance)
shall be reasonably satisfactory to the managing underwriters, if any, and
Special Counsel to the holders of the Registrable Securities being sold),
addressed to each selling holder of Registrable Securities and each of the
underwriters, if any, covering the matters customarily covered in opinions
requested in underwritten offerings and such other matters as may be
reasonably requested by such Special Counsel and underwriters; (iii) obtain
"cold comfort" letters and updates thereof from the independent certified
public accountants of the Company (and, if
12
<PAGE>
necessary, any other independent certified public accountants of any
subsidiary of the Company or of any business acquired by the Company for
which financial statements and financial data is, or is required to be,
included in the Registration Statement), addressed to each selling holder of
Registrable Securities and each of the underwriters, if any, such letters to
be in customary form and covering matters of the type customarily covered in
"cold comfort" letters in connection with underwritten offerings; (iv) if an
underwriting agreement is entered into, the same shall contain
indemnification provisions and procedures no less favorable to the selling
holders and the underwriters, if any, than those set forth in Section 8
hereof (or such other provisions and procedures acceptable to holders of a
majority of the holders of Registrable Securities covered by such
Registration Statement and the managing underwriters); and (v) deliver such
documents and certificates as may be reasonably requested by the holders of
a majority of the Registrable Securities being sold, their Special Counsel
and the managing underwriters, if any, to evidence the continued validity of
the representations and warranties made pursuant to clause 6(m)(i) above and
to evidence compliance with any customary conditions contained in the
underwriting agreement or other agreement entered into by the Company;
(n) make available for inspection by a representative of the holders of
Registrable Securities being sold, any underwriter participating in any such
disposition of Registrable Securities, if any, and any attorney, consultant
or accountant retained by such selling holders or underwriter, at the
offices where normally kept, during reasonable business hours, all financial
and other records, pertinent corporate documents and properties of the
Company, and its subsidiaries, and cause the officers, directors, agents and
employees of the Company and its subsidiaries to supply all information in
each case reasonably requested by any such representative, underwriter,
attorney, consultant or accountant in connection with such Registration
Statement; and
(o) comply with all applicable rules and regulations of the SEC and
make generally available to their securityholders earning statements
satisfying the provisions of Section 11(a) of the Securities Act and Rule
158 thereunder (or any similar rule promulgated under the Securities Act),
no later than 45 days after the end of any 12-month period (or 90 days after
the end of any 12-month period if such period is a fiscal year) (i)
commencing at the end of any fiscal quarter in which Registrable Securities
are sold to
13
<PAGE>
underwriters in a firm commitment or reasonable efforts underwritten
offering and (ii) if not sold to underwriters in such an offering,
commencing on the first day of the first fiscal quarter of the Company after
the effective date of a Registration Statement, which statement shall cover
said 12-month periods, or end shorter periods as is consistent with the
requirements of Rule 158.
The Company may require each seller of Registrable Securities as to which
any registration is being effected to furnish to the Company such information
regarding the distribution of such Registrable Securities as is required by law
to be disclosed in the applicable Registration Statement and the Company may
exclude from such registration the Registrable Securities of any seller who
unreasonably fails to furnish such information within a reasonable time after
receiving such request.
If any such Registration Statement refers to any holder by name or otherwise
as the holder of any securities of the Company, then such holder shall have the
right to require, in the event that such reference to such holder by name or
otherwise is not required by the Securities Act or any similar federal statute
then in force, the deletion of the reference to such holder in any amendment or
supplement to the Registration Statement filed or prepared subsequent to the
time that such reference ceases to be required.
Each holder of Registrable Securities agrees by registration of such
Registrable Securities that, upon receipt of any notice from the Company of the
happening of any event of the kind described in Section 6(c)(ii), 6(c)(iii),
6(c)(v) or 6(c)(vi) hereof, such holder will forthwith discontinue disposition
of such Registrable Securities covered by such Registration Statement or
Prospectus until such holder's receipt of the copies of the supplemented or
amended Prospectus contemplated by Section 6(k) hereof, or until it is advised
in writing (the "Advice") by the Company that the use of the applicable
Prospectus may be resumed, and, in either case, has received copies of any
additional or supplemental filings that are incorporated or deemed to be
incorporated by reference in such Prospectus. If the Company shall give any
such notice, the time periods mentioned in Section 3 hereof shall be extended by
the number of days during such periods from and including the date of the giving
of such notice to and including the date when each seller of Registrable
Securities covered by such Registration Statement shall have received (x) the
copies of the supplemented or amended Prospectus contemplated by Section 6(k)
hereof or (y) the Advice, and, in either case, has received copies of any
additional or supplemental filings that are incorporated or deemed to be
incorporated by reference in such Prospectus.
7. Registration Expenses.
---------------------
14
<PAGE>
(a) All fees and expenses incident to the performance of or compliance with
this Agreement by the Company shall be borne by the Company whether or not any
Registration Statement is filed or becomes effective and whether or not any
securities are issued or sold pursuant to any Registration Statement (unless
such Registration Statement is not filed or does not become effective or
securities are not issued or sold pursuant to such Registration Statement as a
result of any action by the holders of Registrable Securities requesting such
registration). The fees and expenses referred to in the foregoing sentence
shall include, without limitation, (i) all registration and filing fees
(including, without limitation, fees and expenses (A) with respect to filings
required to be made with the National Association of Securities Dealers, Inc.
and (B) in compliance with securities or Blue Sky laws (including without
limitation and in addition to that provided for in (b) below, fees and
disbursements of counsel for the underwriters or holders in connection with Blue
Sky qualifications of the Registrable Securities and determination of the
eligibility of the Registrable Securities for investment under the laws of such
jurisdictions as the managing underwriters, if any, or holders of a majority of
Registrable Securities may designate), (ii) printing expenses (including,
without limitation, expenses of printing certificates for Registrable Securities
in a form eligible for deposit with The Depository Trust Company and of printing
prospectuses if the printing of prospectuses is requested by the managing
underwriters, if any, (iii) messenger, telephone and delivery expenses, (iv)
fees and disbursements of counsel for the Company and Special Counsel for the
holders (in accordance with the provisions of Section 7(b) hereof), (v) fees and
disbursements of all independent certified public accountants (including,
without limitation, the expenses of any special audit and "cold comfort" letters
required by or incident to such performance), (vi) underwriters' fees and
expenses (excluding discounts, commissions or fees of underwriters, selling
brokers, dealer managers or similar securities industry professionals relating
to the sale or distribution of the Registrable Securities (collectively,
"Selling Expenses"), which shall be borne solely by the holders of the
Registrable Securities, (vii) Securities Act liability insurance, if the Company
so desires such insurance, and (viii) fees and expenses of all other persons
retained by the Company. In addition, the Company shall pay its internal
expenses (including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties), the expense of
any annual audit, the fees and expenses incurred in connection with the listing
of the securities to be registered on any securities exchange on which similar
securities issued by the Company are then listed and rating agency fees (plus
any local counsel, deemed appropriate by the holders of a majority of the
Registrable Securities).
(b) In connection with any Registration hereunder, the Company shall
reimburse the holders of the Registrable Securities being registered in such
registration for the reasonable fees and
15
<PAGE>
disbursements of not more than one firm of attorneys chosen by the holders of a
majority of the Registrable Securities.
8. Indemnification.
---------------
(a) Indemnification by the Company. The Company shall, notwithstanding
------------------------------
termination of this Agreement and without limitation as to time, indemnify and
hold harmless each holder of Registrable Securities, the officers, directors,
agents, investment advisors and employees of each of them, each Person who
controls any such holder (within the meaning of Section 15 of the Securities Act
or Section 20 of the Exchange Act) and the officers, directors, agents and
employees of each such controlling person, to the fullest extent lawful, from
and against any and all losses, claims, damages, liabilities, costs (including,
without limitation, costs of preparation and reasonable attorneys' fees) and
expenses (collectively, "Losses"), as incurred, arising out of or based upon any
untrue or alleged untrue statement of a material fact contained in any
Registration Statement, Prospectus or form of prospectus or in any amendment or
supplement thereto or in any preliminary prospectus, or arising out of or based
upon any omission or alleged omission of a material fact required to be stated
therein or necessary to make the statements therein (in the case of any
Prospectus or form of prospectus or supplement thereto, in light of the
circumstances under which they were made) not misleading, except to the extent,
that such are finally judicially determined to have been based upon information
regarding such Holder furnished in writing to the Company by or on behalf of
such holder expressly for use therein, and that such information was reasonably
relied on by the Company in the preparation thereof; provided, however, that the
-------- -------
Company shall not be liable to the extent that (A) any such Losses arise out of
or are based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in any preliminary prospectus if (i) having previously
been furnished by the Company with copies of the Prospectus on a timely basis,
such holder failed to send or deliver a copy of the Prospectus with or prior to
the delivery of written confirmation of the sale by such holder of a Registrable
Security to the person asserting such Losses who purchased such Registrable
Security that is the subject thereof and (ii) the Prospectus would have
adequately corrected such untrue statement or alleged untrue statement or such
omission or alleged omission or (B) any such Losses arise primarily out of or
are based primarily upon an untrue statement or alleged untrue statement or
omission or alleged omission in the Prospectus, if such untrue statement or
alleged untrue statement, omission or alleged omission is adequately corrected
in an amendment or supplement to the Prospectus (such that there is no longer
any untrue statement of a material fact in the Prospectus or omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading) and if, having previously been furnished by the Company
with copies of the
16
<PAGE>
Prospectus as so amended or supplemented on a timely basis, the holder of
Registrable Securities thereafter failed to deliver such Prospectus as so
amended or supplemented prior to or concurrently with the sale of a Registrable
Security to the person asserting such Losses who purchased such Registrable
Security that is the subject thereof from such holder. In the event Registrable
Securities are to be registered in an underwritten offering pursuant to a Demand
Registration, the Company will indemnify, subject to commercially reasonable
terms, the managing underwriter(s) of such offering.
(b) Indemnification by Holder of Registrable Securities. In connection with
---------------------------------------------------
any Registration Statement in which a holder of Registrable Securities is
participating, such holder of Registrable Securities shall furnish to the
Company in writing such information regarding such holder's ownership of
securities of the Company as the Company reasonably requests for use in
connection with any Registration Statement or Prospectus and agrees to indemnify
and hold harmless the Company and its directors, officers, agents and employees,
each Person who controls the Company (within the meaning of Section 15 of the
Securities Act and Section 20 of the Exchange Act), and the directors, officers,
agents or employees of such controlling persons, to the fullest extent lawful,
from and against all Losses (as determined by a court of competent jurisdiction
in a final judgment not subject to appeal or review) arising out of or based
upon any untrue statement of a material fact contained in any Registration
Statement, Prospectus, or form of prospectus, or arising out of or based upon
any omission of a material fact required to be stated therein or necessary to
make the statements therein not misleading to the extent, but only to the
extent, that such untrue statement or omission is contained in any information
so furnished in writing by such holder to the Company expressly for use in such
Registration Statement or Prospectus and that such information was reasonably
relied upon by the Company in preparation of such Registration Statement,
Prospectus or form of prospectus. In no event shall the liability of any selling
holder of Registrable Securities hereunder be greater in amount than the dollar
amount of the proceeds received by such holder upon the sale of the Registrable
Securities giving rise to such indemnification obligation.
(c) Conduct of Indemnification Proceedings. If any Proceeding shall be
--------------------------------------
brought or asserted against any person entitled to indemnity hereunder (an
"Indemnified Party"), such Indemnified Party promptly shall so notify the person
from whom indemnity is sought (the "Indemnifying Party") in writing, and the
Indemnifying Party shall assume the defense thereof, including the employment of
counsel reasonably satisfactory to the Indemnified Party and the payment of all
fees and expenses incurred in connection with the defense thereof; provided,
that the failure of any Indemnified Party to give such notice shall not relieve
the Indemnifying Party of its obligations pursuant to this Agreement, except to
the extent that it shall be finally
17
<PAGE>
determined by a court of competent jurisdiction (which determination is not
subject to appeal or further review) that such failure shall have materially
prejudiced the Indemnifying Party.
Any such Indemnified Party shall have the right to employ separate counsel
in any such action, claim or proceeding and to participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense of
such Indemnified Party or Parties unless: (1) the Indemnifying Party has agreed
to pay such fees and expenses; or (2) the Indemnifying Party shall have failed
promptly to assume the defense of such action, claim or proceeding and to employ
counsel reasonably satisfactory to such Indemnified Party in any such action,
claim or proceeding; or (3) the named parties to any such action, claim or
proceeding (including any impleaded parties) include both such Indemnified Party
and the Indemnifying Party, and such Indemnified Party shall have been advised
in writing by counsel that a conflict of interest may exist if such counsel
represents such Indemnified Party and the Indemnifying Party (in which case, if
such Indemnified Party notifies the Indemnifying Parties in writing that it
elects to employ separate counsel at the expense of the Indemnifying Parties,
the Indemnifying Parties shall not have the right to assume the defense thereof
and such counsel retained by the Indemnified Party shall be at the expense of
the Indemnifying Party), it being understood, however, that, the Indemnifying
Party shall not, in connection with any one such action or proceeding or
separate but substantially similar or related actions or proceedings in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the fees and expenses of more than one separate firm of attorneys (in
addition to any local counsel) at any time for all such Indemnified Parties,
which firm shall be designated in writing by the Indemnified Parties. The
Indemnifying Party shall not be liable for any settlement of any such Proceeding
effected without its written consent, which consent shall not be unreasonably
withheld. No Indemnifying Party shall, without the prior written consent of the
Indemnified Party, effect any settlement of any proceeding unless such
settlement includes an unconditional release of such Indemnified Party from all
liability on claims that are or may be the subject matter of such proceeding.
All fees and expenses of the Indemnified Party (including reasonable fees
and expenses to the extent incurred in connection with investigating or
preparing to defend such action or proceeding in a manner not inconsistent with
this Section 8) shall be paid to the Indemnified Party, as incurred, within 10
Business Days of written notice thereof to the Indemnifying Party (regardless of
whether it is ultimately determined that an Indemnified Party is not entitled to
indemnification hereunder; provided, that the Indemnifying Party may require
--------
such Indemnified Party to undertake to reimburse all such fees and expenses to
the extent it is finally judicially determined that
18
<PAGE>
such Indemnified Party is not entitled to indemnification hereunder).
(d) Contribution. If a claim by an Indemnified Party for indemnification
------------
under Section 8(a) or 8(b) hereof is found unenforceable in a final judgment by
a court of competent jurisdiction (not subject to further appeal) (even though
the express provisions hereof provide for indemnification in such case), then
each applicable Indemnifying Party, in lieu of indemnifying such Indemnified
Party, shall contribute to the amount paid or payable by such Indemnified Party
as a result of such Losses, in such proportion as is appropriate to reflect the
relative fault of the Indemnifying Party and Indemnified Party in connection
with the actions, statements or omissions that resulted in such Losses as well
as any other relevant equitable considerations. The relative fault of such
Indemnifying Party and Indemnified Party shall be determined by reference to,
among other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or omission
or alleged omission of a material fact, has been taken or made by, or relates to
information supplied by, such Indemnifying Party or Indemnified Party, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such action, statement or omission. The amount paid or
payable by a party as a result of any Losses shall be deemed to include, subject
to the limitations set forth in Section 8(c), any legal or other fees or
expenses reasonably incurred by such party in connection with any investigation
or Proceeding.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 8(d) were determined by pro rata
--- ----
allocation or by any other method of allocation that does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 8(d), an Indemnifying Party that
is a holder of Registrable Securities shall not be required to contribute any
amount in excess of the amount by which the total price at which the securities
sold by such Indemnifying Party and distributed to the public
were offered to the public exceeds the amount of any damages that such
Indemnifying Party has otherwise been required to pay by reason of such untrue
or alleged untrue statement or omission or alleged omission. No person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any Person who was not
guilty of such fraudulent misrepresentation.
9. Rule 144.
--------
The Company shall use its best efforts to file the reports required to be
filed by them under the Securities Act and the Exchange Act in a timely manner
and, if at any time the Company is not required to file such reports, it will,
upon the request of any holder of Registrable Securities, make publicly
available
19
<PAGE>
other information so long as necessary to permit sales of their securities
pursuant to Rule 144. The Company further covenants that it will take such
further action as any holder of Registrable Securities may reasonably request,
all to the extent required from time to time to enable such holder to sell
Registrable Securities without registration under the Securities Act within the
limitation of the exemption provided by Rule 144. Upon the request of any holder
of Registrable Securities, the Company shall deliver to such holder a written
statement as to whether it has complied with such requirements. Notwithstanding
the foregoing, nothing in this Section 9 shall be deemed to require the Company
to register any of its securities pursuant to the Exchange Act.
10. Underwritten Registrations.
--------------------------
If any of the Registrable Securities covered by any Demand Registration are
to be sold in an underwritten offering, the investment banker or investment
bankers and manager or managers that will manage the offering will be selected
by the holders of a majority of such Registrable Securities included in such
offering.
No person may participate in any underwritten registration hereunder unless
such Person (a) agrees to sell such person's Registrable Securities on the basis
reasonably provided in any underwriting arrangements approved by the persons
entitled hereunder to approve such arrangements and (b) completes and executes
all questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents reasonably required under the terms of such underwriting
arrangements.
11. Miscellaneous.
-------------
(a) Remedies. In the event of a breach by the Company, or by a holder of
--------
Registrable Securities, of any of their obligations under this Agreement, each
holder of Registrable Securities or the Company, as the case may be, in addition
to being entitled to exercise all rights granted by law, including recovery of
damages, will be entitled to specific performance of its rights under this
Agreement. The Company, and each holder of Registrable Securities, agree that
monetary damages would not be adequate compensation for any loss incurred by
reason of a breach by it of any of the provisions of this Agreement and hereby
further agrees that, in the event of any action for specific performance in
respect of such breach, it shall waive the defense that a remedy at law would be
adequate.
(b) No Inconsistent Agreements. The Company has not entered into, as of
--------------------------
the date hereof, nor shall the Company, on or after the date of this Agreement,
enter into, any agreement with respect to its securities that is inconsistent
with the rights granted to the holders of Registrable Securities in this
Agreement or otherwise conflicts with the provisions hereof.
20
<PAGE>
Except for (i) the Registration Rights Agreement dated October 14, 1994,
pertaining to the Company's 20% Mortgage Notes due 1996 ("Mortgage Notes"), (ii)
the Registration Rights Agreement dated October 14, 1994, pertaining to the
shares of Common Stock issued to the purchasers of the Mortgage Notes, (iii) the
Warrant Shares Registration Rights Agreement dated as of October 8, 1993 by and
among the Company and the purchasers of its 12-1/2% First Mortgage Notes due
2000 (collectively, the "Prior Rights Agreements"), the Company has not
previously entered into any agreement granting to any Person any registration
rights still exercisable on the date hereof with respect to any of its
securities. The rights of the holders of Registrable Securities set forth herein
are subject in all respects to the prior rights, if any, granted to the
purchasers under the Prior Rights Agreements and shall be construed and applied
hereunder so as not to be in conflict or inconsistent with the provisions of the
Prior Rights Agreements. The Purchaser acknowledges that on the date hereof the
Company has entered into registration rights agreements substantially similar to
this Agreement with each other purchaser of its 7 1/2% Convertible Subordinated
Notes due December 31, 1996 being issued on the date hereof, and Purchaser
acknowledges that the rights granted under such agreements are not in conflict
or inconsistent with the provisions of this Agreement. Without limiting the
generality of the foregoing, without the written consent of the holders of a
majority of the then outstanding Registrable Securities, the Company shall not
grant to any person the right to request the Company to register any securities
of the Company under the Securities Act unless the rights so granted are subject
in all respects to the prior rights of the holders of Registrable Securities set
forth herein, and are not otherwise in conflict or inconsistent with the
provisions of this Agreement.
(c) No Piggyback on Registrations. The Company will not, and none of its
-----------------------------
securityholders (other than the holders of Registerable Securities in such
capacity pursuant to the applicable Section hereof) may, include securities of
the Company or such securityholders in any Demand Registration (except to the
extent that the inclusion of such securities by the Company or such
securityholders would not, in the good faith opinion of the managing underwriter
selected by the holders of Registrable Securities, adversely affect the success
of the offering proposed to be made by holders of Registrable Securities).
(d) Amendments and Waivers. The provisions of this Agreement, including the
----------------------
provisions of this sentence, may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may not be given,
unless the Company has obtained the written consent of the holders of a majority
of the then outstanding of Registrable Securities; provided, however, that, for
-------- -------
the purpose of this Agreement, Registrable Securities that are owned, directly
or indirectly, by the Company or an Affiliate of the Company are not deemed
outstanding. Notwithstanding the foregoing, a waiver or consent
21
<PAGE>
to depart from the provisions hereof with respect to a matter that relates
exclusively to the rights of holders of Registrable Securities whose securities
are being sold pursuant to a Registration Statement and that does not directly
or indirectly affect the rights of other holders of Registrable Securities may
be given by holders of a majority of the Registrable Securities being sold by
such holders pursuant to such Registration Statement; provided, however, that
-------- -------
the provisions of this sentence may not be amended, modified, or supplemented
except in accordance with the provisions of the immediately preceding sentence.
(e) Notices. All notices and other communications provided for herein shall
-------
be made in writing by hand-delivery, next-day air courier, certified first-class
mail, return receipt requested, telex or facsimile to:
(i) the intended recipient at the "Address for Notices" specified
below its name on the signature pages hereof, or
(ii) if to any other person who is then the registered holder of any
Registrable Securities, to the address of such holder as it appears in the
stock register of the Company.
Except as otherwise provided in this Agreement, all such communications
shall be deemed to have been duly given: when delivered by hand, if personally
delivered; one business day after being timely delivered to a next-day air
courier; five business days after being deposited in the mail, postage prepaid,
if mailed; when answered back, if telexed; and when receipt is acknowledged by
the recipient's telecopier machine, if telecopied.
(f) Successors and Assigns. This Agreement shall inure to the benefit of
----------------------
and be binding upon the successors and permitted assigns of each of the parties
and shall inure to the benefit of each holder of any Registrable Securities.
The Company may not assign their rights or obligations hereunder without the
prior written consent of each holder of any Registrable Securities.
Notwithstanding the foregoing, no transferee shall have any of the rights
granted under this Agreement until such transferee shall acknowledge its rights
and obligations hereunder by a signed written statement of such transferee's
acceptance of such rights and obligations.
(g) Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and, all of which taken
together shall constitute one and the same Agreement.
22
<PAGE>
(h) Governing Law; Submission to Jurisdiction; Waiver of Jury Trial.
---------------------------------------------------------------
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN
THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. THE
COMPANY HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY NEW YORK STATE
COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK OR ANY FEDERAL
COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK IN RESPECT OF
ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, AND
IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND
UNCONDITIONALLY, JURISDICTION OF THE AFORESAID COURTS. THE COMPANY IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW,
TRIAL BY JURY AND ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING
OF THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH
COURT AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH
COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. NOTHING HEREIN SHALL AFFECT
THE RIGHT OF ANY HOLDER OF A REGISTRABLE SECURITY TO SERVE PROCESS IN ANY MANNER
PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST
THE COMPANY IN ANY OTHER JURISDICTION.
(i) Severability. The remedies provided herein are cumulative and not
------------
exclusive of any remedies provided by law. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their reasonable efforts to find and employ an alternative
means to achieve the same or substantially the same result as that contemplated
by such term, provision, covenant or restriction. It is hereby stipulated and
declared to be the intention of the parties that they would have executed the
remaining terms, provisions, covenants and restrictions without including any of
such that may be hereafter declared invalid, illegal, void or unenforceable.
(j) Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof. All
references made in this Agreement to "Section" or "paragraph" refer to such
Section or paragraph in this Agreement unless expressly stated otherwise.
(k) Attorneys' Fees. In any action or proceeding brought to enforce any
---------------
provision of this Agreement, or where any provision hereof or thereof is validly
asserted as a defense, the prevailing party, as determined by the court, shall
be entitled to recover reasonable attorneys' fees in addition to any other
available remedy.
23
<PAGE>
(l) Termination. Provided at least 50% of the Notes issued on the date
-----------
hereof repaid, redeemed or converted into Shares, this Agreement shall terminate
and be of no further force and effect from and after the earliest of (w) the
date on which 33% or less of the Registrable Securities remain outstanding (x)
with respect to any holder of Registrable Securities, the date on which all of
the Shares held by such holder may be sold pursuant to Rule 144(k), (y) with
respect to
24
<PAGE>
any holder of Registrable Securities, the date on which all of the Shares held
by such holder may be sold in a three-month period pursuant to Rule 144, and (z)
10 years from the date hereof; provided, however, with respect to clauses (x)
-------- -------
and (y) of this subsection 12(1) that this Agreement shall not terminate until
such time as the Company shall have delivered to each of the holders of Shares
an opinion of counsel of the Company stating that the conditions contained in
such clause (x) or (y) have been satisfied.
IN WITNESS WHEREOF, the parties hereto have caused this Registration Rights
Agreement to be duly executed, all as of the day first written above.
ELSINORE CORPORATION
By /s/ Thomas E. Martin
-------------------------------
Thomas E. Martin
President
PURCHASER:
MOJAVE PARTNERS, L.P.
By Woodhaven Investors, Inc.
Its General Partner
By /s/ Ted Herreck
--------------------------------
Edward Herreck
President
25
<PAGE>
_________________________________
NOTE PURCHASE AGREEMENT
DATED AS OF MARCH 30, 1995
REGARDING
7-1/2% CONVERTIBLE SUBORDINATED NOTES
DUE DECEMBER 31, 1996
OF
ELSINORE CORPORATION
_________________________________
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
SECTION 1 Sale and Purchase of Notes........................................ 1
SECTION 2 Representations and Warranties of the Company..................... 2
SECTION 3 Representations and Warranties of Purchaser....................... 7
SECTION 4 Conversion........................................................ 8
4.1 Conversion......................................................... 8
4.2 Mechanics of Conversion............................................ 9
a. Surrender, Election and Payment............................... 9
b. Effective Date................................................ 9
c. Share Certificates............................................ 10
d. Acknowledgment of Obligation.................................. 10
e. Payment of Accrued Interest................................... 10
4.3 Current Conversion Price........................................... 10
4.4 Adjustment of Conversion Price..................................... 11
a. Adjustments for Stock Dividends, Recapitalizations, etc....... 11
b. Adjustments for Certain Other
Distributions................................................. 11
c. Adjustments for Issuances of Additional
Stock......................................................... 12
d. Certain Rules in Applying the Adjustment for
Additional Stock Issuances.................................... 13
(i) Cash Consideration..................................... 13
(ii) Non-Cash Consideration................................. 13
(iii) Options, Warrants, Convertibles, etc................... 13
(iv) Number of Shares Outstanding........................... 15
e. Exclusions from the Adjustment for Additional
Stock Issuances............................................... 15
f. Certification................................................. 15
g. Determination of Market Price................................. 15
h. Other Adjustments............................................. 16
i. Meaning of "Issuance"......................................... 16
4.5 Company's Consolidation or Merger................................... 17
4.6 Notice to Holders of Notes.......................................... 17
SECTION 5 Covenants of the Company.......................................... 18
SECTION 6 Defaults.......................................................... 21
SECTION 7 Conditions to the Obligations of Purchaser........................ 24
SECTION 8 Conditions to Obligations of the Company.......................... 27
SECTION 9 Subordination..................................................... 27
9.1 Agreement to Be Bound.............................................. 27
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
9.2 Priority of Senior Indebtedness.................................. 27
9.3 Liquidation; Dissolution; Bankruptcy............................. 28
9.4 No Prejudice or Impairment; Reinstatement........................ 29
9.5 Subrogation...................................................... 30
9.6 Obligations Unaffected........................................... 31
9.7 Definition of Senior Indebtedness................................ 31
SECTION 10 Exchange of Notes; Accrued Interest;Cancellation of Surrendered
Notes; Replacement............................................... 31
SECTION 11 Prepayment...................................................... 33
11.1 Optional Prepayment.............................................. 33
11.2 Change of Control Event.......................................... 34
SECTION 12 Representations and Indemnities to Survive Delivery............. 35
SECTION 13 Notices; Publicity............................................. 35
SECTION 14 Payment of Expenses............................................ 36
SECTION 15 Successors..................................................... 36
SECTION 16 Partial Unenforceability....................................... 36
SECTION 17 Applicable Law................................................. 36
SECTION 18 General........................................................ 37
SECTION 19 Section Headings; Amendment.................................... 37
</TABLE>
ii
<PAGE>
NOTE PURCHASE AGREEMENT dated as of March 30, 1995, by and betweenElsinore
Corporation, a Nevada corporation (the "Company"), and G & O Partners, L.P., a
Delaware limited partnership ("Purchaser").
W I T N E S S E T H:
-------------------
In consideration of the mutual covenants and agreements set forth herein
and for other good and valuable consideration the receipt and sufficiency of
which are hereby acknowledged, the parties agree as follows:
SECTION 1 Sale and Purchase of Notes.
--------------------------
a. The Company agrees to sell to Purchaser and, subject to the terms
and conditions hereof and in reliance upon the representations and warranties of
the Company contained herein, Purchaser agrees to purchase on the Closing Date
(as hereinafter defined), a note or notes in the aggregate principal amount of
$180,000 (collectively, the "Note"). The aggregate purchase price to be paid
to the Company by Purchaser for the Note is 100% of the principal amount of the
Note to be purchased by the Purchaser. All obligations under the Note will be
secured by a pledge of capital stock of Mojave Gaming, Inc., a wholly-owned
subsidiary of the Company, in the manner specified in the Pledge Agreement
attached hereto as Exhibit B ("Pledge Agreement").
b. As used herein, "Notes" means the aggregate of $1,706,250
principal amount of the Company's 7-1/2% Convertible Subordinated Notes Due
December 31, 1996, issued pursuant to the Purchase Agreements (defined in
Section 1(c)), together with all Notes issued in exchange therefor or
replacement thereof. Each of the Notes will be substantially in the form of the
Note set forth as Exhibit A hereto.
c. The Notes are being sold to Purchaser pursuant to this Agreement
and to other purchasers under other agreements dated as of the date hereof
(collectively the "Purchase Agreements"). The sale of Notes to each purchaser
under each Purchase Agreement is a separate sale, the purchasers are not acting
together or as a group for purposes of such purchase and sale and no purchaser
will have any rights or liabilities under any Purchase Agreement other than the
Purchase Agreement to which it is a party.
d. The closing of the purchase and sale of the Notes will take place
at the offices of Pillsbury Madison & Sutro, 235 Montgomery Street, San
Francisco, CA at 10:00 A.M., Pacific Standard time, on March 31, 1995, or such
other time and date as
1
<PAGE>
shall be mutually agreed to by the Company and Purchaser ("Closing Date").
Subject to the terms and conditions hereof, on the Closing Date (i) the Company
will deliver to Purchaser the Note, as set forth on Annex I hereto, in the form
of Exhibit A hereto in the aggregate principal amount of $1,125,000 and (ii)
upon Purchaser's receipt thereof, Purchaser will deliver to the Company a
certified or official bank check or wire transfer in an amount equal to the
purchase price for the Note payable to the order of the Company in federal or
other next day funds.
SECTION 2 Representations and Warranties of the Company.
---------------------------------------------
The Company hereby represents and warrants to Purchaser that:
a. The execution and delivery by the Company of (i) this Agreement,
(ii) the Note and the Pledge Agreement, and (iii) the Registration Rights
Agreement to be executed and delivered by the Company and Purchaser, in the form
attached as Exhibit C hereto ("Registration Rights Agreement") (collectively,
the "Documents"), the performance by the Company of its obligations thereunder,
the issuance, sale and delivery of the Note and the issuance of Common Stock
upon conversion of the Note have been duly authorized by all requisite corporate
action and will not violate any provision of law, any order of any court or
other agency of government, the Certificate of Incorporation or By-laws of the
Company, or any provision of any indenture, agreement or other instrument to
which the Company or any Subsidiary (as defined in Section 2(d)) or any of the
properties or assets of the Company or any Subsidiary is bound, or conflict
with, result in a breach of or constitute (with due notice or lapse of time or
both) a default under any such indenture, agreement or other instrument, or
result in the creation or imposition of any lien, charge or encumbrance of any
nature whatsoever upon any of the properties or assets of the Company or any
Subsidiary. The Company has full corporate power and authority to enter into
the Documents and to perform the transactions contemplated thereby.
b. This Agreement has been duly executed and delivered by the
Company and constitutes the legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, subject, as to
enforcement of remedies, to applicable bankruptcy, insolvency, reorganization,
moratorium and similar laws from time to time in effect affecting the
enforcement of creditors' rights generally and to general equity principles.
The Pledge Agreement and the Note and the Registration Rights Agreement, when
executed and delivered by the Company as provided in this Agreement, will
constitute legal, valid and binding obligations of the Company, enforceable
against the Company in accordance with their terms.
2
<PAGE>
c. A disclosure memorandum containing all material information with
respect to the business, properties, prospects and financial condition of the
Company and its Subsidiaries as of the date hereof has been delivered to
Purchaser (the "Memorandum"). The information contained in the Memorandum is
true and correct in all material respects as of the date of the Memorandum. The
Memorandum does not contain any untrue statement of a material fact nor does it
omit to state a material fact necessary in order to make the statements made, in
light of the circumstances under which they were made.
d. Except as described in the Memorandum, the Company does not own
or control, directly or indirectly, any corporation, association or other
entity. Each corporation, association or other entity described in the
Memorandum as being owned, directly or indirectly, in whole or in part, is
herein referred to as a "Subsidiary" and all such entities together, are herein
referred to as the "Subsidiaries." The Company has been duly incorporated and
is validly existing as a corporation in good standing under the laws of Nevada,
with full power and authority (corporate and other) to own and lease its
properties and conduct its business as described in the Memorandum; each
Subsidiary has been duly and validly incorporated or otherwise formed pursuant
to the laws of its jurisdiction of formation and, if a corporation, limited
liability company or limited partnership, is in good standing under such laws;
each Subsidiary that is a partnership, limited partnership or limited liability
company is a partnership for United States federal income tax purposes; except
as described in the Memorandum, the Company and each Subsidiary is in possession
of and operating in compliance in all material respects with all authorizations,
licenses, permits, consents, certificates and orders material to the conduct of
its business, all of which are valid and in full force and effect; the Company
and each Subsidiary is duly qualified to do business and in good standing as a
foreign corporation or other entity in each jurisdiction in which the ownership
or leasing of properties or the conduct of its business requires such
qualification, except for jurisdictions in which the failure to so qualify would
not have a material adverse effect upon the Company; and except as described in
the Memorandum, no proceeding has been instituted in any such jurisdiction,
revoking, limiting or curtailing, or seeking to revoke, limit or curtail, such
power and authority or qualification.
e. The Company has authorized and outstanding capital stock as set
forth under the heading "Capitalization" in the Memorandum; the issued and
outstanding shares of Common Stock have been duly authorized and validly issued,
are fully paid and nonassessable, have been issued in compliance with all
federal and state securities laws, were not issued in violation of or
3
<PAGE>
subject to any preemptive rights or other rights to subscribe for or purchase
securities, and conform to the description thereof contained in the Memorandum.
The Company's Board of Directors (i) has reserved for issuance upon conversion
of the Notes up to 2 million shares of the Company's authorized and unissued
Common Stock and, (ii) shall, on an ongoing basis until conversion or maturity
of the Notes, keep reserved such number of shares of the Company's authorized
and unissued Common Stock as shall be necessary for issuance upon conversion of
the Notes. Except as disclosed in or contemplated by the Memorandum and the
financial statements of the Company, and the related notes thereto, included in
the Memorandum, neither the Company nor any Subsidiary has outstanding any
options to purchase, or any preemptive rights or other rights to subscribe for
or to purchase, any securities or obligations convertible into, or any contracts
or commitments to issue or sell, shares of its capital stock or any such
options, rights, convertible securities or obligations. The description of the
Company's stock option, stock bonus and other stock plans or arrangements, and
the options or other rights granted and exercised thereunder, set forth in the
Memorandum and the Company's Proxy Statement relating to its 1995 Annual Meeting
of Stockholders accurately and fairly presents all material information with
respect to such plans, arrangements, options and rights.
f. The unaudited consolidated financial statements and schedules of
the Company and its Subsidiaries, and the related notes thereto, included in the
Memorandum present fairly the financial position of the Company and such
Subsidiaries as of the respective dates of such financial statements and
schedules, and the results of operations and changes in financial position of
the Company and such Subsidiaries for the respective periods covered thereby.
Such statements, schedules and related notes have been prepared in accordance
with generally accepted accounting principles applied on a consistent basis.
g. Except as disclosed in the Memorandum, and except as to defaults
that individually or in the aggregate would not be material to the Company,
neither the Company nor any Subsidiary is in violation or default of any
provision of its articles of incorporation or bylaws, or other organization
documents, and is not in breach of or default with respect to any provision of
any agreement, judgment, decree, order, mortgage, deed of trust, lease,
franchise, license, indenture, permit or other instrument to which it is a party
or by which any of its properties are bound; and there does not exist any state
of facts that constitutes an event of default on the part of the Company or any
Subsidiary as defined in such documents or that, with notice or lapse of time or
both, would constitute such an event of default.
4
<PAGE>
h. Except as described in the Memorandum, the contracts described in
the Memorandum, and all other material contracts, instruments, and other
documents evidencing legal rights and obligations of the Company or any
Subsidiary ("Contracts"), are in full force and effect on the date hereof; and,
except as described in the Memorandum, (i) neither the Company nor any
Subsidiary nor, to the best of the Company's knowledge, any other party is in
breach of or default under any Contract where such breach or default would
permit any party to terminate such Contract or could result in other penalties
having a material adverse effect on the Company; (ii) to the best of the
Company's knowledge, no event has occurred that, upon notice or the passage of
time, would cause such a default to occur; and (iii) the Company does not expect
to be unable or expect any Subsidiary to be unable to comply with any material
provision of any Contract.
i. Except as described in the Memorandum, there are no legal or
governmental actions, suits or proceedings pending, threatened in a writing
received by the Company or a Subsidiary or, to the best of the Company's
knowledge, otherwise threatened to which the Company or any Subsidiary is or may
be a party or of which property owned or leased by the Company or any Subsidiary
is or may be the subject, or related to environmental or discrimination matters,
which actions, suits or proceedings might, individually or in the aggregate,
prevent or adversely affect the transactions contemplated by this Agreement or
result in a material adverse change in the condition (financial or otherwise),
properties, business, results of operations or prospects of the Company or any
Subsidiary; and no labor disturbance by the employees of the Company exists or,
to the best of the Company's knowledge, is imminent that might be expected to
affect adversely such condition, properties, business, results of operations or
prospects. Neither the Company nor any Subsidiary is a party or subject to the
provisions of any material injunction, judgment, decree or order of any court,
regulatory body, administrative agency or other governmental body.
j. The Company or a Subsidiary has good and marketable title to all
the properties and assets reflected as owned in the balance sheet dated December
31, 1994, included in the financial statements hereinabove described, subject to
no lien, mortgage, pledge, charge or encumbrance of any kind except (i) those,
if any, reflected in such financial statements, (ii) the Memorandum, or (iii)
those that are not material in amount and do not adversely affect the use made
and proposed to be made of such property by the Company. The Company and each
Subsidiary holds its leased properties under valid and binding leases, with such
exceptions as are not materially significant in relation to the business of the
Company. The Company and each Subsidiary
5
<PAGE>
owns or leases all such properties as are necessary to its operations as now
conducted.
k. Since the date as of which information is given in the
Memorandum, and except as described in or specifically contemplated by the
Memorandum: (i) neither the Company nor any Subsidiary has incurred any
material liabilities or obligations, indirect, direct or contingent, or engaged
in any other transaction that is not in the ordinary course of business or that
could result in a material reduction in the future earnings or liquidity of the
Company; (ii) neither the Company nor any Subsidiary has sustained any material
loss or interference with its business or properties from fire, flood,
windstorm, accident or other calamity, whether or not covered by insurance;
(iii) neither the Company nor any Subsidiary has paid or declared any dividends
or other distributions with respect to its capital stock and the Company is not
in default in the payment of principal or interest on any outstanding debt or
obligations for money borrowed; (iv) there has not been any change in the
capital stock of the Company (other than as a result of the sale of the Note
hereunder) or indebtedness material to the Company (other than in the ordinary
course of business); and (v) there has not been any material adverse change in
the condition (financial or otherwise), business, properties, results of
operations or prospects of the Company or any Subsidiary.
l. Except as disclosed in or specifically contemplated by the
Memorandum, the Company and each Subsidiary has sufficient trademarks, trade
names, patent rights, copyrights, licenses, approvals and governmental
authorities to conduct its businesses as now conducted; the expiration in
accordance with their terms of any trademarks, trade names, patent rights,
copyrights, licenses, approvals or governmental authorizations would not have a
material adverse effect on the condition (financial or otherwise), business,
results of operations or prospects of the Company or any Subsidiary; and except
as described in the Memorandum the Company has no knowledge of any material
infringement by it or its Subsidiaries of trademark, trade name rights, patent
rights, copyrights, licenses, trade secret or other similar rights of others
that has not been resolved, and there is no claim being made against the Company
or any Subsidiary regarding trademark, trade name, patent, copyright, license,
trade secret or other infringement that could have a material adverse effect on
the condition (financial or otherwise), business, results of operations or
prospects of the Company.
m. The Company and each Subsidiary and, to the Company's knowledge,
each employee of the Company or any Subsidiary, acting in that capacity, is
conducting business in compliance with all applicable laws, rules and
regulations of
6
<PAGE>
the jurisdictions in which it or such Subsidiary is conducting business,
including, without limitation, all applicable local, state and federal
environmental laws and regulations, except where failure to be so in compliance
would not materially adversely affect the condition (financial or otherwise),
business, results of operations or prospects of the Company.
n. The Company and the Subsidiaries have filed all necessary
federal, state and foreign income and franchise tax returns and except as
described in the Memorandum, have paid all taxes shown as due thereon; and,
except as described in the Memorandum, the Company has no knowledge of any tax
deficiency that has been or might be asserted or threatened against the Company
or the Subsidiaries that would materially and adversely affect the business,
operations, or properties of the Company.
o. The Company is not an "investment company" within the meaning of
the Investment Company Act of 1940, as amended.
p. The Company and the Subsidiaries maintain insurance of the types
and in the amounts generally deemed adequate for their respective businesses,
including, but not limited to, insurance covering real and personal property
owned or leased by the Company or such Subsidiary against theft, damage,
destruction, acts of vandalism and all other risks customarily insured against,
all of which insurance is in full force and effect.
q. Neither the Company nor any of the Subsidiaries has at any time
during the last five years (i) made any unlawful contribution to any candidate
for foreign office, or failed to disclose fully any contribution in violation of
law or (ii) made any payment to any federal or state governmental officer or
official, or other person charged with similar public or quasi-public duties,
other than payments required or permitted by the laws of the United States of
any jurisdiction thereof.
r. No officer of the Company or any Subsidiary has been determined
to be unsuitable by any gaming regulatory authority nor, to the best of the
Company's knowledge, has any process with a view to any such determination
(other than a routine review of the qualifications of any such person) been
initiated by any such authority.
SECTION 3 Representations and Warranties of Purchaser.
-------------------------------------------
Purchaser hereby represents and warrants to the Company that:
a. Purchaser is a validly existing limited partnership in good
standing under the laws of Delaware.
7
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Purchaser has full power and authority to enter into this Agreement and perform
the transactions contemplated hereby. This Agreement has been duly authorized,
executed and delivered by Purchaser and constitutes a valid and binding
obligation of Purchaser in accordance with its terms.
b. Purchaser is an accredited investor as that term is defined in
Regulation D promulgated under the Securities Act of 1933, as amended (the "1933
Act") and has such knowledge and experience in financial and business matters as
to be capable of evaluating the merits and risks of the purchase of the Note.
The Note is being acquired for Purchaser's own account for investment and not
with a view to, or for resale in connection with, any distribution, and no other
person has or will have any right to acquire any beneficial interest therein.
Purchaser understands and agrees that it must bear the economic risk of an
investment in the Note for an indefinite period of time because the Note not
been registered under the 1933 Act or under the securities laws of any state or
other jurisdiction and, therefore, cannot be resold, pledged, assigned or
otherwise disposed of unless the Note is subsequently registered for sale under
the 1933 Act and the applicable securities laws of such states, or unless an
exemption from registration is available. Purchaser acknowledges that a
restrictive legend will be placed on the Note and each certificate representing
shares of Common Stock issued upon conversion of the Note and a notation shall
be made in the appropriate records of the Company indicating that the Note and
share certificates are subject to restrictions on transfer under the 1933 Act.
Purchaser has received and reviewed the Memorandum. Purchaser acknowledges that
it has had the opportunity to ask questions of and receive answers from the
Company concerning the terms and conditions of the offering described in the
Memorandum, and to obtain any additional information it requested from the
Company.
SECTION 4 Conversion.
----------
4.1 Conversion.
----------
a. The holder of a Note shall have the right, at the option of such
holder, at any time to convert, subject to the terms and provisions of this
Section 4, the unpaid principal amount of the Note or any portion thereof, in
minimum increments of $1,000, and any accrued and unpaid interest on such Note,
into fully paid and non-assessable shares of Common Stock of the Company or any
capital stock or other securities into which such Common Stock shall have been
changed or any capital stock or other securities resulting from a
reclassification thereof ("Shares"). Such conversion of a Note to Shares shall
be made at an amount per Share (of principal of such Note and/or of accrued and
unpaid interest if specified by the holder) which is
8
<PAGE>
equal to the then current conversion price, as further described below. Every
Note shall continue to be convertible, in whole or in part, even though the
Company or a holder may have given notice of prepayment with respect to such
Note or any part thereof pursuant to Section 11 hereof, so long as such Note and
the holder's election to convert shall have been delivered to the Company
pursuant to Section 4.2(a) hereof prior to the date fixed for such prepayment.
b. For convenience, the conversion pursuant to this Section 4 of all
or a portion of the principal amount of a Note (and/or of accrued and unpaid
interest if elected by the holder) into Shares is herein sometimes referred to
as the "conversion" of the Note. For purposes of this Section 4, "Business Day"
means any day other than a Saturday, Sunday or legal holiday, on which banks in
the location of the office of the Company identified in Section 13 are open for
business.
4.2 Mechanics of Conversion.
-----------------------
a. Surrender, Election and Payment. The then unpaid principal
-------------------------------
amount of each Note (and/or any accrued and unpaid interest on such Note) may be
converted by the holder thereof, in whole or in part, during normal business
hours on any Business Day by surrender of the Note, accompanied by written
evidence of the holder's election to convert the Note or portion thereof, to the
Company at its office designated in Section 13 hereof (or, if such conversion is
in connection with an underwritten public offering of Shares, at the location at
which the underwriting agreement requires that such Shares be delivered).
Payment of the conversion price for the Shares specified in such election shall
be made by applying an aggregate amount of principal of the Note and/or, if
elected by the holder, of accrued and unpaid interest equal to the amount
obtained by multiplying (i) the number of Shares specified in such election by
(ii) the then current conversion price. Such holder shall thereupon be entitled
to receive the number of Shares specified in such election rounded to the
nearest whole share.
b. Effective Date. Each conversion of a Note pursuant to Section
--------------
4.2(a) hereof shall be deemed to have been effected immediately prior to the
close of business on the Business Day on which such Note shall have been
surrendered to the Company as provided in Section 4.2(a) hereof (except that if
such conversion is in connection with an underwritten public offering of Shares,
then such conversion shall be deemed to have been effected upon such surrender),
and such conversion shall be at the current conversion price in effect at such
time. On each such day that the conversion of a Note is deemed effected, the
person or persons in whose name or names any certificate or certificates for
Shares are issuable upon such conversion, as
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<PAGE>
provided in Section 4.2(c) hereof, shall be deemed to have become the holder or
holders of record thereof.
c. Share Certificates. As promptly as practicable after the
------------------
conversion of a Note, in whole or in part, and in any event within five Business
Days thereafter (unless such conversion is in connection with an underwritten
public offering of Shares, in which event concurrently with such conversion),
the Company at its expense (including the payment by it of any applicable issue,
stamp or other taxes, other than any income taxes) will cause to be issued in
the name of and delivered to the holder thereof, or as such holder may direct, a
certificate or certificates for the number of Shares to which such holder shall
be entitled upon such conversion.
d. Acknowledgment of Obligation. The Company will, at the time of
----------------------------
or at any time after each conversion of a Note, upon the request of the holder
thereof or of any Shares issued upon such conversion, acknowledge in writing its
continuing obligation to afford to such holder all rights to which such holder
shall continue to be entitled under the Documents; provided, that if any such
holder shall fail to make any such request, the failure shall not affect the
continuing obligation of the Company to afford such rights to such holder.
e. Payment of Accrued Interest. Within five Business Days after
---------------------------
receipt of any Note and an election to convert all or a portion of the principal
amount of such Note under Section 4.2(a) hereof, the Company will pay to the
holder of such Note any unpaid interest, accrued to the date of conversion of
such Note, on the principal amount so converted, except to the extent that the
amount of such interest has also been converted into Shares.
4.3 Current Conversion Price.
------------------------
The term "conversion price" shall mean initially the lower of $1.125
or the average of the daily closing prices for the Common Stock for the 5
consecutive trading days immediately prior to the Closing Date, subject to
adjustment as set forth in Section 4.4. For purposes of determining the initial
conversion price described in the preceding sentence, the "closing price" for
each day shall be the last reported sale price regular way or, in case no such
sale takes place on such day, the average of the closing bid and asked prices
regular way, in either case as reported by the American Stock Exchange. The
term "current conversion price" as used herein shall mean the conversion price,
as the same may be adjusted from time to time as hereinafter provided, in effect
at any given time. In determining the current conversion price, the result
shall be expressed to the nearest $0.01, but any such lesser amount shall be
carried
10
<PAGE>
forward and shall be considered at the time of (and together with) the next
subsequent adjustment which, together with any adjustments to be carried
forward, shall amount to $0.01 per Share or more.
4.4 Adjustment of Conversion Price.
------------------------------
The conversion price shall be subject to adjustment, from time to
time, as follows:
a. Adjustments for Stock Dividends, Recapitalizations, etc. In case
--------------------------------------------------------
the Company shall, after the Closing Date, (i) pay a stock dividend or make a
distribution (on or in respect of its Common Stock) in shares of its Common
Stock, (ii) subdivide the outstanding shares of its Common Stock, (iii) combine
the outstanding shares of its Common Stock into a smaller number of shares, or
(iv) issue by reclassification of shares of its Common Stock, any shares of
capital stock of the Company, then, in any such case, the current conversion
price in effect immediately prior to such action shall be adjusted to a price
such that if the holder of a Note were to convert such Note in full immediately
after such action, such holder would be entitled to receive the number of shares
of capital stock of the Company which the holder would have owned immediately
following such action had such Note been converted immediately prior thereto
(with any record date requirement being deemed to have been satisfied), and, in
any such case, such conversion price shall thereafter be subject to further
adjustments under this Section 4. An adjustment made pursuant to this Section
4.4(a) shall become effective retroactively immediately after the record date in
the case of a dividend or distribution and shall become effective immediately
after the effective date in the case of a subdivision, combination or
reclassification.
b. Adjustments for Certain Other Distributions. In case the Company
-------------------------------------------
shall, after the Closing Date, fix a record date for the making of a
distribution to holders of its Common Stock (including any such distribution
made in connection with a consolidation or merger in which the Company is the
continuing corporation) of (i) assets (other than cash dividends paid out of
retained earnings of the Company (determined under generally accepted accounting
principles consistently applied)), (ii) evidences of indebtedness or other
securities (except for its Common Stock) of the Company or of any entity other
than the Company, or (iii) subscription rights, options or warrants to purchase
any of the foregoing assets or securities, whether or not such rights, options
or warrants are immediately exercisable (all such distributions referred to in
clauses (i), (ii) and (iii) being hereinafter collectively referred to as
"Distributions on Common Stock"), the Company shall set aside in an escrow
reasonably acceptable to the holders of Notes, and suitably invested for the
11
<PAGE>
benefit of the holders of Notes, the Distribution on Common Stock to which they
would have been entitled if they had converted all of the Notes held by them for
the Company's Common Stock immediately prior to the record date for the purpose
of determining stockholders entitled to receive such Distribution on Common
Stock and any such Distribution on Common Stock (together with any earnings
while escrowed) shall thereafter be distributed from time to time out of such
escrow to persons converting Notes (immediately upon conversion).
c. Adjustments for Issuances of Additional Stock. Subject to the
---------------------------------------------
exceptions referred to in Section 4.4(e) hereof, in case the Company shall at
any time or from time to time after the Closing Date issue any additional shares
of Common Stock ("Additional Common Stock"), for a consideration per share
either (I) less than the then current Market Price per share of the Common Stock
(determined as provided in Section 4.4(g) hereof), immediately prior to the
issuance of such Additional Common Stock, or (II) without consideration, then
(in the case of either clause (I) or (II)), and thereafter successively upon
each such issuance, the current conversion price shall forthwith be reduced to a
price equal to the price determined by multiplying such current conversion price
by a fraction, of which:
(a) the numerator shall be (i) the number of shares of the
Company's Common Stock outstanding when the then current conversion
price became effective plus (ii) the number of shares of Common Stock
which the aggregate amount of consideration, if any, received by the
Company upon all issuances of Common Stock, since the current
conversion price became effective (including the consideration, if
any, received for such Additional Common Stock) would purchase at the
then current Market Price per share of the Common Stock, and
(b) the denominator shall be (i) the number of shares of Common
Stock outstanding when the current conversion price became effective
plus (ii) the number of shares of Common Stock issued since the
current conversion price became effective (including the number of
shares of such Additional Common Stock);
provided, however, that such adjustment shall be made only if such
adjustment results in a current conversion price less than the current
conversion price in effect immediately prior to the issuance of such
Additional Common Stock. The Company may, but shall not be required to,
make any adjustment of the current conversion price if the amount of such
adjustment shall be less than one percent of the current conversion price
immediately prior to such adjustment, but any adjustment that would
otherwise be
12
<PAGE>
required then to be made which is not so made shall be carried forward and
shall be made at the time of (and together with) the next subsequent
adjustment which, together with any adjustments so carried forward, shall
amount to not less than one percent of the current conversion price
immediately prior to such adjustment.
d. Certain Rules in Applying the Adjustment for Additional Stock
-------------------------------------------------------------
Issuances. For purposes of any adjustment as provided in Section 4.4(c) hereof,
- ---------
the following provisions shall also be applicable:
(i) Cash Consideration. In case of the issuance of Additional
------------------
Common Stock for cash, the consideration received by the Company therefor
shall (subject to the last sentence of Section 4.4(g) hereof) be deemed to
be the aggregate consideration paid by the persons to whom such Additional
Common Stock is issued.
(ii) Non-Cash Consideration. In case of the issuance of
----------------------
Additional Common Stock for a consideration other than cash, or a
consideration a part of which shall be other than cash, the amount of the
consideration other than cash so received or to be received by the Company
shall be deemed to be the value of such consideration at the time of its
receipt by the Company as determined in good faith by the Board of
Directors of the Company, except that where the non-cash consideration
consists of the cancellation, surrender or exchange of outstanding
obligations of the Company (or where such obligations are otherwise
converted into shares of Common Stock), the value of the non-cash
consideration shall be deemed to be the principal amount of, and any and
all interest relating to, the obligations cancelled, surrendered,
satisfied, exchanged or converted. If the Company receives consideration,
part or all of which consists of publicly traded securities (i.e., in lieu
of cash), the value of such non-cash consideration shall be the aggregate
market value of such securities (based on the latest reported sale price
regular way) as of the close of the day immediately preceding the date of
their receipt by the Company.
(iii) Options, Warrants, Convertibles, etc. In case of the
-------------------------------------
issuance, whether by distribution or sale to holders of its Common Stock or
to others, by the Company of (i) any security (other than the Notes) that
is convertible into Common Stock or (ii) any rights, options or warrants to
purchase Common Stock (except as stated in Section 4.4(e) hereof), if
inclusion thereof in calculating adjustments under this Section 4.4 would
result in a current conversion price lower than if excluded, the Company
shall be deemed
13
<PAGE>
to have issued, for the consideration described below, the number of shares
of Common Stock into which such convertible security may be converted when
first convertible, or the number of shares of Common Stock deliverable upon
the exercise of such rights, options or warrants when first exercisable, as
the case may be (and such shares shall be deemed to be Additional Common
Stock for purposes of Section 4.4(c) hereof). The consideration deemed to
be received by the Company at the time of the issuance of such convertible
securities or such rights, options or warrants shall be the consideration
so received determined as provided in Section 4.4(d)(i) and (ii) hereof,
plus (x) any consideration or adjustment payment to be received by the
Company in connection with such conversion and, as applicable, (y) the
aggregate price at which shares of Common Stock are to be delivered upon
the exercise of such rights, options or warrants when first exercisable
(or, if no price is specified and such shares are to be delivered at an
option price related to the market value of the subject Common Stock an
aggregate option price bearing the same relation to the market value of the
subject Common Stock at the time such rights, options or warrants were
granted). If, subsequently, (1) such number of shares into which such
convertible security is convertible, or which are deliverable upon the
exercise of such rights, options or warrants, is increased or (2) the
conversion or exercise price of such convertible security, rights, options
or warrants is decreased, then the calculations under the preceding two
sentences (and any resulting adjustment to the current conversion price
under Section 4.4(c) hereof) with respect to such convertible security,
rights, options or warrants, as the case may be, shall be recalculated as
of the time of such issuance but giving effect to such changes (but any
such recalculation shall not result in the current conversion price being
higher than that which would be calculated without regard to such
issuance). On the expiration or termination of such rights, options or
warrants, or rights to convert, the conversion price hereunder shall be
readjusted (up or down as the case may be) to such current conversion price
as would have been obtained had the adjustments made with respect to the
issuance of such rights, options, warrants or convertible securities been
made upon the basis of the delivery of only the number of shares of Common
Stock actually delivered upon the exercise of such rights, options or
warrants or upon the conversion of any such securities and at the actual
exercise or conversion prices (but any such recalculation shall not result
in the current conversion price being higher than that which would be
calculated without regard to such issuance).
14
<PAGE>
(iv) Number of Shares Outstanding. The number of shares of
----------------------------
Common Stock as at the time outstanding shall exclude all shares of Common
Stock then owned or held by or for the account of the Company but shall
include the aggregate number of shares of Common Stock at the time
deliverable in respect of the convertible securities, rights, options and
warrants referred to in Section 4.4(d)(3) and 4.4(e) hereof; provided, that
to the extent that such rights, options, warrants or conversion privileges
are not exercised, such shares of Common Stock shall be deemed to be
outstanding only until the expiration dates of the rights, warrants,
options or conversion privileges or the prior cancellation thereof.
e. Exclusions from the Adjustment for Additional Stock Issuances.
-------------------------------------------------------------
No adjustment of the current conversion price under Section 4.4(c) hereof shall
be made as a result of or in connection with:
(i) the issuance of the Notes, any Shares upon conversion of the
Notes or the issuance of any shares of Common Stock pursuant to Section
6(c) hereof; or
(ii) the issuance of Common Stock to officers, directors or
employees of the Company or any Subsidiary, or the grant to or exercise by
any such persons of options to purchase Common Stock, under bona fide
employee benefit plans, or pursuant to an employment agreement or
consulting agreement, which plan or agreement has been adopted or approved
by the Board of Directors of the Company and, when required by law,
approved by the holders of Common Stock (but only to the extent that the
aggregate number of shares excluded hereby and issued pursuant to such
plans and agreements shall not at any time exceed 15% of the Common Stock
outstanding).
f. Certification. Whenever the current conversion price is adjusted
-------------
as provided in this Section 4.4, the Company will promptly obtain a certificate
of the Company's President or Chief Financial Officer setting forth the current
conversion price as so adjusted, the computation of such adjustment and a brief
statement of the facts accounting for such adjustment, and will mail to the
holders of the Notes a copy of such certificate.
g. Determination of Market Price. For the purpose of any
-----------------------------
computation under this Section 4, the current "Market Price" per share of the
Common Stock on any date shall be deemed to be the average of the daily closing
prices for the 10 consecutive trading days before such date (subject to the last
sentence of this Section 4.4(g)). The closing price for each day shall be the
last reported sale price regular way or, in case no
15
<PAGE>
such sale takes place on such day, the average of the closing bid and asked
prices regular way, in either case on the principal national securities exchange
on which the Company's Common Stock is listed or admitted to trading, or if the
Common Stock is not listed or admitted to trading on any national securities
exchange, the average of the highest reported bid and lowest reported asked
prices as furnished by the National Association of Securities Dealers Inc.,
Automated Quotation System. If the closing price cannot be so determined, then
the Market Price shall be determined (x) by the written agreement of the Company
and the holders of Notes representing a majority of the Shares then obtainable
from the conversion of outstanding Notes, or (y) in the event that no such
agreement is reached within 20 days after the event giving rise to the need to
determine the Market Price, by the agreement of two arbitrators, one of whom
shall be selected by the Company and the other of whom shall be selected by such
majority holders or (z) if the two arbitrators so selected fail to agree within
20 days, by a third arbitrator selected by the mutual agreement of the other two
(with all costs and expenses of any arbitrators to be paid by the Company). The
Company shall cooperate, and shall provide all necessary information and
assistance, to permit any determination under the preceding clauses (x), (y) or
(z). If the Company conducts an underwritten public offering of the Company's
Common Stock which is conducted in compliance with any applicable agreements,
and if such public offering either raises at least $3 million of net proceeds to
the Company and/or selling shareholders thereunder or was initiated under the
Registration Rights Agreement at the demand of a holder of Notes or of Shares,
then for purposes of Section 4.4(c) hereof the Company shall be deemed to have
issued such shares of its Common Stock sold in such underwritten public offering
for a consideration per share equal to the then current Market Price per share.
h. Other Adjustments. In case any event shall occur as to which any
-----------------
of the provisions of this Section 4.4 are not strictly applicable but the
failure to make any adjustment would not fairly protect the conversion rights
represented by the Notes in accordance with the essential intent and principles
of this Section 4.4, then, in each such case, the Company shall request its
independent public accountants to render an opinion upon the adjustment, if any,
on a basis consistent with the essential intent and principles established in
this Section 4.4, necessary to preserve, without dilution, the conversion rights
represented by the Notes. Upon receipt of such opinion, the Company will
promptly mail copies thereof to the holders of the Notes and shall make the
adjustments described therein.
i. Meaning of "Issuance". References in this Agreement to
---------------------
"issuances" of stock by the Company include
16
<PAGE>
issuances by the Company of previously unissued shares and issuances or other
transfers by the Company of treasury stock.
4.5 Company's Consolidation or Merger.
---------------------------------
Without limiting the covenants of the Company contained in Section 5
hereof, if the Company shall at any time consolidate with or merge into another
corporation (where the Company is not the continuing corporation after such
merger or consolidation), or the Company shall sell, transfer or lease all or
substantially all of its assets, or the Company shall change its Shares into
property other than capital stock, then, in any such case, the holder of a Note
shall thereupon (and thereafter) be entitled to receive, upon the conversion of
such Note in whole or in part, the securities or other property to which (and
upon the same terms and with the same rights as) a holder of the number of
Shares deliverable upon conversion of such Note would have been entitled if such
conversion had occurred immediately prior to such consolidation or merger, such
sale of assets or such change, and such conversion rights shall thereafter
continue to be subject to further adjustments under this Section 4. The Company
shall take such steps in connection with such consolidation or merger, such sale
of assets or such change as may be necessary to assure such holder that the
provisions of the Notes and this Agreement shall thereafter be applicable in
relation to any securities or property thereafter deliverable upon the
conversion of the Notes, including, but not limited to, obtaining a written
obligation to supply such securities or property upon such conversion and to be
so bound by the Notes.
4.6 Notice to Holders of Notes.
--------------------------
In case at any time
a. the Company shall take any action which would require an
adjustment in the current conversion price pursuant to Section 4.4(a), (c) or
(h); or
b. the Company shall authorize the granting to the holders of its
Common Stock of any Distributions on Common Stock as set forth in Section
4.4(b); or
c. there shall occur any Change of Control Event (as defined in
Section 11.2);
then, in any one or more of such cases, the Company shall give written notice to
the holders of the Notes, not less than 20 days before any record date or other
date set for definitive action, of the date on which such action, distribution,
reorganization, reclassification, change, sale, transfer, lease, consolidation,
merger, dissolution, liquidation or winding-up shall take place,
17
<PAGE>
as the case may be. Such notice shall also set forth such facts as shall
indicate the effect of any such action (to the extent such effect may be known
at the date of such notice) on the current conversion price and the kind and
amount of the shares and other securities and property deliverable upon
conversion of the Notes. Such notice shall also specify any date as of which
the holders of the Common Stock of record shall be entitled to exchange their
Common Stock for securities or other property deliverable upon any such
reorganization, reclassification, change, sale, transfer, lease, consolidation,
merger, dissolution, liquidation or winding-up, as the case may be.
SECTION 5 Covenants of the Company.
------------------------
The Company covenants and agrees with Purchaser as follows:
a. The Company shall use its best efforts to cause the consummation
of the transactions contemplated hereby in accordance with the terms and
conditions set forth in the Documents.
b. Until the later of the date that all Notes are paid in full or
converted into Shares or December 31, 1996, the Company will furnish to the
holder(s) of the Note and the Shares: (i) concurrent with distribution to the
Company's stockholders, copies of the Annual Report of the Company containing
the balance sheet of the Company as of the close of such fiscal year and
statements of income, stockholders' equity and cash flows for the year then
ended and the opinion thereon of the Company's independent public accountants;
(ii) as soon as practicable after the filing thereof, copies of each proxy
statement, Annual Report on Form 10-K, Quarterly Report on Form 10-Q, Report on
Form 8-K or other report filed by the Company with the Commission, the NASD or
any securities exchange; and (iii) concurrent with distribution to the Company's
stockholders, copies of any report or communication of the Company mailed
generally to holders of its Common Stock.
c. The Company will use its best efforts to cause the Common Stock
to continue to be listed on the American Stock Exchange or to become listed on
the New York Stock Exchange or designated for quotation as a national market
system security on the National Association of Securities Dealers, Inc.
Automated Quotation System.
d. Until the earlier of (i) December 31, 1996, (ii) prepayment or
repayment of all principal and interest due under the Note, or (iii) the date on
which, following a conversion of the Note in accordance with Section 4 hereof,
Purchaser ceases
18
<PAGE>
to be the record holder of 50% or more of the Shares issued upon such
conversion:
(i) Upon the written request of Purchaser delivered to the
Company, the Company will take the actions necessary to appoint to the
Board of Directors of the Company a person designated by Purchaser;
(ii) The Company will grant Purchaser, on an ongoing basis, (a)
reasonable access to its books and records, (b) the right to meet with and
call meetings of Company management, (c) the right to attend, or have its
advisors or representatives attend, and address meetings of the Board of
Directors of the Company; the Company shall effect promptly the changes in
executive officer positions described in the "Management" section of the
Memorandum;
(iii) The Company will promptly advise Purchaser of any event
that represents a material adverse change in its business, properties or
financial condition and of any suit or proceeding commenced or threatened
against the Company, which, if adversely determined, could result in such a
material adverse change; and the Company will promptly advise Purchaser of
the outcome of or any material developments in currently pending
litigation;
(iv) The Company will advise Purchaser on a weekly basis of all
cash payments of $50,000 or more made by the Company or any Subsidiary to
any person, group or entity during that week and any payments made to any
person, group or entity over the previous four-week period that total
$50,000 or more;
(v) All proceeds to the Company from any future debt or equity
financings by the Company, up to a $5 million aggregate maximum, will be
deposited by the Company in an escrow account with such escrow agent and
pursuant to such escrow instructions as shall be mutually agreed by the
Company and Purchaser at the time of such financings. The proceeds from
such financings will be used solely for payment of principal and interest
due under the Company's 12.5% First Mortgage Notes due 2000 (the "First
Mortgage Notes") and under the Company's 20% Mortgage Notes due 1996 (the
"Mortgage Notes") and for payment of amounts, adjustments and assessments
due under the IRS Assessment (as defined in the Memorandum).
e. Until the later of the date that all Notes are paid in full or
converted into Shares or December 31, 1996, the holder(s) of the Note and/or the
Shares shall have the right to purchase such holder's Proportionate Percentage
of any future
19
<PAGE>
Eligible Offering. For the purposes of this Section 5(e), "Proportionate
Percentage" means, with respect to such holder, as of any date, the result
(expressed as a percentage) obtained by dividing (i) the number of Shares owned
by such holder as of such date plus the number of Shares into which such
holder's Note as of such date would be convertible; by (ii) the total number of
shares of Common Stock outstanding as of such date. "Eligible Offering" means
an offer by the Company to sell for cash, shares of Common Stock or any security
convertible into or exchangeable for, or carrying rights or options to purchase,
shares of Common Stock, other than an offering of securities by the Company (i)
to employees, officers and/or directors in connection with or pursuant to any
bona fide employee benefit or compensation plan or pursuant to an employment or
consulting agreement, which plan or agreement has been adopted or approved by
the Board of Directors of the Company; or (ii) in connection with any Change of
Control Event (as defined in Section 11.2). The Company shall, before issuing
any securities pursuant to an Eligible Offering, give written notice thereof to
the holders of the Note and/or the Shares. Such notice shall specify the
security or securities the Company proposes to issue and the consideration that
the Company intends to receive therefor. For a period of 20 days following the
date of such notice, each holder shall be entitled, by written notice to the
Company, to elect to purchase all or any part of the holder's Proportionate
Percentage of the securities being sold in the Eligible Offering. In the event
that a holder does not make the election pursuant to this Section 5(e) to
purchase its Proportionate Percentage of securities included in an Eligible
Offering within such 20 day period, then the Company may issue such securities
to the proposed purchasers in the Eligible Offering, but only for a
consideration payable in cash not less than, and otherwise on terms no more
favorable to such purchasers than, that set forth in the Company's notice and
only within 90 days after the end of such 20 day period. In the event that any
such offer is accepted by the holder, the Company shall sell to the holder and
the holder shall purchase from the Company, for the consideration and on the
terms set forth in the notice described herein, the securities that the holder
shall have elected to purchase.
f. The net proceeds received by the Company from the sale of the
Notes will not be used by the Company to fund expenditures for, or contracts for
expenditures with respect to, any fixed assets or improvements, or for
replacements, substitutions or additions thereto, or to fund any expenditures
with respect to any lease to which the Company or a Subsidiary is party as
lessee, or by which it is bound, under which it leases any property (real,
personal or mixed) from any lessor other than the Company or a Subsidiary, and
which either is required to be capitalized in accordance with generally accepted
accounting principles, or, even if not so required to be
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capitalized, shall have (or have had), at the time first entered into, an
initial term of greater than three years (including leases of shorter duration
which are or were extendible to a total term greater than three years at the
option of the lessor.
g. For so long as any of the Notes are outstanding, the Company will
maintain an office where Notes may be presented for payment, exchange, or
conversion as provided in this Agreement. Such office initially shall be the
office of the Company identified in Section 13 hereof, which place may from time
to time be changed by notice to the holders of all Notes then outstanding.
SECTION 6 Defaults.
--------
a. Any of the following shall constitute an "Event of Default":
(i) the Company defaults in the payment of (A) any part of the
principal of or premium, if any, on any of the Notes, when the same shall
become due and payable, whether at maturity or at a date fixed for
prepayment or by acceleration or otherwise or (B) the interest on any of
the Notes, when the same shall become due and payable; and such default in
the payment of principal, premium or interest shall have continued for 15
days; or
(ii) an "Event of Default" as such term is defined under the
First Mortgage Notes, or the Mortgage Notes or a payment default under the
IRS Assessment and such default continues unremedied for 15 days; or
(iii) the Company defaults in the performance of any of the
covenants contained in Section 5 hereof or of any covenant contained in the
Pledge Agreement or Registration Rights Agreement and such default
continues unremedied for 30 days; or
(iv) any representation or warranty by the Company in the
Documents or in any certificate delivered by the Company pursuant thereto
proves to have been incorrect in any material respect when made; or
(v) a final judgment or order (other than with respect to the
WARN Act Litigation described in the Memorandum) which, either alone or
together with other final judgments or orders against the Company and its
Subsidiaries, exceeds an aggregate of $1 million is rendered by a court of
competent jurisdiction against the Company or any Subsidiary and such
judgment or order shall have
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continued undischarged or unstayed for 30 days after entry thereof; or
(viii) the Company or any Subsidiary make an assignment for the
benefit of creditors, or admit in writing its inability to pay its debts;
or a receiver or trustee is appointed for the Company or any Subsidiary or
for substantially all of its assets and, if appointed without its consent,
such appointment is not discharged or stayed within 30 days; or proceedings
under any law relating to bankruptcy, insolvency or the reorganization or
relief of debtors are instituted by or against the Company or any
Subsidiary, and, if contested by it, are not dismissed or stayed within 30
days; or any writ of attachment or execution or any similar process is
issued or levied against the Company or any Subsidiary or any significant
part of its property and is not released, stayed, bonded or vacated within
30 days after its issue or levy; or the Company or any Subsidiary takes
corporate action in furtherance of any of the foregoing.
b. If an Event of Default occurs, then and in each such event
Purchaser may at any time (unless all Events of Default shall theretofore have
been waived or remedied) at its option, by written notice to the Company,
declare the Note to be due and payable. Upon any such declaration, the Note
shall forthwith immediately mature and become due and payable, together with
interest accrued thereon and an "Additional Amount" (as defined below), all
without presentment, demand, protest or notice, all of which are hereby waived.
"Additional Amount" shall mean, with respect to any Note, as of the date of
repayment of such Note after such acceleration, an amount equal to the
Redemption Premium that would be payable if the Company had elected to prepay
such Note pursuant to Section 11 hereof at the time of such repayment. However,
if, at any time after the principal of the Note shall so become due and payable
and prior to the date of maturity stated in the Note, all arrears of principal
and interest on the Note (with interest at the rate specified in the Note on any
overdue principal and any overdue premium and, to the extent legally
enforceable, on any overdue interest) shall be paid to the holders of the Note
by or for the account of the Company, then Purchaser, by written notice or
notices to the Company, may waive such Event of Default and its consequences and
rescind or annul such declaration, but no such waiver shall extend to or affect
any subsequent Event of Default or impair any right or remedy resulting
therefrom.
c. If an Event of Default occurs, then and in each such event and in
addition to the foregoing rights, Purchaser shall have the right to:
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<PAGE>
(i) purchase from the Company shares of the Company's authorized
but unissued Common Stock at a per share price equal to 75% of the Market
Price on the date of the Event of Default; provided that, the number of
shares of Common Stock that Purchaser shall be entitled to purchase
pursuant to this Section 6(c) shall not exceed the quotient obtained by
dividing $3 million by such per share purchase price; and
(ii) cause the Company to take such action as may be required to
cause one additional director designated by Purchaser to be appointed to
the Board of Directors of the Company.
Upon the occurrence of an Event of Default, Purchaser may elect to purchase the
shares of Common Stock described in this Section 6(c) by delivering written
notice to the Company of such election and a description of the cash payment
terms and the timetable for closing the issue and purchase of such shares. The
cash payment terms and the closing date for such purchase shall be within the
sole discretion of Purchaser which terms and date shall be reasonable. The
Company shall effect the issuance and sale of such shares promptly in accordance
with the schedule identified by Purchaser in such notice.
d. In case any one or more Events of Default shall occur and be
continuing,
(i) Purchaser may proceed to protect and enforce its rights by an
action at law, suit in equity or other appropriate proceeding, whether for
the specific performance of any agreement contained in the Documents or for
an injunction against a violation of any of the terms thereof, or in aid of
the exercise of any power granted thereby or by law or for any other remedy
(including, without limitation, damages), and
(ii) the Company will pay to Purchaser in addition to any
interest or premium otherwise required, such further amount as shall be
sufficient to cover any and all costs and expenses of enforcement and
collection, including, without limitation, reasonable attorneys' fees and
expenses.
e. Purchaser shall, in addition to other remedies provided by law,
have the right and remedy to have the provisions of the Documents specifically
enforced by any court having equity jurisdiction, it being acknowledged and
agreed that any breach or threatened breach of the provisions of the Documents
will cause irreparable injury to Purchaser and that money damages will not
provide an adequate remedy. Nothing contained herein shall be construed as
prohibiting Purchaser from pursuing any other
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<PAGE>
remedies available to Purchaser for such breach or threatened breach, including,
without limitation, the recovery of damages from the Company.
SECTION 7 Conditions to the Obligations of Purchaser.
------------------------------------------
The obligations of Purchaser to purchase and pay for the Note on the
Closing Date shall be subject to the following conditions:
a. The Company's independent public accountants, KPMG Peat Marwick,
LLP, shall have completed the audit of the Company's financial statements for
the year ended December 31, 1994, copies of such audited financial statements
shall have been delivered to Purchaser and such audit shall have revealed no
material changes in the financial condition of the Company from the financial
condition presented in the unaudited financial statements for the same period
included in the Memorandum;
b. There shall not have been instituted by or against the Company or
any Subsidiary proceedings under any law relating to bankruptcy, insolvency or
reorganization or relief of debtors, nor shall the Company or any Subsidiary
have made a general assignment for the benefit of creditors, admitted in writing
its inability to pay its debts as they mature, appointed or had appointed for it
a receiver or trustee, or had any writ of attachment or execution or any similar
process issued or levied against it; no such matters shall be threatened or
pending nor shall the Company or any Subsidiary have taken any corporate action
in furtherance of any of the foregoing;
c. There shall be no investigation, action, suit or proceeding at
law or in equity or by or before any governmental instrumentality or other
agency pending or threatened against the Company or any officer, director or key
employee of the Company other than as disclosed in the Memorandum;
d. The Company will hold in good standing all licenses, permits and
grants of authority from the Nevada Gaming Commission, the Nevada State Gaming
Control Board, the National Indian Gaming Commission (collectively, the "Gaming
Authorities") and any other federal, state or local agency or authority
necessary for the operation of its business and properties; except as disclosed
in the Memorandum, no revocations or terminations of such licenses, permits,
authority or approvals shall be pending or threatened nor shall the Company be
aware of any facts or circumstances that would give rise to any such revocation
or termination;
e. All approvals, consents, permits and authorizations of third
parties, local, state and federal
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<PAGE>
regulatory agencies and authorities and the Company required to carry out the
transactions contemplated herein shall have been received;
f. Since the date of the Memorandum (a) there shall not have been
any change in the capital stock of the Company other than pursuant to the
exercise of outstanding options and warrants disclosed in the Memorandum or any
material change in the indebtedness (other than in the ordinary course of
business) of the Company; (b) no material verbal or written agreement or other
transaction shall have been entered into by the Company that is not in the
ordinary course of business that could result in a material reduction in the
future earnings of the Company; (c) no loss or damage (whether or not insured)
to the property of the Company shall have been sustained that materially and
adversely affects the business, financial condition, results of operations or
prospects of the Company; (d) except as described in the Memorandum, no legal or
governmental action, suit or proceeding affecting the Company that is material
to the Company or that affects or may affect the transactions contemplated
herein shall have been instituted or threatened; and (e) there shall not have
been any material change in the business, financial condition, management,
results of operations or prospects of the Company that makes it impractical or
inadvisable in the judgment of Purchaser to proceed with the purchase of the
Note.
g. The lease financing transaction with T&W Leasing relating to the
7 Cedars casino in the appropriate amount of $690,000 shall have closed.
h. The Company shall have made public announcement of the proposed
management changes described in the "Management" section of the Memorandum and
shall cause those changes to occur in the manner and on the dates described in
the Memorandum.
i. Purchaser shall have received a certificate of the Company
executed by the Chairman of the Board or the President of the Company, dated the
Closing Date to the effect that:
(i) The representations and warranties of the Company set forth
in Section 2 of this Agreement are true and correct as of the date of this
Agreement and the representations and warranties set forth in the Documents
are true and correct as of the Closing Date and the Company has complied
with all the agreements and satisfied all the conditions on its part to be
performed or satisfied on or prior to the Closing Date;
(ii) Each of the respective signers of the certificate has
carefully examined the Memorandum; in his
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<PAGE>
opinion and to the best of his knowledge, the Memorandum does not contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein
not misleading; and
(iii) Since the date as of which information is given in the
Memorandum, and except as disclosed in or contemplated thereby, there has
not been any material adverse change or a development involving a material
adverse change in the condition (financial or otherwise), business,
properties, results of operations, management or prospects of the Company
or any Subsidiary; and except as described in the Memorandum, no legal or
governmental action, suit or proceeding is pending or threatened against
the Company or any Subsidiary that is material to the Company, whether or
not arising from transactions in the ordinary course of business, or that
may adversely affect the transactions contemplated by this Agreement; since
such dates and except as so disclosed, neither the Company nor any
Subsidiary has entered into any verbal or written agreement or other
transaction that is not in the ordinary course of business or that can
reasonably be expected to result in a material reduction in the future
earnings of the Company or any Subsidiary or incurred any material
liability or obligation, direct, contingent or indirect, made any change in
its capital stock, made any material change in its short-term debt or
funded debt or repurchased or otherwise acquired any of the Company's
capital stock; and the Company has not declared or paid any dividend, or
made any other distribution, upon its outstanding capital stock payable to
stockholders of record on a date prior to the Closing Date.
j. Purchaser shall have received opinions dated the Closing Date and
addressed to Purchaser from Pillsbury Madison & Sutro, and Lionel Sawyer &
Collins, counsel for the Company, in form and substance satisfactory to
Purchaser.
k. The Pledge Agreement and the Registration Rights Agreement in the
forms attached hereto as Exhibits B and C, respectively, shall have been
executed and delivered by the parties thereto.
l. Purchase Agreements for an aggregate of $1,675,000 principal
amount of Notes (inclusive of the principal amount of the Note being purchased
by Purchaser hereunder) shall have been executed and delivered by the parties
thereto and such purchases and sales shall have closed prior to or
simultaneously with the transactions hereunder.
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<PAGE>
SECTION 8 Conditions to Obligations of the Company.
----------------------------------------
The obligations of the Company to issue the Note on the Closing Date
shall be subject to the following conditions:
a. The Company shall have received a certificate of Purchaser
executed by its General Partner and dated the Closing Date to the effect that
the representations and warranties of Purchaser set forth in Section 3 of this
Agreement are true and correct as of the date of this Agreement and as of the
Closing Date and Purchaser has complied with all the agreements and satisfied
all the conditions on its part to be performed or satisfied on or prior to the
Closing Date; and
b. All approvals, consents, permits and authorizations of third
parties, local, state and federal regulatory agencies and authorities relating
to Purchaser and required to carry out the transactions contemplated herein
shall have been received.
SECTION 9 Subordination.
-------------
9.1 Agreement to Be Bound. The Note shall, to the extent and in the
---------------------
manner hereinafter set forth, be subordinated and subject in right of payment to
the prior payment in full of all Senior Indebtedness. Each holder of a Note,
whether upon original issue or upon transfer or assignment thereof, by its
acceptance thereof agrees that the Note shall be subject to the provisions
contained in this Section 9. The subordination provisions of this Section 9
shall be for the benefit of the holders of the Senior Indebtedness and may be
enforced directly by such holders.
9.2 Priority of Senior Indebtedness.
-------------------------------
a. No payment on account of principal of, premium, if any, or
interest on the Note, shall be made, and no assets shall be applied to the
purchase or other acquisition or retirement of the Note (other than a conversion
pursuant to Section 4 hereof), for a period (the "Payment Blockage Period") of
(i) 180 days after both of the following have occurred (A) the principal amount
of any Senior Indebtedness in excess of $100,000 in aggregate principal amount
shall have been accelerated upon an event of default thereunder and (B) written
notice of such acceleration shall have been given by the Company or by holders
of Senior Indebtedness to the holders of the Note, stating that this Section
9.2(a) is therefore applicable; provided, that any Payment Blockage Period
arising as a result of this Section 9.2 shall terminate immediately upon the
payment in full of such accelerated Senior Indebtedness or the rescission or
annulment of such acceleration or if such Senior Indebtedness is no longer
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<PAGE>
outstanding; provided, further, that under no circumstances shall there be more
than one Payment Blockage Period in any 365 consecutive day period. As used in
this Section 9.2(a), an "event of default" is an event of default (x) as
defined in any Senior Indebtedness or in the instrument under which the same is
outstanding and (y) which would permit the acceleration of such Senior
Indebtedness prior to its maturity.
b. In the event that any money, property or securities is received
by the holder of a Note in violation of Section 9.2(a) or the terms or
conditions of any instrument governing the Senior Indebtedness, the holder
thereof shall hold the same in trust for the benefit of the holders of Senior
Indebtedness, and shall deliver the same in kind to the Company.
9.3 Liquidation; Dissolution; Bankruptcy.
------------------------------------
a. Upon any payment or distribution of assets of the Company
(whether in cash, property or securities) to creditors upon any dissolution or
winding-up or total or partial liquidation or reorganization of the Company,
whether voluntary or involuntary or in any bankruptcy, insolvency, receivership
or similar proceeding regarding the Company, all amounts due or to become due
upon all Senior Indebtedness then outstanding shall first be paid in full before
the holders of the Note shall be entitled to receive any assets so paid or
distributed in respect thereof (but without restricting the rights of holders
under Section 4 hereof); provided, that with respect to the foregoing, the
holders of the Note may receive (and shall be entitled to retain) securities
that are subordinate to (at least to the extent that the Note is subordinate to
Senior Indebtedness pursuant to the terms hereof) the payment of all Senior
Indebtedness then outstanding. Upon any such dissolution or winding-up or
liquidation, reorganization or other proceeding, any payment or distribution of
assets of the Company of any kind or character, whether in cash, property or
securities, to which the holders of the Note would be entitled, except for these
provisions, shall be paid by the Company or by any receiver, trustee in
bankruptcy, liquidating trustee, agent or other person making such payment or
distribution directly to the holders of Senior Indebtedness which was then
outstanding (pro rata to each of such holders on the basis of the respective
amounts (to the extent known) of Senior Indebtedness then held by such holders,
to the extent necessary to pay all such Senior Indebtedness which was then
outstanding in full, after giving effect to any concurrent payment or
distribution to or for the holders of Senior Indebtedness, before any payment or
distribution is made to the holders of the Note (but subject to the proviso to
the preceding sentence).
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b. Each holder of a Note by its acceptance hereof (x) irrevocably
authorizes and empowers (but without imposing any obligation on) each holder of
any Senior Indebtedness at the time outstanding, under (and only under) the
circumstances set forth in Section 9.3(a), if the holder of a Note shall fail to
do so prior to 20 days before the expiration of the time to do so, to file and
prove all claims of such holder for its ratable share of payments or
distributions in respect of the Note which is required to be paid or delivered
to the holders of Senior Indebtedness as provided in Section 9.3(a), in the name
of each such holder of the Note or otherwise, as such holder of Senior
Indebtedness may determine to be necessary or appropriate for the enforcement of
the provisions of Section 9.3(a), and the holder of a Note may amend any such
claims regarding the Note before or after such 20th day (but not in a manner
inconsistent with the rights of holders of Senior Indebtedness under this
Section 9 other than this Section 9.3(b)) whether such claims are filed by such
holder of a Note or are filed, pursuant to this Section 9.3(b), by any holder of
Senior Indebtedness; and (y) under (and only under) the circumstances set forth
in Section 9.3(a), agrees to execute and deliver to each holder of Senior
Indebtedness all such further instruments confirming the authorization
hereinabove set forth, and all such powers of attorney, proofs of claim,
assignments of claim and other instruments, and to take all such other action,
as may be reasonably requested by such holder in order to enable such holder to
enforce all claims upon or in respect of such Note holder's ratable share of
payments or distributions in respect of the Note. Nothing in this Section
9.3(b), or any other provision hereof, shall give or be construed to give the
holder of any Senior Indebtedness any right to vote any Note, or any related
claim, or any portion of such Note or such claim, or to exercise any approval
rights, whether in connection with any resolution, arrangement, plan of
reorganization, compromise, settlement, election of trustees or otherwise.
Holders of Senior Indebtedness shall not create any liability to any person on
the part of any holders of Notes in connection with the exercise of any rights
granted under this Section 9.3(b).
9.4 No Prejudice or Impairment; Reinstatement.
-----------------------------------------
a. No right of any present or future holders of any Senior
Indebtedness to enforce subordination as herein provided shall at any time in
any way be prejudiced or impaired (i) by any act or failure to act on the part
of the Company, including without limitation any merger or consolidation of the
Company into or with any other person, or any sale, lease or transfer of any or
all of the assets of the Company to any other person, (ii) by any act (in good
faith) or failure (in good faith) to act by any such holder of Senior
Indebtedness, including, without limitation, the failure by such holder to
perfect a security
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interest in any security for the payment of Senior Indebtedness or (iii) by any
noncompliance by the Company with the terms and provisions of the Documents
regardless of any knowledge thereof that any such holder may have or be
otherwise charged with. The holders of the Senior Indebtedness may, without in
any way affecting the subordination hereunder, at any time or from time to time
and in their absolute discretion, change the manner, place, time or other terms
of payment of, or renew or alter, any Senior Indebtedness, or in each case in
accordance with the terms of the applicable agreement or instrument governing
the Senior Indebtedness modify or supplement any agreement or instrument
governing or evidencing such Senior Indebtedness or any other document referred
to therein, or exercise or refrain from exercising any of their rights under the
Senior Indebtedness, including, without limitation, waiver of default thereunder
and release of any collateral securing such Senior Indebtedness, all without
notice to or assent from the holders of the Note. The absence of any notice to,
or knowledge by, any holder of a Note of the existence or occurrence of any of
the matters or events set forth in this paragraph (a) shall not impair or
otherwise affect the rights of the holders of Senior Indebtedness against
holders of the Note under the subordination provisions of this Section 9.
b. The provisions of this Section 9 shall continue to be effective,
or be reinstated, as the case may be, if at any time any payment in respect of
any Senior Indebtedness is rescinded or must otherwise be restored or returned
by the holders of such Senior Indebtedness upon the occurrence of any event
described in Section 9.3 hereof, or upon or as a result of the appointment of a
receiver, intervenor or conservator of, or trustee or similar officer for, the
Company or any substantial part of its property, all as though such payment had
not been made.
9.5 Subrogation. Subject to the payment in full of all Senior
-----------
Indebtedness, the holders of the Note shall be subrogated to the rights of the
holders of Senior Indebtedness to receive payments or distributions of assets of
the Company made on the Senior Indebtedness until the principal of, premium, if
any, and interest on (and any other amounts due with respect to) the Note and
all other amounts due under the Documents shall be paid in full; provided, that
any holder of a Note shall have the right, in its sole discretion, to waive such
subrogation rights without affecting such holder's rights with respect to a Note
held by such holder or under the Documents (which rights shall continue in full
force and effect). For the purposes of such subrogation, no payments or
distributions to the holders of Senior Indebtedness of any cash, property or
securities to which the holders of the Note would be entitled except for the
provisions of this Section 9 shall, as among the Company, its creditors
30
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other than the holders of Senior Indebtedness, and the holders of the Note, be
deemed to be a payment by the Company to or on account of Senior Indebtedness,
it being understood that these provisions in this Section 9 are, and are
intended, solely for the purpose of defining the relative rights of the holders
of the Note, on the one hand, and the holders of Senior Indebtedness, on the
other hand.
9.6 Obligations Unaffected. Nothing contained in this Section 9 is
----------------------
intended to or shall impair as among the Company, its creditors other than the
holders of Senior Indebtedness, and the holders of the Note, the obligation of
the Company, which shall be absolute and unconditional, to pay to the holders of
the Note the principal of, premium, if any, and interest on the Note, as and
when the same shall become due and payable in accordance with its terms, or to
affect the relative rights of the holders of the Note and creditors of the
Company other than the holders of Senior Indebtedness. Nothing herein shall
prevent a holder of the Note from exercising any remedies otherwise permitted by
applicable law upon the occurrence of an Event of Default, subject to the
rights, if any, under these provisions of the holders of Senior Indebtedness,
and nothing herein shall prevent the conversion of the Note (or any part
thereof) in accordance with the Note and this Agreement.
9.7 Definition of Senior Indebtedness. The term "Senior Indebtedness"
---------------------------------
shall mean the principal of, premium, if any, and interest on indebtedness of
the Company for borrowed money whether such indebtedness is currently
outstanding or hereafter incurred, and any renewals, modifications, refundings
or extensions of any such indebtedness, unless under the provisions of the
instrument creating or evidencing any such indebtedness, or pursuant to which
the same is outstanding, it is provided that such indebtedness is subordinate in
right of payment to any other indebtedness of the Company (including, without
limitation, the Notes); provided, that Senior Indebtedness shall not include (i)
any obligations under any provision of any agreement or instrument regarding
such Senior Indebtedness in respect of (x) fees or reimbursement of expenses or
(y) penalties or additional interest charged on account of overdue payments of
principal, interest or other payments, (ii) any indebtedness owing to any
Subsidiary or to any other affiliate (of the Company or of any Subsidiary),
(iii) any obligation, to any person, of any affiliate of the Company or of any
Subsidiary (other than an obligation of the Company or of a Subsidiary), which
obligation is assumed or guaranteed by the Company or any Subsidiary.
SECTION 10 Exchange of Notes; Accrued Interest; Cancellation of Surrendered
----------------------------------------------------------------
Notes; Replacement.
- ------------------
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<PAGE>
a. Subject to Section 3 hereof, at any time at the request of any
holder of a Note delivered to the Company at its office identified in Section 13
hereof, the Company at its expense (except for any transfer tax or any other tax
arising out of the exchange) will issue and deliver to or upon the order of the
holder in exchange therefor a new Note, in such denomination or denominations as
such holder may request, in aggregate principal amount equal to the unpaid
principal amount of the Note surrendered and substantially in the form thereof,
dated as of the date to which interest has been paid on the Note surrendered
(or, if no interest has yet been so paid thereon, then dated the date of the
Note so surrendered) and payable to such person or persons or order as may be
designated by such holder.
b. In the event that any Note is surrendered to the Company upon the
conversion of all or a portion of any Note, or upon a prepayment under Section
11 hereof, the Company shall pay all accrued and unpaid interest on such Note or
such portion thereof and thereupon interest shall cease to accrue upon that
portion of the principal amount of such Note which was used for conversion or
which was prepaid, and the right to receive, and any right or obligation to
make, any prepayment on such portion of the principal amount pursuant to Section
11 hereof shall terminate all upon the date of such conversion or prepayment and
upon presentation and surrender of such Note to the Company.
c. Upon the conversion in whole or in part of any Note or upon any
prepayment under Section 11 hereof, if only a portion of the principal amount of
a Note is used in such conversion or is prepaid, then such Note shall be
surrendered to the Company and the Company shall simultaneously execute and
deliver to or on the order of the holder thereof, at the expense of the Company,
a new Note in principal amount equal to the unused or unpaid portion of such
Note.
d. Any Note or portion thereof that has been converted, or that has
been prepaid under Section 11 hereof, shall be cancelled by the Company and no
Note shall be issued in lieu of the principal amount so converted or prepaid.
e. Upon receipt of evidence satisfactory to the Company of the loss,
theft, destruction or mutilation of any Note and, in the case of any such loss,
theft or destruction, upon delivery of an indemnity agreement reasonably
satisfactory to the Company (if requested by the Company), or in the case of any
such mutilation, upon surrender of such Note (which surrendered Note shall be
cancelled by the Company), the Company will issue a new Note of like tenor in
lieu of such lost, stolen, destroyed or mutilated Note as if the lost, stolen,
destroyed or mutilated Note were then surrendered for exchange.
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SECTION 11 Prepayment.
----------
11.1 Optional Prepayment.
-------------------
a. Subject to the other provisions of this Section 11, at any time
during the period beginning on January 1, 1996 and ending on December 30, 1996
the Company may prepay all or part of the principal amount of outstanding Notes
at a price equal to (1) the aggregate principal amount of the Notes to be
prepaid, plus (2) all accrued and unpaid interest on the principal amount of the
Notes to be prepaid, plus (3) a premium (the "Redemption Premium") equal to 7-
1/2% of the principal amount being prepaid. The right of the Company to prepay
Notes pursuant to this Section 11.1(a) shall be conditioned upon its giving
notice of prepayment, signed by its President and Treasurer, to the holders of
Notes not less than 20 days and not more than 60 days prior to the date upon
which the prepayment is to be made specifying (i) the holder of each Note to be
prepaid, (ii) the aggregate principal amount being prepaid, (iii) the date of
such prepayment, (iv) the accrued and unpaid interest (to but not including the
date upon which the prepayment is to be made) and (v) the Redemption Premium
with respect to such prepayment. Notice of prepayment having been so given, the
aggregate principal amount of the Notes so specified in such notice, all accrued
and unpaid interest thereon and the Redemption Premium on such aggregate
principal amount shall all become due and payable on the specified prepayment
date.
b. Upon the occurrence of any Change of Control Event (as defined in
Section 11.2, each holder of a Note shall have the right, at such holder's
option, to require the Company to prepay such holder's Note in whole or in part
at a price equal to: (1) the aggregate principal amount of the Note to be
prepaid, plus (2) all accrued and unpaid interest on the principal amount of the
Note to be prepaid, plus (3) an amount equal to 7-1/2% of the principal amount
being prepaid. The option under this Section 11.1(b) shall be exercised by
written notice to the Company given at any time from and after the 30th day
before such Change of Control Event through the 90th day after such Change of
Control Event (or, if later, through the 90th day after such holder receives
written notice from the Company of such Change of Control Event). Promptly (and
in any event within 10 days) after the occurrence of any Change of Control
Event, and not more than 30 days before such Change of Control Event, the
Company shall give written notice to each holder of a Note notifying each such
holder of the occurrence of such Change of Control Event and informing each such
holder of its right to exercise an option to require a prepayment under this
Section 11.1(b).
c. If any prepayment under this Section 11.1 does not repay in full
the aggregate principal amount of all Notes then
33
<PAGE>
outstanding, then the aggregate amount of such prepayment of the principal
amount of Notes shall be allocated among all Notes at the time outstanding, in
proportion, as nearly as practicable, to the respective unpaid principal amounts
of such Notes.
11.2 Change of Control Event. For purposes of this Section 11, "Change of
-----------------------
Control Event" means the occurrence of any of the following events:
a. any person or group (within the meaning of Section 13(d)(3) of
the Securities Exchange Act of 1934 ("1934 Act") together with any affiliates
and associates of any such person or member of such group (within the meaning of
Rule 12b-2 under the 1934 Act) ("Person") shall at any time beneficially own
(within the meaning of Rule 13d-3 under the 1934 Act) shares of Common Stock of
the Company which represents in excess of either (A) 40% of the total votes
entitled to be cast by all outstanding shares of the Common Stock of the Company
or (B) 40% of all outstanding shares of the Common Stock of the Company;
provided, that a Change of Control Event shall not be deemed to have occurred
under this clause (a) (without limiting the application of clause (b), (c), (d)
or (e) below), solely by reason of such beneficial ownership of over 40% under
the preceding clause (A) or (B) being held by one or more persons who both (x)
are officers and directors of the Company on the Closing Date and (y)
beneficially owned on the Closing Date at least one percent of the shares of the
Company's Common Stock outstanding on the Closing Date (the foregoing being
described as an "acquisition of control"); or
b. the Company is materially or completely liquidated or is the
subject of any voluntary or involuntary dissolution or winding-up; or
c. the Company proceeds to acquire its Common Stock (or undertakes a
corporate reorganization or recapitalization or other action) if the effect of
such action would be either (i) to reduce substantially or to eliminate any
public market for the shares of the Company's Common Stock or (ii) to remove the
Company from registration with the Commission under the 1934 Act or (iii) to
require the Company to make a filing under Section 13(e) of the 1934 Act or (iv)
to cause a delisting of the Company's Common Stock from the American Stock
Exchange or such other national securities exchange or quotations service on
which the Common Stock is listed or quoted; or
d. the sale, lease, transfer or other disposition of all or
substantially all of the consolidated assets of the Company and its Subsidiaries
in a single transaction or series of related transactions; or
34
<PAGE>
e. The Company acquires control of any Person and such acquisition,
in the determination of the holder of the Note, results in a material diminution
in the value of the Company's Common Stock.
f. During any period of 12 consecutive months after the Closing
Date, individuals who at the beginning of such period constitute the Board of
Directors of the Company (together with any new directors whose election by such
Board or whose nomination for election by the shareholders of the Company was
approved by a vote of a majority of the directors then still in office who were
either directors at the beginning of such period or whose election or nomination
for election was previously so approved), cease for any reason to constitute a
majority of the Board of Directors of the Company then in office.
SECTION 12 Representations and Indemnities to Survive Delivery.
---------------------------------------------------
The respective indemnities, agreements, representations, warranties
and other statements of the Company, of its officers and of Purchaser set forth
in or made pursuant to this Agreement will remain in full force and effect,
regardless of any investigation made by or on behalf of the Purchaser or the
Company or any of its or their partners, officers or directors or any
controlling person, as the case may be, until December 31, 1996.
SECTION 13 Notices; Publicity.
------------------
All communications hereunder shall be in writing and, (i) if sent to
Purchaser, shall be mailed, delivered or telegraphed and confirmed to you at
1290 Avenue of the Americas, New York, New York 10104, Attention: Harry C.
Hagerty, III, with a copy to Stoel Rives, 900 SW Fifth Avenue, Portland, Oregon
97204, Attention: John J. Halle, Esq.; and (ii) if sent to the Company shall be
mailed, delivered or telegraphed and confirmed to the Company at Elsinore
Corporation, 202 East Fremont Street, Las Vegas, Nevada 89101, Attention:
Ernest L. East, with a copy to Pillsbury Madison & Sutro, 235 Montgomery Street,
San Francisco, California 94104, Attention: Gregg F. Vignos, Esq. The Company
or Purchaser may change the address for receipt of communications hereunder by
giving notice to the others. No party will issue or approve any news release,
public filing or other announcement concerning the transactions described herein
without the prior approval of the other parties as to the content of the
announcement and its release, which approval will not be unreasonably withheld.
35
<PAGE>
SECTION 14 Payment of Expenses.
-------------------
a. In addition to costs incurred by the Company in connection with
the transactions contemplated hereby, the Company will pay all reasonable out-
of-pocket expenses of Purchaser (including fees of counsel) in connection with
these transactions. The Company shall reimburse Purchaser for such expenses
promptly upon receipt from Purchaser of statements detailing such expenses.
b. The Company shall pay all reasonable out-of-pocket expenses of
Purchaser (including fees of counsel) in connection with any actions Purchaser
must reasonably take in connection with any comment, application, approval or
licensure process or procedure required by the Gaming Authorities as a result of
or in connection with these transactions ("Regulatory Expenses"); provided,
however, the Company will not be required to reimburse Purchaser for Regulatory
Expenses if such reimbursement would violate applicable state law or the rules
and regulations of the Gaming Authorities.
SECTION 15 Successors.
----------
This Agreement will inure to the benefit of and be binding upon the
parties hereto and to the benefit of the officers and directors and controlling
persons thereof, and in each case their respective successors, personal
representatives and assigns, and no other person will have any right or
obligation hereunder. No such assignment shall relieve any party of its
obligations hereunder.
SECTION 16 Partial Unenforceability.
------------------------
The invalidity or unenforceability of any section, paragraph or
provision of this Agreement shall not affect the validity or enforceability of
any other section, paragraph or provision hereof. If any section, paragraph or
provision of this Agreement is for any reason determined to be invalid or
unenforceable, there shall be deemed to be made such minor changes (and only
such minor changes) as are necessary to make it valid and enforceable.
SECTION 17 Applicable Law.
--------------
This Agreement shall be governed by and construed in accordance with
the internal laws of (and not the laws pertaining to conflicts of laws) of the
State of New York.
36
<PAGE>
SECTION 18 General.
-------
This Agreement constitutes the entire agreement of the parties to this
Agreement and supersedes all prior written or oral and all contemporaneous oral
agreements, understandings and negotiations with respect to the subject matter
hereof. This Agreement may be executed in counterparts, each one of which shall
be an original, and all of which shall constitute one and the same document.
SECTION 19 Section Headings; Amendment.
---------------------------
The section headings in this Agreement are for the convenience of the
parties only and will not affect the construction or interpretation of this
Agreement. This Agreement may be amended or modified, and the observance of any
term of this Agreement may be waived, only by a writing signed by the Company
and Purchaser.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first above written.
G & O PARTNERS, L.P. ELSINORE CORPORATION
By /s/ Paul Orwicz By /s/ Thomas E. Martin
----------------------- -----------------------------
Paul Orwicz Name Thomas E. Martin
Title President
37
<PAGE>
Schedule of Exhibits and Annex
------------------------------
Exhibit A Promissory Note
Exhibit B Stock Pledge Agreement
Exhibit C Registration Rights Agreement
Annex I Designation of Note Denominations
38
<PAGE>
_________________________________
NOTE PURCHASE AGREEMENT
DATED AS OF MARCH 30, 1995
REGARDING
7-1/2% CONVERTIBLE SUBORDINATED NOTES
DUE DECEMBER 31, 1996
OF
ELSINORE CORPORATION
_________________________________
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
SECTION 1 Sale and Purchase of Notes........................................ 1
SECTION 2 Representations and Warranties of the Company..................... 2
SECTION 3 Representations and Warranties of Purchaser....................... 7
SECTION 4 Conversion........................................................ 8
4.1 Conversion......................................................... 8
4.2 Mechanics of Conversion............................................ 9
a. Surrender, Election and Payment............................... 9
b. Effective Date................................................ 9
c. Share Certificates............................................ 10
d. Acknowledgment of Obligation.................................. 10
e. Payment of Accrued Interest................................... 10
4.3 Current Conversion Price........................................... 10
4.4 Adjustment of Conversion Price..................................... 11
a. Adjustments for Stock Dividends, Recapitalizations, etc....... 11
b. Adjustments for Certain Other
Distributions................................................. 11
c. Adjustments for Issuances of Additional
Stock......................................................... 12
d. Certain Rules in Applying the Adjustment for
Additional Stock Issuances.................................... 13
(i) Cash Consideration..................................... 13
(ii) Non-Cash Consideration................................. 13
(iii) Options, Warrants, Convertibles, etc................... 13
(iv) Number of Shares Outstanding........................... 15
e. Exclusions from the Adjustment for Additional
Stock Issuances............................................... 15
f. Certification................................................. 15
g. Determination of Market Price................................. 15
h. Other Adjustments............................................. 16
i. Meaning of "Issuance"......................................... 16
4.5 Company's Consolidation or Merger................................... 17
4.6 Notice to Holders of Notes.......................................... 17
SECTION 5 Covenants of the Company.......................................... 18
SECTION 6 Defaults.......................................................... 21
SECTION 7 Conditions to the Obligations of Purchaser........................ 24
SECTION 8 Conditions to Obligations of the Company.......................... 27
SECTION 9 Subordination..................................................... 27
9.1 Agreement to Be Bound.............................................. 27
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
9.2 Priority of Senior Indebtedness.................................. 27
9.3 Liquidation; Dissolution; Bankruptcy............................. 28
9.4 No Prejudice or Impairment; Reinstatement........................ 29
9.5 Subrogation...................................................... 30
9.6 Obligations Unaffected........................................... 31
9.7 Definition of Senior Indebtedness................................ 31
SECTION 10 Exchange of Notes; Accrued Interest;Cancellation of Surrendered
Notes; Replacement............................................... 31
SECTION 11 Prepayment...................................................... 33
11.1 Optional Prepayment.............................................. 33
11.2 Change of Control Event.......................................... 34
SECTION 12 Representations and Indemnities to Survive Delivery............. 35
SECTION 13 Notices; Publicity............................................. 35
SECTION 14 Payment of Expenses............................................ 36
SECTION 15 Successors..................................................... 36
SECTION 16 Partial Unenforceability....................................... 36
SECTION 17 Applicable Law................................................. 36
SECTION 18 General........................................................ 37
SECTION 19 Section Headings; Amendment.................................... 37
</TABLE>
ii
<PAGE>
NOTE PURCHASE AGREEMENT dated as of March 30, 1995, by and between Elsinore
Corporation, a Nevada corporation (the "Company"), and GroRan LLC1, a Delaware
limited liability company ("Purchaser").
W I T N E S S E T H:
-------------------
In consideration of the mutual covenants and agreements set forth herein
and for other good and valuable consideration the receipt and sufficiency of
which are hereby acknowledged, the parties agree as follows:
SECTION 1 Sale and Purchase of Notes.
--------------------------
a. The Company agrees to sell to Purchaser and, subject to the terms
and conditions hereof and in reliance upon the representations and warranties of
the Company contained herein, Purchaser agrees to purchase on the Closing Date
(as hereinafter defined), a note or notes in the aggregate principal amount of
$56,250 (collectively, the "Note"). The aggregate purchase price to be paid
to the Company by Purchaser for the Note is 100% of the principal amount of the
Note to be purchased by the Purchaser. All obligations under the Note will be
secured by a pledge of capital stock of Mojave Gaming, Inc., a wholly-owned
subsidiary of the Company, in the manner specified in the Pledge Agreement
attached hereto as Exhibit B ("Pledge Agreement").
b. As used herein, "Notes" means the aggregate of $1,675,000
principal amount of the Company's 7-1/2% Convertible Subordinated Notes Due
December 31, 1996, issued pursuant to the Purchase Agreements (defined in
Section 1(c)), together with all Notes issued in exchange therefor or
replacement thereof. Each of the Notes will be substantially in the form of the
Note set forth as Exhibit A hereto.
c. The Notes are being sold to Purchaser pursuant to this Agreement
and to other purchasers under other agreements dated as of the date hereof
(collectively the "Purchase Agreements"). The sale of Notes to each purchaser
under each Purchase Agreement is a separate sale, the purchasers are not acting
together or as a group for purposes of such purchase and sale and no purchaser
will have any rights or liabilities under any Purchase Agreement other than the
Purchase Agreement to which it is a party.
d. The closing of the purchase and sale of the Notes will take place
at the offices of Pillsbury Madison & Sutro, 235 Montgomery Street, San
Francisco, CA at 10:00 A.M., Pacific Standard time, on March 31, 1995, or such
other time and date as
1
<PAGE>
shall be mutually agreed to by the Company and Purchaser ("Closing Date").
Subject to the terms and conditions hereof, on the Closing Date (i) the Company
will deliver to Purchaser the Note, as set forth on Annex I hereto, in the form
of Exhibit A hereto in the aggregate principal amount of $1,125,000 and (ii)
upon Purchaser's receipt thereof, Purchaser will deliver to the Company a
certified or official bank check or wire transfer in an amount equal to the
purchase price for the Note payable to the order of the Company in federal or
other next day funds.
SECTION 2 Representations and Warranties of the Company.
---------------------------------------------
The Company hereby represents and warrants to Purchaser that:
a. The execution and delivery by the Company of (i) this Agreement,
(ii) the Note and the Pledge Agreement, and (iii) the Registration Rights
Agreement to be executed and delivered by the Company and Purchaser, in the form
attached as Exhibit C hereto ("Registration Rights Agreement") (collectively,
the "Documents"), the performance by the Company of its obligations thereunder,
the issuance, sale and delivery of the Note and the issuance of Common Stock
upon conversion of the Note have been duly authorized by all requisite corporate
action and will not violate any provision of law, any order of any court or
other agency of government, the Certificate of Incorporation or By-laws of the
Company, or any provision of any indenture, agreement or other instrument to
which the Company or any Subsidiary (as defined in Section 2(d)) or any of the
properties or assets of the Company or any Subsidiary is bound, or conflict
with, result in a breach of or constitute (with due notice or lapse of time or
both) a default under any such indenture, agreement or other instrument, or
result in the creation or imposition of any lien, charge or encumbrance of any
nature whatsoever upon any of the properties or assets of the Company or any
Subsidiary. The Company has full corporate power and authority to enter into
the Documents and to perform the transactions contemplated thereby.
b. This Agreement has been duly executed and delivered by the
Company and constitutes the legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, subject, as to
enforcement of remedies, to applicable bankruptcy, insolvency, reorganization,
moratorium and similar laws from time to time in effect affecting the
enforcement of creditors' rights generally and to general equity principles.
The Pledge Agreement and the Note and the Registration Rights Agreement, when
executed and delivered by the Company as provided in this Agreement, will
constitute legal, valid and binding obligations of the Company, enforceable
against the Company in accordance with their terms.
2
<PAGE>
c. A disclosure memorandum containing all material information with
respect to the business, properties, prospects and financial condition of the
Company and its Subsidiaries as of the date hereof has been delivered to
Purchaser (the "Memorandum"). The information contained in the Memorandum is
true and correct in all material respects as of the date of the Memorandum. The
Memorandum does not contain any untrue statement of a material fact nor does it
omit to state a material fact necessary in order to make the statements made, in
light of the circumstances under which they were made.
d. Except as described in the Memorandum, the Company does not own
or control, directly or indirectly, any corporation, association or other
entity. Each corporation, association or other entity described in the
Memorandum as being owned, directly or indirectly, in whole or in part, is
herein referred to as a "Subsidiary" and all such entities together, are herein
referred to as the "Subsidiaries." The Company has been duly incorporated and
is validly existing as a corporation in good standing under the laws of Nevada,
with full power and authority (corporate and other) to own and lease its
properties and conduct its business as described in the Memorandum; each
Subsidiary has been duly and validly incorporated or otherwise formed pursuant
to the laws of its jurisdiction of formation and, if a corporation, limited
liability company or limited partnership, is in good standing under such laws;
each Subsidiary that is a partnership, limited partnership or limited liability
company is a partnership for United States federal income tax purposes; except
as described in the Memorandum, the Company and each Subsidiary is in possession
of and operating in compliance in all material respects with all authorizations,
licenses, permits, consents, certificates and orders material to the conduct of
its business, all of which are valid and in full force and effect; the Company
and each Subsidiary is duly qualified to do business and in good standing as a
foreign corporation or other entity in each jurisdiction in which the ownership
or leasing of properties or the conduct of its business requires such
qualification, except for jurisdictions in which the failure to so qualify would
not have a material adverse effect upon the Company; and except as described in
the Memorandum, no proceeding has been instituted in any such jurisdiction,
revoking, limiting or curtailing, or seeking to revoke, limit or curtail, such
power and authority or qualification.
e. The Company has authorized and outstanding capital stock as set
forth under the heading "Capitalization" in the Memorandum; the issued and
outstanding shares of Common Stock have been duly authorized and validly issued,
are fully paid and nonassessable, have been issued in compliance with all
federal and state securities laws, were not issued in violation of or
3
<PAGE>
subject to any preemptive rights or other rights to subscribe for or purchase
securities, and conform to the description thereof contained in the Memorandum.
The Company's Board of Directors (i) has reserved for issuance upon conversion
of the Notes up to 2 million shares of the Company's authorized and unissued
Common Stock and, (ii) shall, on an ongoing basis until conversion or maturity
of the Notes, keep reserved such number of shares of the Company's authorized
and unissued Common Stock as shall be necessary for issuance upon conversion of
the Notes. Except as disclosed in or contemplated by the Memorandum and the
financial statements of the Company, and the related notes thereto, included in
the Memorandum, neither the Company nor any Subsidiary has outstanding any
options to purchase, or any preemptive rights or other rights to subscribe for
or to purchase, any securities or obligations convertible into, or any contracts
or commitments to issue or sell, shares of its capital stock or any such
options, rights, convertible securities or obligations. The description of the
Company's stock option, stock bonus and other stock plans or arrangements, and
the options or other rights granted and exercised thereunder, set forth in the
Memorandum and the Company's Proxy Statement relating to its 1995 Annual Meeting
of Stockholders accurately and fairly presents all material information with
respect to such plans, arrangements, options and rights.
f. The unaudited consolidated financial statements and schedules of
the Company and its Subsidiaries, and the related notes thereto, included in the
Memorandum present fairly the financial position of the Company and such
Subsidiaries as of the respective dates of such financial statements and
schedules, and the results of operations and changes in financial position of
the Company and such Subsidiaries for the respective periods covered thereby.
Such statements, schedules and related notes have been prepared in accordance
with generally accepted accounting principles applied on a consistent basis.
g. Except as disclosed in the Memorandum, and except as to defaults
that individually or in the aggregate would not be material to the Company,
neither the Company nor any Subsidiary is in violation or default of any
provision of its articles of incorporation or bylaws, or other organization
documents, and is not in breach of or default with respect to any provision of
any agreement, judgment, decree, order, mortgage, deed of trust, lease,
franchise, license, indenture, permit or other instrument to which it is a party
or by which any of its properties are bound; and there does not exist any state
of facts that constitutes an event of default on the part of the Company or any
Subsidiary as defined in such documents or that, with notice or lapse of time or
both, would constitute such an event of default.
4
<PAGE>
h. Except as described in the Memorandum, the contracts described in
the Memorandum, and all other material contracts, instruments, and other
documents evidencing legal rights and obligations of the Company or any
Subsidiary ("Contracts"), are in full force and effect on the date hereof; and,
except as described in the Memorandum, (i) neither the Company nor any
Subsidiary nor, to the best of the Company's knowledge, any other party is in
breach of or default under any Contract where such breach or default would
permit any party to terminate such Contract or could result in other penalties
having a material adverse effect on the Company; (ii) to the best of the
Company's knowledge, no event has occurred that, upon notice or the passage of
time, would cause such a default to occur; and (iii) the Company does not expect
to be unable or expect any Subsidiary to be unable to comply with any material
provision of any Contract.
i. Except as described in the Memorandum, there are no legal or
governmental actions, suits or proceedings pending, threatened in a writing
received by the Company or a Subsidiary or, to the best of the Company's
knowledge, otherwise threatened to which the Company or any Subsidiary is or may
be a party or of which property owned or leased by the Company or any Subsidiary
is or may be the subject, or related to environmental or discrimination matters,
which actions, suits or proceedings might, individually or in the aggregate,
prevent or adversely affect the transactions contemplated by this Agreement or
result in a material adverse change in the condition (financial or otherwise),
properties, business, results of operations or prospects of the Company or any
Subsidiary; and no labor disturbance by the employees of the Company exists or,
to the best of the Company's knowledge, is imminent that might be expected to
affect adversely such condition, properties, business, results of operations or
prospects. Neither the Company nor any Subsidiary is a party or subject to the
provisions of any material injunction, judgment, decree or order of any court,
regulatory body, administrative agency or other governmental body.
j. The Company or a Subsidiary has good and marketable title to all
the properties and assets reflected as owned in the balance sheet dated December
31, 1994, included in the financial statements hereinabove described, subject to
no lien, mortgage, pledge, charge or encumbrance of any kind except (i) those,
if any, reflected in such financial statements, (ii) the Memorandum, or (iii)
those that are not material in amount and do not adversely affect the use made
and proposed to be made of such property by the Company. The Company and each
Subsidiary holds its leased properties under valid and binding leases, with such
exceptions as are not materially significant in relation to the business of the
Company. The Company and each Subsidiary
5
<PAGE>
owns or leases all such properties as are necessary to its operations as now
conducted.
k. Since the date as of which information is given in the
Memorandum, and except as described in or specifically contemplated by the
Memorandum: (i) neither the Company nor any Subsidiary has incurred any
material liabilities or obligations, indirect, direct or contingent, or engaged
in any other transaction that is not in the ordinary course of business or that
could result in a material reduction in the future earnings or liquidity of the
Company; (ii) neither the Company nor any Subsidiary has sustained any material
loss or interference with its business or properties from fire, flood,
windstorm, accident or other calamity, whether or not covered by insurance;
(iii) neither the Company nor any Subsidiary has paid or declared any dividends
or other distributions with respect to its capital stock and the Company is not
in default in the payment of principal or interest on any outstanding debt or
obligations for money borrowed; (iv) there has not been any change in the
capital stock of the Company (other than as a result of the sale of the Note
hereunder) or indebtedness material to the Company (other than in the ordinary
course of business); and (v) there has not been any material adverse change in
the condition (financial or otherwise), business, properties, results of
operations or prospects of the Company or any Subsidiary.
l. Except as disclosed in or specifically contemplated by the
Memorandum, the Company and each Subsidiary has sufficient trademarks, trade
names, patent rights, copyrights, licenses, approvals and governmental
authorities to conduct its businesses as now conducted; the expiration in
accordance with their terms of any trademarks, trade names, patent rights,
copyrights, licenses, approvals or governmental authorizations would not have a
material adverse effect on the condition (financial or otherwise), business,
results of operations or prospects of the Company or any Subsidiary; and except
as described in the Memorandum the Company has no knowledge of any material
infringement by it or its Subsidiaries of trademark, trade name rights, patent
rights, copyrights, licenses, trade secret or other similar rights of others
that has not been resolved, and there is no claim being made against the Company
or any Subsidiary regarding trademark, trade name, patent, copyright, license,
trade secret or other infringement that could have a material adverse effect on
the condition (financial or otherwise), business, results of operations or
prospects of the Company.
m. The Company and each Subsidiary and, to the Company's knowledge,
each employee of the Company or any Subsidiary, acting in that capacity, is
conducting business in compliance with all applicable laws, rules and
regulations of
6
<PAGE>
the jurisdictions in which it or such Subsidiary is conducting business,
including, without limitation, all applicable local, state and federal
environmental laws and regulations, except where failure to be so in compliance
would not materially adversely affect the condition (financial or otherwise),
business, results of operations or prospects of the Company.
n. The Company and the Subsidiaries have filed all necessary
federal, state and foreign income and franchise tax returns and except as
described in the Memorandum, have paid all taxes shown as due thereon; and,
except as described in the Memorandum, the Company has no knowledge of any tax
deficiency that has been or might be asserted or threatened against the Company
or the Subsidiaries that would materially and adversely affect the business,
operations, or properties of the Company.
o. The Company is not an "investment company" within the meaning of
the Investment Company Act of 1940, as amended.
p. The Company and the Subsidiaries maintain insurance of the types
and in the amounts generally deemed adequate for their respective businesses,
including, but not limited to, insurance covering real and personal property
owned or leased by the Company or such Subsidiary against theft, damage,
destruction, acts of vandalism and all other risks customarily insured against,
all of which insurance is in full force and effect.
q. Neither the Company nor any of the Subsidiaries has at any time
during the last five years (i) made any unlawful contribution to any candidate
for foreign office, or failed to disclose fully any contribution in violation of
law or (ii) made any payment to any federal or state governmental officer or
official, or other person charged with similar public or quasi-public duties,
other than payments required or permitted by the laws of the United States of
any jurisdiction thereof.
r. No officer of the Company or any Subsidiary has been determined
to be unsuitable by any gaming regulatory authority nor, to the best of the
Company's knowledge, has any process with a view to any such determination
(other than a routine review of the qualifications of any such person) been
initiated by any such authority.
SECTION 3 Representations and Warranties of Purchaser.
-------------------------------------------
Purchaser hereby represents and warrants to the Company that:
a. Purchaser is a validly existing limited partnership in good
standing under the laws of Delaware.
7
<PAGE>
Purchaser has full power and authority to enter into this Agreement and perform
the transactions contemplated hereby. This Agreement has been duly authorized,
executed and delivered by Purchaser and constitutes a valid and binding
obligation of Purchaser in accordance with its terms.
b. Purchaser is an accredited investor as that term is defined in
Regulation D promulgated under the Securities Act of 1933, as amended (the "1933
Act") and has such knowledge and experience in financial and business matters as
to be capable of evaluating the merits and risks of the purchase of the Note.
The Note is being acquired for Purchaser's own account for investment and not
with a view to, or for resale in connection with, any distribution, and no other
person has or will have any right to acquire any beneficial interest therein.
Purchaser understands and agrees that it must bear the economic risk of an
investment in the Note for an indefinite period of time because the Note not
been registered under the 1933 Act or under the securities laws of any state or
other jurisdiction and, therefore, cannot be resold, pledged, assigned or
otherwise disposed of unless the Note is subsequently registered for sale under
the 1933 Act and the applicable securities laws of such states, or unless an
exemption from registration is available. Purchaser acknowledges that a
restrictive legend will be placed on the Note and each certificate representing
shares of Common Stock issued upon conversion of the Note and a notation shall
be made in the appropriate records of the Company indicating that the Note and
share certificates are subject to restrictions on transfer under the 1933 Act.
Purchaser has received and reviewed the Memorandum. Purchaser acknowledges that
it has had the opportunity to ask questions of and receive answers from the
Company concerning the terms and conditions of the offering described in the
Memorandum, and to obtain any additional information it requested from the
Company.
SECTION 4 Conversion.
----------
4.1 Conversion.
----------
a. The holder of a Note shall have the right, at the option of such
holder, at any time to convert, subject to the terms and provisions of this
Section 4, the unpaid principal amount of the Note or any portion thereof, in
minimum increments of $1,000, and any accrued and unpaid interest on such Note,
into fully paid and non-assessable shares of Common Stock of the Company or any
capital stock or other securities into which such Common Stock shall have been
changed or any capital stock or other securities resulting from a
reclassification thereof ("Shares"). Such conversion of a Note to Shares shall
be made at an amount per Share (of principal of such Note and/or of accrued and
unpaid interest if specified by the holder) which is
8
<PAGE>
equal to the then current conversion price, as further described below. Every
Note shall continue to be convertible, in whole or in part, even though the
Company or a holder may have given notice of prepayment with respect to such
Note or any part thereof pursuant to Section 11 hereof, so long as such Note and
the holder's election to convert shall have been delivered to the Company
pursuant to Section 4.2(a) hereof prior to the date fixed for such prepayment.
b. For convenience, the conversion pursuant to this Section 4 of all
or a portion of the principal amount of a Note (and/or of accrued and unpaid
interest if elected by the holder) into Shares is herein sometimes referred to
as the "conversion" of the Note. For purposes of this Section 4, "Business Day"
means any day other than a Saturday, Sunday or legal holiday, on which banks in
the location of the office of the Company identified in Section 13 are open for
business.
4.2 Mechanics of Conversion.
-----------------------
a. Surrender, Election and Payment. The then unpaid principal
-------------------------------
amount of each Note (and/or any accrued and unpaid interest on such Note) may be
converted by the holder thereof, in whole or in part, during normal business
hours on any Business Day by surrender of the Note, accompanied by written
evidence of the holder's election to convert the Note or portion thereof, to the
Company at its office designated in Section 13 hereof (or, if such conversion is
in connection with an underwritten public offering of Shares, at the location at
which the underwriting agreement requires that such Shares be delivered).
Payment of the conversion price for the Shares specified in such election shall
be made by applying an aggregate amount of principal of the Note and/or, if
elected by the holder, of accrued and unpaid interest equal to the amount
obtained by multiplying (i) the number of Shares specified in such election by
(ii) the then current conversion price. Such holder shall thereupon be entitled
to receive the number of Shares specified in such election rounded to the
nearest whole share.
b. Effective Date. Each conversion of a Note pursuant to Section
--------------
4.2(a) hereof shall be deemed to have been effected immediately prior to the
close of business on the Business Day on which such Note shall have been
surrendered to the Company as provided in Section 4.2(a) hereof (except that if
such conversion is in connection with an underwritten public offering of Shares,
then such conversion shall be deemed to have been effected upon such surrender),
and such conversion shall be at the current conversion price in effect at such
time. On each such day that the conversion of a Note is deemed effected, the
person or persons in whose name or names any certificate or certificates for
Shares are issuable upon such conversion, as
9
<PAGE>
provided in Section 4.2(c) hereof, shall be deemed to have become the holder or
holders of record thereof.
c. Share Certificates. As promptly as practicable after the
------------------
conversion of a Note, in whole or in part, and in any event within five Business
Days thereafter (unless such conversion is in connection with an underwritten
public offering of Shares, in which event concurrently with such conversion),
the Company at its expense (including the payment by it of any applicable issue,
stamp or other taxes, other than any income taxes) will cause to be issued in
the name of and delivered to the holder thereof, or as such holder may direct, a
certificate or certificates for the number of Shares to which such holder shall
be entitled upon such conversion.
d. Acknowledgment of Obligation. The Company will, at the time of
----------------------------
or at any time after each conversion of a Note, upon the request of the holder
thereof or of any Shares issued upon such conversion, acknowledge in writing its
continuing obligation to afford to such holder all rights to which such holder
shall continue to be entitled under the Documents; provided, that if any such
holder shall fail to make any such request, the failure shall not affect the
continuing obligation of the Company to afford such rights to such holder.
e. Payment of Accrued Interest. Within five Business Days after
---------------------------
receipt of any Note and an election to convert all or a portion of the principal
amount of such Note under Section 4.2(a) hereof, the Company will pay to the
holder of such Note any unpaid interest, accrued to the date of conversion of
such Note, on the principal amount so converted, except to the extent that the
amount of such interest has also been converted into Shares.
4.3 Current Conversion Price.
------------------------
The term "conversion price" shall mean initially the lower of $1.125
or the average of the daily closing prices for the Common Stock for the 5
consecutive trading days immediately prior to the Closing Date, subject to
adjustment as set forth in Section 4.4. For purposes of determining the initial
conversion price described in the preceding sentence, the "closing price" for
each day shall be the last reported sale price regular way or, in case no such
sale takes place on such day, the average of the closing bid and asked prices
regular way, in either case as reported by the American Stock Exchange. The
term "current conversion price" as used herein shall mean the conversion price,
as the same may be adjusted from time to time as hereinafter provided, in effect
at any given time. In determining the current conversion price, the result
shall be expressed to the nearest $0.01, but any such lesser amount shall be
carried
10
<PAGE>
forward and shall be considered at the time of (and together with) the next
subsequent adjustment which, together with any adjustments to be carried
forward, shall amount to $0.01 per Share or more.
4.4 Adjustment of Conversion Price.
------------------------------
The conversion price shall be subject to adjustment, from time to
time, as follows:
a. Adjustments for Stock Dividends, Recapitalizations, etc. In case
--------------------------------------------------------
the Company shall, after the Closing Date, (i) pay a stock dividend or make a
distribution (on or in respect of its Common Stock) in shares of its Common
Stock, (ii) subdivide the outstanding shares of its Common Stock, (iii) combine
the outstanding shares of its Common Stock into a smaller number of shares, or
(iv) issue by reclassification of shares of its Common Stock, any shares of
capital stock of the Company, then, in any such case, the current conversion
price in effect immediately prior to such action shall be adjusted to a price
such that if the holder of a Note were to convert such Note in full immediately
after such action, such holder would be entitled to receive the number of shares
of capital stock of the Company which the holder would have owned immediately
following such action had such Note been converted immediately prior thereto
(with any record date requirement being deemed to have been satisfied), and, in
any such case, such conversion price shall thereafter be subject to further
adjustments under this Section 4. An adjustment made pursuant to this Section
4.4(a) shall become effective retroactively immediately after the record date in
the case of a dividend or distribution and shall become effective immediately
after the effective date in the case of a subdivision, combination or
reclassification.
b. Adjustments for Certain Other Distributions. In case the Company
-------------------------------------------
shall, after the Closing Date, fix a record date for the making of a
distribution to holders of its Common Stock (including any such distribution
made in connection with a consolidation or merger in which the Company is the
continuing corporation) of (i) assets (other than cash dividends paid out of
retained earnings of the Company (determined under generally accepted accounting
principles consistently applied)), (ii) evidences of indebtedness or other
securities (except for its Common Stock) of the Company or of any entity other
than the Company, or (iii) subscription rights, options or warrants to purchase
any of the foregoing assets or securities, whether or not such rights, options
or warrants are immediately exercisable (all such distributions referred to in
clauses (i), (ii) and (iii) being hereinafter collectively referred to as
"Distributions on Common Stock"), the Company shall set aside in an escrow
reasonably acceptable to the holders of Notes, and suitably invested for the
11
<PAGE>
benefit of the holders of Notes, the Distribution on Common Stock to which they
would have been entitled if they had converted all of the Notes held by them for
the Company's Common Stock immediately prior to the record date for the purpose
of determining stockholders entitled to receive such Distribution on Common
Stock and any such Distribution on Common Stock (together with any earnings
while escrowed) shall thereafter be distributed from time to time out of such
escrow to persons converting Notes (immediately upon conversion).
c. Adjustments for Issuances of Additional Stock. Subject to the
---------------------------------------------
exceptions referred to in Section 4.4(e) hereof, in case the Company shall at
any time or from time to time after the Closing Date issue any additional shares
of Common Stock ("Additional Common Stock"), for a consideration per share
either (I) less than the then current Market Price per share of the Common Stock
(determined as provided in Section 4.4(g) hereof), immediately prior to the
issuance of such Additional Common Stock, or (II) without consideration, then
(in the case of either clause (I) or (II)), and thereafter successively upon
each such issuance, the current conversion price shall forthwith be reduced to a
price equal to the price determined by multiplying such current conversion price
by a fraction, of which:
(a) the numerator shall be (i) the number of shares of the
Company's Common Stock outstanding when the then current conversion
price became effective plus (ii) the number of shares of Common Stock
which the aggregate amount of consideration, if any, received by the
Company upon all issuances of Common Stock, since the current
conversion price became effective (including the consideration, if
any, received for such Additional Common Stock) would purchase at the
then current Market Price per share of the Common Stock, and
(b) the denominator shall be (i) the number of shares of Common
Stock outstanding when the current conversion price became effective
plus (ii) the number of shares of Common Stock issued since the
current conversion price became effective (including the number of
shares of such Additional Common Stock);
provided, however, that such adjustment shall be made only if such
adjustment results in a current conversion price less than the current
conversion price in effect immediately prior to the issuance of such
Additional Common Stock. The Company may, but shall not be required to,
make any adjustment of the current conversion price if the amount of such
adjustment shall be less than one percent of the current conversion price
immediately prior to such adjustment, but any adjustment that would
otherwise be
12
<PAGE>
required then to be made which is not so made shall be carried forward and
shall be made at the time of (and together with) the next subsequent
adjustment which, together with any adjustments so carried forward, shall
amount to not less than one percent of the current conversion price
immediately prior to such adjustment.
d. Certain Rules in Applying the Adjustment for Additional Stock
-------------------------------------------------------------
Issuances. For purposes of any adjustment as provided in Section 4.4(c) hereof,
- ---------
the following provisions shall also be applicable:
(i) Cash Consideration. In case of the issuance of Additional
------------------
Common Stock for cash, the consideration received by the Company therefor
shall (subject to the last sentence of Section 4.4(g) hereof) be deemed to
be the aggregate consideration paid by the persons to whom such Additional
Common Stock is issued.
(ii) Non-Cash Consideration. In case of the issuance of
----------------------
Additional Common Stock for a consideration other than cash, or a
consideration a part of which shall be other than cash, the amount of the
consideration other than cash so received or to be received by the Company
shall be deemed to be the value of such consideration at the time of its
receipt by the Company as determined in good faith by the Board of
Directors of the Company, except that where the non-cash consideration
consists of the cancellation, surrender or exchange of outstanding
obligations of the Company (or where such obligations are otherwise
converted into shares of Common Stock), the value of the non-cash
consideration shall be deemed to be the principal amount of, and any and
all interest relating to, the obligations cancelled, surrendered,
satisfied, exchanged or converted. If the Company receives consideration,
part or all of which consists of publicly traded securities (i.e., in lieu
of cash), the value of such non-cash consideration shall be the aggregate
market value of such securities (based on the latest reported sale price
regular way) as of the close of the day immediately preceding the date of
their receipt by the Company.
(iii) Options, Warrants, Convertibles, etc. In case of the
-------------------------------------
issuance, whether by distribution or sale to holders of its Common Stock or
to others, by the Company of (i) any security (other than the Notes) that
is convertible into Common Stock or (ii) any rights, options or warrants to
purchase Common Stock (except as stated in Section 4.4(e) hereof), if
inclusion thereof in calculating adjustments under this Section 4.4 would
result in a current conversion price lower than if excluded, the Company
shall be deemed
13
<PAGE>
to have issued, for the consideration described below, the number of shares
of Common Stock into which such convertible security may be converted when
first convertible, or the number of shares of Common Stock deliverable upon
the exercise of such rights, options or warrants when first exercisable, as
the case may be (and such shares shall be deemed to be Additional Common
Stock for purposes of Section 4.4(c) hereof). The consideration deemed to
be received by the Company at the time of the issuance of such convertible
securities or such rights, options or warrants shall be the consideration
so received determined as provided in Section 4.4(d)(i) and (ii) hereof,
plus (x) any consideration or adjustment payment to be received by the
Company in connection with such conversion and, as applicable, (y) the
aggregate price at which shares of Common Stock are to be delivered upon
the exercise of such rights, options or warrants when first exercisable
(or, if no price is specified and such shares are to be delivered at an
option price related to the market value of the subject Common Stock an
aggregate option price bearing the same relation to the market value of the
subject Common Stock at the time such rights, options or warrants were
granted). If, subsequently, (1) such number of shares into which such
convertible security is convertible, or which are deliverable upon the
exercise of such rights, options or warrants, is increased or (2) the
conversion or exercise price of such convertible security, rights, options
or warrants is decreased, then the calculations under the preceding two
sentences (and any resulting adjustment to the current conversion price
under Section 4.4(c) hereof) with respect to such convertible security,
rights, options or warrants, as the case may be, shall be recalculated as
of the time of such issuance but giving effect to such changes (but any
such recalculation shall not result in the current conversion price being
higher than that which would be calculated without regard to such
issuance). On the expiration or termination of such rights, options or
warrants, or rights to convert, the conversion price hereunder shall be
readjusted (up or down as the case may be) to such current conversion price
as would have been obtained had the adjustments made with respect to the
issuance of such rights, options, warrants or convertible securities been
made upon the basis of the delivery of only the number of shares of Common
Stock actually delivered upon the exercise of such rights, options or
warrants or upon the conversion of any such securities and at the actual
exercise or conversion prices (but any such recalculation shall not result
in the current conversion price being higher than that which would be
calculated without regard to such issuance).
14
<PAGE>
(iv) Number of Shares Outstanding. The number of shares of
----------------------------
Common Stock as at the time outstanding shall exclude all shares of Common
Stock then owned or held by or for the account of the Company but shall
include the aggregate number of shares of Common Stock at the time
deliverable in respect of the convertible securities, rights, options and
warrants referred to in Section 4.4(d)(3) and 4.4(e) hereof; provided, that
to the extent that such rights, options, warrants or conversion privileges
are not exercised, such shares of Common Stock shall be deemed to be
outstanding only until the expiration dates of the rights, warrants,
options or conversion privileges or the prior cancellation thereof.
e. Exclusions from the Adjustment for Additional Stock Issuances.
-------------------------------------------------------------
No adjustment of the current conversion price under Section 4.4(c) hereof shall
be made as a result of or in connection with:
(i) the issuance of the Notes, any Shares upon conversion of the
Notes or the issuance of any shares of Common Stock pursuant to Section
6(c) hereof; or
(ii) the issuance of Common Stock to officers, directors or
employees of the Company or any Subsidiary, or the grant to or exercise by
any such persons of options to purchase Common Stock, under bona fide
employee benefit plans, or pursuant to an employment agreement or
consulting agreement, which plan or agreement has been adopted or approved
by the Board of Directors of the Company and, when required by law,
approved by the holders of Common Stock (but only to the extent that the
aggregate number of shares excluded hereby and issued pursuant to such
plans and agreements shall not at any time exceed 15% of the Common Stock
outstanding).
f. Certification. Whenever the current conversion price is adjusted
-------------
as provided in this Section 4.4, the Company will promptly obtain a certificate
of the Company's President or Chief Financial Officer setting forth the current
conversion price as so adjusted, the computation of such adjustment and a brief
statement of the facts accounting for such adjustment, and will mail to the
holders of the Notes a copy of such certificate.
g. Determination of Market Price. For the purpose of any
-----------------------------
computation under this Section 4, the current "Market Price" per share of the
Common Stock on any date shall be deemed to be the average of the daily closing
prices for the 10 consecutive trading days before such date (subject to the last
sentence of this Section 4.4(g)). The closing price for each day shall be the
last reported sale price regular way or, in case no
15
<PAGE>
such sale takes place on such day, the average of the closing bid and asked
prices regular way, in either case on the principal national securities exchange
on which the Company's Common Stock is listed or admitted to trading, or if the
Common Stock is not listed or admitted to trading on any national securities
exchange, the average of the highest reported bid and lowest reported asked
prices as furnished by the National Association of Securities Dealers Inc.,
Automated Quotation System. If the closing price cannot be so determined, then
the Market Price shall be determined (x) by the written agreement of the Company
and the holders of Notes representing a majority of the Shares then obtainable
from the conversion of outstanding Notes, or (y) in the event that no such
agreement is reached within 20 days after the event giving rise to the need to
determine the Market Price, by the agreement of two arbitrators, one of whom
shall be selected by the Company and the other of whom shall be selected by such
majority holders or (z) if the two arbitrators so selected fail to agree within
20 days, by a third arbitrator selected by the mutual agreement of the other two
(with all costs and expenses of any arbitrators to be paid by the Company). The
Company shall cooperate, and shall provide all necessary information and
assistance, to permit any determination under the preceding clauses (x), (y) or
(z). If the Company conducts an underwritten public offering of the Company's
Common Stock which is conducted in compliance with any applicable agreements,
and if such public offering either raises at least $3 million of net proceeds to
the Company and/or selling shareholders thereunder or was initiated under the
Registration Rights Agreement at the demand of a holder of Notes or of Shares,
then for purposes of Section 4.4(c) hereof the Company shall be deemed to have
issued such shares of its Common Stock sold in such underwritten public offering
for a consideration per share equal to the then current Market Price per share.
h. Other Adjustments. In case any event shall occur as to which any
-----------------
of the provisions of this Section 4.4 are not strictly applicable but the
failure to make any adjustment would not fairly protect the conversion rights
represented by the Notes in accordance with the essential intent and principles
of this Section 4.4, then, in each such case, the Company shall request its
independent public accountants to render an opinion upon the adjustment, if any,
on a basis consistent with the essential intent and principles established in
this Section 4.4, necessary to preserve, without dilution, the conversion rights
represented by the Notes. Upon receipt of such opinion, the Company will
promptly mail copies thereof to the holders of the Notes and shall make the
adjustments described therein.
i. Meaning of "Issuance". References in this Agreement to
---------------------
"issuances" of stock by the Company include
16
<PAGE>
issuances by the Company of previously unissued shares and issuances or other
transfers by the Company of treasury stock.
4.5 Company's Consolidation or Merger.
---------------------------------
Without limiting the covenants of the Company contained in Section 5
hereof, if the Company shall at any time consolidate with or merge into another
corporation (where the Company is not the continuing corporation after such
merger or consolidation), or the Company shall sell, transfer or lease all or
substantially all of its assets, or the Company shall change its Shares into
property other than capital stock, then, in any such case, the holder of a Note
shall thereupon (and thereafter) be entitled to receive, upon the conversion of
such Note in whole or in part, the securities or other property to which (and
upon the same terms and with the same rights as) a holder of the number of
Shares deliverable upon conversion of such Note would have been entitled if such
conversion had occurred immediately prior to such consolidation or merger, such
sale of assets or such change, and such conversion rights shall thereafter
continue to be subject to further adjustments under this Section 4. The Company
shall take such steps in connection with such consolidation or merger, such sale
of assets or such change as may be necessary to assure such holder that the
provisions of the Notes and this Agreement shall thereafter be applicable in
relation to any securities or property thereafter deliverable upon the
conversion of the Notes, including, but not limited to, obtaining a written
obligation to supply such securities or property upon such conversion and to be
so bound by the Notes.
4.6 Notice to Holders of Notes.
--------------------------
In case at any time
a. the Company shall take any action which would require an
adjustment in the current conversion price pursuant to Section 4.4(a), (c) or
(h); or
b. the Company shall authorize the granting to the holders of its
Common Stock of any Distributions on Common Stock as set forth in Section
4.4(b); or
c. there shall occur any Change of Control Event (as defined in
Section 11.2);
then, in any one or more of such cases, the Company shall give written notice to
the holders of the Notes, not less than 20 days before any record date or other
date set for definitive action, of the date on which such action, distribution,
reorganization, reclassification, change, sale, transfer, lease, consolidation,
merger, dissolution, liquidation or winding-up shall take place,
17
<PAGE>
as the case may be. Such notice shall also set forth such facts as shall
indicate the effect of any such action (to the extent such effect may be known
at the date of such notice) on the current conversion price and the kind and
amount of the shares and other securities and property deliverable upon
conversion of the Notes. Such notice shall also specify any date as of which
the holders of the Common Stock of record shall be entitled to exchange their
Common Stock for securities or other property deliverable upon any such
reorganization, reclassification, change, sale, transfer, lease, consolidation,
merger, dissolution, liquidation or winding-up, as the case may be.
SECTION 5 Covenants of the Company.
------------------------
The Company covenants and agrees with Purchaser as follows:
a. The Company shall use its best efforts to cause the consummation
of the transactions contemplated hereby in accordance with the terms and
conditions set forth in the Documents.
b. Until the later of the date that all Notes are paid in full or
converted into Shares or December 31, 1996, the Company will furnish to the
holder(s) of the Note and the Shares: (i) concurrent with distribution to the
Company's stockholders, copies of the Annual Report of the Company containing
the balance sheet of the Company as of the close of such fiscal year and
statements of income, stockholders' equity and cash flows for the year then
ended and the opinion thereon of the Company's independent public accountants;
(ii) as soon as practicable after the filing thereof, copies of each proxy
statement, Annual Report on Form 10-K, Quarterly Report on Form 10-Q, Report on
Form 8-K or other report filed by the Company with the Commission, the NASD or
any securities exchange; and (iii) concurrent with distribution to the Company's
stockholders, copies of any report or communication of the Company mailed
generally to holders of its Common Stock.
c. The Company will use its best efforts to cause the Common Stock
to continue to be listed on the American Stock Exchange or to become listed on
the New York Stock Exchange or designated for quotation as a national market
system security on the National Association of Securities Dealers, Inc.
Automated Quotation System.
d. Until the earlier of (i) December 31, 1996, (ii) prepayment or
repayment of all principal and interest due under the Note, or (iii) the date on
which, following a conversion of the Note in accordance with Section 4 hereof,
Purchaser ceases
18
<PAGE>
to be the record holder of 50% or more of the Shares issued upon such
conversion:
(i) Upon the written request of Purchaser delivered to the
Company, the Company will take the actions necessary to appoint to the
Board of Directors of the Company a person designated by Purchaser;
(ii) The Company will grant Purchaser, on an ongoing basis, (a)
reasonable access to its books and records, (b) the right to meet with and
call meetings of Company management, (c) the right to attend, or have its
advisors or representatives attend, and address meetings of the Board of
Directors of the Company; the Company shall effect promptly the changes in
executive officer positions described in the "Management" section of the
Memorandum;
(iii) The Company will promptly advise Purchaser of any event
that represents a material adverse change in its business, properties or
financial condition and of any suit or proceeding commenced or threatened
against the Company, which, if adversely determined, could result in such a
material adverse change; and the Company will promptly advise Purchaser of
the outcome of or any material developments in currently pending
litigation;
(iv) The Company will advise Purchaser on a weekly basis of all
cash payments of $50,000 or more made by the Company or any Subsidiary to
any person, group or entity during that week and any payments made to any
person, group or entity over the previous four-week period that total
$50,000 or more;
(v) All proceeds to the Company from any future debt or equity
financings by the Company, up to a $5 million aggregate maximum, will be
deposited by the Company in an escrow account with such escrow agent and
pursuant to such escrow instructions as shall be mutually agreed by the
Company and Purchaser at the time of such financings. The proceeds from
such financings will be used solely for payment of principal and interest
due under the Company's 12.5% First Mortgage Notes due 2000 (the "First
Mortgage Notes") and under the Company's 20% Mortgage Notes due 1996 (the
"Mortgage Notes") and for payment of amounts, adjustments and assessments
due under the IRS Assessment (as defined in the Memorandum).
e. Until the later of the date that all Notes are paid in full or
converted into Shares or December 31, 1996, the holder(s) of the Note and/or the
Shares shall have the right to purchase such holder's Proportionate Percentage
of any future
19
<PAGE>
Eligible Offering. For the purposes of this Section 5(e), "Proportionate
Percentage" means, with respect to such holder, as of any date, the result
(expressed as a percentage) obtained by dividing (i) the number of Shares owned
by such holder as of such date plus the number of Shares into which such
holder's Note as of such date would be convertible; by (ii) the total number of
shares of Common Stock outstanding as of such date. "Eligible Offering" means
an offer by the Company to sell for cash, shares of Common Stock or any security
convertible into or exchangeable for, or carrying rights or options to purchase,
shares of Common Stock, other than an offering of securities by the Company (i)
to employees, officers and/or directors in connection with or pursuant to any
bona fide employee benefit or compensation plan or pursuant to an employment or
consulting agreement, which plan or agreement has been adopted or approved by
the Board of Directors of the Company; or (ii) in connection with any Change of
Control Event (as defined in Section 11.2). The Company shall, before issuing
any securities pursuant to an Eligible Offering, give written notice thereof to
the holders of the Note and/or the Shares. Such notice shall specify the
security or securities the Company proposes to issue and the consideration that
the Company intends to receive therefor. For a period of 20 days following the
date of such notice, each holder shall be entitled, by written notice to the
Company, to elect to purchase all or any part of the holder's Proportionate
Percentage of the securities being sold in the Eligible Offering. In the event
that a holder does not make the election pursuant to this Section 5(e) to
purchase its Proportionate Percentage of securities included in an Eligible
Offering within such 20 day period, then the Company may issue such securities
to the proposed purchasers in the Eligible Offering, but only for a
consideration payable in cash not less than, and otherwise on terms no more
favorable to such purchasers than, that set forth in the Company's notice and
only within 90 days after the end of such 20 day period. In the event that any
such offer is accepted by the holder, the Company shall sell to the holder and
the holder shall purchase from the Company, for the consideration and on the
terms set forth in the notice described herein, the securities that the holder
shall have elected to purchase.
f. The net proceeds received by the Company from the sale of the
Notes will not be used by the Company to fund expenditures for, or contracts for
expenditures with respect to, any fixed assets or improvements, or for
replacements, substitutions or additions thereto, or to fund any expenditures
with respect to any lease to which the Company or a Subsidiary is party as
lessee, or by which it is bound, under which it leases any property (real,
personal or mixed) from any lessor other than the Company or a Subsidiary, and
which either is required to be capitalized in accordance with generally accepted
accounting principles, or, even if not so required to be
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capitalized, shall have (or have had), at the time first entered into, an
initial term of greater than three years (including leases of shorter duration
which are or were extendible to a total term greater than three years at the
option of the lessor.
g. For so long as any of the Notes are outstanding, the Company will
maintain an office where Notes may be presented for payment, exchange, or
conversion as provided in this Agreement. Such office initially shall be the
office of the Company identified in Section 13 hereof, which place may from time
to time be changed by notice to the holders of all Notes then outstanding.
SECTION 6 Defaults.
--------
a. Any of the following shall constitute an "Event of Default":
(i) the Company defaults in the payment of (A) any part of the
principal of or premium, if any, on any of the Notes, when the same shall
become due and payable, whether at maturity or at a date fixed for
prepayment or by acceleration or otherwise or (B) the interest on any of
the Notes, when the same shall become due and payable; and such default in
the payment of principal, premium or interest shall have continued for 15
days; or
(ii) an "Event of Default" as such term is defined under the
First Mortgage Notes, or the Mortgage Notes or a payment default under the
IRS Assessment and such default continues unremedied for 15 days; or
(iii) the Company defaults in the performance of any of the
covenants contained in Section 5 hereof or of any covenant contained in the
Pledge Agreement or Registration Rights Agreement and such default
continues unremedied for 30 days; or
(iv) any representation or warranty by the Company in the
Documents or in any certificate delivered by the Company pursuant thereto
proves to have been incorrect in any material respect when made; or
(v) a final judgment or order (other than with respect to the
WARN Act Litigation described in the Memorandum) which, either alone or
together with other final judgments or orders against the Company and its
Subsidiaries, exceeds an aggregate of $1 million is rendered by a court of
competent jurisdiction against the Company or any Subsidiary and such
judgment or order shall have
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continued undischarged or unstayed for 30 days after entry thereof; or
(viii) the Company or any Subsidiary make an assignment for the
benefit of creditors, or admit in writing its inability to pay its debts;
or a receiver or trustee is appointed for the Company or any Subsidiary or
for substantially all of its assets and, if appointed without its consent,
such appointment is not discharged or stayed within 30 days; or proceedings
under any law relating to bankruptcy, insolvency or the reorganization or
relief of debtors are instituted by or against the Company or any
Subsidiary, and, if contested by it, are not dismissed or stayed within 30
days; or any writ of attachment or execution or any similar process is
issued or levied against the Company or any Subsidiary or any significant
part of its property and is not released, stayed, bonded or vacated within
30 days after its issue or levy; or the Company or any Subsidiary takes
corporate action in furtherance of any of the foregoing.
b. If an Event of Default occurs, then and in each such event
Purchaser may at any time (unless all Events of Default shall theretofore have
been waived or remedied) at its option, by written notice to the Company,
declare the Note to be due and payable. Upon any such declaration, the Note
shall forthwith immediately mature and become due and payable, together with
interest accrued thereon and an "Additional Amount" (as defined below), all
without presentment, demand, protest or notice, all of which are hereby waived.
"Additional Amount" shall mean, with respect to any Note, as of the date of
repayment of such Note after such acceleration, an amount equal to the
Redemption Premium that would be payable if the Company had elected to prepay
such Note pursuant to Section 11 hereof at the time of such repayment. However,
if, at any time after the principal of the Note shall so become due and payable
and prior to the date of maturity stated in the Note, all arrears of principal
and interest on the Note (with interest at the rate specified in the Note on any
overdue principal and any overdue premium and, to the extent legally
enforceable, on any overdue interest) shall be paid to the holders of the Note
by or for the account of the Company, then Purchaser, by written notice or
notices to the Company, may waive such Event of Default and its consequences and
rescind or annul such declaration, but no such waiver shall extend to or affect
any subsequent Event of Default or impair any right or remedy resulting
therefrom.
c. If an Event of Default occurs, then and in each such event and in
addition to the foregoing rights, Purchaser shall have the right to:
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<PAGE>
(i) purchase from the Company shares of the Company's authorized
but unissued Common Stock at a per share price equal to 75% of the Market
Price on the date of the Event of Default; provided that, the number of
shares of Common Stock that Purchaser shall be entitled to purchase
pursuant to this Section 6(c) shall not exceed the quotient obtained by
dividing $3 million by such per share purchase price; and
(ii) cause the Company to take such action as may be required to
cause one additional director designated by Purchaser to be appointed to
the Board of Directors of the Company.
Upon the occurrence of an Event of Default, Purchaser may elect to purchase the
shares of Common Stock described in this Section 6(c) by delivering written
notice to the Company of such election and a description of the cash payment
terms and the timetable for closing the issue and purchase of such shares. The
cash payment terms and the closing date for such purchase shall be within the
sole discretion of Purchaser which terms and date shall be reasonable. The
Company shall effect the issuance and sale of such shares promptly in accordance
with the schedule identified by Purchaser in such notice.
d. In case any one or more Events of Default shall occur and be
continuing,
(i) Purchaser may proceed to protect and enforce its rights by an
action at law, suit in equity or other appropriate proceeding, whether for
the specific performance of any agreement contained in the Documents or for
an injunction against a violation of any of the terms thereof, or in aid of
the exercise of any power granted thereby or by law or for any other remedy
(including, without limitation, damages), and
(ii) the Company will pay to Purchaser in addition to any
interest or premium otherwise required, such further amount as shall be
sufficient to cover any and all costs and expenses of enforcement and
collection, including, without limitation, reasonable attorneys' fees and
expenses.
e. Purchaser shall, in addition to other remedies provided by law,
have the right and remedy to have the provisions of the Documents specifically
enforced by any court having equity jurisdiction, it being acknowledged and
agreed that any breach or threatened breach of the provisions of the Documents
will cause irreparable injury to Purchaser and that money damages will not
provide an adequate remedy. Nothing contained herein shall be construed as
prohibiting Purchaser from pursuing any other
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<PAGE>
remedies available to Purchaser for such breach or threatened breach, including,
without limitation, the recovery of damages from the Company.
SECTION 7 Conditions to the Obligations of Purchaser.
------------------------------------------
The obligations of Purchaser to purchase and pay for the Note on the
Closing Date shall be subject to the following conditions:
a. The Company's independent public accountants, KPMG Peat Marwick,
LLP, shall have completed the audit of the Company's financial statements for
the year ended December 31, 1994, copies of such audited financial statements
shall have been delivered to Purchaser and such audit shall have revealed no
material changes in the financial condition of the Company from the financial
condition presented in the unaudited financial statements for the same period
included in the Memorandum;
b. There shall not have been instituted by or against the Company or
any Subsidiary proceedings under any law relating to bankruptcy, insolvency or
reorganization or relief of debtors, nor shall the Company or any Subsidiary
have made a general assignment for the benefit of creditors, admitted in writing
its inability to pay its debts as they mature, appointed or had appointed for it
a receiver or trustee, or had any writ of attachment or execution or any similar
process issued or levied against it; no such matters shall be threatened or
pending nor shall the Company or any Subsidiary have taken any corporate action
in furtherance of any of the foregoing;
c. There shall be no investigation, action, suit or proceeding at
law or in equity or by or before any governmental instrumentality or other
agency pending or threatened against the Company or any officer, director or key
employee of the Company other than as disclosed in the Memorandum;
d. The Company will hold in good standing all licenses, permits and
grants of authority from the Nevada Gaming Commission, the Nevada State Gaming
Control Board, the National Indian Gaming Commission (collectively, the "Gaming
Authorities") and any other federal, state or local agency or authority
necessary for the operation of its business and properties; except as disclosed
in the Memorandum, no revocations or terminations of such licenses, permits,
authority or approvals shall be pending or threatened nor shall the Company be
aware of any facts or circumstances that would give rise to any such revocation
or termination;
e. All approvals, consents, permits and authorizations of third
parties, local, state and federal
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<PAGE>
regulatory agencies and authorities and the Company required to carry out the
transactions contemplated herein shall have been received;
f. Since the date of the Memorandum (a) there shall not have been
any change in the capital stock of the Company other than pursuant to the
exercise of outstanding options and warrants disclosed in the Memorandum or any
material change in the indebtedness (other than in the ordinary course of
business) of the Company; (b) no material verbal or written agreement or other
transaction shall have been entered into by the Company that is not in the
ordinary course of business that could result in a material reduction in the
future earnings of the Company; (c) no loss or damage (whether or not insured)
to the property of the Company shall have been sustained that materially and
adversely affects the business, financial condition, results of operations or
prospects of the Company; (d) except as described in the Memorandum, no legal or
governmental action, suit or proceeding affecting the Company that is material
to the Company or that affects or may affect the transactions contemplated
herein shall have been instituted or threatened; and (e) there shall not have
been any material change in the business, financial condition, management,
results of operations or prospects of the Company that makes it impractical or
inadvisable in the judgment of Purchaser to proceed with the purchase of the
Note.
g. The lease financing transaction with T&W Leasing relating to the
7 Cedars casino in the appropriate amount of $690,000 shall have closed.
h. The Company shall have made public announcement of the proposed
management changes described in the "Management" section of the Memorandum and
shall cause those changes to occur in the manner and on the dates described in
the Memorandum.
i. Purchaser shall have received a certificate of the Company
executed by the Chairman of the Board or the President of the Company, dated the
Closing Date to the effect that:
(i) The representations and warranties of the Company set forth
in Section 2 of this Agreement are true and correct as of the date of this
Agreement and the representations and warranties set forth in the Documents
are true and correct as of the Closing Date and the Company has complied
with all the agreements and satisfied all the conditions on its part to be
performed or satisfied on or prior to the Closing Date;
(ii) Each of the respective signers of the certificate has
carefully examined the Memorandum; in his
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<PAGE>
opinion and to the best of his knowledge, the Memorandum does not contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein
not misleading; and
(iii) Since the date as of which information is given in the
Memorandum, and except as disclosed in or contemplated thereby, there has
not been any material adverse change or a development involving a material
adverse change in the condition (financial or otherwise), business,
properties, results of operations, management or prospects of the Company
or any Subsidiary; and except as described in the Memorandum, no legal or
governmental action, suit or proceeding is pending or threatened against
the Company or any Subsidiary that is material to the Company, whether or
not arising from transactions in the ordinary course of business, or that
may adversely affect the transactions contemplated by this Agreement; since
such dates and except as so disclosed, neither the Company nor any
Subsidiary has entered into any verbal or written agreement or other
transaction that is not in the ordinary course of business or that can
reasonably be expected to result in a material reduction in the future
earnings of the Company or any Subsidiary or incurred any material
liability or obligation, direct, contingent or indirect, made any change in
its capital stock, made any material change in its short-term debt or
funded debt or repurchased or otherwise acquired any of the Company's
capital stock; and the Company has not declared or paid any dividend, or
made any other distribution, upon its outstanding capital stock payable to
stockholders of record on a date prior to the Closing Date.
j. Purchaser shall have received opinions dated the Closing Date and
addressed to Purchaser from Pillsbury Madison & Sutro, and Lionel Sawyer &
Collins, counsel for the Company, in form and substance satisfactory to
Purchaser.
k. The Pledge Agreement and the Registration Rights Agreement in the
forms attached hereto as Exhibits B and C, respectively, shall have been
executed and delivered by the parties thereto.
l. Purchase Agreements for an aggregate of $1,675,000 principal
amount of Notes (inclusive of the principal amount of the Note being purchased
by Purchaser hereunder) shall have been executed and delivered by the parties
thereto and such purchases and sales shall have closed prior to or
simultaneously with the transactions hereunder.
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<PAGE>
SECTION 8 Conditions to Obligations of the Company.
----------------------------------------
The obligations of the Company to issue the Note on the Closing Date
shall be subject to the following conditions:
a. The Company shall have received a certificate of Purchaser
executed by its General Partner and dated the Closing Date to the effect that
the representations and warranties of Purchaser set forth in Section 3 of this
Agreement are true and correct as of the date of this Agreement and as of the
Closing Date and Purchaser has complied with all the agreements and satisfied
all the conditions on its part to be performed or satisfied on or prior to the
Closing Date; and
b. All approvals, consents, permits and authorizations of third
parties, local, state and federal regulatory agencies and authorities relating
to Purchaser and required to carry out the transactions contemplated herein
shall have been received.
SECTION 9 Subordination.
-------------
9.1 Agreement to Be Bound. The Note shall, to the extent and in the
---------------------
manner hereinafter set forth, be subordinated and subject in right of payment to
the prior payment in full of all Senior Indebtedness. Each holder of a Note,
whether upon original issue or upon transfer or assignment thereof, by its
acceptance thereof agrees that the Note shall be subject to the provisions
contained in this Section 9. The subordination provisions of this Section 9
shall be for the benefit of the holders of the Senior Indebtedness and may be
enforced directly by such holders.
9.2 Priority of Senior Indebtedness.
-------------------------------
a. No payment on account of principal of, premium, if any, or
interest on the Note, shall be made, and no assets shall be applied to the
purchase or other acquisition or retirement of the Note (other than a conversion
pursuant to Section 4 hereof), for a period (the "Payment Blockage Period") of
(i) 180 days after both of the following have occurred (A) the principal amount
of any Senior Indebtedness in excess of $100,000 in aggregate principal amount
shall have been accelerated upon an event of default thereunder and (B) written
notice of such acceleration shall have been given by the Company or by holders
of Senior Indebtedness to the holders of the Note, stating that this Section
9.2(a) is therefore applicable; provided, that any Payment Blockage Period
arising as a result of this Section 9.2 shall terminate immediately upon the
payment in full of such accelerated Senior Indebtedness or the rescission or
annulment of such acceleration or if such Senior Indebtedness is no longer
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<PAGE>
outstanding; provided, further, that under no circumstances shall there be more
than one Payment Blockage Period in any 365 consecutive day period. As used in
this Section 9.2(a), an "event of default" is an event of default (x) as
defined in any Senior Indebtedness or in the instrument under which the same is
outstanding and (y) which would permit the acceleration of such Senior
Indebtedness prior to its maturity.
b. In the event that any money, property or securities is received
by the holder of a Note in violation of Section 9.2(a) or the terms or
conditions of any instrument governing the Senior Indebtedness, the holder
thereof shall hold the same in trust for the benefit of the holders of Senior
Indebtedness, and shall deliver the same in kind to the Company.
9.3 Liquidation; Dissolution; Bankruptcy.
------------------------------------
a. Upon any payment or distribution of assets of the Company
(whether in cash, property or securities) to creditors upon any dissolution or
winding-up or total or partial liquidation or reorganization of the Company,
whether voluntary or involuntary or in any bankruptcy, insolvency, receivership
or similar proceeding regarding the Company, all amounts due or to become due
upon all Senior Indebtedness then outstanding shall first be paid in full before
the holders of the Note shall be entitled to receive any assets so paid or
distributed in respect thereof (but without restricting the rights of holders
under Section 4 hereof); provided, that with respect to the foregoing, the
holders of the Note may receive (and shall be entitled to retain) securities
that are subordinate to (at least to the extent that the Note is subordinate to
Senior Indebtedness pursuant to the terms hereof) the payment of all Senior
Indebtedness then outstanding. Upon any such dissolution or winding-up or
liquidation, reorganization or other proceeding, any payment or distribution of
assets of the Company of any kind or character, whether in cash, property or
securities, to which the holders of the Note would be entitled, except for these
provisions, shall be paid by the Company or by any receiver, trustee in
bankruptcy, liquidating trustee, agent or other person making such payment or
distribution directly to the holders of Senior Indebtedness which was then
outstanding (pro rata to each of such holders on the basis of the respective
amounts (to the extent known) of Senior Indebtedness then held by such holders,
to the extent necessary to pay all such Senior Indebtedness which was then
outstanding in full, after giving effect to any concurrent payment or
distribution to or for the holders of Senior Indebtedness, before any payment or
distribution is made to the holders of the Note (but subject to the proviso to
the preceding sentence).
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b. Each holder of a Note by its acceptance hereof (x) irrevocably
authorizes and empowers (but without imposing any obligation on) each holder of
any Senior Indebtedness at the time outstanding, under (and only under) the
circumstances set forth in Section 9.3(a), if the holder of a Note shall fail to
do so prior to 20 days before the expiration of the time to do so, to file and
prove all claims of such holder for its ratable share of payments or
distributions in respect of the Note which is required to be paid or delivered
to the holders of Senior Indebtedness as provided in Section 9.3(a), in the name
of each such holder of the Note or otherwise, as such holder of Senior
Indebtedness may determine to be necessary or appropriate for the enforcement of
the provisions of Section 9.3(a), and the holder of a Note may amend any such
claims regarding the Note before or after such 20th day (but not in a manner
inconsistent with the rights of holders of Senior Indebtedness under this
Section 9 other than this Section 9.3(b)) whether such claims are filed by such
holder of a Note or are filed, pursuant to this Section 9.3(b), by any holder of
Senior Indebtedness; and (y) under (and only under) the circumstances set forth
in Section 9.3(a), agrees to execute and deliver to each holder of Senior
Indebtedness all such further instruments confirming the authorization
hereinabove set forth, and all such powers of attorney, proofs of claim,
assignments of claim and other instruments, and to take all such other action,
as may be reasonably requested by such holder in order to enable such holder to
enforce all claims upon or in respect of such Note holder's ratable share of
payments or distributions in respect of the Note. Nothing in this Section
9.3(b), or any other provision hereof, shall give or be construed to give the
holder of any Senior Indebtedness any right to vote any Note, or any related
claim, or any portion of such Note or such claim, or to exercise any approval
rights, whether in connection with any resolution, arrangement, plan of
reorganization, compromise, settlement, election of trustees or otherwise.
Holders of Senior Indebtedness shall not create any liability to any person on
the part of any holders of Notes in connection with the exercise of any rights
granted under this Section 9.3(b).
9.4 No Prejudice or Impairment; Reinstatement.
-----------------------------------------
a. No right of any present or future holders of any Senior
Indebtedness to enforce subordination as herein provided shall at any time in
any way be prejudiced or impaired (i) by any act or failure to act on the part
of the Company, including without limitation any merger or consolidation of the
Company into or with any other person, or any sale, lease or transfer of any or
all of the assets of the Company to any other person, (ii) by any act (in good
faith) or failure (in good faith) to act by any such holder of Senior
Indebtedness, including, without limitation, the failure by such holder to
perfect a security
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interest in any security for the payment of Senior Indebtedness or (iii) by any
noncompliance by the Company with the terms and provisions of the Documents
regardless of any knowledge thereof that any such holder may have or be
otherwise charged with. The holders of the Senior Indebtedness may, without in
any way affecting the subordination hereunder, at any time or from time to time
and in their absolute discretion, change the manner, place, time or other terms
of payment of, or renew or alter, any Senior Indebtedness, or in each case in
accordance with the terms of the applicable agreement or instrument governing
the Senior Indebtedness modify or supplement any agreement or instrument
governing or evidencing such Senior Indebtedness or any other document referred
to therein, or exercise or refrain from exercising any of their rights under the
Senior Indebtedness, including, without limitation, waiver of default thereunder
and release of any collateral securing such Senior Indebtedness, all without
notice to or assent from the holders of the Note. The absence of any notice to,
or knowledge by, any holder of a Note of the existence or occurrence of any of
the matters or events set forth in this paragraph (a) shall not impair or
otherwise affect the rights of the holders of Senior Indebtedness against
holders of the Note under the subordination provisions of this Section 9.
b. The provisions of this Section 9 shall continue to be effective,
or be reinstated, as the case may be, if at any time any payment in respect of
any Senior Indebtedness is rescinded or must otherwise be restored or returned
by the holders of such Senior Indebtedness upon the occurrence of any event
described in Section 9.3 hereof, or upon or as a result of the appointment of a
receiver, intervenor or conservator of, or trustee or similar officer for, the
Company or any substantial part of its property, all as though such payment had
not been made.
9.5 Subrogation. Subject to the payment in full of all Senior
-----------
Indebtedness, the holders of the Note shall be subrogated to the rights of the
holders of Senior Indebtedness to receive payments or distributions of assets of
the Company made on the Senior Indebtedness until the principal of, premium, if
any, and interest on (and any other amounts due with respect to) the Note and
all other amounts due under the Documents shall be paid in full; provided, that
any holder of a Note shall have the right, in its sole discretion, to waive such
subrogation rights without affecting such holder's rights with respect to a Note
held by such holder or under the Documents (which rights shall continue in full
force and effect). For the purposes of such subrogation, no payments or
distributions to the holders of Senior Indebtedness of any cash, property or
securities to which the holders of the Note would be entitled except for the
provisions of this Section 9 shall, as among the Company, its creditors
30
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other than the holders of Senior Indebtedness, and the holders of the Note, be
deemed to be a payment by the Company to or on account of Senior Indebtedness,
it being understood that these provisions in this Section 9 are, and are
intended, solely for the purpose of defining the relative rights of the holders
of the Note, on the one hand, and the holders of Senior Indebtedness, on the
other hand.
9.6 Obligations Unaffected. Nothing contained in this Section 9 is
----------------------
intended to or shall impair as among the Company, its creditors other than the
holders of Senior Indebtedness, and the holders of the Note, the obligation of
the Company, which shall be absolute and unconditional, to pay to the holders of
the Note the principal of, premium, if any, and interest on the Note, as and
when the same shall become due and payable in accordance with its terms, or to
affect the relative rights of the holders of the Note and creditors of the
Company other than the holders of Senior Indebtedness. Nothing herein shall
prevent a holder of the Note from exercising any remedies otherwise permitted by
applicable law upon the occurrence of an Event of Default, subject to the
rights, if any, under these provisions of the holders of Senior Indebtedness,
and nothing herein shall prevent the conversion of the Note (or any part
thereof) in accordance with the Note and this Agreement.
9.7 Definition of Senior Indebtedness. The term "Senior Indebtedness"
---------------------------------
shall mean the principal of, premium, if any, and interest on indebtedness of
the Company for borrowed money whether such indebtedness is currently
outstanding or hereafter incurred, and any renewals, modifications, refundings
or extensions of any such indebtedness, unless under the provisions of the
instrument creating or evidencing any such indebtedness, or pursuant to which
the same is outstanding, it is provided that such indebtedness is subordinate in
right of payment to any other indebtedness of the Company (including, without
limitation, the Notes); provided, that Senior Indebtedness shall not include (i)
any obligations under any provision of any agreement or instrument regarding
such Senior Indebtedness in respect of (x) fees or reimbursement of expenses or
(y) penalties or additional interest charged on account of overdue payments of
principal, interest or other payments, (ii) any indebtedness owing to any
Subsidiary or to any other affiliate (of the Company or of any Subsidiary),
(iii) any obligation, to any person, of any affiliate of the Company or of any
Subsidiary (other than an obligation of the Company or of a Subsidiary), which
obligation is assumed or guaranteed by the Company or any Subsidiary.
SECTION 10 Exchange of Notes; Accrued Interest; Cancellation of Surrendered
----------------------------------------------------------------
Notes; Replacement.
- ------------------
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<PAGE>
a. Subject to Section 3 hereof, at any time at the request of any
holder of a Note delivered to the Company at its office identified in Section 13
hereof, the Company at its expense (except for any transfer tax or any other tax
arising out of the exchange) will issue and deliver to or upon the order of the
holder in exchange therefor a new Note, in such denomination or denominations as
such holder may request, in aggregate principal amount equal to the unpaid
principal amount of the Note surrendered and substantially in the form thereof,
dated as of the date to which interest has been paid on the Note surrendered
(or, if no interest has yet been so paid thereon, then dated the date of the
Note so surrendered) and payable to such person or persons or order as may be
designated by such holder.
b. In the event that any Note is surrendered to the Company upon the
conversion of all or a portion of any Note, or upon a prepayment under Section
11 hereof, the Company shall pay all accrued and unpaid interest on such Note or
such portion thereof and thereupon interest shall cease to accrue upon that
portion of the principal amount of such Note which was used for conversion or
which was prepaid, and the right to receive, and any right or obligation to
make, any prepayment on such portion of the principal amount pursuant to Section
11 hereof shall terminate all upon the date of such conversion or prepayment and
upon presentation and surrender of such Note to the Company.
c. Upon the conversion in whole or in part of any Note or upon any
prepayment under Section 11 hereof, if only a portion of the principal amount of
a Note is used in such conversion or is prepaid, then such Note shall be
surrendered to the Company and the Company shall simultaneously execute and
deliver to or on the order of the holder thereof, at the expense of the Company,
a new Note in principal amount equal to the unused or unpaid portion of such
Note.
d. Any Note or portion thereof that has been converted, or that has
been prepaid under Section 11 hereof, shall be cancelled by the Company and no
Note shall be issued in lieu of the principal amount so converted or prepaid.
e. Upon receipt of evidence satisfactory to the Company of the loss,
theft, destruction or mutilation of any Note and, in the case of any such loss,
theft or destruction, upon delivery of an indemnity agreement reasonably
satisfactory to the Company (if requested by the Company), or in the case of any
such mutilation, upon surrender of such Note (which surrendered Note shall be
cancelled by the Company), the Company will issue a new Note of like tenor in
lieu of such lost, stolen, destroyed or mutilated Note as if the lost, stolen,
destroyed or mutilated Note were then surrendered for exchange.
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SECTION 11 Prepayment.
----------
11.1 Optional Prepayment.
-------------------
a. Subject to the other provisions of this Section 11, at any time
during the period beginning on January 1, 1996 and ending on December 30, 1996
the Company may prepay all or part of the principal amount of outstanding Notes
at a price equal to (1) the aggregate principal amount of the Notes to be
prepaid, plus (2) all accrued and unpaid interest on the principal amount of the
Notes to be prepaid, plus (3) a premium (the "Redemption Premium") equal to 7-
1/2% of the principal amount being prepaid. The right of the Company to prepay
Notes pursuant to this Section 11.1(a) shall be conditioned upon its giving
notice of prepayment, signed by its President and Treasurer, to the holders of
Notes not less than 20 days and not more than 60 days prior to the date upon
which the prepayment is to be made specifying (i) the holder of each Note to be
prepaid, (ii) the aggregate principal amount being prepaid, (iii) the date of
such prepayment, (iv) the accrued and unpaid interest (to but not including the
date upon which the prepayment is to be made) and (v) the Redemption Premium
with respect to such prepayment. Notice of prepayment having been so given, the
aggregate principal amount of the Notes so specified in such notice, all accrued
and unpaid interest thereon and the Redemption Premium on such aggregate
principal amount shall all become due and payable on the specified prepayment
date.
b. Upon the occurrence of any Change of Control Event (as defined in
Section 11.2, each holder of a Note shall have the right, at such holder's
option, to require the Company to prepay such holder's Note in whole or in part
at a price equal to: (1) the aggregate principal amount of the Note to be
prepaid, plus (2) all accrued and unpaid interest on the principal amount of the
Note to be prepaid, plus (3) an amount equal to 7-1/2% of the principal amount
being prepaid. The option under this Section 11.1(b) shall be exercised by
written notice to the Company given at any time from and after the 30th day
before such Change of Control Event through the 90th day after such Change of
Control Event (or, if later, through the 90th day after such holder receives
written notice from the Company of such Change of Control Event). Promptly (and
in any event within 10 days) after the occurrence of any Change of Control
Event, and not more than 30 days before such Change of Control Event, the
Company shall give written notice to each holder of a Note notifying each such
holder of the occurrence of such Change of Control Event and informing each such
holder of its right to exercise an option to require a prepayment under this
Section 11.1(b).
c. If any prepayment under this Section 11.1 does not repay in full
the aggregate principal amount of all Notes then
33
<PAGE>
outstanding, then the aggregate amount of such prepayment of the principal
amount of Notes shall be allocated among all Notes at the time outstanding, in
proportion, as nearly as practicable, to the respective unpaid principal amounts
of such Notes.
11.2 Change of Control Event. For purposes of this Section 11, "Change of
-----------------------
Control Event" means the occurrence of any of the following events:
a. any person or group (within the meaning of Section 13(d)(3) of
the Securities Exchange Act of 1934 ("1934 Act") together with any affiliates
and associates of any such person or member of such group (within the meaning of
Rule 12b-2 under the 1934 Act) ("Person") shall at any time beneficially own
(within the meaning of Rule 13d-3 under the 1934 Act) shares of Common Stock of
the Company which represents in excess of either (A) 40% of the total votes
entitled to be cast by all outstanding shares of the Common Stock of the Company
or (B) 40% of all outstanding shares of the Common Stock of the Company;
provided, that a Change of Control Event shall not be deemed to have occurred
under this clause (a) (without limiting the application of clause (b), (c), (d)
or (e) below), solely by reason of such beneficial ownership of over 40% under
the preceding clause (A) or (B) being held by one or more persons who both (x)
are officers and directors of the Company on the Closing Date and (y)
beneficially owned on the Closing Date at least one percent of the shares of the
Company's Common Stock outstanding on the Closing Date (the foregoing being
described as an "acquisition of control"); or
b. the Company is materially or completely liquidated or is the
subject of any voluntary or involuntary dissolution or winding-up; or
c. the Company proceeds to acquire its Common Stock (or undertakes a
corporate reorganization or recapitalization or other action) if the effect of
such action would be either (i) to reduce substantially or to eliminate any
public market for the shares of the Company's Common Stock or (ii) to remove the
Company from registration with the Commission under the 1934 Act or (iii) to
require the Company to make a filing under Section 13(e) of the 1934 Act or (iv)
to cause a delisting of the Company's Common Stock from the American Stock
Exchange or such other national securities exchange or quotations service on
which the Common Stock is listed or quoted; or
d. the sale, lease, transfer or other disposition of all or
substantially all of the consolidated assets of the Company and its Subsidiaries
in a single transaction or series of related transactions; or
34
<PAGE>
e. The Company acquires control of any Person and such acquisition,
in the determination of the holder of the Note, results in a material diminution
in the value of the Company's Common Stock.
f. During any period of 12 consecutive months after the Closing
Date, individuals who at the beginning of such period constitute the Board of
Directors of the Company (together with any new directors whose election by such
Board or whose nomination for election by the shareholders of the Company was
approved by a vote of a majority of the directors then still in office who were
either directors at the beginning of such period or whose election or nomination
for election was previously so approved), cease for any reason to constitute a
majority of the Board of Directors of the Company then in office.
SECTION 12 Representations and Indemnities to Survive Delivery.
---------------------------------------------------
The respective indemnities, agreements, representations, warranties
and other statements of the Company, of its officers and of Purchaser set forth
in or made pursuant to this Agreement will remain in full force and effect,
regardless of any investigation made by or on behalf of the Purchaser or the
Company or any of its or their partners, officers or directors or any
controlling person, as the case may be, until December 31, 1996.
SECTION 13 Notices; Publicity.
------------------
All communications hereunder shall be in writing and, (i) if sent to
Purchaser, shall be mailed, delivered or telegraphed and confirmed to you at
1290 Avenue of the Americas, New York, New York 10104, Attention: Harry C.
Hagerty, III, with a copy to Stoel Rives, 900 SW Fifth Avenue, Portland, Oregon
97204, Attention: John J. Halle, Esq.; and (ii) if sent to the Company shall be
mailed, delivered or telegraphed and confirmed to the Company at Elsinore
Corporation, 202 East Fremont Street, Las Vegas, Nevada 89101, Attention:
Ernest L. East, with a copy to Pillsbury Madison & Sutro, 235 Montgomery Street,
San Francisco, California 94104, Attention: Gregg F. Vignos, Esq. The Company
or Purchaser may change the address for receipt of communications hereunder by
giving notice to the others. No party will issue or approve any news release,
public filing or other announcement concerning the transactions described herein
without the prior approval of the other parties as to the content of the
announcement and its release, which approval will not be unreasonably withheld.
35
<PAGE>
SECTION 14 Payment of Expenses.
-------------------
a. In addition to costs incurred by the Company in connection with
the transactions contemplated hereby, the Company will pay all reasonable out-
of-pocket expenses of Purchaser (including fees of counsel) in connection with
these transactions. The Company shall reimburse Purchaser for such expenses
promptly upon receipt from Purchaser of statements detailing such expenses.
b. The Company shall pay all reasonable out-of-pocket expenses of
Purchaser (including fees of counsel) in connection with any actions Purchaser
must reasonably take in connection with any comment, application, approval or
licensure process or procedure required by the Gaming Authorities as a result of
or in connection with these transactions ("Regulatory Expenses"); provided,
however, the Company will not be required to reimburse Purchaser for Regulatory
Expenses if such reimbursement would violate applicable state law or the rules
and regulations of the Gaming Authorities.
SECTION 15 Successors.
----------
This Agreement will inure to the benefit of and be binding upon the
parties hereto and to the benefit of the officers and directors and controlling
persons thereof, and in each case their respective successors, personal
representatives and assigns, and no other person will have any right or
obligation hereunder. No such assignment shall relieve any party of its
obligations hereunder.
SECTION 16 Partial Unenforceability.
------------------------
The invalidity or unenforceability of any section, paragraph or
provision of this Agreement shall not affect the validity or enforceability of
any other section, paragraph or provision hereof. If any section, paragraph or
provision of this Agreement is for any reason determined to be invalid or
unenforceable, there shall be deemed to be made such minor changes (and only
such minor changes) as are necessary to make it valid and enforceable.
SECTION 17 Applicable Law.
--------------
This Agreement shall be governed by and construed in accordance with
the internal laws of (and not the laws pertaining to conflicts of laws) of the
State of New York.
36
<PAGE>
SECTION 18 General.
-------
This Agreement constitutes the entire agreement of the parties to this
Agreement and supersedes all prior written or oral and all contemporaneous oral
agreements, understandings and negotiations with respect to the subject matter
hereof. This Agreement may be executed in counterparts, each one of which shall
be an original, and all of which shall constitute one and the same document.
SECTION 19 Section Headings; Amendment.
---------------------------
The section headings in this Agreement are for the convenience of the
parties only and will not affect the construction or interpretation of this
Agreement. This Agreement may be amended or modified, and the observance of any
term of this Agreement may be waived, only by a writing signed by the Company
and Purchaser.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first above written.
GRORAN LLC1 ELSINORE CORPORATION
By: Ganek & Orwicz Partners, Inc.
Its Investment Manager
By /s/ Paul Orwicz By /s/ Thomas E. Martin
------------------------- -----------------------------
Paul Orwicz Name Thomas E. Martin
Its President Title President
37
<PAGE>
Schedule of Exhibits and Annex
------------------------------
Exhibit A Promissory Note
Exhibit B Stock Pledge Agreement
Exhibit C Registration Rights Agreement
Annex I Designation of Note Denominations
38
<PAGE>
_________________________________
NOTE PURCHASE AGREEMENT
DATED AS OF MARCH 30, 1995
REGARDING
7-1/2% CONVERTIBLE SUBORDINATED NOTES
DUE DECEMBER 31, 1996
OF
ELSINORE CORPORATION
_________________________________
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
SECTION 1 Sale and Purchase of Notes........................................ 1
SECTION 2 Representations and Warranties of the Company..................... 2
SECTION 3 Representations and Warranties of Purchaser....................... 7
SECTION 4 Conversion........................................................ 8
4.1 Conversion......................................................... 8
4.2 Mechanics of Conversion............................................ 9
a. Surrender, Election and Payment............................... 9
b. Effective Date................................................ 9
c. Share Certificates............................................ 10
d. Acknowledgment of Obligation.................................. 10
e. Payment of Accrued Interest................................... 10
4.3 Current Conversion Price........................................... 10
4.4 Adjustment of Conversion Price..................................... 11
a. Adjustments for Stock Dividends, Recapitalizations, etc....... 11
b. Adjustments for Certain Other
Distributions................................................. 11
c. Adjustments for Issuances of Additional
Stock......................................................... 12
d. Certain Rules in Applying the Adjustment for
Additional Stock Issuances.................................... 13
(i) Cash Consideration..................................... 13
(ii) Non-Cash Consideration................................. 13
(iii) Options, Warrants, Convertibles, etc................... 13
(iv) Number of Shares Outstanding........................... 15
e. Exclusions from the Adjustment for Additional
Stock Issuances............................................... 15
f. Certification................................................. 15
g. Determination of Market Price................................. 15
h. Other Adjustments............................................. 16
i. Meaning of "Issuance"......................................... 16
4.5 Company's Consolidation or Merger................................... 17
4.6 Notice to Holders of Notes.......................................... 17
SECTION 5 Covenants of the Company.......................................... 18
SECTION 6 Defaults.......................................................... 21
SECTION 7 Conditions to the Obligations of Purchaser........................ 24
SECTION 8 Conditions to Obligations of the Company.......................... 27
SECTION 9 Subordination..................................................... 27
9.1 Agreement to Be Bound.............................................. 27
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
9.2 Priority of Senior Indebtedness.................................. 27
9.3 Liquidation; Dissolution; Bankruptcy............................. 28
9.4 No Prejudice or Impairment; Reinstatement........................ 29
9.5 Subrogation...................................................... 30
9.6 Obligations Unaffected........................................... 31
9.7 Definition of Senior Indebtedness................................ 31
SECTION 10 Exchange of Notes; Accrued Interest;Cancellation of Surrendered
Notes; Replacement............................................... 31
SECTION 11 Prepayment...................................................... 33
11.1 Optional Prepayment.............................................. 33
11.2 Change of Control Event.......................................... 34
SECTION 12 Representations and Indemnities to Survive Delivery............. 35
SECTION 13 Notices; Publicity............................................. 35
SECTION 14 Payment of Expenses............................................ 36
SECTION 15 Successors..................................................... 36
SECTION 16 Partial Unenforceability....................................... 36
SECTION 17 Applicable Law................................................. 36
SECTION 18 General........................................................ 37
SECTION 19 Section Headings; Amendment.................................... 37
</TABLE>
ii
<PAGE>
NOTE PURCHASE AGREEMENT dated as of March 30, 1995, by and between
Elsinore Corporation, a Nevada corporation (the "Company"), and Paul Orwicz
("Purchaser").
W I T N E S S E T H:
-------------------
In consideration of the mutual covenants and agreements set forth herein
and for other good and valuable consideration the receipt and sufficiency of
which are hereby acknowledged, the parties agree as follows:
SECTION 1 Sale and Purchase of Notes.
--------------------------
a. The Company agrees to sell to Purchaser and, subject to the terms
and conditions hereof and in reliance upon the representations and warranties of
the Company contained herein, Purchaser agrees to purchase on the Closing Date
(as hereinafter defined), a note or notes in the aggregate principal amount of
$22,500 (collectively, the "Note"). The aggregate purchase price to be paid
to the Company by Purchaser for the Note is 100% of the principal amount of the
Note to be purchased by the Purchaser. All obligations under the Note will be
secured by a pledge of capital stock of Mojave Gaming, Inc., a wholly-owned
subsidiary of the Company, in the manner specified in the Pledge Agreement
attached hereto as Exhibit B ("Pledge Agreement").
b. As used herein, "Notes" means the aggregate of $1,675,000
principal amount of the Company's 7-1/2% Convertible Subordinated Notes Due
December 31, 1996, issued pursuant to the Purchase Agreements (defined in
Section 1(c)), together with all Notes issued in exchange therefor or
replacement thereof. Each of the Notes will be substantially in the form of the
Note set forth as Exhibit A hereto.
c. The Notes are being sold to Purchaser pursuant to this Agreement
and to other purchasers under other agreements dated as of the date hereof
(collectively the "Purchase Agreements"). The sale of Notes to each purchaser
under each Purchase Agreement is a separate sale, the purchasers are not acting
together or as a group for purposes of such purchase and sale and no purchaser
will have any rights or liabilities under any Purchase Agreement other than the
Purchase Agreement to which it is a party.
d. The closing of the purchase and sale of the Notes will take place
at the offices of Pillsbury Madison & Sutro, 235 Montgomery Street, San
Francisco, CA at 10:00 A.M., Pacific Standard time, on March 31, 1995, or such
other time and date as
1
<PAGE>
shall be mutually agreed to by the Company and Purchaser ("Closing Date").
Subject to the terms and conditions hereof, on the Closing Date (i) the Company
will deliver to Purchaser the Note, as set forth on Annex I hereto, in the form
of Exhibit A hereto in the aggregate principal amount of $1,125,000 and (ii)
upon Purchaser's receipt thereof, Purchaser will deliver to the Company a
certified or official bank check or wire transfer in an amount equal to the
purchase price for the Note payable to the order of the Company in federal or
other next day funds.
SECTION 2 Representations and Warranties of the Company.
---------------------------------------------
The Company hereby represents and warrants to Purchaser that:
a. The execution and delivery by the Company of (i) this Agreement,
(ii) the Note and the Pledge Agreement, and (iii) the Registration Rights
Agreement to be executed and delivered by the Company and Purchaser, in the form
attached as Exhibit C hereto ("Registration Rights Agreement") (collectively,
the "Documents"), the performance by the Company of its obligations thereunder,
the issuance, sale and delivery of the Note and the issuance of Common Stock
upon conversion of the Note have been duly authorized by all requisite corporate
action and will not violate any provision of law, any order of any court or
other agency of government, the Certificate of Incorporation or By-laws of the
Company, or any provision of any indenture, agreement or other instrument to
which the Company or any Subsidiary (as defined in Section 2(d)) or any of the
properties or assets of the Company or any Subsidiary is bound, or conflict
with, result in a breach of or constitute (with due notice or lapse of time or
both) a default under any such indenture, agreement or other instrument, or
result in the creation or imposition of any lien, charge or encumbrance of any
nature whatsoever upon any of the properties or assets of the Company or any
Subsidiary. The Company has full corporate power and authority to enter into
the Documents and to perform the transactions contemplated thereby.
b. This Agreement has been duly executed and delivered by the
Company and constitutes the legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, subject, as to
enforcement of remedies, to applicable bankruptcy, insolvency, reorganization,
moratorium and similar laws from time to time in effect affecting the
enforcement of creditors' rights generally and to general equity principles.
The Pledge Agreement and the Note and the Registration Rights Agreement, when
executed and delivered by the Company as provided in this Agreement, will
constitute legal, valid and binding obligations of the Company, enforceable
against the Company in accordance with their terms.
2
<PAGE>
c. A disclosure memorandum containing all material information with
respect to the business, properties, prospects and financial condition of the
Company and its Subsidiaries as of the date hereof has been delivered to
Purchaser (the "Memorandum"). The information contained in the Memorandum is
true and correct in all material respects as of the date of the Memorandum. The
Memorandum does not contain any untrue statement of a material fact nor does it
omit to state a material fact necessary in order to make the statements made, in
light of the circumstances under which they were made.
d. Except as described in the Memorandum, the Company does not own
or control, directly or indirectly, any corporation, association or other
entity. Each corporation, association or other entity described in the
Memorandum as being owned, directly or indirectly, in whole or in part, is
herein referred to as a "Subsidiary" and all such entities together, are herein
referred to as the "Subsidiaries." The Company has been duly incorporated and
is validly existing as a corporation in good standing under the laws of Nevada,
with full power and authority (corporate and other) to own and lease its
properties and conduct its business as described in the Memorandum; each
Subsidiary has been duly and validly incorporated or otherwise formed pursuant
to the laws of its jurisdiction of formation and, if a corporation, limited
liability company or limited partnership, is in good standing under such laws;
each Subsidiary that is a partnership, limited partnership or limited liability
company is a partnership for United States federal income tax purposes; except
as described in the Memorandum, the Company and each Subsidiary is in possession
of and operating in compliance in all material respects with all authorizations,
licenses, permits, consents, certificates and orders material to the conduct of
its business, all of which are valid and in full force and effect; the Company
and each Subsidiary is duly qualified to do business and in good standing as a
foreign corporation or other entity in each jurisdiction in which the ownership
or leasing of properties or the conduct of its business requires such
qualification, except for jurisdictions in which the failure to so qualify would
not have a material adverse effect upon the Company; and except as described in
the Memorandum, no proceeding has been instituted in any such jurisdiction,
revoking, limiting or curtailing, or seeking to revoke, limit or curtail, such
power and authority or qualification.
e. The Company has authorized and outstanding capital stock as set
forth under the heading "Capitalization" in the Memorandum; the issued and
outstanding shares of Common Stock have been duly authorized and validly issued,
are fully paid and nonassessable, have been issued in compliance with all
federal and state securities laws, were not issued in violation of or
3
<PAGE>
subject to any preemptive rights or other rights to subscribe for or purchase
securities, and conform to the description thereof contained in the Memorandum.
The Company's Board of Directors (i) has reserved for issuance upon conversion
of the Notes up to 2 million shares of the Company's authorized and unissued
Common Stock and, (ii) shall, on an ongoing basis until conversion or maturity
of the Notes, keep reserved such number of shares of the Company's authorized
and unissued Common Stock as shall be necessary for issuance upon conversion of
the Notes. Except as disclosed in or contemplated by the Memorandum and the
financial statements of the Company, and the related notes thereto, included in
the Memorandum, neither the Company nor any Subsidiary has outstanding any
options to purchase, or any preemptive rights or other rights to subscribe for
or to purchase, any securities or obligations convertible into, or any contracts
or commitments to issue or sell, shares of its capital stock or any such
options, rights, convertible securities or obligations. The description of the
Company's stock option, stock bonus and other stock plans or arrangements, and
the options or other rights granted and exercised thereunder, set forth in the
Memorandum and the Company's Proxy Statement relating to its 1995 Annual Meeting
of Stockholders accurately and fairly presents all material information with
respect to such plans, arrangements, options and rights.
f. The unaudited consolidated financial statements and schedules of
the Company and its Subsidiaries, and the related notes thereto, included in the
Memorandum present fairly the financial position of the Company and such
Subsidiaries as of the respective dates of such financial statements and
schedules, and the results of operations and changes in financial position of
the Company and such Subsidiaries for the respective periods covered thereby.
Such statements, schedules and related notes have been prepared in accordance
with generally accepted accounting principles applied on a consistent basis.
g. Except as disclosed in the Memorandum, and except as to defaults
that individually or in the aggregate would not be material to the Company,
neither the Company nor any Subsidiary is in violation or default of any
provision of its articles of incorporation or bylaws, or other organization
documents, and is not in breach of or default with respect to any provision of
any agreement, judgment, decree, order, mortgage, deed of trust, lease,
franchise, license, indenture, permit or other instrument to which it is a party
or by which any of its properties are bound; and there does not exist any state
of facts that constitutes an event of default on the part of the Company or any
Subsidiary as defined in such documents or that, with notice or lapse of time or
both, would constitute such an event of default.
4
<PAGE>
h. Except as described in the Memorandum, the contracts described in
the Memorandum, and all other material contracts, instruments, and other
documents evidencing legal rights and obligations of the Company or any
Subsidiary ("Contracts"), are in full force and effect on the date hereof; and,
except as described in the Memorandum, (i) neither the Company nor any
Subsidiary nor, to the best of the Company's knowledge, any other party is in
breach of or default under any Contract where such breach or default would
permit any party to terminate such Contract or could result in other penalties
having a material adverse effect on the Company; (ii) to the best of the
Company's knowledge, no event has occurred that, upon notice or the passage of
time, would cause such a default to occur; and (iii) the Company does not expect
to be unable or expect any Subsidiary to be unable to comply with any material
provision of any Contract.
i. Except as described in the Memorandum, there are no legal or
governmental actions, suits or proceedings pending, threatened in a writing
received by the Company or a Subsidiary or, to the best of the Company's
knowledge, otherwise threatened to which the Company or any Subsidiary is or may
be a party or of which property owned or leased by the Company or any Subsidiary
is or may be the subject, or related to environmental or discrimination matters,
which actions, suits or proceedings might, individually or in the aggregate,
prevent or adversely affect the transactions contemplated by this Agreement or
result in a material adverse change in the condition (financial or otherwise),
properties, business, results of operations or prospects of the Company or any
Subsidiary; and no labor disturbance by the employees of the Company exists or,
to the best of the Company's knowledge, is imminent that might be expected to
affect adversely such condition, properties, business, results of operations or
prospects. Neither the Company nor any Subsidiary is a party or subject to the
provisions of any material injunction, judgment, decree or order of any court,
regulatory body, administrative agency or other governmental body.
j. The Company or a Subsidiary has good and marketable title to all
the properties and assets reflected as owned in the balance sheet dated December
31, 1994, included in the financial statements hereinabove described, subject to
no lien, mortgage, pledge, charge or encumbrance of any kind except (i) those,
if any, reflected in such financial statements, (ii) the Memorandum, or (iii)
those that are not material in amount and do not adversely affect the use made
and proposed to be made of such property by the Company. The Company and each
Subsidiary holds its leased properties under valid and binding leases, with such
exceptions as are not materially significant in relation to the business of the
Company. The Company and each Subsidiary
5
<PAGE>
owns or leases all such properties as are necessary to its operations as now
conducted.
k. Since the date as of which information is given in the
Memorandum, and except as described in or specifically contemplated by the
Memorandum: (i) neither the Company nor any Subsidiary has incurred any
material liabilities or obligations, indirect, direct or contingent, or engaged
in any other transaction that is not in the ordinary course of business or that
could result in a material reduction in the future earnings or liquidity of the
Company; (ii) neither the Company nor any Subsidiary has sustained any material
loss or interference with its business or properties from fire, flood,
windstorm, accident or other calamity, whether or not covered by insurance;
(iii) neither the Company nor any Subsidiary has paid or declared any dividends
or other distributions with respect to its capital stock and the Company is not
in default in the payment of principal or interest on any outstanding debt or
obligations for money borrowed; (iv) there has not been any change in the
capital stock of the Company (other than as a result of the sale of the Note
hereunder) or indebtedness material to the Company (other than in the ordinary
course of business); and (v) there has not been any material adverse change in
the condition (financial or otherwise), business, properties, results of
operations or prospects of the Company or any Subsidiary.
l. Except as disclosed in or specifically contemplated by the
Memorandum, the Company and each Subsidiary has sufficient trademarks, trade
names, patent rights, copyrights, licenses, approvals and governmental
authorities to conduct its businesses as now conducted; the expiration in
accordance with their terms of any trademarks, trade names, patent rights,
copyrights, licenses, approvals or governmental authorizations would not have a
material adverse effect on the condition (financial or otherwise), business,
results of operations or prospects of the Company or any Subsidiary; and except
as described in the Memorandum the Company has no knowledge of any material
infringement by it or its Subsidiaries of trademark, trade name rights, patent
rights, copyrights, licenses, trade secret or other similar rights of others
that has not been resolved, and there is no claim being made against the Company
or any Subsidiary regarding trademark, trade name, patent, copyright, license,
trade secret or other infringement that could have a material adverse effect on
the condition (financial or otherwise), business, results of operations or
prospects of the Company.
m. The Company and each Subsidiary and, to the Company's knowledge,
each employee of the Company or any Subsidiary, acting in that capacity, is
conducting business in compliance with all applicable laws, rules and
regulations of
6
<PAGE>
the jurisdictions in which it or such Subsidiary is conducting business,
including, without limitation, all applicable local, state and federal
environmental laws and regulations, except where failure to be so in compliance
would not materially adversely affect the condition (financial or otherwise),
business, results of operations or prospects of the Company.
n. The Company and the Subsidiaries have filed all necessary
federal, state and foreign income and franchise tax returns and except as
described in the Memorandum, have paid all taxes shown as due thereon; and,
except as described in the Memorandum, the Company has no knowledge of any tax
deficiency that has been or might be asserted or threatened against the Company
or the Subsidiaries that would materially and adversely affect the business,
operations, or properties of the Company.
o. The Company is not an "investment company" within the meaning of
the Investment Company Act of 1940, as amended.
p. The Company and the Subsidiaries maintain insurance of the types
and in the amounts generally deemed adequate for their respective businesses,
including, but not limited to, insurance covering real and personal property
owned or leased by the Company or such Subsidiary against theft, damage,
destruction, acts of vandalism and all other risks customarily insured against,
all of which insurance is in full force and effect.
q. Neither the Company nor any of the Subsidiaries has at any time
during the last five years (i) made any unlawful contribution to any candidate
for foreign office, or failed to disclose fully any contribution in violation of
law or (ii) made any payment to any federal or state governmental officer or
official, or other person charged with similar public or quasi-public duties,
other than payments required or permitted by the laws of the United States of
any jurisdiction thereof.
r. No officer of the Company or any Subsidiary has been determined
to be unsuitable by any gaming regulatory authority nor, to the best of the
Company's knowledge, has any process with a view to any such determination
(other than a routine review of the qualifications of any such person) been
initiated by any such authority.
SECTION 3 Representations and Warranties of Purchaser.
-------------------------------------------
Purchaser hereby represents and warrants to the Company that:
a. Purchaser is a validly existing limited partnership in good
standing under the laws of Delaware.
7
<PAGE>
Purchaser has full power and authority to enter into this Agreement and perform
the transactions contemplated hereby. This Agreement has been duly authorized,
executed and delivered by Purchaser and constitutes a valid and binding
obligation of Purchaser in accordance with its terms.
b. Purchaser is an accredited investor as that term is defined in
Regulation D promulgated under the Securities Act of 1933, as amended (the "1933
Act") and has such knowledge and experience in financial and business matters as
to be capable of evaluating the merits and risks of the purchase of the Note.
The Note is being acquired for Purchaser's own account for investment and not
with a view to, or for resale in connection with, any distribution, and no other
person has or will have any right to acquire any beneficial interest therein.
Purchaser understands and agrees that it must bear the economic risk of an
investment in the Note for an indefinite period of time because the Note not
been registered under the 1933 Act or under the securities laws of any state or
other jurisdiction and, therefore, cannot be resold, pledged, assigned or
otherwise disposed of unless the Note is subsequently registered for sale under
the 1933 Act and the applicable securities laws of such states, or unless an
exemption from registration is available. Purchaser acknowledges that a
restrictive legend will be placed on the Note and each certificate representing
shares of Common Stock issued upon conversion of the Note and a notation shall
be made in the appropriate records of the Company indicating that the Note and
share certificates are subject to restrictions on transfer under the 1933 Act.
Purchaser has received and reviewed the Memorandum. Purchaser acknowledges that
it has had the opportunity to ask questions of and receive answers from the
Company concerning the terms and conditions of the offering described in the
Memorandum, and to obtain any additional information it requested from the
Company.
SECTION 4 Conversion.
----------
4.1 Conversion.
----------
a. The holder of a Note shall have the right, at the option of such
holder, at any time to convert, subject to the terms and provisions of this
Section 4, the unpaid principal amount of the Note or any portion thereof, in
minimum increments of $1,000, and any accrued and unpaid interest on such Note,
into fully paid and non-assessable shares of Common Stock of the Company or any
capital stock or other securities into which such Common Stock shall have been
changed or any capital stock or other securities resulting from a
reclassification thereof ("Shares"). Such conversion of a Note to Shares shall
be made at an amount per Share (of principal of such Note and/or of accrued and
unpaid interest if specified by the holder) which is
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<PAGE>
equal to the then current conversion price, as further described below. Every
Note shall continue to be convertible, in whole or in part, even though the
Company or a holder may have given notice of prepayment with respect to such
Note or any part thereof pursuant to Section 11 hereof, so long as such Note and
the holder's election to convert shall have been delivered to the Company
pursuant to Section 4.2(a) hereof prior to the date fixed for such prepayment.
b. For convenience, the conversion pursuant to this Section 4 of all
or a portion of the principal amount of a Note (and/or of accrued and unpaid
interest if elected by the holder) into Shares is herein sometimes referred to
as the "conversion" of the Note. For purposes of this Section 4, "Business Day"
means any day other than a Saturday, Sunday or legal holiday, on which banks in
the location of the office of the Company identified in Section 13 are open for
business.
4.2 Mechanics of Conversion.
-----------------------
a. Surrender, Election and Payment. The then unpaid principal
-------------------------------
amount of each Note (and/or any accrued and unpaid interest on such Note) may be
converted by the holder thereof, in whole or in part, during normal business
hours on any Business Day by surrender of the Note, accompanied by written
evidence of the holder's election to convert the Note or portion thereof, to the
Company at its office designated in Section 13 hereof (or, if such conversion is
in connection with an underwritten public offering of Shares, at the location at
which the underwriting agreement requires that such Shares be delivered).
Payment of the conversion price for the Shares specified in such election shall
be made by applying an aggregate amount of principal of the Note and/or, if
elected by the holder, of accrued and unpaid interest equal to the amount
obtained by multiplying (i) the number of Shares specified in such election by
(ii) the then current conversion price. Such holder shall thereupon be entitled
to receive the number of Shares specified in such election rounded to the
nearest whole share.
b. Effective Date. Each conversion of a Note pursuant to Section
--------------
4.2(a) hereof shall be deemed to have been effected immediately prior to the
close of business on the Business Day on which such Note shall have been
surrendered to the Company as provided in Section 4.2(a) hereof (except that if
such conversion is in connection with an underwritten public offering of Shares,
then such conversion shall be deemed to have been effected upon such surrender),
and such conversion shall be at the current conversion price in effect at such
time. On each such day that the conversion of a Note is deemed effected, the
person or persons in whose name or names any certificate or certificates for
Shares are issuable upon such conversion, as
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<PAGE>
provided in Section 4.2(c) hereof, shall be deemed to have become the holder or
holders of record thereof.
c. Share Certificates. As promptly as practicable after the
------------------
conversion of a Note, in whole or in part, and in any event within five Business
Days thereafter (unless such conversion is in connection with an underwritten
public offering of Shares, in which event concurrently with such conversion),
the Company at its expense (including the payment by it of any applicable issue,
stamp or other taxes, other than any income taxes) will cause to be issued in
the name of and delivered to the holder thereof, or as such holder may direct, a
certificate or certificates for the number of Shares to which such holder shall
be entitled upon such conversion.
d. Acknowledgment of Obligation. The Company will, at the time of
----------------------------
or at any time after each conversion of a Note, upon the request of the holder
thereof or of any Shares issued upon such conversion, acknowledge in writing its
continuing obligation to afford to such holder all rights to which such holder
shall continue to be entitled under the Documents; provided, that if any such
holder shall fail to make any such request, the failure shall not affect the
continuing obligation of the Company to afford such rights to such holder.
e. Payment of Accrued Interest. Within five Business Days after
---------------------------
receipt of any Note and an election to convert all or a portion of the principal
amount of such Note under Section 4.2(a) hereof, the Company will pay to the
holder of such Note any unpaid interest, accrued to the date of conversion of
such Note, on the principal amount so converted, except to the extent that the
amount of such interest has also been converted into Shares.
4.3 Current Conversion Price.
------------------------
The term "conversion price" shall mean initially the lower of $1.125
or the average of the daily closing prices for the Common Stock for the 5
consecutive trading days immediately prior to the Closing Date, subject to
adjustment as set forth in Section 4.4. For purposes of determining the initial
conversion price described in the preceding sentence, the "closing price" for
each day shall be the last reported sale price regular way or, in case no such
sale takes place on such day, the average of the closing bid and asked prices
regular way, in either case as reported by the American Stock Exchange. The
term "current conversion price" as used herein shall mean the conversion price,
as the same may be adjusted from time to time as hereinafter provided, in effect
at any given time. In determining the current conversion price, the result
shall be expressed to the nearest $0.01, but any such lesser amount shall be
carried
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<PAGE>
forward and shall be considered at the time of (and together with) the next
subsequent adjustment which, together with any adjustments to be carried
forward, shall amount to $0.01 per Share or more.
4.4 Adjustment of Conversion Price.
------------------------------
The conversion price shall be subject to adjustment, from time to
time, as follows:
a. Adjustments for Stock Dividends, Recapitalizations, etc. In case
--------------------------------------------------------
the Company shall, after the Closing Date, (i) pay a stock dividend or make a
distribution (on or in respect of its Common Stock) in shares of its Common
Stock, (ii) subdivide the outstanding shares of its Common Stock, (iii) combine
the outstanding shares of its Common Stock into a smaller number of shares, or
(iv) issue by reclassification of shares of its Common Stock, any shares of
capital stock of the Company, then, in any such case, the current conversion
price in effect immediately prior to such action shall be adjusted to a price
such that if the holder of a Note were to convert such Note in full immediately
after such action, such holder would be entitled to receive the number of shares
of capital stock of the Company which the holder would have owned immediately
following such action had such Note been converted immediately prior thereto
(with any record date requirement being deemed to have been satisfied), and, in
any such case, such conversion price shall thereafter be subject to further
adjustments under this Section 4. An adjustment made pursuant to this Section
4.4(a) shall become effective retroactively immediately after the record date in
the case of a dividend or distribution and shall become effective immediately
after the effective date in the case of a subdivision, combination or
reclassification.
b. Adjustments for Certain Other Distributions. In case the Company
-------------------------------------------
shall, after the Closing Date, fix a record date for the making of a
distribution to holders of its Common Stock (including any such distribution
made in connection with a consolidation or merger in which the Company is the
continuing corporation) of (i) assets (other than cash dividends paid out of
retained earnings of the Company (determined under generally accepted accounting
principles consistently applied)), (ii) evidences of indebtedness or other
securities (except for its Common Stock) of the Company or of any entity other
than the Company, or (iii) subscription rights, options or warrants to purchase
any of the foregoing assets or securities, whether or not such rights, options
or warrants are immediately exercisable (all such distributions referred to in
clauses (i), (ii) and (iii) being hereinafter collectively referred to as
"Distributions on Common Stock"), the Company shall set aside in an escrow
reasonably acceptable to the holders of Notes, and suitably invested for the
11
<PAGE>
benefit of the holders of Notes, the Distribution on Common Stock to which they
would have been entitled if they had converted all of the Notes held by them for
the Company's Common Stock immediately prior to the record date for the purpose
of determining stockholders entitled to receive such Distribution on Common
Stock and any such Distribution on Common Stock (together with any earnings
while escrowed) shall thereafter be distributed from time to time out of such
escrow to persons converting Notes (immediately upon conversion).
c. Adjustments for Issuances of Additional Stock. Subject to the
---------------------------------------------
exceptions referred to in Section 4.4(e) hereof, in case the Company shall at
any time or from time to time after the Closing Date issue any additional shares
of Common Stock ("Additional Common Stock"), for a consideration per share
either (I) less than the then current Market Price per share of the Common Stock
(determined as provided in Section 4.4(g) hereof), immediately prior to the
issuance of such Additional Common Stock, or (II) without consideration, then
(in the case of either clause (I) or (II)), and thereafter successively upon
each such issuance, the current conversion price shall forthwith be reduced to a
price equal to the price determined by multiplying such current conversion price
by a fraction, of which:
(a) the numerator shall be (i) the number of shares of the
Company's Common Stock outstanding when the then current conversion
price became effective plus (ii) the number of shares of Common Stock
which the aggregate amount of consideration, if any, received by the
Company upon all issuances of Common Stock, since the current
conversion price became effective (including the consideration, if
any, received for such Additional Common Stock) would purchase at the
then current Market Price per share of the Common Stock, and
(b) the denominator shall be (i) the number of shares of Common
Stock outstanding when the current conversion price became effective
plus (ii) the number of shares of Common Stock issued since the
current conversion price became effective (including the number of
shares of such Additional Common Stock);
provided, however, that such adjustment shall be made only if such
adjustment results in a current conversion price less than the current
conversion price in effect immediately prior to the issuance of such
Additional Common Stock. The Company may, but shall not be required to,
make any adjustment of the current conversion price if the amount of such
adjustment shall be less than one percent of the current conversion price
immediately prior to such adjustment, but any adjustment that would
otherwise be
12
<PAGE>
required then to be made which is not so made shall be carried forward and
shall be made at the time of (and together with) the next subsequent
adjustment which, together with any adjustments so carried forward, shall
amount to not less than one percent of the current conversion price
immediately prior to such adjustment.
d. Certain Rules in Applying the Adjustment for Additional Stock
-------------------------------------------------------------
Issuances. For purposes of any adjustment as provided in Section 4.4(c) hereof,
- ---------
the following provisions shall also be applicable:
(i) Cash Consideration. In case of the issuance of Additional
------------------
Common Stock for cash, the consideration received by the Company therefor
shall (subject to the last sentence of Section 4.4(g) hereof) be deemed to
be the aggregate consideration paid by the persons to whom such Additional
Common Stock is issued.
(ii) Non-Cash Consideration. In case of the issuance of
----------------------
Additional Common Stock for a consideration other than cash, or a
consideration a part of which shall be other than cash, the amount of the
consideration other than cash so received or to be received by the Company
shall be deemed to be the value of such consideration at the time of its
receipt by the Company as determined in good faith by the Board of
Directors of the Company, except that where the non-cash consideration
consists of the cancellation, surrender or exchange of outstanding
obligations of the Company (or where such obligations are otherwise
converted into shares of Common Stock), the value of the non-cash
consideration shall be deemed to be the principal amount of, and any and
all interest relating to, the obligations cancelled, surrendered,
satisfied, exchanged or converted. If the Company receives consideration,
part or all of which consists of publicly traded securities (i.e., in lieu
of cash), the value of such non-cash consideration shall be the aggregate
market value of such securities (based on the latest reported sale price
regular way) as of the close of the day immediately preceding the date of
their receipt by the Company.
(iii) Options, Warrants, Convertibles, etc. In case of the
-------------------------------------
issuance, whether by distribution or sale to holders of its Common Stock or
to others, by the Company of (i) any security (other than the Notes) that
is convertible into Common Stock or (ii) any rights, options or warrants to
purchase Common Stock (except as stated in Section 4.4(e) hereof), if
inclusion thereof in calculating adjustments under this Section 4.4 would
result in a current conversion price lower than if excluded, the Company
shall be deemed
13
<PAGE>
to have issued, for the consideration described below, the number of shares
of Common Stock into which such convertible security may be converted when
first convertible, or the number of shares of Common Stock deliverable upon
the exercise of such rights, options or warrants when first exercisable, as
the case may be (and such shares shall be deemed to be Additional Common
Stock for purposes of Section 4.4(c) hereof). The consideration deemed to
be received by the Company at the time of the issuance of such convertible
securities or such rights, options or warrants shall be the consideration
so received determined as provided in Section 4.4(d)(i) and (ii) hereof,
plus (x) any consideration or adjustment payment to be received by the
Company in connection with such conversion and, as applicable, (y) the
aggregate price at which shares of Common Stock are to be delivered upon
the exercise of such rights, options or warrants when first exercisable
(or, if no price is specified and such shares are to be delivered at an
option price related to the market value of the subject Common Stock an
aggregate option price bearing the same relation to the market value of the
subject Common Stock at the time such rights, options or warrants were
granted). If, subsequently, (1) such number of shares into which such
convertible security is convertible, or which are deliverable upon the
exercise of such rights, options or warrants, is increased or (2) the
conversion or exercise price of such convertible security, rights, options
or warrants is decreased, then the calculations under the preceding two
sentences (and any resulting adjustment to the current conversion price
under Section 4.4(c) hereof) with respect to such convertible security,
rights, options or warrants, as the case may be, shall be recalculated as
of the time of such issuance but giving effect to such changes (but any
such recalculation shall not result in the current conversion price being
higher than that which would be calculated without regard to such
issuance). On the expiration or termination of such rights, options or
warrants, or rights to convert, the conversion price hereunder shall be
readjusted (up or down as the case may be) to such current conversion price
as would have been obtained had the adjustments made with respect to the
issuance of such rights, options, warrants or convertible securities been
made upon the basis of the delivery of only the number of shares of Common
Stock actually delivered upon the exercise of such rights, options or
warrants or upon the conversion of any such securities and at the actual
exercise or conversion prices (but any such recalculation shall not result
in the current conversion price being higher than that which would be
calculated without regard to such issuance).
14
<PAGE>
(iv) Number of Shares Outstanding. The number of shares of
----------------------------
Common Stock as at the time outstanding shall exclude all shares of Common
Stock then owned or held by or for the account of the Company but shall
include the aggregate number of shares of Common Stock at the time
deliverable in respect of the convertible securities, rights, options and
warrants referred to in Section 4.4(d)(3) and 4.4(e) hereof; provided, that
to the extent that such rights, options, warrants or conversion privileges
are not exercised, such shares of Common Stock shall be deemed to be
outstanding only until the expiration dates of the rights, warrants,
options or conversion privileges or the prior cancellation thereof.
e. Exclusions from the Adjustment for Additional Stock Issuances.
-------------------------------------------------------------
No adjustment of the current conversion price under Section 4.4(c) hereof shall
be made as a result of or in connection with:
(i) the issuance of the Notes, any Shares upon conversion of the
Notes or the issuance of any shares of Common Stock pursuant to Section
6(c) hereof; or
(ii) the issuance of Common Stock to officers, directors or
employees of the Company or any Subsidiary, or the grant to or exercise by
any such persons of options to purchase Common Stock, under bona fide
employee benefit plans, or pursuant to an employment agreement or
consulting agreement, which plan or agreement has been adopted or approved
by the Board of Directors of the Company and, when required by law,
approved by the holders of Common Stock (but only to the extent that the
aggregate number of shares excluded hereby and issued pursuant to such
plans and agreements shall not at any time exceed 15% of the Common Stock
outstanding).
f. Certification. Whenever the current conversion price is adjusted
-------------
as provided in this Section 4.4, the Company will promptly obtain a certificate
of the Company's President or Chief Financial Officer setting forth the current
conversion price as so adjusted, the computation of such adjustment and a brief
statement of the facts accounting for such adjustment, and will mail to the
holders of the Notes a copy of such certificate.
g. Determination of Market Price. For the purpose of any
-----------------------------
computation under this Section 4, the current "Market Price" per share of the
Common Stock on any date shall be deemed to be the average of the daily closing
prices for the 10 consecutive trading days before such date (subject to the last
sentence of this Section 4.4(g)). The closing price for each day shall be the
last reported sale price regular way or, in case no
15
<PAGE>
such sale takes place on such day, the average of the closing bid and asked
prices regular way, in either case on the principal national securities exchange
on which the Company's Common Stock is listed or admitted to trading, or if the
Common Stock is not listed or admitted to trading on any national securities
exchange, the average of the highest reported bid and lowest reported asked
prices as furnished by the National Association of Securities Dealers Inc.,
Automated Quotation System. If the closing price cannot be so determined, then
the Market Price shall be determined (x) by the written agreement of the Company
and the holders of Notes representing a majority of the Shares then obtainable
from the conversion of outstanding Notes, or (y) in the event that no such
agreement is reached within 20 days after the event giving rise to the need to
determine the Market Price, by the agreement of two arbitrators, one of whom
shall be selected by the Company and the other of whom shall be selected by such
majority holders or (z) if the two arbitrators so selected fail to agree within
20 days, by a third arbitrator selected by the mutual agreement of the other two
(with all costs and expenses of any arbitrators to be paid by the Company). The
Company shall cooperate, and shall provide all necessary information and
assistance, to permit any determination under the preceding clauses (x), (y) or
(z). If the Company conducts an underwritten public offering of the Company's
Common Stock which is conducted in compliance with any applicable agreements,
and if such public offering either raises at least $3 million of net proceeds to
the Company and/or selling shareholders thereunder or was initiated under the
Registration Rights Agreement at the demand of a holder of Notes or of Shares,
then for purposes of Section 4.4(c) hereof the Company shall be deemed to have
issued such shares of its Common Stock sold in such underwritten public offering
for a consideration per share equal to the then current Market Price per share.
h. Other Adjustments. In case any event shall occur as to which any
-----------------
of the provisions of this Section 4.4 are not strictly applicable but the
failure to make any adjustment would not fairly protect the conversion rights
represented by the Notes in accordance with the essential intent and principles
of this Section 4.4, then, in each such case, the Company shall request its
independent public accountants to render an opinion upon the adjustment, if any,
on a basis consistent with the essential intent and principles established in
this Section 4.4, necessary to preserve, without dilution, the conversion rights
represented by the Notes. Upon receipt of such opinion, the Company will
promptly mail copies thereof to the holders of the Notes and shall make the
adjustments described therein.
i. Meaning of "Issuance". References in this Agreement to
---------------------
"issuances" of stock by the Company include
16
<PAGE>
issuances by the Company of previously unissued shares and issuances or other
transfers by the Company of treasury stock.
4.5 Company's Consolidation or Merger.
---------------------------------
Without limiting the covenants of the Company contained in Section 5
hereof, if the Company shall at any time consolidate with or merge into another
corporation (where the Company is not the continuing corporation after such
merger or consolidation), or the Company shall sell, transfer or lease all or
substantially all of its assets, or the Company shall change its Shares into
property other than capital stock, then, in any such case, the holder of a Note
shall thereupon (and thereafter) be entitled to receive, upon the conversion of
such Note in whole or in part, the securities or other property to which (and
upon the same terms and with the same rights as) a holder of the number of
Shares deliverable upon conversion of such Note would have been entitled if such
conversion had occurred immediately prior to such consolidation or merger, such
sale of assets or such change, and such conversion rights shall thereafter
continue to be subject to further adjustments under this Section 4. The Company
shall take such steps in connection with such consolidation or merger, such sale
of assets or such change as may be necessary to assure such holder that the
provisions of the Notes and this Agreement shall thereafter be applicable in
relation to any securities or property thereafter deliverable upon the
conversion of the Notes, including, but not limited to, obtaining a written
obligation to supply such securities or property upon such conversion and to be
so bound by the Notes.
4.6 Notice to Holders of Notes.
--------------------------
In case at any time
a. the Company shall take any action which would require an
adjustment in the current conversion price pursuant to Section 4.4(a), (c) or
(h); or
b. the Company shall authorize the granting to the holders of its
Common Stock of any Distributions on Common Stock as set forth in Section
4.4(b); or
c. there shall occur any Change of Control Event (as defined in
Section 11.2);
then, in any one or more of such cases, the Company shall give written notice to
the holders of the Notes, not less than 20 days before any record date or other
date set for definitive action, of the date on which such action, distribution,
reorganization, reclassification, change, sale, transfer, lease, consolidation,
merger, dissolution, liquidation or winding-up shall take place,
17
<PAGE>
as the case may be. Such notice shall also set forth such facts as shall
indicate the effect of any such action (to the extent such effect may be known
at the date of such notice) on the current conversion price and the kind and
amount of the shares and other securities and property deliverable upon
conversion of the Notes. Such notice shall also specify any date as of which
the holders of the Common Stock of record shall be entitled to exchange their
Common Stock for securities or other property deliverable upon any such
reorganization, reclassification, change, sale, transfer, lease, consolidation,
merger, dissolution, liquidation or winding-up, as the case may be.
SECTION 5 Covenants of the Company.
------------------------
The Company covenants and agrees with Purchaser as follows:
a. The Company shall use its best efforts to cause the consummation
of the transactions contemplated hereby in accordance with the terms and
conditions set forth in the Documents.
b. Until the later of the date that all Notes are paid in full or
converted into Shares or December 31, 1996, the Company will furnish to the
holder(s) of the Note and the Shares: (i) concurrent with distribution to the
Company's stockholders, copies of the Annual Report of the Company containing
the balance sheet of the Company as of the close of such fiscal year and
statements of income, stockholders' equity and cash flows for the year then
ended and the opinion thereon of the Company's independent public accountants;
(ii) as soon as practicable after the filing thereof, copies of each proxy
statement, Annual Report on Form 10-K, Quarterly Report on Form 10-Q, Report on
Form 8-K or other report filed by the Company with the Commission, the NASD or
any securities exchange; and (iii) concurrent with distribution to the Company's
stockholders, copies of any report or communication of the Company mailed
generally to holders of its Common Stock.
c. The Company will use its best efforts to cause the Common Stock
to continue to be listed on the American Stock Exchange or to become listed on
the New York Stock Exchange or designated for quotation as a national market
system security on the National Association of Securities Dealers, Inc.
Automated Quotation System.
d. Until the earlier of (i) December 31, 1996, (ii) prepayment or
repayment of all principal and interest due under the Note, or (iii) the date on
which, following a conversion of the Note in accordance with Section 4 hereof,
Purchaser ceases
18
<PAGE>
to be the record holder of 50% or more of the Shares issued upon such
conversion:
(i) Upon the written request of Purchaser delivered to the
Company, the Company will take the actions necessary to appoint to the
Board of Directors of the Company a person designated by Purchaser;
(ii) The Company will grant Purchaser, on an ongoing basis, (a)
reasonable access to its books and records, (b) the right to meet with and
call meetings of Company management, (c) the right to attend, or have its
advisors or representatives attend, and address meetings of the Board of
Directors of the Company; the Company shall effect promptly the changes in
executive officer positions described in the "Management" section of the
Memorandum;
(iii) The Company will promptly advise Purchaser of any event
that represents a material adverse change in its business, properties or
financial condition and of any suit or proceeding commenced or threatened
against the Company, which, if adversely determined, could result in such a
material adverse change; and the Company will promptly advise Purchaser of
the outcome of or any material developments in currently pending
litigation;
(iv) The Company will advise Purchaser on a weekly basis of all
cash payments of $50,000 or more made by the Company or any Subsidiary to
any person, group or entity during that week and any payments made to any
person, group or entity over the previous four-week period that total
$50,000 or more;
(v) All proceeds to the Company from any future debt or equity
financings by the Company, up to a $5 million aggregate maximum, will be
deposited by the Company in an escrow account with such escrow agent and
pursuant to such escrow instructions as shall be mutually agreed by the
Company and Purchaser at the time of such financings. The proceeds from
such financings will be used solely for payment of principal and interest
due under the Company's 12.5% First Mortgage Notes due 2000 (the "First
Mortgage Notes") and under the Company's 20% Mortgage Notes due 1996 (the
"Mortgage Notes") and for payment of amounts, adjustments and assessments
due under the IRS Assessment (as defined in the Memorandum).
e. Until the later of the date that all Notes are paid in full or
converted into Shares or December 31, 1996, the holder(s) of the Note and/or the
Shares shall have the right to purchase such holder's Proportionate Percentage
of any future
19
<PAGE>
Eligible Offering. For the purposes of this Section 5(e), "Proportionate
Percentage" means, with respect to such holder, as of any date, the result
(expressed as a percentage) obtained by dividing (i) the number of Shares owned
by such holder as of such date plus the number of Shares into which such
holder's Note as of such date would be convertible; by (ii) the total number of
shares of Common Stock outstanding as of such date. "Eligible Offering" means
an offer by the Company to sell for cash, shares of Common Stock or any security
convertible into or exchangeable for, or carrying rights or options to purchase,
shares of Common Stock, other than an offering of securities by the Company (i)
to employees, officers and/or directors in connection with or pursuant to any
bona fide employee benefit or compensation plan or pursuant to an employment or
consulting agreement, which plan or agreement has been adopted or approved by
the Board of Directors of the Company; or (ii) in connection with any Change of
Control Event (as defined in Section 11.2). The Company shall, before issuing
any securities pursuant to an Eligible Offering, give written notice thereof to
the holders of the Note and/or the Shares. Such notice shall specify the
security or securities the Company proposes to issue and the consideration that
the Company intends to receive therefor. For a period of 20 days following the
date of such notice, each holder shall be entitled, by written notice to the
Company, to elect to purchase all or any part of the holder's Proportionate
Percentage of the securities being sold in the Eligible Offering. In the event
that a holder does not make the election pursuant to this Section 5(e) to
purchase its Proportionate Percentage of securities included in an Eligible
Offering within such 20 day period, then the Company may issue such securities
to the proposed purchasers in the Eligible Offering, but only for a
consideration payable in cash not less than, and otherwise on terms no more
favorable to such purchasers than, that set forth in the Company's notice and
only within 90 days after the end of such 20 day period. In the event that any
such offer is accepted by the holder, the Company shall sell to the holder and
the holder shall purchase from the Company, for the consideration and on the
terms set forth in the notice described herein, the securities that the holder
shall have elected to purchase.
f. The net proceeds received by the Company from the sale of the
Notes will not be used by the Company to fund expenditures for, or contracts for
expenditures with respect to, any fixed assets or improvements, or for
replacements, substitutions or additions thereto, or to fund any expenditures
with respect to any lease to which the Company or a Subsidiary is party as
lessee, or by which it is bound, under which it leases any property (real,
personal or mixed) from any lessor other than the Company or a Subsidiary, and
which either is required to be capitalized in accordance with generally accepted
accounting principles, or, even if not so required to be
20
<PAGE>
capitalized, shall have (or have had), at the time first entered into, an
initial term of greater than three years (including leases of shorter duration
which are or were extendible to a total term greater than three years at the
option of the lessor.
g. For so long as any of the Notes are outstanding, the Company will
maintain an office where Notes may be presented for payment, exchange, or
conversion as provided in this Agreement. Such office initially shall be the
office of the Company identified in Section 13 hereof, which place may from time
to time be changed by notice to the holders of all Notes then outstanding.
SECTION 6 Defaults.
--------
a. Any of the following shall constitute an "Event of Default":
(i) the Company defaults in the payment of (A) any part of the
principal of or premium, if any, on any of the Notes, when the same shall
become due and payable, whether at maturity or at a date fixed for
prepayment or by acceleration or otherwise or (B) the interest on any of
the Notes, when the same shall become due and payable; and such default in
the payment of principal, premium or interest shall have continued for 15
days; or
(ii) an "Event of Default" as such term is defined under the
First Mortgage Notes, or the Mortgage Notes or a payment default under the
IRS Assessment and such default continues unremedied for 15 days; or
(iii) the Company defaults in the performance of any of the
covenants contained in Section 5 hereof or of any covenant contained in the
Pledge Agreement or Registration Rights Agreement and such default
continues unremedied for 30 days; or
(iv) any representation or warranty by the Company in the
Documents or in any certificate delivered by the Company pursuant thereto
proves to have been incorrect in any material respect when made; or
(v) a final judgment or order (other than with respect to the
WARN Act Litigation described in the Memorandum) which, either alone or
together with other final judgments or orders against the Company and its
Subsidiaries, exceeds an aggregate of $1 million is rendered by a court of
competent jurisdiction against the Company or any Subsidiary and such
judgment or order shall have
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<PAGE>
continued undischarged or unstayed for 30 days after entry thereof; or
(viii) the Company or any Subsidiary make an assignment for the
benefit of creditors, or admit in writing its inability to pay its debts;
or a receiver or trustee is appointed for the Company or any Subsidiary or
for substantially all of its assets and, if appointed without its consent,
such appointment is not discharged or stayed within 30 days; or proceedings
under any law relating to bankruptcy, insolvency or the reorganization or
relief of debtors are instituted by or against the Company or any
Subsidiary, and, if contested by it, are not dismissed or stayed within 30
days; or any writ of attachment or execution or any similar process is
issued or levied against the Company or any Subsidiary or any significant
part of its property and is not released, stayed, bonded or vacated within
30 days after its issue or levy; or the Company or any Subsidiary takes
corporate action in furtherance of any of the foregoing.
b. If an Event of Default occurs, then and in each such event
Purchaser may at any time (unless all Events of Default shall theretofore have
been waived or remedied) at its option, by written notice to the Company,
declare the Note to be due and payable. Upon any such declaration, the Note
shall forthwith immediately mature and become due and payable, together with
interest accrued thereon and an "Additional Amount" (as defined below), all
without presentment, demand, protest or notice, all of which are hereby waived.
"Additional Amount" shall mean, with respect to any Note, as of the date of
repayment of such Note after such acceleration, an amount equal to the
Redemption Premium that would be payable if the Company had elected to prepay
such Note pursuant to Section 11 hereof at the time of such repayment. However,
if, at any time after the principal of the Note shall so become due and payable
and prior to the date of maturity stated in the Note, all arrears of principal
and interest on the Note (with interest at the rate specified in the Note on any
overdue principal and any overdue premium and, to the extent legally
enforceable, on any overdue interest) shall be paid to the holders of the Note
by or for the account of the Company, then Purchaser, by written notice or
notices to the Company, may waive such Event of Default and its consequences and
rescind or annul such declaration, but no such waiver shall extend to or affect
any subsequent Event of Default or impair any right or remedy resulting
therefrom.
c. If an Event of Default occurs, then and in each such event and in
addition to the foregoing rights, Purchaser shall have the right to:
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<PAGE>
(i) purchase from the Company shares of the Company's authorized
but unissued Common Stock at a per share price equal to 75% of the Market
Price on the date of the Event of Default; provided that, the number of
shares of Common Stock that Purchaser shall be entitled to purchase
pursuant to this Section 6(c) shall not exceed the quotient obtained by
dividing $3 million by such per share purchase price; and
(ii) cause the Company to take such action as may be required to
cause one additional director designated by Purchaser to be appointed to
the Board of Directors of the Company.
Upon the occurrence of an Event of Default, Purchaser may elect to purchase the
shares of Common Stock described in this Section 6(c) by delivering written
notice to the Company of such election and a description of the cash payment
terms and the timetable for closing the issue and purchase of such shares. The
cash payment terms and the closing date for such purchase shall be within the
sole discretion of Purchaser which terms and date shall be reasonable. The
Company shall effect the issuance and sale of such shares promptly in accordance
with the schedule identified by Purchaser in such notice.
d. In case any one or more Events of Default shall occur and be
continuing,
(i) Purchaser may proceed to protect and enforce its rights by an
action at law, suit in equity or other appropriate proceeding, whether for
the specific performance of any agreement contained in the Documents or for
an injunction against a violation of any of the terms thereof, or in aid of
the exercise of any power granted thereby or by law or for any other remedy
(including, without limitation, damages), and
(ii) the Company will pay to Purchaser in addition to any
interest or premium otherwise required, such further amount as shall be
sufficient to cover any and all costs and expenses of enforcement and
collection, including, without limitation, reasonable attorneys' fees and
expenses.
e. Purchaser shall, in addition to other remedies provided by law,
have the right and remedy to have the provisions of the Documents specifically
enforced by any court having equity jurisdiction, it being acknowledged and
agreed that any breach or threatened breach of the provisions of the Documents
will cause irreparable injury to Purchaser and that money damages will not
provide an adequate remedy. Nothing contained herein shall be construed as
prohibiting Purchaser from pursuing any other
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<PAGE>
remedies available to Purchaser for such breach or threatened breach, including,
without limitation, the recovery of damages from the Company.
SECTION 7 Conditions to the Obligations of Purchaser.
------------------------------------------
The obligations of Purchaser to purchase and pay for the Note on the
Closing Date shall be subject to the following conditions:
a. The Company's independent public accountants, KPMG Peat Marwick,
LLP, shall have completed the audit of the Company's financial statements for
the year ended December 31, 1994, copies of such audited financial statements
shall have been delivered to Purchaser and such audit shall have revealed no
material changes in the financial condition of the Company from the financial
condition presented in the unaudited financial statements for the same period
included in the Memorandum;
b. There shall not have been instituted by or against the Company or
any Subsidiary proceedings under any law relating to bankruptcy, insolvency or
reorganization or relief of debtors, nor shall the Company or any Subsidiary
have made a general assignment for the benefit of creditors, admitted in writing
its inability to pay its debts as they mature, appointed or had appointed for it
a receiver or trustee, or had any writ of attachment or execution or any similar
process issued or levied against it; no such matters shall be threatened or
pending nor shall the Company or any Subsidiary have taken any corporate action
in furtherance of any of the foregoing;
c. There shall be no investigation, action, suit or proceeding at
law or in equity or by or before any governmental instrumentality or other
agency pending or threatened against the Company or any officer, director or key
employee of the Company other than as disclosed in the Memorandum;
d. The Company will hold in good standing all licenses, permits and
grants of authority from the Nevada Gaming Commission, the Nevada State Gaming
Control Board, the National Indian Gaming Commission (collectively, the "Gaming
Authorities") and any other federal, state or local agency or authority
necessary for the operation of its business and properties; except as disclosed
in the Memorandum, no revocations or terminations of such licenses, permits,
authority or approvals shall be pending or threatened nor shall the Company be
aware of any facts or circumstances that would give rise to any such revocation
or termination;
e. All approvals, consents, permits and authorizations of third
parties, local, state and federal
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<PAGE>
regulatory agencies and authorities and the Company required to carry out the
transactions contemplated herein shall have been received;
f. Since the date of the Memorandum (a) there shall not have been
any change in the capital stock of the Company other than pursuant to the
exercise of outstanding options and warrants disclosed in the Memorandum or any
material change in the indebtedness (other than in the ordinary course of
business) of the Company; (b) no material verbal or written agreement or other
transaction shall have been entered into by the Company that is not in the
ordinary course of business that could result in a material reduction in the
future earnings of the Company; (c) no loss or damage (whether or not insured)
to the property of the Company shall have been sustained that materially and
adversely affects the business, financial condition, results of operations or
prospects of the Company; (d) except as described in the Memorandum, no legal or
governmental action, suit or proceeding affecting the Company that is material
to the Company or that affects or may affect the transactions contemplated
herein shall have been instituted or threatened; and (e) there shall not have
been any material change in the business, financial condition, management,
results of operations or prospects of the Company that makes it impractical or
inadvisable in the judgment of Purchaser to proceed with the purchase of the
Note.
g. The lease financing transaction with T&W Leasing relating to the
7 Cedars casino in the appropriate amount of $690,000 shall have closed.
h. The Company shall have made public announcement of the proposed
management changes described in the "Management" section of the Memorandum and
shall cause those changes to occur in the manner and on the dates described in
the Memorandum.
i. Purchaser shall have received a certificate of the Company
executed by the Chairman of the Board or the President of the Company, dated the
Closing Date to the effect that:
(i) The representations and warranties of the Company set forth
in Section 2 of this Agreement are true and correct as of the date of this
Agreement and the representations and warranties set forth in the Documents
are true and correct as of the Closing Date and the Company has complied
with all the agreements and satisfied all the conditions on its part to be
performed or satisfied on or prior to the Closing Date;
(ii) Each of the respective signers of the certificate has
carefully examined the Memorandum; in his
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<PAGE>
opinion and to the best of his knowledge, the Memorandum does not contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein
not misleading; and
(iii) Since the date as of which information is given in the
Memorandum, and except as disclosed in or contemplated thereby, there has
not been any material adverse change or a development involving a material
adverse change in the condition (financial or otherwise), business,
properties, results of operations, management or prospects of the Company
or any Subsidiary; and except as described in the Memorandum, no legal or
governmental action, suit or proceeding is pending or threatened against
the Company or any Subsidiary that is material to the Company, whether or
not arising from transactions in the ordinary course of business, or that
may adversely affect the transactions contemplated by this Agreement; since
such dates and except as so disclosed, neither the Company nor any
Subsidiary has entered into any verbal or written agreement or other
transaction that is not in the ordinary course of business or that can
reasonably be expected to result in a material reduction in the future
earnings of the Company or any Subsidiary or incurred any material
liability or obligation, direct, contingent or indirect, made any change in
its capital stock, made any material change in its short-term debt or
funded debt or repurchased or otherwise acquired any of the Company's
capital stock; and the Company has not declared or paid any dividend, or
made any other distribution, upon its outstanding capital stock payable to
stockholders of record on a date prior to the Closing Date.
j. Purchaser shall have received opinions dated the Closing Date and
addressed to Purchaser from Pillsbury Madison & Sutro, and Lionel Sawyer &
Collins, counsel for the Company, in form and substance satisfactory to
Purchaser.
k. The Pledge Agreement and the Registration Rights Agreement in the
forms attached hereto as Exhibits B and C, respectively, shall have been
executed and delivered by the parties thereto.
l. Purchase Agreements for an aggregate of $1,675,000 principal
amount of Notes (inclusive of the principal amount of the Note being purchased
by Purchaser hereunder) shall have been executed and delivered by the parties
thereto and such purchases and sales shall have closed prior to or
simultaneously with the transactions hereunder.
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<PAGE>
SECTION 8 Conditions to Obligations of the Company.
----------------------------------------
The obligations of the Company to issue the Note on the Closing Date
shall be subject to the following conditions:
a. The Company shall have received a certificate of Purchaser
executed by its General Partner and dated the Closing Date to the effect that
the representations and warranties of Purchaser set forth in Section 3 of this
Agreement are true and correct as of the date of this Agreement and as of the
Closing Date and Purchaser has complied with all the agreements and satisfied
all the conditions on its part to be performed or satisfied on or prior to the
Closing Date; and
b. All approvals, consents, permits and authorizations of third
parties, local, state and federal regulatory agencies and authorities relating
to Purchaser and required to carry out the transactions contemplated herein
shall have been received.
SECTION 9 Subordination.
-------------
9.1 Agreement to Be Bound. The Note shall, to the extent and in the
---------------------
manner hereinafter set forth, be subordinated and subject in right of payment to
the prior payment in full of all Senior Indebtedness. Each holder of a Note,
whether upon original issue or upon transfer or assignment thereof, by its
acceptance thereof agrees that the Note shall be subject to the provisions
contained in this Section 9. The subordination provisions of this Section 9
shall be for the benefit of the holders of the Senior Indebtedness and may be
enforced directly by such holders.
9.2 Priority of Senior Indebtedness.
-------------------------------
a. No payment on account of principal of, premium, if any, or
interest on the Note, shall be made, and no assets shall be applied to the
purchase or other acquisition or retirement of the Note (other than a conversion
pursuant to Section 4 hereof), for a period (the "Payment Blockage Period") of
(i) 180 days after both of the following have occurred (A) the principal amount
of any Senior Indebtedness in excess of $100,000 in aggregate principal amount
shall have been accelerated upon an event of default thereunder and (B) written
notice of such acceleration shall have been given by the Company or by holders
of Senior Indebtedness to the holders of the Note, stating that this Section
9.2(a) is therefore applicable; provided, that any Payment Blockage Period
arising as a result of this Section 9.2 shall terminate immediately upon the
payment in full of such accelerated Senior Indebtedness or the rescission or
annulment of such acceleration or if such Senior Indebtedness is no longer
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<PAGE>
outstanding; provided, further, that under no circumstances shall there be more
than one Payment Blockage Period in any 365 consecutive day period. As used in
this Section 9.2(a), an "event of default" is an event of default (x) as
defined in any Senior Indebtedness or in the instrument under which the same is
outstanding and (y) which would permit the acceleration of such Senior
Indebtedness prior to its maturity.
b. In the event that any money, property or securities is received
by the holder of a Note in violation of Section 9.2(a) or the terms or
conditions of any instrument governing the Senior Indebtedness, the holder
thereof shall hold the same in trust for the benefit of the holders of Senior
Indebtedness, and shall deliver the same in kind to the Company.
9.3 Liquidation; Dissolution; Bankruptcy.
------------------------------------
a. Upon any payment or distribution of assets of the Company
(whether in cash, property or securities) to creditors upon any dissolution or
winding-up or total or partial liquidation or reorganization of the Company,
whether voluntary or involuntary or in any bankruptcy, insolvency, receivership
or similar proceeding regarding the Company, all amounts due or to become due
upon all Senior Indebtedness then outstanding shall first be paid in full before
the holders of the Note shall be entitled to receive any assets so paid or
distributed in respect thereof (but without restricting the rights of holders
under Section 4 hereof); provided, that with respect to the foregoing, the
holders of the Note may receive (and shall be entitled to retain) securities
that are subordinate to (at least to the extent that the Note is subordinate to
Senior Indebtedness pursuant to the terms hereof) the payment of all Senior
Indebtedness then outstanding. Upon any such dissolution or winding-up or
liquidation, reorganization or other proceeding, any payment or distribution of
assets of the Company of any kind or character, whether in cash, property or
securities, to which the holders of the Note would be entitled, except for these
provisions, shall be paid by the Company or by any receiver, trustee in
bankruptcy, liquidating trustee, agent or other person making such payment or
distribution directly to the holders of Senior Indebtedness which was then
outstanding (pro rata to each of such holders on the basis of the respective
amounts (to the extent known) of Senior Indebtedness then held by such holders,
to the extent necessary to pay all such Senior Indebtedness which was then
outstanding in full, after giving effect to any concurrent payment or
distribution to or for the holders of Senior Indebtedness, before any payment or
distribution is made to the holders of the Note (but subject to the proviso to
the preceding sentence).
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<PAGE>
b. Each holder of a Note by its acceptance hereof (x) irrevocably
authorizes and empowers (but without imposing any obligation on) each holder of
any Senior Indebtedness at the time outstanding, under (and only under) the
circumstances set forth in Section 9.3(a), if the holder of a Note shall fail to
do so prior to 20 days before the expiration of the time to do so, to file and
prove all claims of such holder for its ratable share of payments or
distributions in respect of the Note which is required to be paid or delivered
to the holders of Senior Indebtedness as provided in Section 9.3(a), in the name
of each such holder of the Note or otherwise, as such holder of Senior
Indebtedness may determine to be necessary or appropriate for the enforcement of
the provisions of Section 9.3(a), and the holder of a Note may amend any such
claims regarding the Note before or after such 20th day (but not in a manner
inconsistent with the rights of holders of Senior Indebtedness under this
Section 9 other than this Section 9.3(b)) whether such claims are filed by such
holder of a Note or are filed, pursuant to this Section 9.3(b), by any holder of
Senior Indebtedness; and (y) under (and only under) the circumstances set forth
in Section 9.3(a), agrees to execute and deliver to each holder of Senior
Indebtedness all such further instruments confirming the authorization
hereinabove set forth, and all such powers of attorney, proofs of claim,
assignments of claim and other instruments, and to take all such other action,
as may be reasonably requested by such holder in order to enable such holder to
enforce all claims upon or in respect of such Note holder's ratable share of
payments or distributions in respect of the Note. Nothing in this Section
9.3(b), or any other provision hereof, shall give or be construed to give the
holder of any Senior Indebtedness any right to vote any Note, or any related
claim, or any portion of such Note or such claim, or to exercise any approval
rights, whether in connection with any resolution, arrangement, plan of
reorganization, compromise, settlement, election of trustees or otherwise.
Holders of Senior Indebtedness shall not create any liability to any person on
the part of any holders of Notes in connection with the exercise of any rights
granted under this Section 9.3(b).
9.4 No Prejudice or Impairment; Reinstatement.
-----------------------------------------
a. No right of any present or future holders of any Senior
Indebtedness to enforce subordination as herein provided shall at any time in
any way be prejudiced or impaired (i) by any act or failure to act on the part
of the Company, including without limitation any merger or consolidation of the
Company into or with any other person, or any sale, lease or transfer of any or
all of the assets of the Company to any other person, (ii) by any act (in good
faith) or failure (in good faith) to act by any such holder of Senior
Indebtedness, including, without limitation, the failure by such holder to
perfect a security
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<PAGE>
interest in any security for the payment of Senior Indebtedness or (iii) by any
noncompliance by the Company with the terms and provisions of the Documents
regardless of any knowledge thereof that any such holder may have or be
otherwise charged with. The holders of the Senior Indebtedness may, without in
any way affecting the subordination hereunder, at any time or from time to time
and in their absolute discretion, change the manner, place, time or other terms
of payment of, or renew or alter, any Senior Indebtedness, or in each case in
accordance with the terms of the applicable agreement or instrument governing
the Senior Indebtedness modify or supplement any agreement or instrument
governing or evidencing such Senior Indebtedness or any other document referred
to therein, or exercise or refrain from exercising any of their rights under the
Senior Indebtedness, including, without limitation, waiver of default thereunder
and release of any collateral securing such Senior Indebtedness, all without
notice to or assent from the holders of the Note. The absence of any notice to,
or knowledge by, any holder of a Note of the existence or occurrence of any of
the matters or events set forth in this paragraph (a) shall not impair or
otherwise affect the rights of the holders of Senior Indebtedness against
holders of the Note under the subordination provisions of this Section 9.
b. The provisions of this Section 9 shall continue to be effective,
or be reinstated, as the case may be, if at any time any payment in respect of
any Senior Indebtedness is rescinded or must otherwise be restored or returned
by the holders of such Senior Indebtedness upon the occurrence of any event
described in Section 9.3 hereof, or upon or as a result of the appointment of a
receiver, intervenor or conservator of, or trustee or similar officer for, the
Company or any substantial part of its property, all as though such payment had
not been made.
9.5 Subrogation. Subject to the payment in full of all Senior
-----------
Indebtedness, the holders of the Note shall be subrogated to the rights of the
holders of Senior Indebtedness to receive payments or distributions of assets of
the Company made on the Senior Indebtedness until the principal of, premium, if
any, and interest on (and any other amounts due with respect to) the Note and
all other amounts due under the Documents shall be paid in full; provided, that
any holder of a Note shall have the right, in its sole discretion, to waive such
subrogation rights without affecting such holder's rights with respect to a Note
held by such holder or under the Documents (which rights shall continue in full
force and effect). For the purposes of such subrogation, no payments or
distributions to the holders of Senior Indebtedness of any cash, property or
securities to which the holders of the Note would be entitled except for the
provisions of this Section 9 shall, as among the Company, its creditors
30
<PAGE>
other than the holders of Senior Indebtedness, and the holders of the Note, be
deemed to be a payment by the Company to or on account of Senior Indebtedness,
it being understood that these provisions in this Section 9 are, and are
intended, solely for the purpose of defining the relative rights of the holders
of the Note, on the one hand, and the holders of Senior Indebtedness, on the
other hand.
9.6 Obligations Unaffected. Nothing contained in this Section 9 is
----------------------
intended to or shall impair as among the Company, its creditors other than the
holders of Senior Indebtedness, and the holders of the Note, the obligation of
the Company, which shall be absolute and unconditional, to pay to the holders of
the Note the principal of, premium, if any, and interest on the Note, as and
when the same shall become due and payable in accordance with its terms, or to
affect the relative rights of the holders of the Note and creditors of the
Company other than the holders of Senior Indebtedness. Nothing herein shall
prevent a holder of the Note from exercising any remedies otherwise permitted by
applicable law upon the occurrence of an Event of Default, subject to the
rights, if any, under these provisions of the holders of Senior Indebtedness,
and nothing herein shall prevent the conversion of the Note (or any part
thereof) in accordance with the Note and this Agreement.
9.7 Definition of Senior Indebtedness. The term "Senior Indebtedness"
---------------------------------
shall mean the principal of, premium, if any, and interest on indebtedness of
the Company for borrowed money whether such indebtedness is currently
outstanding or hereafter incurred, and any renewals, modifications, refundings
or extensions of any such indebtedness, unless under the provisions of the
instrument creating or evidencing any such indebtedness, or pursuant to which
the same is outstanding, it is provided that such indebtedness is subordinate in
right of payment to any other indebtedness of the Company (including, without
limitation, the Notes); provided, that Senior Indebtedness shall not include (i)
any obligations under any provision of any agreement or instrument regarding
such Senior Indebtedness in respect of (x) fees or reimbursement of expenses or
(y) penalties or additional interest charged on account of overdue payments of
principal, interest or other payments, (ii) any indebtedness owing to any
Subsidiary or to any other affiliate (of the Company or of any Subsidiary),
(iii) any obligation, to any person, of any affiliate of the Company or of any
Subsidiary (other than an obligation of the Company or of a Subsidiary), which
obligation is assumed or guaranteed by the Company or any Subsidiary.
SECTION 10 Exchange of Notes; Accrued Interest; Cancellation of Surrendered
----------------------------------------------------------------
Notes; Replacement.
- ------------------
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<PAGE>
a. Subject to Section 3 hereof, at any time at the request of any
holder of a Note delivered to the Company at its office identified in Section 13
hereof, the Company at its expense (except for any transfer tax or any other tax
arising out of the exchange) will issue and deliver to or upon the order of the
holder in exchange therefor a new Note, in such denomination or denominations as
such holder may request, in aggregate principal amount equal to the unpaid
principal amount of the Note surrendered and substantially in the form thereof,
dated as of the date to which interest has been paid on the Note surrendered
(or, if no interest has yet been so paid thereon, then dated the date of the
Note so surrendered) and payable to such person or persons or order as may be
designated by such holder.
b. In the event that any Note is surrendered to the Company upon the
conversion of all or a portion of any Note, or upon a prepayment under Section
11 hereof, the Company shall pay all accrued and unpaid interest on such Note or
such portion thereof and thereupon interest shall cease to accrue upon that
portion of the principal amount of such Note which was used for conversion or
which was prepaid, and the right to receive, and any right or obligation to
make, any prepayment on such portion of the principal amount pursuant to Section
11 hereof shall terminate all upon the date of such conversion or prepayment and
upon presentation and surrender of such Note to the Company.
c. Upon the conversion in whole or in part of any Note or upon any
prepayment under Section 11 hereof, if only a portion of the principal amount of
a Note is used in such conversion or is prepaid, then such Note shall be
surrendered to the Company and the Company shall simultaneously execute and
deliver to or on the order of the holder thereof, at the expense of the Company,
a new Note in principal amount equal to the unused or unpaid portion of such
Note.
d. Any Note or portion thereof that has been converted, or that has
been prepaid under Section 11 hereof, shall be cancelled by the Company and no
Note shall be issued in lieu of the principal amount so converted or prepaid.
e. Upon receipt of evidence satisfactory to the Company of the loss,
theft, destruction or mutilation of any Note and, in the case of any such loss,
theft or destruction, upon delivery of an indemnity agreement reasonably
satisfactory to the Company (if requested by the Company), or in the case of any
such mutilation, upon surrender of such Note (which surrendered Note shall be
cancelled by the Company), the Company will issue a new Note of like tenor in
lieu of such lost, stolen, destroyed or mutilated Note as if the lost, stolen,
destroyed or mutilated Note were then surrendered for exchange.
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<PAGE>
SECTION 11 Prepayment.
----------
11.1 Optional Prepayment.
-------------------
a. Subject to the other provisions of this Section 11, at any time
during the period beginning on January 1, 1996 and ending on December 30, 1996
the Company may prepay all or part of the principal amount of outstanding Notes
at a price equal to (1) the aggregate principal amount of the Notes to be
prepaid, plus (2) all accrued and unpaid interest on the principal amount of the
Notes to be prepaid, plus (3) a premium (the "Redemption Premium") equal to 7-
1/2% of the principal amount being prepaid. The right of the Company to prepay
Notes pursuant to this Section 11.1(a) shall be conditioned upon its giving
notice of prepayment, signed by its President and Treasurer, to the holders of
Notes not less than 20 days and not more than 60 days prior to the date upon
which the prepayment is to be made specifying (i) the holder of each Note to be
prepaid, (ii) the aggregate principal amount being prepaid, (iii) the date of
such prepayment, (iv) the accrued and unpaid interest (to but not including the
date upon which the prepayment is to be made) and (v) the Redemption Premium
with respect to such prepayment. Notice of prepayment having been so given, the
aggregate principal amount of the Notes so specified in such notice, all accrued
and unpaid interest thereon and the Redemption Premium on such aggregate
principal amount shall all become due and payable on the specified prepayment
date.
b. Upon the occurrence of any Change of Control Event (as defined in
Section 11.2, each holder of a Note shall have the right, at such holder's
option, to require the Company to prepay such holder's Note in whole or in part
at a price equal to: (1) the aggregate principal amount of the Note to be
prepaid, plus (2) all accrued and unpaid interest on the principal amount of the
Note to be prepaid, plus (3) an amount equal to 7-1/2% of the principal amount
being prepaid. The option under this Section 11.1(b) shall be exercised by
written notice to the Company given at any time from and after the 30th day
before such Change of Control Event through the 90th day after such Change of
Control Event (or, if later, through the 90th day after such holder receives
written notice from the Company of such Change of Control Event). Promptly (and
in any event within 10 days) after the occurrence of any Change of Control
Event, and not more than 30 days before such Change of Control Event, the
Company shall give written notice to each holder of a Note notifying each such
holder of the occurrence of such Change of Control Event and informing each such
holder of its right to exercise an option to require a prepayment under this
Section 11.1(b).
c. If any prepayment under this Section 11.1 does not repay in full
the aggregate principal amount of all Notes then
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<PAGE>
outstanding, then the aggregate amount of such prepayment of the principal
amount of Notes shall be allocated among all Notes at the time outstanding, in
proportion, as nearly as practicable, to the respective unpaid principal amounts
of such Notes.
11.2 Change of Control Event. For purposes of this Section 11, "Change of
-----------------------
Control Event" means the occurrence of any of the following events:
a. any person or group (within the meaning of Section 13(d)(3) of
the Securities Exchange Act of 1934 ("1934 Act") together with any affiliates
and associates of any such person or member of such group (within the meaning of
Rule 12b-2 under the 1934 Act) ("Person") shall at any time beneficially own
(within the meaning of Rule 13d-3 under the 1934 Act) shares of Common Stock of
the Company which represents in excess of either (A) 40% of the total votes
entitled to be cast by all outstanding shares of the Common Stock of the Company
or (B) 40% of all outstanding shares of the Common Stock of the Company;
provided, that a Change of Control Event shall not be deemed to have occurred
under this clause (a) (without limiting the application of clause (b), (c), (d)
or (e) below), solely by reason of such beneficial ownership of over 40% under
the preceding clause (A) or (B) being held by one or more persons who both (x)
are officers and directors of the Company on the Closing Date and (y)
beneficially owned on the Closing Date at least one percent of the shares of the
Company's Common Stock outstanding on the Closing Date (the foregoing being
described as an "acquisition of control"); or
b. the Company is materially or completely liquidated or is the
subject of any voluntary or involuntary dissolution or winding-up; or
c. the Company proceeds to acquire its Common Stock (or undertakes a
corporate reorganization or recapitalization or other action) if the effect of
such action would be either (i) to reduce substantially or to eliminate any
public market for the shares of the Company's Common Stock or (ii) to remove the
Company from registration with the Commission under the 1934 Act or (iii) to
require the Company to make a filing under Section 13(e) of the 1934 Act or (iv)
to cause a delisting of the Company's Common Stock from the American Stock
Exchange or such other national securities exchange or quotations service on
which the Common Stock is listed or quoted; or
d. the sale, lease, transfer or other disposition of all or
substantially all of the consolidated assets of the Company and its Subsidiaries
in a single transaction or series of related transactions; or
34
<PAGE>
e. The Company acquires control of any Person and such acquisition,
in the determination of the holder of the Note, results in a material diminution
in the value of the Company's Common Stock.
f. During any period of 12 consecutive months after the Closing
Date, individuals who at the beginning of such period constitute the Board of
Directors of the Company (together with any new directors whose election by such
Board or whose nomination for election by the shareholders of the Company was
approved by a vote of a majority of the directors then still in office who were
either directors at the beginning of such period or whose election or nomination
for election was previously so approved), cease for any reason to constitute a
majority of the Board of Directors of the Company then in office.
SECTION 12 Representations and Indemnities to Survive Delivery.
---------------------------------------------------
The respective indemnities, agreements, representations, warranties
and other statements of the Company, of its officers and of Purchaser set forth
in or made pursuant to this Agreement will remain in full force and effect,
regardless of any investigation made by or on behalf of the Purchaser or the
Company or any of its or their partners, officers or directors or any
controlling person, as the case may be, until December 31, 1996.
SECTION 13 Notices; Publicity.
------------------
All communications hereunder shall be in writing and, (i) if sent to
Purchaser, shall be mailed, delivered or telegraphed and confirmed to you at
1290 Avenue of the Americas, New York, New York 10104, Attention: Harry C.
Hagerty, III, with a copy to Stoel Rives, 900 SW Fifth Avenue, Portland, Oregon
97204, Attention: John J. Halle, Esq.; and (ii) if sent to the Company shall be
mailed, delivered or telegraphed and confirmed to the Company at Elsinore
Corporation, 202 East Fremont Street, Las Vegas, Nevada 89101, Attention:
Ernest L. East, with a copy to Pillsbury Madison & Sutro, 235 Montgomery Street,
San Francisco, California 94104, Attention: Gregg F. Vignos, Esq. The Company
or Purchaser may change the address for receipt of communications hereunder by
giving notice to the others. No party will issue or approve any news release,
public filing or other announcement concerning the transactions described herein
without the prior approval of the other parties as to the content of the
announcement and its release, which approval will not be unreasonably withheld.
35
<PAGE>
SECTION 14 Payment of Expenses.
-------------------
a. In addition to costs incurred by the Company in connection with
the transactions contemplated hereby, the Company will pay all reasonable out-
of-pocket expenses of Purchaser (including fees of counsel) in connection with
these transactions. The Company shall reimburse Purchaser for such expenses
promptly upon receipt from Purchaser of statements detailing such expenses.
b. The Company shall pay all reasonable out-of-pocket expenses of
Purchaser (including fees of counsel) in connection with any actions Purchaser
must reasonably take in connection with any comment, application, approval or
licensure process or procedure required by the Gaming Authorities as a result of
or in connection with these transactions ("Regulatory Expenses"); provided,
however, the Company will not be required to reimburse Purchaser for Regulatory
Expenses if such reimbursement would violate applicable state law or the rules
and regulations of the Gaming Authorities.
SECTION 15 Successors.
----------
This Agreement will inure to the benefit of and be binding upon the
parties hereto and to the benefit of the officers and directors and controlling
persons thereof, and in each case their respective successors, personal
representatives and assigns, and no other person will have any right or
obligation hereunder. No such assignment shall relieve any party of its
obligations hereunder.
SECTION 16 Partial Unenforceability.
------------------------
The invalidity or unenforceability of any section, paragraph or
provision of this Agreement shall not affect the validity or enforceability of
any other section, paragraph or provision hereof. If any section, paragraph or
provision of this Agreement is for any reason determined to be invalid or
unenforceable, there shall be deemed to be made such minor changes (and only
such minor changes) as are necessary to make it valid and enforceable.
SECTION 17 Applicable Law.
--------------
This Agreement shall be governed by and construed in accordance with
the internal laws of (and not the laws pertaining to conflicts of laws) of the
State of New York.
36
<PAGE>
SECTION 18 General.
-------
This Agreement constitutes the entire agreement of the parties to this
Agreement and supersedes all prior written or oral and all contemporaneous oral
agreements, understandings and negotiations with respect to the subject matter
hereof. This Agreement may be executed in counterparts, each one of which shall
be an original, and all of which shall constitute one and the same document.
SECTION 19 Section Headings; Amendment.
---------------------------
The section headings in this Agreement are for the convenience of the
parties only and will not affect the construction or interpretation of this
Agreement. This Agreement may be amended or modified, and the observance of any
term of this Agreement may be waived, only by a writing signed by the Company
and Purchaser.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first above written.
ELSINORE CORPORATION
By /s/ Paul Orwicz By /s/ Thomas E. Martin
---------------------- ------------------------------
Paul Orwicz Name Thomas E. Martin
Title President
37
<PAGE>
Schedule of Exhibits and Annex
------------------------------
Exhibit A Promissory Note
Exhibit B Stock Pledge Agreement
Exhibit C Registration Rights Agreement
Annex I Designation of Note Denominations
38
<PAGE>
_________________________________
NOTE PURCHASE AGREEMENT
DATED AS OF MARCH 30, 1995
REGARDING
7-1/2% CONVERTIBLE SUBORDINATED NOTES
DUE DECEMBER 31, 1996
OF
ELSINORE CORPORATION
_________________________________
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
SECTION 1 Sale and Purchase of Notes........................................ 1
SECTION 2 Representations and Warranties of the Company..................... 2
SECTION 3 Representations and Warranties of Purchaser....................... 7
SECTION 4 Conversion........................................................ 8
4.1 Conversion......................................................... 8
4.2 Mechanics of Conversion............................................ 9
a. Surrender, Election and Payment............................... 9
b. Effective Date................................................ 9
c. Share Certificates............................................ 10
d. Acknowledgment of Obligation.................................. 10
e. Payment of Accrued Interest................................... 10
4.3 Current Conversion Price........................................... 10
4.4 Adjustment of Conversion Price..................................... 11
a. Adjustments for Stock Dividends, Recapitalizations, etc....... 11
b. Adjustments for Certain Other
Distributions................................................. 11
c. Adjustments for Issuances of Additional
Stock......................................................... 12
d. Certain Rules in Applying the Adjustment for
Additional Stock Issuances.................................... 13
(i) Cash Consideration..................................... 13
(ii) Non-Cash Consideration................................. 13
(iii) Options, Warrants, Convertibles, etc................... 13
(iv) Number of Shares Outstanding........................... 15
e. Exclusions from the Adjustment for Additional
Stock Issuances............................................... 15
f. Certification................................................. 15
g. Determination of Market Price................................. 15
h. Other Adjustments............................................. 16
i. Meaning of "Issuance"......................................... 16
4.5 Company's Consolidation or Merger................................... 17
4.6 Notice to Holders of Notes.......................................... 17
SECTION 5 Covenants of the Company.......................................... 18
SECTION 6 Defaults.......................................................... 21
SECTION 7 Conditions to the Obligations of Purchaser........................ 24
SECTION 8 Conditions to Obligations of the Company.......................... 27
SECTION 9 Subordination..................................................... 27
9.1 Agreement to Be Bound.............................................. 27
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
9.2 Priority of Senior Indebtedness.................................. 27
9.3 Liquidation; Dissolution; Bankruptcy............................. 28
9.4 No Prejudice or Impairment; Reinstatement........................ 29
9.5 Subrogation...................................................... 30
9.6 Obligations Unaffected........................................... 31
9.7 Definition of Senior Indebtedness................................ 31
SECTION 10 Exchange of Notes; Accrued Interest;Cancellation of Surrendered
Notes; Replacement............................................... 31
SECTION 11 Prepayment...................................................... 33
11.1 Optional Prepayment.............................................. 33
11.2 Change of Control Event.......................................... 34
SECTION 12 Representations and Indemnities to Survive Delivery............. 35
SECTION 13 Notices; Publicity............................................. 35
SECTION 14 Payment of Expenses............................................ 36
SECTION 15 Successors..................................................... 36
SECTION 16 Partial Unenforceability....................................... 36
SECTION 17 Applicable Law................................................. 36
SECTION 18 General........................................................ 37
SECTION 19 Section Headings; Amendment.................................... 37
</TABLE>
ii
<PAGE>
NOTE PURCHASE AGREEMENT dated as of March 30, 1995, by and between Elsinore
Corporation, a Nevada corporation (the "Company"), and David Ganek
("Purchaser").
W I T N E S S E T H:
-------------------
In consideration of the mutual covenants and agreements set forth herein
and for other good and valuable consideration the receipt and sufficiency of
which are hereby acknowledged, the parties agree as follows:
SECTION 1 Sale and Purchase of Notes.
--------------------------
a. The Company agrees to sell to Purchaser and, subject to the terms
and conditions hereof and in reliance upon the representations and warranties of
the Company contained herein, Purchaser agrees to purchase on the Closing Date
(as hereinafter defined), a note or notes in the aggregate principal amount of
$22,500 (collectively, the "Note"). The aggregate purchase price to be paid
to the Company by Purchaser for the Note is 100% of the principal amount of the
Note to be purchased by the Purchaser. All obligations under the Note will be
secured by a pledge of capital stock of Mojave Gaming, Inc., a wholly-owned
subsidiary of the Company, in the manner specified in the Pledge Agreement
attached hereto as Exhibit B ("Pledge Agreement").
b. As used herein, "Notes" means the aggregate of $1,675,000
principal amount of the Company's 7-1/2% Convertible Subordinated Notes Due
December 31, 1996, issued pursuant to the Purchase Agreements (defined in
Section 1(c)), together with all Notes issued in exchange therefor or
replacement thereof. Each of the Notes will be substantially in the form of the
Note set forth as Exhibit A hereto.
c. The Notes are being sold to Purchaser pursuant to this Agreement
and to other purchasers under other agreements dated as of the date hereof
(collectively the "Purchase Agreements"). The sale of Notes to each purchaser
under each Purchase Agreement is a separate sale, the purchasers are not acting
together or as a group for purposes of such purchase and sale and no purchaser
will have any rights or liabilities under any Purchase Agreement other than the
Purchase Agreement to which it is a party.
d. The closing of the purchase and sale of the Notes will take place
at the offices of Pillsbury Madison & Sutro, 235 Montgomery Street, San
Francisco, CA at 10:00 A.M., Pacific Standard time, on March 31, 1995, or such
other time and date as
1
<PAGE>
shall be mutually agreed to by the Company and Purchaser ("Closing Date").
Subject to the terms and conditions hereof, on the Closing Date (i) the Company
will deliver to Purchaser the Note, as set forth on Annex I hereto, in the form
of Exhibit A hereto in the aggregate principal amount of $1,125,000 and (ii)
upon Purchaser's receipt thereof, Purchaser will deliver to the Company a
certified or official bank check or wire transfer in an amount equal to the
purchase price for the Note payable to the order of the Company in federal or
other next day funds.
SECTION 2 Representations and Warranties of the Company.
---------------------------------------------
The Company hereby represents and warrants to Purchaser that:
a. The execution and delivery by the Company of (i) this Agreement,
(ii) the Note and the Pledge Agreement, and (iii) the Registration Rights
Agreement to be executed and delivered by the Company and Purchaser, in the form
attached as Exhibit C hereto ("Registration Rights Agreement") (collectively,
the "Documents"), the performance by the Company of its obligations thereunder,
the issuance, sale and delivery of the Note and the issuance of Common Stock
upon conversion of the Note have been duly authorized by all requisite corporate
action and will not violate any provision of law, any order of any court or
other agency of government, the Certificate of Incorporation or By-laws of the
Company, or any provision of any indenture, agreement or other instrument to
which the Company or any Subsidiary (as defined in Section 2(d)) or any of the
properties or assets of the Company or any Subsidiary is bound, or conflict
with, result in a breach of or constitute (with due notice or lapse of time or
both) a default under any such indenture, agreement or other instrument, or
result in the creation or imposition of any lien, charge or encumbrance of any
nature whatsoever upon any of the properties or assets of the Company or any
Subsidiary. The Company has full corporate power and authority to enter into
the Documents and to perform the transactions contemplated thereby.
b. This Agreement has been duly executed and delivered by the
Company and constitutes the legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, subject, as to
enforcement of remedies, to applicable bankruptcy, insolvency, reorganization,
moratorium and similar laws from time to time in effect affecting the
enforcement of creditors' rights generally and to general equity principles.
The Pledge Agreement and the Note and the Registration Rights Agreement, when
executed and delivered by the Company as provided in this Agreement, will
constitute legal, valid and binding obligations of the Company, enforceable
against the Company in accordance with their terms.
2
<PAGE>
c. A disclosure memorandum containing all material information with
respect to the business, properties, prospects and financial condition of the
Company and its Subsidiaries as of the date hereof has been delivered to
Purchaser (the "Memorandum"). The information contained in the Memorandum is
true and correct in all material respects as of the date of the Memorandum. The
Memorandum does not contain any untrue statement of a material fact nor does it
omit to state a material fact necessary in order to make the statements made, in
light of the circumstances under which they were made.
d. Except as described in the Memorandum, the Company does not own
or control, directly or indirectly, any corporation, association or other
entity. Each corporation, association or other entity described in the
Memorandum as being owned, directly or indirectly, in whole or in part, is
herein referred to as a "Subsidiary" and all such entities together, are herein
referred to as the "Subsidiaries." The Company has been duly incorporated and
is validly existing as a corporation in good standing under the laws of Nevada,
with full power and authority (corporate and other) to own and lease its
properties and conduct its business as described in the Memorandum; each
Subsidiary has been duly and validly incorporated or otherwise formed pursuant
to the laws of its jurisdiction of formation and, if a corporation, limited
liability company or limited partnership, is in good standing under such laws;
each Subsidiary that is a partnership, limited partnership or limited liability
company is a partnership for United States federal income tax purposes; except
as described in the Memorandum, the Company and each Subsidiary is in possession
of and operating in compliance in all material respects with all authorizations,
licenses, permits, consents, certificates and orders material to the conduct of
its business, all of which are valid and in full force and effect; the Company
and each Subsidiary is duly qualified to do business and in good standing as a
foreign corporation or other entity in each jurisdiction in which the ownership
or leasing of properties or the conduct of its business requires such
qualification, except for jurisdictions in which the failure to so qualify would
not have a material adverse effect upon the Company; and except as described in
the Memorandum, no proceeding has been instituted in any such jurisdiction,
revoking, limiting or curtailing, or seeking to revoke, limit or curtail, such
power and authority or qualification.
e. The Company has authorized and outstanding capital stock as set
forth under the heading "Capitalization" in the Memorandum; the issued and
outstanding shares of Common Stock have been duly authorized and validly issued,
are fully paid and nonassessable, have been issued in compliance with all
federal and state securities laws, were not issued in violation of or
3
<PAGE>
subject to any preemptive rights or other rights to subscribe for or purchase
securities, and conform to the description thereof contained in the Memorandum.
The Company's Board of Directors (i) has reserved for issuance upon conversion
of the Notes up to 2 million shares of the Company's authorized and unissued
Common Stock and, (ii) shall, on an ongoing basis until conversion or maturity
of the Notes, keep reserved such number of shares of the Company's authorized
and unissued Common Stock as shall be necessary for issuance upon conversion of
the Notes. Except as disclosed in or contemplated by the Memorandum and the
financial statements of the Company, and the related notes thereto, included in
the Memorandum, neither the Company nor any Subsidiary has outstanding any
options to purchase, or any preemptive rights or other rights to subscribe for
or to purchase, any securities or obligations convertible into, or any contracts
or commitments to issue or sell, shares of its capital stock or any such
options, rights, convertible securities or obligations. The description of the
Company's stock option, stock bonus and other stock plans or arrangements, and
the options or other rights granted and exercised thereunder, set forth in the
Memorandum and the Company's Proxy Statement relating to its 1995 Annual Meeting
of Stockholders accurately and fairly presents all material information with
respect to such plans, arrangements, options and rights.
f. The unaudited consolidated financial statements and schedules of
the Company and its Subsidiaries, and the related notes thereto, included in the
Memorandum present fairly the financial position of the Company and such
Subsidiaries as of the respective dates of such financial statements and
schedules, and the results of operations and changes in financial position of
the Company and such Subsidiaries for the respective periods covered thereby.
Such statements, schedules and related notes have been prepared in accordance
with generally accepted accounting principles applied on a consistent basis.
g. Except as disclosed in the Memorandum, and except as to defaults
that individually or in the aggregate would not be material to the Company,
neither the Company nor any Subsidiary is in violation or default of any
provision of its articles of incorporation or bylaws, or other organization
documents, and is not in breach of or default with respect to any provision of
any agreement, judgment, decree, order, mortgage, deed of trust, lease,
franchise, license, indenture, permit or other instrument to which it is a party
or by which any of its properties are bound; and there does not exist any state
of facts that constitutes an event of default on the part of the Company or any
Subsidiary as defined in such documents or that, with notice or lapse of time or
both, would constitute such an event of default.
4
<PAGE>
h. Except as described in the Memorandum, the contracts described in
the Memorandum, and all other material contracts, instruments, and other
documents evidencing legal rights and obligations of the Company or any
Subsidiary ("Contracts"), are in full force and effect on the date hereof; and,
except as described in the Memorandum, (i) neither the Company nor any
Subsidiary nor, to the best of the Company's knowledge, any other party is in
breach of or default under any Contract where such breach or default would
permit any party to terminate such Contract or could result in other penalties
having a material adverse effect on the Company; (ii) to the best of the
Company's knowledge, no event has occurred that, upon notice or the passage of
time, would cause such a default to occur; and (iii) the Company does not expect
to be unable or expect any Subsidiary to be unable to comply with any material
provision of any Contract.
i. Except as described in the Memorandum, there are no legal or
governmental actions, suits or proceedings pending, threatened in a writing
received by the Company or a Subsidiary or, to the best of the Company's
knowledge, otherwise threatened to which the Company or any Subsidiary is or may
be a party or of which property owned or leased by the Company or any Subsidiary
is or may be the subject, or related to environmental or discrimination matters,
which actions, suits or proceedings might, individually or in the aggregate,
prevent or adversely affect the transactions contemplated by this Agreement or
result in a material adverse change in the condition (financial or otherwise),
properties, business, results of operations or prospects of the Company or any
Subsidiary; and no labor disturbance by the employees of the Company exists or,
to the best of the Company's knowledge, is imminent that might be expected to
affect adversely such condition, properties, business, results of operations or
prospects. Neither the Company nor any Subsidiary is a party or subject to the
provisions of any material injunction, judgment, decree or order of any court,
regulatory body, administrative agency or other governmental body.
j. The Company or a Subsidiary has good and marketable title to all
the properties and assets reflected as owned in the balance sheet dated December
31, 1994, included in the financial statements hereinabove described, subject to
no lien, mortgage, pledge, charge or encumbrance of any kind except (i) those,
if any, reflected in such financial statements, (ii) the Memorandum, or (iii)
those that are not material in amount and do not adversely affect the use made
and proposed to be made of such property by the Company. The Company and each
Subsidiary holds its leased properties under valid and binding leases, with such
exceptions as are not materially significant in relation to the business of the
Company. The Company and each Subsidiary
5
<PAGE>
owns or leases all such properties as are necessary to its operations as now
conducted.
k. Since the date as of which information is given in the
Memorandum, and except as described in or specifically contemplated by the
Memorandum: (i) neither the Company nor any Subsidiary has incurred any
material liabilities or obligations, indirect, direct or contingent, or engaged
in any other transaction that is not in the ordinary course of business or that
could result in a material reduction in the future earnings or liquidity of the
Company; (ii) neither the Company nor any Subsidiary has sustained any material
loss or interference with its business or properties from fire, flood,
windstorm, accident or other calamity, whether or not covered by insurance;
(iii) neither the Company nor any Subsidiary has paid or declared any dividends
or other distributions with respect to its capital stock and the Company is not
in default in the payment of principal or interest on any outstanding debt or
obligations for money borrowed; (iv) there has not been any change in the
capital stock of the Company (other than as a result of the sale of the Note
hereunder) or indebtedness material to the Company (other than in the ordinary
course of business); and (v) there has not been any material adverse change in
the condition (financial or otherwise), business, properties, results of
operations or prospects of the Company or any Subsidiary.
l. Except as disclosed in or specifically contemplated by the
Memorandum, the Company and each Subsidiary has sufficient trademarks, trade
names, patent rights, copyrights, licenses, approvals and governmental
authorities to conduct its businesses as now conducted; the expiration in
accordance with their terms of any trademarks, trade names, patent rights,
copyrights, licenses, approvals or governmental authorizations would not have a
material adverse effect on the condition (financial or otherwise), business,
results of operations or prospects of the Company or any Subsidiary; and except
as described in the Memorandum the Company has no knowledge of any material
infringement by it or its Subsidiaries of trademark, trade name rights, patent
rights, copyrights, licenses, trade secret or other similar rights of others
that has not been resolved, and there is no claim being made against the Company
or any Subsidiary regarding trademark, trade name, patent, copyright, license,
trade secret or other infringement that could have a material adverse effect on
the condition (financial or otherwise), business, results of operations or
prospects of the Company.
m. The Company and each Subsidiary and, to the Company's knowledge,
each employee of the Company or any Subsidiary, acting in that capacity, is
conducting business in compliance with all applicable laws, rules and
regulations of
6
<PAGE>
the jurisdictions in which it or such Subsidiary is conducting business,
including, without limitation, all applicable local, state and federal
environmental laws and regulations, except where failure to be so in compliance
would not materially adversely affect the condition (financial or otherwise),
business, results of operations or prospects of the Company.
n. The Company and the Subsidiaries have filed all necessary
federal, state and foreign income and franchise tax returns and except as
described in the Memorandum, have paid all taxes shown as due thereon; and,
except as described in the Memorandum, the Company has no knowledge of any tax
deficiency that has been or might be asserted or threatened against the Company
or the Subsidiaries that would materially and adversely affect the business,
operations, or properties of the Company.
o. The Company is not an "investment company" within the meaning of
the Investment Company Act of 1940, as amended.
p. The Company and the Subsidiaries maintain insurance of the types
and in the amounts generally deemed adequate for their respective businesses,
including, but not limited to, insurance covering real and personal property
owned or leased by the Company or such Subsidiary against theft, damage,
destruction, acts of vandalism and all other risks customarily insured against,
all of which insurance is in full force and effect.
q. Neither the Company nor any of the Subsidiaries has at any time
during the last five years (i) made any unlawful contribution to any candidate
for foreign office, or failed to disclose fully any contribution in violation of
law or (ii) made any payment to any federal or state governmental officer or
official, or other person charged with similar public or quasi-public duties,
other than payments required or permitted by the laws of the United States of
any jurisdiction thereof.
r. No officer of the Company or any Subsidiary has been determined
to be unsuitable by any gaming regulatory authority nor, to the best of the
Company's knowledge, has any process with a view to any such determination
(other than a routine review of the qualifications of any such person) been
initiated by any such authority.
SECTION 3 Representations and Warranties of Purchaser.
-------------------------------------------
Purchaser hereby represents and warrants to the Company that:
a. Purchaser is a validly existing limited partnership in good
standing under the laws of Delaware.
7
<PAGE>
Purchaser has full power and authority to enter into this Agreement and perform
the transactions contemplated hereby. This Agreement has been duly authorized,
executed and delivered by Purchaser and constitutes a valid and binding
obligation of Purchaser in accordance with its terms.
b. Purchaser is an accredited investor as that term is defined in
Regulation D promulgated under the Securities Act of 1933, as amended (the "1933
Act") and has such knowledge and experience in financial and business matters as
to be capable of evaluating the merits and risks of the purchase of the Note.
The Note is being acquired for Purchaser's own account for investment and not
with a view to, or for resale in connection with, any distribution, and no other
person has or will have any right to acquire any beneficial interest therein.
Purchaser understands and agrees that it must bear the economic risk of an
investment in the Note for an indefinite period of time because the Note not
been registered under the 1933 Act or under the securities laws of any state or
other jurisdiction and, therefore, cannot be resold, pledged, assigned or
otherwise disposed of unless the Note is subsequently registered for sale under
the 1933 Act and the applicable securities laws of such states, or unless an
exemption from registration is available. Purchaser acknowledges that a
restrictive legend will be placed on the Note and each certificate representing
shares of Common Stock issued upon conversion of the Note and a notation shall
be made in the appropriate records of the Company indicating that the Note and
share certificates are subject to restrictions on transfer under the 1933 Act.
Purchaser has received and reviewed the Memorandum. Purchaser acknowledges that
it has had the opportunity to ask questions of and receive answers from the
Company concerning the terms and conditions of the offering described in the
Memorandum, and to obtain any additional information it requested from the
Company.
SECTION 4 Conversion.
----------
4.1 Conversion.
----------
a. The holder of a Note shall have the right, at the option of such
holder, at any time to convert, subject to the terms and provisions of this
Section 4, the unpaid principal amount of the Note or any portion thereof, in
minimum increments of $1,000, and any accrued and unpaid interest on such Note,
into fully paid and non-assessable shares of Common Stock of the Company or any
capital stock or other securities into which such Common Stock shall have been
changed or any capital stock or other securities resulting from a
reclassification thereof ("Shares"). Such conversion of a Note to Shares shall
be made at an amount per Share (of principal of such Note and/or of accrued and
unpaid interest if specified by the holder) which is
8
<PAGE>
equal to the then current conversion price, as further described below. Every
Note shall continue to be convertible, in whole or in part, even though the
Company or a holder may have given notice of prepayment with respect to such
Note or any part thereof pursuant to Section 11 hereof, so long as such Note and
the holder's election to convert shall have been delivered to the Company
pursuant to Section 4.2(a) hereof prior to the date fixed for such prepayment.
b. For convenience, the conversion pursuant to this Section 4 of all
or a portion of the principal amount of a Note (and/or of accrued and unpaid
interest if elected by the holder) into Shares is herein sometimes referred to
as the "conversion" of the Note. For purposes of this Section 4, "Business Day"
means any day other than a Saturday, Sunday or legal holiday, on which banks in
the location of the office of the Company identified in Section 13 are open for
business.
4.2 Mechanics of Conversion.
-----------------------
a. Surrender, Election and Payment. The then unpaid principal
-------------------------------
amount of each Note (and/or any accrued and unpaid interest on such Note) may be
converted by the holder thereof, in whole or in part, during normal business
hours on any Business Day by surrender of the Note, accompanied by written
evidence of the holder's election to convert the Note or portion thereof, to the
Company at its office designated in Section 13 hereof (or, if such conversion is
in connection with an underwritten public offering of Shares, at the location at
which the underwriting agreement requires that such Shares be delivered).
Payment of the conversion price for the Shares specified in such election shall
be made by applying an aggregate amount of principal of the Note and/or, if
elected by the holder, of accrued and unpaid interest equal to the amount
obtained by multiplying (i) the number of Shares specified in such election by
(ii) the then current conversion price. Such holder shall thereupon be entitled
to receive the number of Shares specified in such election rounded to the
nearest whole share.
b. Effective Date. Each conversion of a Note pursuant to Section
--------------
4.2(a) hereof shall be deemed to have been effected immediately prior to the
close of business on the Business Day on which such Note shall have been
surrendered to the Company as provided in Section 4.2(a) hereof (except that if
such conversion is in connection with an underwritten public offering of Shares,
then such conversion shall be deemed to have been effected upon such surrender),
and such conversion shall be at the current conversion price in effect at such
time. On each such day that the conversion of a Note is deemed effected, the
person or persons in whose name or names any certificate or certificates for
Shares are issuable upon such conversion, as
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<PAGE>
provided in Section 4.2(c) hereof, shall be deemed to have become the holder or
holders of record thereof.
c. Share Certificates. As promptly as practicable after the
------------------
conversion of a Note, in whole or in part, and in any event within five Business
Days thereafter (unless such conversion is in connection with an underwritten
public offering of Shares, in which event concurrently with such conversion),
the Company at its expense (including the payment by it of any applicable issue,
stamp or other taxes, other than any income taxes) will cause to be issued in
the name of and delivered to the holder thereof, or as such holder may direct, a
certificate or certificates for the number of Shares to which such holder shall
be entitled upon such conversion.
d. Acknowledgment of Obligation. The Company will, at the time of
----------------------------
or at any time after each conversion of a Note, upon the request of the holder
thereof or of any Shares issued upon such conversion, acknowledge in writing its
continuing obligation to afford to such holder all rights to which such holder
shall continue to be entitled under the Documents; provided, that if any such
holder shall fail to make any such request, the failure shall not affect the
continuing obligation of the Company to afford such rights to such holder.
e. Payment of Accrued Interest. Within five Business Days after
---------------------------
receipt of any Note and an election to convert all or a portion of the principal
amount of such Note under Section 4.2(a) hereof, the Company will pay to the
holder of such Note any unpaid interest, accrued to the date of conversion of
such Note, on the principal amount so converted, except to the extent that the
amount of such interest has also been converted into Shares.
4.3 Current Conversion Price.
------------------------
The term "conversion price" shall mean initially the lower of $1.125
or the average of the daily closing prices for the Common Stock for the 5
consecutive trading days immediately prior to the Closing Date, subject to
adjustment as set forth in Section 4.4. For purposes of determining the initial
conversion price described in the preceding sentence, the "closing price" for
each day shall be the last reported sale price regular way or, in case no such
sale takes place on such day, the average of the closing bid and asked prices
regular way, in either case as reported by the American Stock Exchange. The
term "current conversion price" as used herein shall mean the conversion price,
as the same may be adjusted from time to time as hereinafter provided, in effect
at any given time. In determining the current conversion price, the result
shall be expressed to the nearest $0.01, but any such lesser amount shall be
carried
10
<PAGE>
forward and shall be considered at the time of (and together with) the next
subsequent adjustment which, together with any adjustments to be carried
forward, shall amount to $0.01 per Share or more.
4.4 Adjustment of Conversion Price.
------------------------------
The conversion price shall be subject to adjustment, from time to
time, as follows:
a. Adjustments for Stock Dividends, Recapitalizations, etc. In case
--------------------------------------------------------
the Company shall, after the Closing Date, (i) pay a stock dividend or make a
distribution (on or in respect of its Common Stock) in shares of its Common
Stock, (ii) subdivide the outstanding shares of its Common Stock, (iii) combine
the outstanding shares of its Common Stock into a smaller number of shares, or
(iv) issue by reclassification of shares of its Common Stock, any shares of
capital stock of the Company, then, in any such case, the current conversion
price in effect immediately prior to such action shall be adjusted to a price
such that if the holder of a Note were to convert such Note in full immediately
after such action, such holder would be entitled to receive the number of shares
of capital stock of the Company which the holder would have owned immediately
following such action had such Note been converted immediately prior thereto
(with any record date requirement being deemed to have been satisfied), and, in
any such case, such conversion price shall thereafter be subject to further
adjustments under this Section 4. An adjustment made pursuant to this Section
4.4(a) shall become effective retroactively immediately after the record date in
the case of a dividend or distribution and shall become effective immediately
after the effective date in the case of a subdivision, combination or
reclassification.
b. Adjustments for Certain Other Distributions. In case the Company
-------------------------------------------
shall, after the Closing Date, fix a record date for the making of a
distribution to holders of its Common Stock (including any such distribution
made in connection with a consolidation or merger in which the Company is the
continuing corporation) of (i) assets (other than cash dividends paid out of
retained earnings of the Company (determined under generally accepted accounting
principles consistently applied)), (ii) evidences of indebtedness or other
securities (except for its Common Stock) of the Company or of any entity other
than the Company, or (iii) subscription rights, options or warrants to purchase
any of the foregoing assets or securities, whether or not such rights, options
or warrants are immediately exercisable (all such distributions referred to in
clauses (i), (ii) and (iii) being hereinafter collectively referred to as
"Distributions on Common Stock"), the Company shall set aside in an escrow
reasonably acceptable to the holders of Notes, and suitably invested for the
11
<PAGE>
benefit of the holders of Notes, the Distribution on Common Stock to which they
would have been entitled if they had converted all of the Notes held by them for
the Company's Common Stock immediately prior to the record date for the purpose
of determining stockholders entitled to receive such Distribution on Common
Stock and any such Distribution on Common Stock (together with any earnings
while escrowed) shall thereafter be distributed from time to time out of such
escrow to persons converting Notes (immediately upon conversion).
c. Adjustments for Issuances of Additional Stock. Subject to the
---------------------------------------------
exceptions referred to in Section 4.4(e) hereof, in case the Company shall at
any time or from time to time after the Closing Date issue any additional shares
of Common Stock ("Additional Common Stock"), for a consideration per share
either (I) less than the then current Market Price per share of the Common Stock
(determined as provided in Section 4.4(g) hereof), immediately prior to the
issuance of such Additional Common Stock, or (II) without consideration, then
(in the case of either clause (I) or (II)), and thereafter successively upon
each such issuance, the current conversion price shall forthwith be reduced to a
price equal to the price determined by multiplying such current conversion price
by a fraction, of which:
(a) the numerator shall be (i) the number of shares of the
Company's Common Stock outstanding when the then current conversion
price became effective plus (ii) the number of shares of Common Stock
which the aggregate amount of consideration, if any, received by the
Company upon all issuances of Common Stock, since the current
conversion price became effective (including the consideration, if
any, received for such Additional Common Stock) would purchase at the
then current Market Price per share of the Common Stock, and
(b) the denominator shall be (i) the number of shares of Common
Stock outstanding when the current conversion price became effective
plus (ii) the number of shares of Common Stock issued since the
current conversion price became effective (including the number of
shares of such Additional Common Stock);
provided, however, that such adjustment shall be made only if such
adjustment results in a current conversion price less than the current
conversion price in effect immediately prior to the issuance of such
Additional Common Stock. The Company may, but shall not be required to,
make any adjustment of the current conversion price if the amount of such
adjustment shall be less than one percent of the current conversion price
immediately prior to such adjustment, but any adjustment that would
otherwise be
12
<PAGE>
required then to be made which is not so made shall be carried forward and
shall be made at the time of (and together with) the next subsequent
adjustment which, together with any adjustments so carried forward, shall
amount to not less than one percent of the current conversion price
immediately prior to such adjustment.
d. Certain Rules in Applying the Adjustment for Additional Stock
-------------------------------------------------------------
Issuances. For purposes of any adjustment as provided in Section 4.4(c) hereof,
- ---------
the following provisions shall also be applicable:
(i) Cash Consideration. In case of the issuance of Additional
------------------
Common Stock for cash, the consideration received by the Company therefor
shall (subject to the last sentence of Section 4.4(g) hereof) be deemed to
be the aggregate consideration paid by the persons to whom such Additional
Common Stock is issued.
(ii) Non-Cash Consideration. In case of the issuance of
----------------------
Additional Common Stock for a consideration other than cash, or a
consideration a part of which shall be other than cash, the amount of the
consideration other than cash so received or to be received by the Company
shall be deemed to be the value of such consideration at the time of its
receipt by the Company as determined in good faith by the Board of
Directors of the Company, except that where the non-cash consideration
consists of the cancellation, surrender or exchange of outstanding
obligations of the Company (or where such obligations are otherwise
converted into shares of Common Stock), the value of the non-cash
consideration shall be deemed to be the principal amount of, and any and
all interest relating to, the obligations cancelled, surrendered,
satisfied, exchanged or converted. If the Company receives consideration,
part or all of which consists of publicly traded securities (i.e., in lieu
of cash), the value of such non-cash consideration shall be the aggregate
market value of such securities (based on the latest reported sale price
regular way) as of the close of the day immediately preceding the date of
their receipt by the Company.
(iii) Options, Warrants, Convertibles, etc. In case of the
-------------------------------------
issuance, whether by distribution or sale to holders of its Common Stock or
to others, by the Company of (i) any security (other than the Notes) that
is convertible into Common Stock or (ii) any rights, options or warrants to
purchase Common Stock (except as stated in Section 4.4(e) hereof), if
inclusion thereof in calculating adjustments under this Section 4.4 would
result in a current conversion price lower than if excluded, the Company
shall be deemed
13
<PAGE>
to have issued, for the consideration described below, the number of shares
of Common Stock into which such convertible security may be converted when
first convertible, or the number of shares of Common Stock deliverable upon
the exercise of such rights, options or warrants when first exercisable, as
the case may be (and such shares shall be deemed to be Additional Common
Stock for purposes of Section 4.4(c) hereof). The consideration deemed to
be received by the Company at the time of the issuance of such convertible
securities or such rights, options or warrants shall be the consideration
so received determined as provided in Section 4.4(d)(i) and (ii) hereof,
plus (x) any consideration or adjustment payment to be received by the
Company in connection with such conversion and, as applicable, (y) the
aggregate price at which shares of Common Stock are to be delivered upon
the exercise of such rights, options or warrants when first exercisable
(or, if no price is specified and such shares are to be delivered at an
option price related to the market value of the subject Common Stock an
aggregate option price bearing the same relation to the market value of the
subject Common Stock at the time such rights, options or warrants were
granted). If, subsequently, (1) such number of shares into which such
convertible security is convertible, or which are deliverable upon the
exercise of such rights, options or warrants, is increased or (2) the
conversion or exercise price of such convertible security, rights, options
or warrants is decreased, then the calculations under the preceding two
sentences (and any resulting adjustment to the current conversion price
under Section 4.4(c) hereof) with respect to such convertible security,
rights, options or warrants, as the case may be, shall be recalculated as
of the time of such issuance but giving effect to such changes (but any
such recalculation shall not result in the current conversion price being
higher than that which would be calculated without regard to such
issuance). On the expiration or termination of such rights, options or
warrants, or rights to convert, the conversion price hereunder shall be
readjusted (up or down as the case may be) to such current conversion price
as would have been obtained had the adjustments made with respect to the
issuance of such rights, options, warrants or convertible securities been
made upon the basis of the delivery of only the number of shares of Common
Stock actually delivered upon the exercise of such rights, options or
warrants or upon the conversion of any such securities and at the actual
exercise or conversion prices (but any such recalculation shall not result
in the current conversion price being higher than that which would be
calculated without regard to such issuance).
14
<PAGE>
(iv) Number of Shares Outstanding. The number of shares of
----------------------------
Common Stock as at the time outstanding shall exclude all shares of Common
Stock then owned or held by or for the account of the Company but shall
include the aggregate number of shares of Common Stock at the time
deliverable in respect of the convertible securities, rights, options and
warrants referred to in Section 4.4(d)(3) and 4.4(e) hereof; provided, that
to the extent that such rights, options, warrants or conversion privileges
are not exercised, such shares of Common Stock shall be deemed to be
outstanding only until the expiration dates of the rights, warrants,
options or conversion privileges or the prior cancellation thereof.
e. Exclusions from the Adjustment for Additional Stock Issuances.
-------------------------------------------------------------
No adjustment of the current conversion price under Section 4.4(c) hereof shall
be made as a result of or in connection with:
(i) the issuance of the Notes, any Shares upon conversion of the
Notes or the issuance of any shares of Common Stock pursuant to Section
6(c) hereof; or
(ii) the issuance of Common Stock to officers, directors or
employees of the Company or any Subsidiary, or the grant to or exercise by
any such persons of options to purchase Common Stock, under bona fide
employee benefit plans, or pursuant to an employment agreement or
consulting agreement, which plan or agreement has been adopted or approved
by the Board of Directors of the Company and, when required by law,
approved by the holders of Common Stock (but only to the extent that the
aggregate number of shares excluded hereby and issued pursuant to such
plans and agreements shall not at any time exceed 15% of the Common Stock
outstanding).
f. Certification. Whenever the current conversion price is adjusted
-------------
as provided in this Section 4.4, the Company will promptly obtain a certificate
of the Company's President or Chief Financial Officer setting forth the current
conversion price as so adjusted, the computation of such adjustment and a brief
statement of the facts accounting for such adjustment, and will mail to the
holders of the Notes a copy of such certificate.
g. Determination of Market Price. For the purpose of any
-----------------------------
computation under this Section 4, the current "Market Price" per share of the
Common Stock on any date shall be deemed to be the average of the daily closing
prices for the 10 consecutive trading days before such date (subject to the last
sentence of this Section 4.4(g)). The closing price for each day shall be the
last reported sale price regular way or, in case no
15
<PAGE>
such sale takes place on such day, the average of the closing bid and asked
prices regular way, in either case on the principal national securities exchange
on which the Company's Common Stock is listed or admitted to trading, or if the
Common Stock is not listed or admitted to trading on any national securities
exchange, the average of the highest reported bid and lowest reported asked
prices as furnished by the National Association of Securities Dealers Inc.,
Automated Quotation System. If the closing price cannot be so determined, then
the Market Price shall be determined (x) by the written agreement of the Company
and the holders of Notes representing a majority of the Shares then obtainable
from the conversion of outstanding Notes, or (y) in the event that no such
agreement is reached within 20 days after the event giving rise to the need to
determine the Market Price, by the agreement of two arbitrators, one of whom
shall be selected by the Company and the other of whom shall be selected by such
majority holders or (z) if the two arbitrators so selected fail to agree within
20 days, by a third arbitrator selected by the mutual agreement of the other two
(with all costs and expenses of any arbitrators to be paid by the Company). The
Company shall cooperate, and shall provide all necessary information and
assistance, to permit any determination under the preceding clauses (x), (y) or
(z). If the Company conducts an underwritten public offering of the Company's
Common Stock which is conducted in compliance with any applicable agreements,
and if such public offering either raises at least $3 million of net proceeds to
the Company and/or selling shareholders thereunder or was initiated under the
Registration Rights Agreement at the demand of a holder of Notes or of Shares,
then for purposes of Section 4.4(c) hereof the Company shall be deemed to have
issued such shares of its Common Stock sold in such underwritten public offering
for a consideration per share equal to the then current Market Price per share.
h. Other Adjustments. In case any event shall occur as to which any
-----------------
of the provisions of this Section 4.4 are not strictly applicable but the
failure to make any adjustment would not fairly protect the conversion rights
represented by the Notes in accordance with the essential intent and principles
of this Section 4.4, then, in each such case, the Company shall request its
independent public accountants to render an opinion upon the adjustment, if any,
on a basis consistent with the essential intent and principles established in
this Section 4.4, necessary to preserve, without dilution, the conversion rights
represented by the Notes. Upon receipt of such opinion, the Company will
promptly mail copies thereof to the holders of the Notes and shall make the
adjustments described therein.
i. Meaning of "Issuance". References in this Agreement to
---------------------
"issuances" of stock by the Company include
16
<PAGE>
issuances by the Company of previously unissued shares and issuances or other
transfers by the Company of treasury stock.
4.5 Company's Consolidation or Merger.
---------------------------------
Without limiting the covenants of the Company contained in Section 5
hereof, if the Company shall at any time consolidate with or merge into another
corporation (where the Company is not the continuing corporation after such
merger or consolidation), or the Company shall sell, transfer or lease all or
substantially all of its assets, or the Company shall change its Shares into
property other than capital stock, then, in any such case, the holder of a Note
shall thereupon (and thereafter) be entitled to receive, upon the conversion of
such Note in whole or in part, the securities or other property to which (and
upon the same terms and with the same rights as) a holder of the number of
Shares deliverable upon conversion of such Note would have been entitled if such
conversion had occurred immediately prior to such consolidation or merger, such
sale of assets or such change, and such conversion rights shall thereafter
continue to be subject to further adjustments under this Section 4. The Company
shall take such steps in connection with such consolidation or merger, such sale
of assets or such change as may be necessary to assure such holder that the
provisions of the Notes and this Agreement shall thereafter be applicable in
relation to any securities or property thereafter deliverable upon the
conversion of the Notes, including, but not limited to, obtaining a written
obligation to supply such securities or property upon such conversion and to be
so bound by the Notes.
4.6 Notice to Holders of Notes.
--------------------------
In case at any time
a. the Company shall take any action which would require an
adjustment in the current conversion price pursuant to Section 4.4(a), (c) or
(h); or
b. the Company shall authorize the granting to the holders of its
Common Stock of any Distributions on Common Stock as set forth in Section
4.4(b); or
c. there shall occur any Change of Control Event (as defined in
Section 11.2);
then, in any one or more of such cases, the Company shall give written notice to
the holders of the Notes, not less than 20 days before any record date or other
date set for definitive action, of the date on which such action, distribution,
reorganization, reclassification, change, sale, transfer, lease, consolidation,
merger, dissolution, liquidation or winding-up shall take place,
17
<PAGE>
as the case may be. Such notice shall also set forth such facts as shall
indicate the effect of any such action (to the extent such effect may be known
at the date of such notice) on the current conversion price and the kind and
amount of the shares and other securities and property deliverable upon
conversion of the Notes. Such notice shall also specify any date as of which
the holders of the Common Stock of record shall be entitled to exchange their
Common Stock for securities or other property deliverable upon any such
reorganization, reclassification, change, sale, transfer, lease, consolidation,
merger, dissolution, liquidation or winding-up, as the case may be.
SECTION 5 Covenants of the Company.
------------------------
The Company covenants and agrees with Purchaser as follows:
a. The Company shall use its best efforts to cause the consummation
of the transactions contemplated hereby in accordance with the terms and
conditions set forth in the Documents.
b. Until the later of the date that all Notes are paid in full or
converted into Shares or December 31, 1996, the Company will furnish to the
holder(s) of the Note and the Shares: (i) concurrent with distribution to the
Company's stockholders, copies of the Annual Report of the Company containing
the balance sheet of the Company as of the close of such fiscal year and
statements of income, stockholders' equity and cash flows for the year then
ended and the opinion thereon of the Company's independent public accountants;
(ii) as soon as practicable after the filing thereof, copies of each proxy
statement, Annual Report on Form 10-K, Quarterly Report on Form 10-Q, Report on
Form 8-K or other report filed by the Company with the Commission, the NASD or
any securities exchange; and (iii) concurrent with distribution to the Company's
stockholders, copies of any report or communication of the Company mailed
generally to holders of its Common Stock.
c. The Company will use its best efforts to cause the Common Stock
to continue to be listed on the American Stock Exchange or to become listed on
the New York Stock Exchange or designated for quotation as a national market
system security on the National Association of Securities Dealers, Inc.
Automated Quotation System.
d. Until the earlier of (i) December 31, 1996, (ii) prepayment or
repayment of all principal and interest due under the Note, or (iii) the date on
which, following a conversion of the Note in accordance with Section 4 hereof,
Purchaser ceases
18
<PAGE>
to be the record holder of 50% or more of the Shares issued upon such
conversion:
(i) Upon the written request of Purchaser delivered to the
Company, the Company will take the actions necessary to appoint to the
Board of Directors of the Company a person designated by Purchaser;
(ii) The Company will grant Purchaser, on an ongoing basis, (a)
reasonable access to its books and records, (b) the right to meet with and
call meetings of Company management, (c) the right to attend, or have its
advisors or representatives attend, and address meetings of the Board of
Directors of the Company; the Company shall effect promptly the changes in
executive officer positions described in the "Management" section of the
Memorandum;
(iii) The Company will promptly advise Purchaser of any event
that represents a material adverse change in its business, properties or
financial condition and of any suit or proceeding commenced or threatened
against the Company, which, if adversely determined, could result in such a
material adverse change; and the Company will promptly advise Purchaser of
the outcome of or any material developments in currently pending
litigation;
(iv) The Company will advise Purchaser on a weekly basis of all
cash payments of $50,000 or more made by the Company or any Subsidiary to
any person, group or entity during that week and any payments made to any
person, group or entity over the previous four-week period that total
$50,000 or more;
(v) All proceeds to the Company from any future debt or equity
financings by the Company, up to a $5 million aggregate maximum, will be
deposited by the Company in an escrow account with such escrow agent and
pursuant to such escrow instructions as shall be mutually agreed by the
Company and Purchaser at the time of such financings. The proceeds from
such financings will be used solely for payment of principal and interest
due under the Company's 12.5% First Mortgage Notes due 2000 (the "First
Mortgage Notes") and under the Company's 20% Mortgage Notes due 1996 (the
"Mortgage Notes") and for payment of amounts, adjustments and assessments
due under the IRS Assessment (as defined in the Memorandum).
e. Until the later of the date that all Notes are paid in full or
converted into Shares or December 31, 1996, the holder(s) of the Note and/or the
Shares shall have the right to purchase such holder's Proportionate Percentage
of any future
19
<PAGE>
Eligible Offering. For the purposes of this Section 5(e), "Proportionate
Percentage" means, with respect to such holder, as of any date, the result
(expressed as a percentage) obtained by dividing (i) the number of Shares owned
by such holder as of such date plus the number of Shares into which such
holder's Note as of such date would be convertible; by (ii) the total number of
shares of Common Stock outstanding as of such date. "Eligible Offering" means
an offer by the Company to sell for cash, shares of Common Stock or any security
convertible into or exchangeable for, or carrying rights or options to purchase,
shares of Common Stock, other than an offering of securities by the Company (i)
to employees, officers and/or directors in connection with or pursuant to any
bona fide employee benefit or compensation plan or pursuant to an employment or
consulting agreement, which plan or agreement has been adopted or approved by
the Board of Directors of the Company; or (ii) in connection with any Change of
Control Event (as defined in Section 11.2). The Company shall, before issuing
any securities pursuant to an Eligible Offering, give written notice thereof to
the holders of the Note and/or the Shares. Such notice shall specify the
security or securities the Company proposes to issue and the consideration that
the Company intends to receive therefor. For a period of 20 days following the
date of such notice, each holder shall be entitled, by written notice to the
Company, to elect to purchase all or any part of the holder's Proportionate
Percentage of the securities being sold in the Eligible Offering. In the event
that a holder does not make the election pursuant to this Section 5(e) to
purchase its Proportionate Percentage of securities included in an Eligible
Offering within such 20 day period, then the Company may issue such securities
to the proposed purchasers in the Eligible Offering, but only for a
consideration payable in cash not less than, and otherwise on terms no more
favorable to such purchasers than, that set forth in the Company's notice and
only within 90 days after the end of such 20 day period. In the event that any
such offer is accepted by the holder, the Company shall sell to the holder and
the holder shall purchase from the Company, for the consideration and on the
terms set forth in the notice described herein, the securities that the holder
shall have elected to purchase.
f. The net proceeds received by the Company from the sale of the
Notes will not be used by the Company to fund expenditures for, or contracts for
expenditures with respect to, any fixed assets or improvements, or for
replacements, substitutions or additions thereto, or to fund any expenditures
with respect to any lease to which the Company or a Subsidiary is party as
lessee, or by which it is bound, under which it leases any property (real,
personal or mixed) from any lessor other than the Company or a Subsidiary, and
which either is required to be capitalized in accordance with generally accepted
accounting principles, or, even if not so required to be
20
<PAGE>
capitalized, shall have (or have had), at the time first entered into, an
initial term of greater than three years (including leases of shorter duration
which are or were extendible to a total term greater than three years at the
option of the lessor.
g. For so long as any of the Notes are outstanding, the Company will
maintain an office where Notes may be presented for payment, exchange, or
conversion as provided in this Agreement. Such office initially shall be the
office of the Company identified in Section 13 hereof, which place may from time
to time be changed by notice to the holders of all Notes then outstanding.
SECTION 6 Defaults.
--------
a. Any of the following shall constitute an "Event of Default":
(i) the Company defaults in the payment of (A) any part of the
principal of or premium, if any, on any of the Notes, when the same shall
become due and payable, whether at maturity or at a date fixed for
prepayment or by acceleration or otherwise or (B) the interest on any of
the Notes, when the same shall become due and payable; and such default in
the payment of principal, premium or interest shall have continued for 15
days; or
(ii) an "Event of Default" as such term is defined under the
First Mortgage Notes, or the Mortgage Notes or a payment default under the
IRS Assessment and such default continues unremedied for 15 days; or
(iii) the Company defaults in the performance of any of the
covenants contained in Section 5 hereof or of any covenant contained in the
Pledge Agreement or Registration Rights Agreement and such default
continues unremedied for 30 days; or
(iv) any representation or warranty by the Company in the
Documents or in any certificate delivered by the Company pursuant thereto
proves to have been incorrect in any material respect when made; or
(v) a final judgment or order (other than with respect to the
WARN Act Litigation described in the Memorandum) which, either alone or
together with other final judgments or orders against the Company and its
Subsidiaries, exceeds an aggregate of $1 million is rendered by a court of
competent jurisdiction against the Company or any Subsidiary and such
judgment or order shall have
21
<PAGE>
continued undischarged or unstayed for 30 days after entry thereof; or
(viii) the Company or any Subsidiary make an assignment for the
benefit of creditors, or admit in writing its inability to pay its debts;
or a receiver or trustee is appointed for the Company or any Subsidiary or
for substantially all of its assets and, if appointed without its consent,
such appointment is not discharged or stayed within 30 days; or proceedings
under any law relating to bankruptcy, insolvency or the reorganization or
relief of debtors are instituted by or against the Company or any
Subsidiary, and, if contested by it, are not dismissed or stayed within 30
days; or any writ of attachment or execution or any similar process is
issued or levied against the Company or any Subsidiary or any significant
part of its property and is not released, stayed, bonded or vacated within
30 days after its issue or levy; or the Company or any Subsidiary takes
corporate action in furtherance of any of the foregoing.
b. If an Event of Default occurs, then and in each such event
Purchaser may at any time (unless all Events of Default shall theretofore have
been waived or remedied) at its option, by written notice to the Company,
declare the Note to be due and payable. Upon any such declaration, the Note
shall forthwith immediately mature and become due and payable, together with
interest accrued thereon and an "Additional Amount" (as defined below), all
without presentment, demand, protest or notice, all of which are hereby waived.
"Additional Amount" shall mean, with respect to any Note, as of the date of
repayment of such Note after such acceleration, an amount equal to the
Redemption Premium that would be payable if the Company had elected to prepay
such Note pursuant to Section 11 hereof at the time of such repayment. However,
if, at any time after the principal of the Note shall so become due and payable
and prior to the date of maturity stated in the Note, all arrears of principal
and interest on the Note (with interest at the rate specified in the Note on any
overdue principal and any overdue premium and, to the extent legally
enforceable, on any overdue interest) shall be paid to the holders of the Note
by or for the account of the Company, then Purchaser, by written notice or
notices to the Company, may waive such Event of Default and its consequences and
rescind or annul such declaration, but no such waiver shall extend to or affect
any subsequent Event of Default or impair any right or remedy resulting
therefrom.
c. If an Event of Default occurs, then and in each such event and in
addition to the foregoing rights, Purchaser shall have the right to:
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(i) purchase from the Company shares of the Company's authorized
but unissued Common Stock at a per share price equal to 75% of the Market
Price on the date of the Event of Default; provided that, the number of
shares of Common Stock that Purchaser shall be entitled to purchase
pursuant to this Section 6(c) shall not exceed the quotient obtained by
dividing $3 million by such per share purchase price; and
(ii) cause the Company to take such action as may be required to
cause one additional director designated by Purchaser to be appointed to
the Board of Directors of the Company.
Upon the occurrence of an Event of Default, Purchaser may elect to purchase the
shares of Common Stock described in this Section 6(c) by delivering written
notice to the Company of such election and a description of the cash payment
terms and the timetable for closing the issue and purchase of such shares. The
cash payment terms and the closing date for such purchase shall be within the
sole discretion of Purchaser which terms and date shall be reasonable. The
Company shall effect the issuance and sale of such shares promptly in accordance
with the schedule identified by Purchaser in such notice.
d. In case any one or more Events of Default shall occur and be
continuing,
(i) Purchaser may proceed to protect and enforce its rights by an
action at law, suit in equity or other appropriate proceeding, whether for
the specific performance of any agreement contained in the Documents or for
an injunction against a violation of any of the terms thereof, or in aid of
the exercise of any power granted thereby or by law or for any other remedy
(including, without limitation, damages), and
(ii) the Company will pay to Purchaser in addition to any
interest or premium otherwise required, such further amount as shall be
sufficient to cover any and all costs and expenses of enforcement and
collection, including, without limitation, reasonable attorneys' fees and
expenses.
e. Purchaser shall, in addition to other remedies provided by law,
have the right and remedy to have the provisions of the Documents specifically
enforced by any court having equity jurisdiction, it being acknowledged and
agreed that any breach or threatened breach of the provisions of the Documents
will cause irreparable injury to Purchaser and that money damages will not
provide an adequate remedy. Nothing contained herein shall be construed as
prohibiting Purchaser from pursuing any other
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<PAGE>
remedies available to Purchaser for such breach or threatened breach, including,
without limitation, the recovery of damages from the Company.
SECTION 7 Conditions to the Obligations of Purchaser.
------------------------------------------
The obligations of Purchaser to purchase and pay for the Note on the
Closing Date shall be subject to the following conditions:
a. The Company's independent public accountants, KPMG Peat Marwick,
LLP, shall have completed the audit of the Company's financial statements for
the year ended December 31, 1994, copies of such audited financial statements
shall have been delivered to Purchaser and such audit shall have revealed no
material changes in the financial condition of the Company from the financial
condition presented in the unaudited financial statements for the same period
included in the Memorandum;
b. There shall not have been instituted by or against the Company or
any Subsidiary proceedings under any law relating to bankruptcy, insolvency or
reorganization or relief of debtors, nor shall the Company or any Subsidiary
have made a general assignment for the benefit of creditors, admitted in writing
its inability to pay its debts as they mature, appointed or had appointed for it
a receiver or trustee, or had any writ of attachment or execution or any similar
process issued or levied against it; no such matters shall be threatened or
pending nor shall the Company or any Subsidiary have taken any corporate action
in furtherance of any of the foregoing;
c. There shall be no investigation, action, suit or proceeding at
law or in equity or by or before any governmental instrumentality or other
agency pending or threatened against the Company or any officer, director or key
employee of the Company other than as disclosed in the Memorandum;
d. The Company will hold in good standing all licenses, permits and
grants of authority from the Nevada Gaming Commission, the Nevada State Gaming
Control Board, the National Indian Gaming Commission (collectively, the "Gaming
Authorities") and any other federal, state or local agency or authority
necessary for the operation of its business and properties; except as disclosed
in the Memorandum, no revocations or terminations of such licenses, permits,
authority or approvals shall be pending or threatened nor shall the Company be
aware of any facts or circumstances that would give rise to any such revocation
or termination;
e. All approvals, consents, permits and authorizations of third
parties, local, state and federal
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<PAGE>
regulatory agencies and authorities and the Company required to carry out the
transactions contemplated herein shall have been received;
f. Since the date of the Memorandum (a) there shall not have been
any change in the capital stock of the Company other than pursuant to the
exercise of outstanding options and warrants disclosed in the Memorandum or any
material change in the indebtedness (other than in the ordinary course of
business) of the Company; (b) no material verbal or written agreement or other
transaction shall have been entered into by the Company that is not in the
ordinary course of business that could result in a material reduction in the
future earnings of the Company; (c) no loss or damage (whether or not insured)
to the property of the Company shall have been sustained that materially and
adversely affects the business, financial condition, results of operations or
prospects of the Company; (d) except as described in the Memorandum, no legal or
governmental action, suit or proceeding affecting the Company that is material
to the Company or that affects or may affect the transactions contemplated
herein shall have been instituted or threatened; and (e) there shall not have
been any material change in the business, financial condition, management,
results of operations or prospects of the Company that makes it impractical or
inadvisable in the judgment of Purchaser to proceed with the purchase of the
Note.
g. The lease financing transaction with T&W Leasing relating to the
7 Cedars casino in the appropriate amount of $690,000 shall have closed.
h. The Company shall have made public announcement of the proposed
management changes described in the "Management" section of the Memorandum and
shall cause those changes to occur in the manner and on the dates described in
the Memorandum.
i. Purchaser shall have received a certificate of the Company
executed by the Chairman of the Board or the President of the Company, dated the
Closing Date to the effect that:
(i) The representations and warranties of the Company set forth
in Section 2 of this Agreement are true and correct as of the date of this
Agreement and the representations and warranties set forth in the Documents
are true and correct as of the Closing Date and the Company has complied
with all the agreements and satisfied all the conditions on its part to be
performed or satisfied on or prior to the Closing Date;
(ii) Each of the respective signers of the certificate has
carefully examined the Memorandum; in his
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<PAGE>
opinion and to the best of his knowledge, the Memorandum does not contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein
not misleading; and
(iii) Since the date as of which information is given in the
Memorandum, and except as disclosed in or contemplated thereby, there has
not been any material adverse change or a development involving a material
adverse change in the condition (financial or otherwise), business,
properties, results of operations, management or prospects of the Company
or any Subsidiary; and except as described in the Memorandum, no legal or
governmental action, suit or proceeding is pending or threatened against
the Company or any Subsidiary that is material to the Company, whether or
not arising from transactions in the ordinary course of business, or that
may adversely affect the transactions contemplated by this Agreement; since
such dates and except as so disclosed, neither the Company nor any
Subsidiary has entered into any verbal or written agreement or other
transaction that is not in the ordinary course of business or that can
reasonably be expected to result in a material reduction in the future
earnings of the Company or any Subsidiary or incurred any material
liability or obligation, direct, contingent or indirect, made any change in
its capital stock, made any material change in its short-term debt or
funded debt or repurchased or otherwise acquired any of the Company's
capital stock; and the Company has not declared or paid any dividend, or
made any other distribution, upon its outstanding capital stock payable to
stockholders of record on a date prior to the Closing Date.
j. Purchaser shall have received opinions dated the Closing Date and
addressed to Purchaser from Pillsbury Madison & Sutro, and Lionel Sawyer &
Collins, counsel for the Company, in form and substance satisfactory to
Purchaser.
k. The Pledge Agreement and the Registration Rights Agreement in the
forms attached hereto as Exhibits B and C, respectively, shall have been
executed and delivered by the parties thereto.
l. Purchase Agreements for an aggregate of $1,675,000 principal
amount of Notes (inclusive of the principal amount of the Note being purchased
by Purchaser hereunder) shall have been executed and delivered by the parties
thereto and such purchases and sales shall have closed prior to or
simultaneously with the transactions hereunder.
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<PAGE>
SECTION 8 Conditions to Obligations of the Company.
----------------------------------------
The obligations of the Company to issue the Note on the Closing Date
shall be subject to the following conditions:
a. The Company shall have received a certificate of Purchaser
executed by its General Partner and dated the Closing Date to the effect that
the representations and warranties of Purchaser set forth in Section 3 of this
Agreement are true and correct as of the date of this Agreement and as of the
Closing Date and Purchaser has complied with all the agreements and satisfied
all the conditions on its part to be performed or satisfied on or prior to the
Closing Date; and
b. All approvals, consents, permits and authorizations of third
parties, local, state and federal regulatory agencies and authorities relating
to Purchaser and required to carry out the transactions contemplated herein
shall have been received.
SECTION 9 Subordination.
-------------
9.1 Agreement to Be Bound. The Note shall, to the extent and in the
---------------------
manner hereinafter set forth, be subordinated and subject in right of payment to
the prior payment in full of all Senior Indebtedness. Each holder of a Note,
whether upon original issue or upon transfer or assignment thereof, by its
acceptance thereof agrees that the Note shall be subject to the provisions
contained in this Section 9. The subordination provisions of this Section 9
shall be for the benefit of the holders of the Senior Indebtedness and may be
enforced directly by such holders.
9.2 Priority of Senior Indebtedness.
-------------------------------
a. No payment on account of principal of, premium, if any, or
interest on the Note, shall be made, and no assets shall be applied to the
purchase or other acquisition or retirement of the Note (other than a conversion
pursuant to Section 4 hereof), for a period (the "Payment Blockage Period") of
(i) 180 days after both of the following have occurred (A) the principal amount
of any Senior Indebtedness in excess of $100,000 in aggregate principal amount
shall have been accelerated upon an event of default thereunder and (B) written
notice of such acceleration shall have been given by the Company or by holders
of Senior Indebtedness to the holders of the Note, stating that this Section
9.2(a) is therefore applicable; provided, that any Payment Blockage Period
arising as a result of this Section 9.2 shall terminate immediately upon the
payment in full of such accelerated Senior Indebtedness or the rescission or
annulment of such acceleration or if such Senior Indebtedness is no longer
27
<PAGE>
outstanding; provided, further, that under no circumstances shall there be more
than one Payment Blockage Period in any 365 consecutive day period. As used in
this Section 9.2(a), an "event of default" is an event of default (x) as
defined in any Senior Indebtedness or in the instrument under which the same is
outstanding and (y) which would permit the acceleration of such Senior
Indebtedness prior to its maturity.
b. In the event that any money, property or securities is received
by the holder of a Note in violation of Section 9.2(a) or the terms or
conditions of any instrument governing the Senior Indebtedness, the holder
thereof shall hold the same in trust for the benefit of the holders of Senior
Indebtedness, and shall deliver the same in kind to the Company.
9.3 Liquidation; Dissolution; Bankruptcy.
------------------------------------
a. Upon any payment or distribution of assets of the Company
(whether in cash, property or securities) to creditors upon any dissolution or
winding-up or total or partial liquidation or reorganization of the Company,
whether voluntary or involuntary or in any bankruptcy, insolvency, receivership
or similar proceeding regarding the Company, all amounts due or to become due
upon all Senior Indebtedness then outstanding shall first be paid in full before
the holders of the Note shall be entitled to receive any assets so paid or
distributed in respect thereof (but without restricting the rights of holders
under Section 4 hereof); provided, that with respect to the foregoing, the
holders of the Note may receive (and shall be entitled to retain) securities
that are subordinate to (at least to the extent that the Note is subordinate to
Senior Indebtedness pursuant to the terms hereof) the payment of all Senior
Indebtedness then outstanding. Upon any such dissolution or winding-up or
liquidation, reorganization or other proceeding, any payment or distribution of
assets of the Company of any kind or character, whether in cash, property or
securities, to which the holders of the Note would be entitled, except for these
provisions, shall be paid by the Company or by any receiver, trustee in
bankruptcy, liquidating trustee, agent or other person making such payment or
distribution directly to the holders of Senior Indebtedness which was then
outstanding (pro rata to each of such holders on the basis of the respective
amounts (to the extent known) of Senior Indebtedness then held by such holders,
to the extent necessary to pay all such Senior Indebtedness which was then
outstanding in full, after giving effect to any concurrent payment or
distribution to or for the holders of Senior Indebtedness, before any payment or
distribution is made to the holders of the Note (but subject to the proviso to
the preceding sentence).
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<PAGE>
b. Each holder of a Note by its acceptance hereof (x) irrevocably
authorizes and empowers (but without imposing any obligation on) each holder of
any Senior Indebtedness at the time outstanding, under (and only under) the
circumstances set forth in Section 9.3(a), if the holder of a Note shall fail to
do so prior to 20 days before the expiration of the time to do so, to file and
prove all claims of such holder for its ratable share of payments or
distributions in respect of the Note which is required to be paid or delivered
to the holders of Senior Indebtedness as provided in Section 9.3(a), in the name
of each such holder of the Note or otherwise, as such holder of Senior
Indebtedness may determine to be necessary or appropriate for the enforcement of
the provisions of Section 9.3(a), and the holder of a Note may amend any such
claims regarding the Note before or after such 20th day (but not in a manner
inconsistent with the rights of holders of Senior Indebtedness under this
Section 9 other than this Section 9.3(b)) whether such claims are filed by such
holder of a Note or are filed, pursuant to this Section 9.3(b), by any holder of
Senior Indebtedness; and (y) under (and only under) the circumstances set forth
in Section 9.3(a), agrees to execute and deliver to each holder of Senior
Indebtedness all such further instruments confirming the authorization
hereinabove set forth, and all such powers of attorney, proofs of claim,
assignments of claim and other instruments, and to take all such other action,
as may be reasonably requested by such holder in order to enable such holder to
enforce all claims upon or in respect of such Note holder's ratable share of
payments or distributions in respect of the Note. Nothing in this Section
9.3(b), or any other provision hereof, shall give or be construed to give the
holder of any Senior Indebtedness any right to vote any Note, or any related
claim, or any portion of such Note or such claim, or to exercise any approval
rights, whether in connection with any resolution, arrangement, plan of
reorganization, compromise, settlement, election of trustees or otherwise.
Holders of Senior Indebtedness shall not create any liability to any person on
the part of any holders of Notes in connection with the exercise of any rights
granted under this Section 9.3(b).
9.4 No Prejudice or Impairment; Reinstatement.
-----------------------------------------
a. No right of any present or future holders of any Senior
Indebtedness to enforce subordination as herein provided shall at any time in
any way be prejudiced or impaired (i) by any act or failure to act on the part
of the Company, including without limitation any merger or consolidation of the
Company into or with any other person, or any sale, lease or transfer of any or
all of the assets of the Company to any other person, (ii) by any act (in good
faith) or failure (in good faith) to act by any such holder of Senior
Indebtedness, including, without limitation, the failure by such holder to
perfect a security
29
<PAGE>
interest in any security for the payment of Senior Indebtedness or (iii) by any
noncompliance by the Company with the terms and provisions of the Documents
regardless of any knowledge thereof that any such holder may have or be
otherwise charged with. The holders of the Senior Indebtedness may, without in
any way affecting the subordination hereunder, at any time or from time to time
and in their absolute discretion, change the manner, place, time or other terms
of payment of, or renew or alter, any Senior Indebtedness, or in each case in
accordance with the terms of the applicable agreement or instrument governing
the Senior Indebtedness modify or supplement any agreement or instrument
governing or evidencing such Senior Indebtedness or any other document referred
to therein, or exercise or refrain from exercising any of their rights under the
Senior Indebtedness, including, without limitation, waiver of default thereunder
and release of any collateral securing such Senior Indebtedness, all without
notice to or assent from the holders of the Note. The absence of any notice to,
or knowledge by, any holder of a Note of the existence or occurrence of any of
the matters or events set forth in this paragraph (a) shall not impair or
otherwise affect the rights of the holders of Senior Indebtedness against
holders of the Note under the subordination provisions of this Section 9.
b. The provisions of this Section 9 shall continue to be effective,
or be reinstated, as the case may be, if at any time any payment in respect of
any Senior Indebtedness is rescinded or must otherwise be restored or returned
by the holders of such Senior Indebtedness upon the occurrence of any event
described in Section 9.3 hereof, or upon or as a result of the appointment of a
receiver, intervenor or conservator of, or trustee or similar officer for, the
Company or any substantial part of its property, all as though such payment had
not been made.
9.5 Subrogation. Subject to the payment in full of all Senior
-----------
Indebtedness, the holders of the Note shall be subrogated to the rights of the
holders of Senior Indebtedness to receive payments or distributions of assets of
the Company made on the Senior Indebtedness until the principal of, premium, if
any, and interest on (and any other amounts due with respect to) the Note and
all other amounts due under the Documents shall be paid in full; provided, that
any holder of a Note shall have the right, in its sole discretion, to waive such
subrogation rights without affecting such holder's rights with respect to a Note
held by such holder or under the Documents (which rights shall continue in full
force and effect). For the purposes of such subrogation, no payments or
distributions to the holders of Senior Indebtedness of any cash, property or
securities to which the holders of the Note would be entitled except for the
provisions of this Section 9 shall, as among the Company, its creditors
30
<PAGE>
other than the holders of Senior Indebtedness, and the holders of the Note, be
deemed to be a payment by the Company to or on account of Senior Indebtedness,
it being understood that these provisions in this Section 9 are, and are
intended, solely for the purpose of defining the relative rights of the holders
of the Note, on the one hand, and the holders of Senior Indebtedness, on the
other hand.
9.6 Obligations Unaffected. Nothing contained in this Section 9 is
----------------------
intended to or shall impair as among the Company, its creditors other than the
holders of Senior Indebtedness, and the holders of the Note, the obligation of
the Company, which shall be absolute and unconditional, to pay to the holders of
the Note the principal of, premium, if any, and interest on the Note, as and
when the same shall become due and payable in accordance with its terms, or to
affect the relative rights of the holders of the Note and creditors of the
Company other than the holders of Senior Indebtedness. Nothing herein shall
prevent a holder of the Note from exercising any remedies otherwise permitted by
applicable law upon the occurrence of an Event of Default, subject to the
rights, if any, under these provisions of the holders of Senior Indebtedness,
and nothing herein shall prevent the conversion of the Note (or any part
thereof) in accordance with the Note and this Agreement.
9.7 Definition of Senior Indebtedness. The term "Senior Indebtedness"
---------------------------------
shall mean the principal of, premium, if any, and interest on indebtedness of
the Company for borrowed money whether such indebtedness is currently
outstanding or hereafter incurred, and any renewals, modifications, refundings
or extensions of any such indebtedness, unless under the provisions of the
instrument creating or evidencing any such indebtedness, or pursuant to which
the same is outstanding, it is provided that such indebtedness is subordinate in
right of payment to any other indebtedness of the Company (including, without
limitation, the Notes); provided, that Senior Indebtedness shall not include (i)
any obligations under any provision of any agreement or instrument regarding
such Senior Indebtedness in respect of (x) fees or reimbursement of expenses or
(y) penalties or additional interest charged on account of overdue payments of
principal, interest or other payments, (ii) any indebtedness owing to any
Subsidiary or to any other affiliate (of the Company or of any Subsidiary),
(iii) any obligation, to any person, of any affiliate of the Company or of any
Subsidiary (other than an obligation of the Company or of a Subsidiary), which
obligation is assumed or guaranteed by the Company or any Subsidiary.
SECTION 10 Exchange of Notes; Accrued Interest; Cancellation of Surrendered
----------------------------------------------------------------
Notes; Replacement.
- ------------------
31
<PAGE>
a. Subject to Section 3 hereof, at any time at the request of any
holder of a Note delivered to the Company at its office identified in Section 13
hereof, the Company at its expense (except for any transfer tax or any other tax
arising out of the exchange) will issue and deliver to or upon the order of the
holder in exchange therefor a new Note, in such denomination or denominations as
such holder may request, in aggregate principal amount equal to the unpaid
principal amount of the Note surrendered and substantially in the form thereof,
dated as of the date to which interest has been paid on the Note surrendered
(or, if no interest has yet been so paid thereon, then dated the date of the
Note so surrendered) and payable to such person or persons or order as may be
designated by such holder.
b. In the event that any Note is surrendered to the Company upon the
conversion of all or a portion of any Note, or upon a prepayment under Section
11 hereof, the Company shall pay all accrued and unpaid interest on such Note or
such portion thereof and thereupon interest shall cease to accrue upon that
portion of the principal amount of such Note which was used for conversion or
which was prepaid, and the right to receive, and any right or obligation to
make, any prepayment on such portion of the principal amount pursuant to Section
11 hereof shall terminate all upon the date of such conversion or prepayment and
upon presentation and surrender of such Note to the Company.
c. Upon the conversion in whole or in part of any Note or upon any
prepayment under Section 11 hereof, if only a portion of the principal amount of
a Note is used in such conversion or is prepaid, then such Note shall be
surrendered to the Company and the Company shall simultaneously execute and
deliver to or on the order of the holder thereof, at the expense of the Company,
a new Note in principal amount equal to the unused or unpaid portion of such
Note.
d. Any Note or portion thereof that has been converted, or that has
been prepaid under Section 11 hereof, shall be cancelled by the Company and no
Note shall be issued in lieu of the principal amount so converted or prepaid.
e. Upon receipt of evidence satisfactory to the Company of the loss,
theft, destruction or mutilation of any Note and, in the case of any such loss,
theft or destruction, upon delivery of an indemnity agreement reasonably
satisfactory to the Company (if requested by the Company), or in the case of any
such mutilation, upon surrender of such Note (which surrendered Note shall be
cancelled by the Company), the Company will issue a new Note of like tenor in
lieu of such lost, stolen, destroyed or mutilated Note as if the lost, stolen,
destroyed or mutilated Note were then surrendered for exchange.
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<PAGE>
SECTION 11 Prepayment.
----------
11.1 Optional Prepayment.
-------------------
a. Subject to the other provisions of this Section 11, at any time
during the period beginning on January 1, 1996 and ending on December 30, 1996
the Company may prepay all or part of the principal amount of outstanding Notes
at a price equal to (1) the aggregate principal amount of the Notes to be
prepaid, plus (2) all accrued and unpaid interest on the principal amount of the
Notes to be prepaid, plus (3) a premium (the "Redemption Premium") equal to 7-
1/2% of the principal amount being prepaid. The right of the Company to prepay
Notes pursuant to this Section 11.1(a) shall be conditioned upon its giving
notice of prepayment, signed by its President and Treasurer, to the holders of
Notes not less than 20 days and not more than 60 days prior to the date upon
which the prepayment is to be made specifying (i) the holder of each Note to be
prepaid, (ii) the aggregate principal amount being prepaid, (iii) the date of
such prepayment, (iv) the accrued and unpaid interest (to but not including the
date upon which the prepayment is to be made) and (v) the Redemption Premium
with respect to such prepayment. Notice of prepayment having been so given, the
aggregate principal amount of the Notes so specified in such notice, all accrued
and unpaid interest thereon and the Redemption Premium on such aggregate
principal amount shall all become due and payable on the specified prepayment
date.
b. Upon the occurrence of any Change of Control Event (as defined in
Section 11.2, each holder of a Note shall have the right, at such holder's
option, to require the Company to prepay such holder's Note in whole or in part
at a price equal to: (1) the aggregate principal amount of the Note to be
prepaid, plus (2) all accrued and unpaid interest on the principal amount of the
Note to be prepaid, plus (3) an amount equal to 7-1/2% of the principal amount
being prepaid. The option under this Section 11.1(b) shall be exercised by
written notice to the Company given at any time from and after the 30th day
before such Change of Control Event through the 90th day after such Change of
Control Event (or, if later, through the 90th day after such holder receives
written notice from the Company of such Change of Control Event). Promptly (and
in any event within 10 days) after the occurrence of any Change of Control
Event, and not more than 30 days before such Change of Control Event, the
Company shall give written notice to each holder of a Note notifying each such
holder of the occurrence of such Change of Control Event and informing each such
holder of its right to exercise an option to require a prepayment under this
Section 11.1(b).
c. If any prepayment under this Section 11.1 does not repay in full
the aggregate principal amount of all Notes then
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<PAGE>
outstanding, then the aggregate amount of such prepayment of the principal
amount of Notes shall be allocated among all Notes at the time outstanding, in
proportion, as nearly as practicable, to the respective unpaid principal amounts
of such Notes.
11.2 Change of Control Event. For purposes of this Section 11, "Change of
-----------------------
Control Event" means the occurrence of any of the following events:
a. any person or group (within the meaning of Section 13(d)(3) of
the Securities Exchange Act of 1934 ("1934 Act") together with any affiliates
and associates of any such person or member of such group (within the meaning of
Rule 12b-2 under the 1934 Act) ("Person") shall at any time beneficially own
(within the meaning of Rule 13d-3 under the 1934 Act) shares of Common Stock of
the Company which represents in excess of either (A) 40% of the total votes
entitled to be cast by all outstanding shares of the Common Stock of the Company
or (B) 40% of all outstanding shares of the Common Stock of the Company;
provided, that a Change of Control Event shall not be deemed to have occurred
under this clause (a) (without limiting the application of clause (b), (c), (d)
or (e) below), solely by reason of such beneficial ownership of over 40% under
the preceding clause (A) or (B) being held by one or more persons who both (x)
are officers and directors of the Company on the Closing Date and (y)
beneficially owned on the Closing Date at least one percent of the shares of the
Company's Common Stock outstanding on the Closing Date (the foregoing being
described as an "acquisition of control"); or
b. the Company is materially or completely liquidated or is the
subject of any voluntary or involuntary dissolution or winding-up; or
c. the Company proceeds to acquire its Common Stock (or undertakes a
corporate reorganization or recapitalization or other action) if the effect of
such action would be either (i) to reduce substantially or to eliminate any
public market for the shares of the Company's Common Stock or (ii) to remove the
Company from registration with the Commission under the 1934 Act or (iii) to
require the Company to make a filing under Section 13(e) of the 1934 Act or (iv)
to cause a delisting of the Company's Common Stock from the American Stock
Exchange or such other national securities exchange or quotations service on
which the Common Stock is listed or quoted; or
d. the sale, lease, transfer or other disposition of all or
substantially all of the consolidated assets of the Company and its Subsidiaries
in a single transaction or series of related transactions; or
34
<PAGE>
e. The Company acquires control of any Person and such acquisition,
in the determination of the holder of the Note, results in a material diminution
in the value of the Company's Common Stock.
f. During any period of 12 consecutive months after the Closing
Date, individuals who at the beginning of such period constitute the Board of
Directors of the Company (together with any new directors whose election by such
Board or whose nomination for election by the shareholders of the Company was
approved by a vote of a majority of the directors then still in office who were
either directors at the beginning of such period or whose election or nomination
for election was previously so approved), cease for any reason to constitute a
majority of the Board of Directors of the Company then in office.
SECTION 12 Representations and Indemnities to Survive Delivery.
---------------------------------------------------
The respective indemnities, agreements, representations, warranties
and other statements of the Company, of its officers and of Purchaser set forth
in or made pursuant to this Agreement will remain in full force and effect,
regardless of any investigation made by or on behalf of the Purchaser or the
Company or any of its or their partners, officers or directors or any
controlling person, as the case may be, until December 31, 1996.
SECTION 13 Notices; Publicity.
------------------
All communications hereunder shall be in writing and, (i) if sent to
Purchaser, shall be mailed, delivered or telegraphed and confirmed to you at
1290 Avenue of the Americas, New York, New York 10104, Attention: Harry C.
Hagerty, III, with a copy to Stoel Rives, 900 SW Fifth Avenue, Portland, Oregon
97204, Attention: John J. Halle, Esq.; and (ii) if sent to the Company shall be
mailed, delivered or telegraphed and confirmed to the Company at Elsinore
Corporation, 202 East Fremont Street, Las Vegas, Nevada 89101, Attention:
Ernest L. East, with a copy to Pillsbury Madison & Sutro, 235 Montgomery Street,
San Francisco, California 94104, Attention: Gregg F. Vignos, Esq. The Company
or Purchaser may change the address for receipt of communications hereunder by
giving notice to the others. No party will issue or approve any news release,
public filing or other announcement concerning the transactions described herein
without the prior approval of the other parties as to the content of the
announcement and its release, which approval will not be unreasonably withheld.
35
<PAGE>
SECTION 14 Payment of Expenses.
-------------------
a. In addition to costs incurred by the Company in connection with
the transactions contemplated hereby, the Company will pay all reasonable out-
of-pocket expenses of Purchaser (including fees of counsel) in connection with
these transactions. The Company shall reimburse Purchaser for such expenses
promptly upon receipt from Purchaser of statements detailing such expenses.
b. The Company shall pay all reasonable out-of-pocket expenses of
Purchaser (including fees of counsel) in connection with any actions Purchaser
must reasonably take in connection with any comment, application, approval or
licensure process or procedure required by the Gaming Authorities as a result of
or in connection with these transactions ("Regulatory Expenses"); provided,
however, the Company will not be required to reimburse Purchaser for Regulatory
Expenses if such reimbursement would violate applicable state law or the rules
and regulations of the Gaming Authorities.
SECTION 15 Successors.
----------
This Agreement will inure to the benefit of and be binding upon the
parties hereto and to the benefit of the officers and directors and controlling
persons thereof, and in each case their respective successors, personal
representatives and assigns, and no other person will have any right or
obligation hereunder. No such assignment shall relieve any party of its
obligations hereunder.
SECTION 16 Partial Unenforceability.
------------------------
The invalidity or unenforceability of any section, paragraph or
provision of this Agreement shall not affect the validity or enforceability of
any other section, paragraph or provision hereof. If any section, paragraph or
provision of this Agreement is for any reason determined to be invalid or
unenforceable, there shall be deemed to be made such minor changes (and only
such minor changes) as are necessary to make it valid and enforceable.
SECTION 17 Applicable Law.
--------------
This Agreement shall be governed by and construed in accordance with
the internal laws of (and not the laws pertaining to conflicts of laws) of the
State of New York.
36
<PAGE>
SECTION 18 General.
-------
This Agreement constitutes the entire agreement of the parties to this
Agreement and supersedes all prior written or oral and all contemporaneous oral
agreements, understandings and negotiations with respect to the subject matter
hereof. This Agreement may be executed in counterparts, each one of which shall
be an original, and all of which shall constitute one and the same document.
SECTION 19 Section Headings; Amendment.
---------------------------
The section headings in this Agreement are for the convenience of the
parties only and will not affect the construction or interpretation of this
Agreement. This Agreement may be amended or modified, and the observance of any
term of this Agreement may be waived, only by a writing signed by the Company
and Purchaser.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first above written.
ELSINORE CORPORATION
By /s/ David Ganek By /s/ Thomas E. Martin
------------------------- ------------------------------
David Ganek Name Thomas E. Martin
Title President
37
<PAGE>
Schedule of Exhibits and Annex
------------------------------
Exhibit A Promissory Note
Exhibit B Stock Pledge Agreement
Exhibit C Registration Rights Agreement
Annex I Designation of Note Denominations
38
<PAGE>
REGISTRATION RIGHTS AGREEMENT
-----------------------------
THIS REGISTRATION RIGHTS AGREEMENT is made and entered into as of March 31,
1995, by and among ELSINORE CORPORATION, a Nevada corporation (the "Company"),
--------------------
and G & O PARTNERS, L.P., GRORAN LLC1, PAUL ORWICZ AND DAVID GANEK (the
--------------------------------------------------------------
"Purchasers").
This Agreement is made pursuant to the Note Purchase Agreement, dated as of
March 30, 1995, between the Company and the Purchasers (the "Purchase
Agreement"). The execution of this Agreement is a condition to the closing of
the transactions contemplated by the Purchase Agreement.
The parties hereby agree as follows:
1. Definitions.
-----------
As used in this Agreement, the following terms shall have the following
meanings:
Advice: As defined in the last paragraph of Section 6 hereof.
------
Affiliate of any specified person shall mean any other person directly or
---------
indirectly controlling or controlled by or under direct or indirect common
control with such specified person. For the purposes of this definition,
"control," when used with respect to any person, means the power to direct the
management and policies of such person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"affiliated," "controlling" and "controlled" have meanings correlative to the
foregoing.
Agreement: This Registration Rights Agreement, as the same may be amended,
---------
supplemented or modified from time to time in accordance with the terms hereof.
Business Day: Any day except Saturday, Sunday and any day which shall be a
------------
legal holiday or a day on which banking institutions in the state of New York
generally are authorized or required by law or other government actions to
close.
Common Stock: As defined in the Purchase Agreement.
------------
Company: Elsinore Corporation, a Nevada corporation, and any successor
-------
corporation thereto.
Demand Notice: As defined in Section 2 hereof.
-------------
Demand Registration: As defined in Section 3 hereof.
-------------------
Effectiveness Date: The date each Demand Registration Statement becomes
------------------
effective, which date shall not be later than
1
<PAGE>
the 130th day following the Company's receipt of the Demand Notice.
Effectiveness Period: As defined in Section 3(a) hereof.
--------------------
Exchange Act: The Securities Exchange Act of 1934, as amended, and the
------------
rules and regulations of the SEC promulgated pursuant thereto.
Filing Date: The date the Demand Registration is filed, which shall be no
-----------
later than the forty-fifth day following the Company's receipt of the Demand
Notice.
Indemnified Party: As defined in Section 8(c) hereof.
-----------------
Indemnifying Party: As defined in Section 8(c) hereof.
------------------
Losses: As defined in Section 8(a) hereof.
------
Note: The $1,125,000 aggregate principal amount of the Company's 7 1/2%
----
Convertible Subordinated Notes due December 31, 1996 being issued to the
Purchaser pursuant to the Purchase Agreement.
Piggyback Registration: As defined in Section 4.
----------------------
Proceeding: An action, claim, suit or proceeding (including, without
----------
limitation, an investigation or partial proceeding, such as a deposition),
whether commenced or threatened.
Prospectus: The prospectus included in any Registration Statement
----------
(including, without limitation, a prospectus that discloses information
previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A promulgated pursuant to the Securities
Act), as amended or supplemented by any prospectus supplement, with respect to
the terms of the offering of any portion of the Registrable Securities covered
by such Registration Statement, and all other amendments and supplements to the
Prospectus, including post-effective amendments, and all material incorporated
by reference or deemed to be incorporated by reference in such Prospectus.
Registrable Securities: Each of the Shares (including each share of Common
----------------------
Stock of the Company issued as (or issuable upon the conversion or exercise of
any warrant, right or other security which is issued as) a dividend or other
distribution with respect to, or in exchange for or in replacement of the notes
or the Shares) until (i) it has been registered effectively pursuant to the
Securities Act and disposed of in accordance with the Registration Statement
covering it, or (ii) it is sold by the holder thereof pursuant to Rule 144 (or
any similar provisions then in effect).
2
<PAGE>
Registration Statement: Any registration statement of the Company that
----------------------
covers any of the Shares pursuant to the provisions of this Agreement, including
the Prospectus, amendments and supplements to such registration statement or
Prospectus, including pre- and post-effective amendments, all exhibits thereto,
and all material incorporated by reference or deemed to be incorporated by
reference in such registration statement.
Rule 144: Rule 144 promulgated by the SEC pursuant to the Securities Act,
--------
as such Rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the SEC having substantially the same effect as such Rule.
Rule 144A: Rule 144A promulgated by the SEC pursuant to the Securities Act,
---------
as such Rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the SEC having substantially the same effect as such Rule.
SEC: The Securities and Exchange Commission.
---
Securities Act: The Securities Act of 1933, as amended, and the rules and
--------------
regulations promulgated by the SEC thereunder.
Shares: The shares of Common Stock of the Company issuable to the Purchaser
------
(i) upon conversion of the Note pursuant to the Purchase Agreement and (ii) upon
the exercise of the Purchaser's right to purchase Common Stock pursuant to
Section 6(c) of the Purchase Agreement.
Special Counsel: Any special counsel to the holders of Registrable
---------------
Securities, for which holders of Registrable Securities will be reimbursed
pursuant to Section 7.
underwritten registration or underwritten offering: A registration in
--------------------------------------------------
connection with which securities of the Company are sold to an underwriter for
reoffering to the public pursuant to an effective Registration Statement.
2. Demand Registrations.
--------------------
(a) Requests for Registration. On or after the date hereof, and subject to
-------------------------
the provisions of Section 2(c) hereof, the Purchaser shall have the right at any
time by written request to the Company (the "Demand Notice"), to require the
Company to register under and in accordance with the provisions of the
Securities Act all, but not less than all, Registrable Securities then
outstanding (a "Registration").
(b) Filing and Effectiveness. The Company shall file the Demand
------------------------
Registration as soon as practicable following its receipt of the Demand Notice
but in no event later than the Filing Date, and shall cause the same to be
declared effective by the SEC as soon as practicable after the date of filing
but in no event later than the Effectiveness Date.
3
<PAGE>
(c) Number of Registrations.
-----------------------
(i) The holders of Registrable Securities pursuant to this Section 2
shall be entitled to request one and only one Demand Registration unless
such Demand Registration does not become effective or is not maintained
effective as required hereunder, for reasons including, among other things,
the exercise of registration rights by Company securityholders other than
the holders of Registrable Securities, in which case the holders of
Registrable Securities shall be entitled to an additional Demand
Registration for each such Demand Registration that does not so become
effective or continue effective.
(ii) With respect to a Demand Registration filed or to be filed
pursuant to this Section 2, if the Company's Board of Directors shall
determine, in its good faith reasonable judgment, that to maintain the
effectiveness of such registration statement or to permit such registration
statement to become effective (or, if no registration statement has yet been
filed, to file such a registration statement) would be significantly
disadvantageous to the Company's financial condition or business (a
"Disadvantageous Condition") in light of the existence, or in anticipation,
of any material acquisition or financing activity involving the Company or
any subsidiary, the material terms of which have not been publicly
disclosed, the Company may, until such Disadvantageous Condition no longer
exists (but not with respect to more than one occasion involving more than
60 days), cause such registration statement to be withdrawn and the
effectiveness of such registration statement to be terminated or, if no
registration statement has yet been filed, elect not to file such
registration statement. If the Company determines to take any action
pursuant to the preceding sentence, the Company shall deliver a notice to
any holders selling Registrable Securities pursuant to an effective
registration statement to such effect. Upon the receipt of any such notice,
such persons shall forthwith discontinue use of the prospectus contained in
such registration statement and, if so directed by the Company, shall
deliver to the Company all copies of the prospectus then covering such
Registrable Securities current at the time of receipt of such notice. If
any Disadvantageous Condition shall cease to exist, the Company shall
promptly notify any holders who shall have ceased selling Registrable
Securities pursuant to an effective registration statement as a result of
such Disadvantageous Condition to such effect, and shall disclose in
reasonable detail the nature and outcome of such Disadvantageous Condition.
The Company shall, if any registration statement shall
4
<PAGE>
have been withdrawn, file, at such time as it in good faith deems
appropriate, a new registration statement covering the Registrable
Securities that were covered by such withdrawn registration statement, and
the effectiveness of such registration statement shall be maintained for
such time as may be necessary so that the period of effectiveness of such
new registration statement, when aggregated with the period during which
such withdrawn registration statement was effective, shall be such time as
may be otherwise required by this Agreement. For purposes of this Section
2(c), a Disadvantageous Condition shall cease to exist on the date the
Company makes public disclosure of the acquisition or financing activity
giving rise to the Disadvantageous Condition.
(d) Selection of Underwriters. If a requested registration pursuant to this
-------------------------
Section 2 involves an underwritten offering, the underwriter or underwriters
that will manage such underwriting shall be selected by the holders of a
majority of shares of the Registrable Securities as to which registration has
been requested, provided however that nothing in this section shall be deemed to
obligate the Company to register the Registrable Securities pursuant to an
underwritten offering.
3. Registration.
------------
If a Demand Notice is delivered as contemplated by Section 2, then the
Company shall prepare and file, as promptly as reasonably practicable
thereafter, with the SEC a Registration Statement under the Securities Act
covering all of the Registrable Securities requested by Holders to be included
therein (the "Demand Registration"). In the case of each Demand Notice, the
Company shall (i) file a Registration Statement relating to the Demand
Registration with the SEC on or prior to the Filing Date, (ii) cause the Demand
Registration to become effective under the Securities Act as soon as practicable
following the Filing Date, but not later than the Effectiveness Date, and (iii)
keep the Demand Registration continuously effective under the Securities Act
until (the "Effectiveness Period") (A) 180 days following the date on which the
Demand Registration becomes effective (subject to extension pursuant the last
paragraph of Section 6 hereof) or (B) if sooner, the date following the date
that all Registrable Securities covered by the Demand Registration have been
sold pursuant thereto; provided that the Effectiveness Period shall be extended
--------
to the extent required to permit dealers to comply with the applicable
prospectus delivery requirements under Rule 174 under the Securities Act.
4. Piggyback Registration.
----------------------
(a) Right to Piggyback. If at any time the Company proposes to file a
------------------
registration statement, including a shelf
5
<PAGE>
registration, pursuant to the Securities Act with respect to an offering of any
class of equity securities, whether or not for its own account (other than a
registration (i) on Form S-8 or any successor or similar forms, (ii) relating to
equity securities issuable upon exercise of employee stock options or in
connection with any employee benefit or similar plan of the Company, (iii)
pursuant to a registration under Section 2 or (iv) on Form S-4 or any successor
or form similar for the purpose of registering a bona fide transaction of a type
described by Rule 145(a)(1) or 145(a)(2) promulgated pursuant to the Securities
Act), then the Company shall give written notice of such proposed filing to the
holders of Registrable Securities at least 20 days before the anticipated filing
date (the "Piggyback Notice"). The Piggyback Notice shall offer such holders the
opportunity to register such amount of Registrable Securities as each such
holder may request (a "Piggyback Registration"). Subject to Section 4(b) hereof,
the Company shall include in each such Piggyback Registration all Registrable
Securities requested to be included in such offering. The holders of Registrable
Securities shall be permitted to withdraw all or part of the Registrable
Securities from a Piggyback Registration at any time prior to the effective date
of such Piggyback Registration.
(b) Priority on Piggyback Registrations. The Company shall cause the
-----------------------------------
managing underwriters of a proposed underwritten offering of securities to
permit holders of Registrable Securities requested to be included in the
registration for such offering to include all such Registrable Securities on the
same terms and conditions as any similar securities, if any, of the Company
included therein. Notwithstanding the foregoing, if the managing underwriters
of such underwritten offering determine in good faith in writing to the Company
and each of the holders of Registrable Securities that the total amount of
securities that such holders and the Company propose to include in such offering
is such as would materially and adversely affect the success of such offering,
then in the event that such Piggyback Registration is a primary registration on
behalf of the Company only, the amount of securities to be offered for the
account of holders of Registrable Securities shall be reduced or limited pro
rata amongst such holders and amongst any other holders (excluding the Company)
of securities of the same class included in such Registration Statement, in each
case in proportion to the respective amounts of securities owned and previously
included in such Registration Statement to the extent necessary to reduce the
total amount of securities to be included in such offering to the amount
recommended by such managing underwriters.
(c) Number of Registrations. The holders of Registerable Securities
-----------------------
pursuant to this section 4 shall be entitled to request not more than two
Piggyback Registrations unless a Piggyback Registration does not become
effective or is not maintained effective as required hereunder, for reasons
including, among other things, the determination of the managing underwriters of
an underwritten offering that all or part of the
6
<PAGE>
Registerable Securities cannot be included in such offering, in which case the
holders of Registrable Securities shall be entitled to an additional Piggyback
Registration for each such Piggyback Registration that does not so become
effective or continue effective or for each such registerable security excluded
from the offering.
5. Hold-Back Agreements.
--------------------
(a) Restrictions on Sale by Holders of Registrable Securities. Except in
---------------------------------------------------------
connection with the exercise of its Piggyback Registration rights, each holder
of Registrable Securities agrees, if requested (pursuant to a timely written
notice) by the managing underwriters or other managers in an underwritten
offering (which, for purposes of this Section shall include a Rule 144A
offering) of the Company's Common Stock, not to effect any private sale or
distribution (including a sale pursuant to Rule 144(k) and Rule 144A, but
excluding non-public sales to any of its affiliates, officers, directors,
employees and controlling persons) of any of the Shares (except as part of such
underwritten offering), during the period beginning 10 days prior to, and ending
120 days after, the closing date of the underwritten or private offering.
The foregoing provisions shall not apply to any holder of Registrable
Securities if such holder is prevented by applicable statute or regulation from
entering into any such agreement.
(b) Restrictions on Public Sale by the Company and Others. The Company
-----------------------------------------------------
agrees without the written consent of the managing underwriters in an
underwritten offering of Registrable Securities covered by a Registration
Statement filed pursuant to Section 3 hereof, not to effect any public or
private sale or distribution of any of its common stock, or any options, rights,
warrants to purchase, or securities exchangeable or convertible into, shares of
common stock of the Company, including a sale pursuant to Regulation D or Rule
144A under the Securities Act, during the period beginning 10 days prior to, and
ending 90 days after, the closing date of each underwritten offering made
pursuant to such Registration Statement (provided, however, that such period
-------- -------
shall be extended by the number of days from and including the date of the
giving of any notice pursuant to Section 6(c) hereof to and including the date
when each seller of Registrable Securities covered by such Registration
Statement shall have received the copies of the supplemented or amended
Prospectus contemplated by Section 6(k) hereof).
6. Registration Procedures.
-----------------------
In connection with the Company's registration obligations hereunder, the
Company shall:
(a) no fewer than 10 Business Days prior to the initial filing of a
Registration Statement or
7
<PAGE>
Prospectus and no fewer than two Business Days prior to the filing of any
amendment or supplement thereto (including any document that would be
incorporated or deemed to be incorporated therein by reference), furnish to
the holders of the Registrable Securities relating to such Registration
Statement, their Special Counsel and the managing underwriters, if any,
copies of all such documents proposed to be filed, which documents (other
than those incorporated or deemed to be incorporated by reference) will be
subject to the review of such holders, their Special Counsel and such
underwriters, if any, and cause the officers and directors of the Company,
counsel to the Company and independent certified public accountants to the
Company to respond to such inquiries as shall be necessary, in the opinion
of respective counsel to such holders and such underwriters, to conduct a
reasonable investigation within the meaning of the Securities Act; provided,
--------
further, that the Company shall not be deemed to have kept a Registration
-------
Statement effective during the applicable period if it voluntarily takes any
action that results in selling holders of the Registrable Securities covered
thereby not being able to sell such Registrable Securities pursuant to
Federal securities laws during that period (and the time period during which
such Registration Statement is required to remain effective hereunder shall
be extended by the number of days during which such selling holders of
Registrable Securities are not able to sell Registrable Securities) unless
such action is required under applicable law or regulation or court order.
The Company shall not file any such Registration Statement or Prospectus or
any amendments or supplements thereto to which the holders of a majority of
the Registrable Securities relating to such Registration Statement, their
Special Counsel, or the managing underwriters, if any, shall reasonably
object on a timely basis; provided, however, that the Company shall not be
-------- -------
prohibited from making any such filing that is necessary, in the opinion of
outside counsel to the Company, to comply with applicable law;
(b) prepare and file with the SEC such amendments, including post-
effective amendments, to each Registration Statement as may be necessary to
keep such Registration Statement continuously effective for the applicable
time period; cause the related Prospectus to be supplemented by any required
Prospectus supplement, and as so supplemented to be filed pursuant to Rule
424 (or any similar provisions then in force) under the Securities Act; and
comply with the provisions of the Securities Act and the Exchange Act with
respect to the disposition of all securities covered by such Registration
Statement
8
<PAGE>
during such period in accordance with the intended methods of
disposition by the sellers thereof set forth in such Registration Statement
as so amended or in such Prospectus as so supplemented;
(c) notify the holders of Registrable Securities to be sold, their
Special Counsel and the managing underwriters, if any, promptly (and in the
case of (i) (A) in no event less than two Business Days prior to such
filing) and (if requested by any such Person), confirm such notice in
writing, (i) (A) when a Prospectus or any Prospectus supplement or post-
effective amendment is proposed to be filed, and (B) with respect to a
Registration Statement or any post-effective amendment, when the same has
become effective, (ii) of any request by the SEC or any other Federal or
state governmental authority for amendments or supplements to a Registration
Statement or related Prospectus or for additional information, (iii) of the
issuance by the SEC of any stop order suspending the effectiveness of a
Registration Statement or the initiation of any proceedings for that
purpose, (iv) if at any time any of the representations and warranties of
the Company contained in any agreement (including any underwriting
agreement) contemplated hereby cease to be true and correct in all material
respects, (v) of the receipt by the Company of any notification with respect
to the suspension of the qualification or exemption from qualification of
any of the Registrable Securities for sale in any jurisdiction, or the
initiation or threatening of any proceeding for such purpose, and (vi) of
the happening of any event that makes any statement made in such
Registration Statement or related Prospectus or any document incorporated or
deemed to be incorporated therein by reference untrue in any material
respect or that requires the making of any changes in such Registration
Statement, Prospectus or documents so that, in the case of the Registration
Statement, it will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary
to make the statements therein, not misleading, and that in the case of the
Prospectus, it will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which
they were made, not misleading;
(d) use their reasonable best efforts to avoid the issuance of, or, if
issued, obtain the withdrawal of any order suspending the effectiveness of a
Registration Statement, or the lifting of any suspension of the
qualification (or exemption from
9
<PAGE>
qualification) of any of the Registrable Securities for sale in any
jurisdiction, at the earliest practicable moment;
(e) if a Demand Registration is filed pursuant to Section 3 and, if
requested by the managing underwriter, if any, or the holders of a majority
in principal amount of the Registrable Securities being sold in connection
with an underwritten offering, (i) promptly incorporate in a Prospectus
supplement or post-effective amendment such information as the managing
underwriters, if any, and such holders agree should be included therein, and
(ii) make all required filings of such Prospectus supplement or such post-
effective amendment as soon as practicable after the Company have received
notification of the matters to be incorporated in such Prospectus supplement
or post-effective amendment; provided, however, that the Company shall not
-------- -------
be required to take any action pursuant to this Section 6(e) that would, in
the opinion of outside counsel for the Company, violate applicable law;
(f) furnish to each holder of Registrable Securities, their Special
Counsel and each managing underwriter, if any, without charge, at least one
conformed copy of each Registration Statement and each amendment thereto,
including financial statements and schedules, all documents incorporated or
deemed to be incorporated therein by reference, and all exhibits to the
extent requested by each holder (including those previously furnished or
incorporated by reference) as soon as practicable after the filing of such
documents with the SEC;
(g) deliver to each holder of Registrable Securities, their Special
Counsel, and the underwriters, if any, without charge, as many copies of the
Prospectus or Prospectuses (including each form of prospectus) and each
amendment or supplement thereto as such Persons reasonably request; and the
Company hereby consents to the use of such Prospectus and each amendment or
supplement thereto by each of the selling holders of Registrable Securities
and the underwriters, if any, in connection with the offering and sale of
the Registrable Securities covered by such Prospectus and any amendment or
supplement thereto;
(h) prior to any public offering of Registrable Securities, use its
reasonable best efforts to register or qualify or cooperate with the holders
of Registrable Securities to be sold or tendered for, the underwriters, if
any, and their respective counsel in connection with the registration or
qualification (or
10
<PAGE>
exemption from such registration or qualification) of such
Registrable Securities for offer and sale under the securities or Blue Sky
laws of such jurisdictions within the United States as any holder or
underwriter reasonably requests in writing; keep each such registration or
qualification (or exemption therefrom) effective during the period such
Registration Statement is required to be kept effective and do any and all
other acts or things necessary or advisable to enable the disposition in
such jurisdictions of the Registrable Securities covered by the applicable
Registration Statement; provided, however, that the Company shall not be
required to qualify generally to do business in any jurisdiction where it is
not then so qualified or to take any action that would subject it to general
service of process in any such jurisdiction where it is not then so subject
or subject the Company to any tax in any such jurisdiction where it is not
then so subject;
(i) cooperate with the holders and the managing underwriters, if any,
to facilitate the timely preparation and delivery of certificates
representing Registrable Securities to be sold, which certificates shall not
bear any restrictive legends and shall be in a form eligible for deposit
with The Depository Trust Company and to enable such Registrable Securities
to be in such denominations and registered in such names as the managing
underwriters, if any, or holders may request at least two Business Days
prior to any sale of Registrable Securities;
(j) use its reasonable best efforts to cause the Registrable Securities
covered by the Registration Statement to be registered with or approved by
such other governmental agencies or authorities within the United States,
except as may be required solely as a consequence of the nature of such
selling holder's business, in which case the Company shall cooperate in all
reasonable respects with the filing of such Registration Statement and the
granting of such approvals as may be necessary to enable the seller or
sellers thereof or the underwriters, if any, to consummate the disposition
of such Registrable Securities; provided, however, that the Company shall
-------- -------
not be required to register the Registrable Securities in any jurisdiction
that would subject it to general service of process in any such jurisdiction
where it is not then so subject or subject the Company to any tax in any
such jurisdiction where it is not then so subject or to require the Company
to qualify to do business in any jurisdiction where it is not then so
qualified;
11
<PAGE>
(k) upon the occurrence of any event contemplated by Paragraph
6(c)(vi), as promptly as practicable, prepare a supplement or amendment,
including a post-effective amendment, to each Registration Statement or a
supplement to the related Prospectus or any document incorporated or deemed
to be incorporated therein by reference, and file any other required
document so that, as thereafter delivered, such Prospectus will not contain
an untrue statement of a 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 under which they were made, not misleading;
(l) use its reasonable best efforts to cause all Registrable Securities
relating to such Registration Statement to be listed on each securities
exchange, if any, on which similar securities issued by the Company are then
listed;
(m) enter into such agreements (including an underwriting agreement in
form, scope and substance as is customary in underwritten offerings) and
take all such other reasonable actions in connection therewith (including
those reasonably requested by the managing underwriters, if any, or the
holders of a majority of the Registrable Securities being sold) in order to
expedite or facilitate the disposition of such Registrable Securities, and
in such connection, whether or not an underwriting agreement is entered into
and whether or not the registration is an underwritten registration, (i)
make such representations and warranties to the holders of such Registrable
Securities and the underwriters, if any, with respect to the business of the
Company and its subsidiaries, and the Registration Statement, Prospectus and
documents, if any, incorporated or deemed to be incorporated by reference
therein, in each case, in form, substance and scope as are customarily made
by issuers to underwriters in underwritten offerings, and confirm the same
if and when requested; (ii) obtain opinions of counsel to the Company and
updates thereof (which counsel and opinions (in form, scope and substance)
shall be reasonably satisfactory to the managing underwriters, if any, and
Special Counsel to the holders of the Registrable Securities being sold),
addressed to each selling holder of Registrable Securities and each of the
underwriters, if any, covering the matters customarily covered in opinions
requested in underwritten offerings and such other matters as may be
reasonably requested by such Special Counsel and underwriters; (iii) obtain
"cold comfort" letters and updates thereof from the independent certified
public accountants of the Company (and, if
12
<PAGE>
necessary, any other independent certified public accountants of any
subsidiary of the Company or of any business acquired by the Company for
which financial statements and financial data is, or is required to be,
included in the Registration Statement), addressed to each selling holder of
Registrable Securities and each of the underwriters, if any, such letters to
be in customary form and covering matters of the type customarily covered in
"cold comfort" letters in connection with underwritten offerings; (iv) if an
underwriting agreement is entered into, the same shall contain
indemnification provisions and procedures no less favorable to the selling
holders and the underwriters, if any, than those set forth in Section 8
hereof (or such other provisions and procedures acceptable to holders of a
majority of the holders of Registrable Securities covered by such
Registration Statement and the managing underwriters); and (v) deliver such
documents and certificates as may be reasonably requested by the holders of
a majority of the Registrable Securities being sold, their Special Counsel
and the managing underwriters, if any, to evidence the continued validity of
the representations and warranties made pursuant to clause 6(m)(i) above and
to evidence compliance with any customary conditions contained in the
underwriting agreement or other agreement entered into by the Company;
(n) make available for inspection by a representative of the holders of
Registrable Securities being sold, any underwriter participating in any such
disposition of Registrable Securities, if any, and any attorney, consultant
or accountant retained by such selling holders or underwriter, at the
offices where normally kept, during reasonable business hours, all financial
and other records, pertinent corporate documents and properties of the
Company, and its subsidiaries, and cause the officers, directors, agents and
employees of the Company and its subsidiaries to supply all information in
each case reasonably requested by any such representative, underwriter,
attorney, consultant or accountant in connection with such Registration
Statement; and
(o) comply with all applicable rules and regulations of the SEC and
make generally available to their securityholders earning statements
satisfying the provisions of Section 11(a) of the Securities Act and Rule
158 thereunder (or any similar rule promulgated under the Securities Act),
no later than 45 days after the end of any 12-month period (or 90 days after
the end of any 12-month period if such period is a fiscal year) (i)
commencing at the end of any fiscal quarter in which Registrable Securities
are sold to
13
<PAGE>
underwriters in a firm commitment or reasonable efforts underwritten
offering and (ii) if not sold to underwriters in such an offering,
commencing on the first day of the first fiscal quarter of the Company after
the effective date of a Registration Statement, which statement shall cover
said 12-month periods, or end shorter periods as is consistent with the
requirements of Rule 158.
The Company may require each seller of Registrable Securities as to which
any registration is being effected to furnish to the Company such information
regarding the distribution of such Registrable Securities as is required by law
to be disclosed in the applicable Registration Statement and the Company may
exclude from such registration the Registrable Securities of any seller who
unreasonably fails to furnish such information within a reasonable time after
receiving such request.
If any such Registration Statement refers to any holder by name or otherwise
as the holder of any securities of the Company, then such holder shall have the
right to require, in the event that such reference to such holder by name or
otherwise is not required by the Securities Act or any similar federal statute
then in force, the deletion of the reference to such holder in any amendment or
supplement to the Registration Statement filed or prepared subsequent to the
time that such reference ceases to be required.
Each holder of Registrable Securities agrees by registration of such
Registrable Securities that, upon receipt of any notice from the Company of the
happening of any event of the kind described in Section 6(c)(ii), 6(c)(iii),
6(c)(v) or 6(c)(vi) hereof, such holder will forthwith discontinue disposition
of such Registrable Securities covered by such Registration Statement or
Prospectus until such holder's receipt of the copies of the supplemented or
amended Prospectus contemplated by Section 6(k) hereof, or until it is advised
in writing (the "Advice") by the Company that the use of the applicable
Prospectus may be resumed, and, in either case, has received copies of any
additional or supplemental filings that are incorporated or deemed to be
incorporated by reference in such Prospectus. If the Company shall give any
such notice, the time periods mentioned in Section 3 hereof shall be extended by
the number of days during such periods from and including the date of the giving
of such notice to and including the date when each seller of Registrable
Securities covered by such Registration Statement shall have received (x) the
copies of the supplemented or amended Prospectus contemplated by Section 6(k)
hereof or (y) the Advice, and, in either case, has received copies of any
additional or supplemental filings that are incorporated or deemed to be
incorporated by reference in such Prospectus.
7. Registration Expenses.
---------------------
14
<PAGE>
(a) All fees and expenses incident to the performance of or compliance with
this Agreement by the Company shall be borne by the Company whether or not any
Registration Statement is filed or becomes effective and whether or not any
securities are issued or sold pursuant to any Registration Statement (unless
such Registration Statement is not filed or does not become effective or
securities are not issued or sold pursuant to such Registration Statement as a
result of any action by the holders of Registrable Securities requesting such
registration). The fees and expenses referred to in the foregoing sentence
shall include, without limitation, (i) all registration and filing fees
(including, without limitation, fees and expenses (A) with respect to filings
required to be made with the National Association of Securities Dealers, Inc.
and (B) in compliance with securities or Blue Sky laws (including without
limitation and in addition to that provided for in (b) below, fees and
disbursements of counsel for the underwriters or holders in connection with Blue
Sky qualifications of the Registrable Securities and determination of the
eligibility of the Registrable Securities for investment under the laws of such
jurisdictions as the managing underwriters, if any, or holders of a majority of
Registrable Securities may designate), (ii) printing expenses (including,
without limitation, expenses of printing certificates for Registrable Securities
in a form eligible for deposit with The Depository Trust Company and of printing
prospectuses if the printing of prospectuses is requested by the managing
underwriters, if any, (iii) messenger, telephone and delivery expenses, (iv)
fees and disbursements of counsel for the Company and Special Counsel for the
holders (in accordance with the provisions of Section 7(b) hereof), (v) fees and
disbursements of all independent certified public accountants (including,
without limitation, the expenses of any special audit and "cold comfort" letters
required by or incident to such performance), (vi) underwriters' fees and
expenses (excluding discounts, commissions or fees of underwriters, selling
brokers, dealer managers or similar securities industry professionals relating
to the sale or distribution of the Registrable Securities (collectively,
"Selling Expenses"), which shall be borne solely by the holders of the
Registrable Securities, (vii) Securities Act liability insurance, if the Company
so desires such insurance, and (viii) fees and expenses of all other persons
retained by the Company. In addition, the Company shall pay its internal
expenses (including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties), the expense of
any annual audit, the fees and expenses incurred in connection with the listing
of the securities to be registered on any securities exchange on which similar
securities issued by the Company are then listed and rating agency fees (plus
any local counsel, deemed appropriate by the holders of a majority of the
Registrable Securities).
(b) In connection with any Registration hereunder, the Company shall
reimburse the holders of the Registrable Securities being registered in such
registration for the reasonable fees and
15
<PAGE>
disbursements of not more than one firm of attorneys chosen by the holders of a
majority of the Registrable Securities.
8. Indemnification.
---------------
(a) Indemnification by the Company. The Company shall, notwithstanding
------------------------------
termination of this Agreement and without limitation as to time, indemnify and
hold harmless each holder of Registrable Securities, the officers, directors,
agents, investment advisors and employees of each of them, each Person who
controls any such holder (within the meaning of Section 15 of the Securities Act
or Section 20 of the Exchange Act) and the officers, directors, agents and
employees of each such controlling person, to the fullest extent lawful, from
and against any and all losses, claims, damages, liabilities, costs (including,
without limitation, costs of preparation and reasonable attorneys' fees) and
expenses (collectively, "Losses"), as incurred, arising out of or based upon any
untrue or alleged untrue statement of a material fact contained in any
Registration Statement, Prospectus or form of prospectus or in any amendment or
supplement thereto or in any preliminary prospectus, or arising out of or based
upon any omission or alleged omission of a material fact required to be stated
therein or necessary to make the statements therein (in the case of any
Prospectus or form of prospectus or supplement thereto, in light of the
circumstances under which they were made) not misleading, except to the extent,
that such are finally judicially determined to have been based upon information
regarding such Holder furnished in writing to the Company by or on behalf of
such holder expressly for use therein, and that such information was reasonably
relied on by the Company in the preparation thereof; provided, however, that the
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Company shall not be liable to the extent that (A) any such Losses arise out of
or are based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in any preliminary prospectus if (i) having previously
been furnished by the Company with copies of the Prospectus on a timely basis,
such holder failed to send or deliver a copy of the Prospectus with or prior to
the delivery of written confirmation of the sale by such holder of a Registrable
Security to the person asserting such Losses who purchased such Registrable
Security that is the subject thereof and (ii) the Prospectus would have
adequately corrected such untrue statement or alleged untrue statement or such
omission or alleged omission or (B) any such Losses arise primarily out of or
are based primarily upon an untrue statement or alleged untrue statement or
omission or alleged omission in the Prospectus, if such untrue statement or
alleged untrue statement, omission or alleged omission is adequately corrected
in an amendment or supplement to the Prospectus (such that there is no longer
any untrue statement of a material fact in the Prospectus or omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading) and if, having previously been furnished by the Company
with copies of the
16
<PAGE>
Prospectus as so amended or supplemented on a timely basis, the holder of
Registrable Securities thereafter failed to deliver such Prospectus as so
amended or supplemented prior to or concurrently with the sale of a Registrable
Security to the person asserting such Losses who purchased such Registrable
Security that is the subject thereof from such holder. In the event Registrable
Securities are to be registered in an underwritten offering pursuant to a Demand
Registration, the Company will indemnify, subject to commercially reasonable
terms, the managing underwriter(s) of such offering.
(b) Indemnification by Holder of Registrable Securities. In connection with
---------------------------------------------------
any Registration Statement in which a holder of Registrable Securities is
participating, such holder of Registrable Securities shall furnish to the
Company in writing such information regarding such holder's ownership of
securities of the Company as the Company reasonably requests for use in
connection with any Registration Statement or Prospectus and agrees to indemnify
and hold harmless the Company and its directors, officers, agents and employees,
each Person who controls the Company (within the meaning of Section 15 of the
Securities Act and Section 20 of the Exchange Act), and the directors, officers,
agents or employees of such controlling persons, to the fullest extent lawful,
from and against all Losses (as determined by a court of competent jurisdiction
in a final judgment not subject to appeal or review) arising out of or based
upon any untrue statement of a material fact contained in any Registration
Statement, Prospectus, or form of prospectus, or arising out of or based upon
any omission of a material fact required to be stated therein or necessary to
make the statements therein not misleading to the extent, but only to the
extent, that such untrue statement or omission is contained in any information
so furnished in writing by such holder to the Company expressly for use in such
Registration Statement or Prospectus and that such information was reasonably
relied upon by the Company in preparation of such Registration Statement,
Prospectus or form of prospectus. In no event shall the liability of any selling
holder of Registrable Securities hereunder be greater in amount than the dollar
amount of the proceeds received by such holder upon the sale of the Registrable
Securities giving rise to such indemnification obligation.
(c) Conduct of Indemnification Proceedings. If any Proceeding shall be
--------------------------------------
brought or asserted against any person entitled to indemnity hereunder (an
"Indemnified Party"), such Indemnified Party promptly shall so notify the person
from whom indemnity is sought (the "Indemnifying Party") in writing, and the
Indemnifying Party shall assume the defense thereof, including the employment of
counsel reasonably satisfactory to the Indemnified Party and the payment of all
fees and expenses incurred in connection with the defense thereof; provided,
that the failure of any Indemnified Party to give such notice shall not relieve
the Indemnifying Party of its obligations pursuant to this Agreement, except to
the extent that it shall be finally
17
<PAGE>
determined by a court of competent jurisdiction (which determination is not
subject to appeal or further review) that such failure shall have materially
prejudiced the Indemnifying Party.
Any such Indemnified Party shall have the right to employ separate counsel
in any such action, claim or proceeding and to participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense of
such Indemnified Party or Parties unless: (1) the Indemnifying Party has agreed
to pay such fees and expenses; or (2) the Indemnifying Party shall have failed
promptly to assume the defense of such action, claim or proceeding and to employ
counsel reasonably satisfactory to such Indemnified Party in any such action,
claim or proceeding; or (3) the named parties to any such action, claim or
proceeding (including any impleaded parties) include both such Indemnified Party
and the Indemnifying Party, and such Indemnified Party shall have been advised
in writing by counsel that a conflict of interest may exist if such counsel
represents such Indemnified Party and the Indemnifying Party (in which case, if
such Indemnified Party notifies the Indemnifying Parties in writing that it
elects to employ separate counsel at the expense of the Indemnifying Parties,
the Indemnifying Parties shall not have the right to assume the defense thereof
and such counsel retained by the Indemnified Party shall be at the expense of
the Indemnifying Party), it being understood, however, that, the Indemnifying
Party shall not, in connection with any one such action or proceeding or
separate but substantially similar or related actions or proceedings in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the fees and expenses of more than one separate firm of attorneys (in
addition to any local counsel) at any time for all such Indemnified Parties,
which firm shall be designated in writing by the Indemnified Parties. The
Indemnifying Party shall not be liable for any settlement of any such Proceeding
effected without its written consent, which consent shall not be unreasonably
withheld. No Indemnifying Party shall, without the prior written consent of the
Indemnified Party, effect any settlement of any proceeding unless such
settlement includes an unconditional release of such Indemnified Party from all
liability on claims that are or may be the subject matter of such proceeding.
All fees and expenses of the Indemnified Party (including reasonable fees
and expenses to the extent incurred in connection with investigating or
preparing to defend such action or proceeding in a manner not inconsistent with
this Section 8) shall be paid to the Indemnified Party, as incurred, within 10
Business Days of written notice thereof to the Indemnifying Party (regardless of
whether it is ultimately determined that an Indemnified Party is not entitled to
indemnification hereunder; provided, that the Indemnifying Party may require
--------
such Indemnified Party to undertake to reimburse all such fees and expenses to
the extent it is finally judicially determined that
18
<PAGE>
such Indemnified Party is not entitled to indemnification hereunder).
(d) Contribution. If a claim by an Indemnified Party for indemnification
------------
under Section 8(a) or 8(b) hereof is found unenforceable in a final judgment by
a court of competent jurisdiction (not subject to further appeal) (even though
the express provisions hereof provide for indemnification in such case), then
each applicable Indemnifying Party, in lieu of indemnifying such Indemnified
Party, shall contribute to the amount paid or payable by such Indemnified Party
as a result of such Losses, in such proportion as is appropriate to reflect the
relative fault of the Indemnifying Party and Indemnified Party in connection
with the actions, statements or omissions that resulted in such Losses as well
as any other relevant equitable considerations. The relative fault of such
Indemnifying Party and Indemnified Party shall be determined by reference to,
among other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or omission
or alleged omission of a material fact, has been taken or made by, or relates to
information supplied by, such Indemnifying Party or Indemnified Party, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such action, statement or omission. The amount paid or
payable by a party as a result of any Losses shall be deemed to include, subject
to the limitations set forth in Section 8(c), any legal or other fees or
expenses reasonably incurred by such party in connection with any investigation
or Proceeding.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 8(d) were determined by pro rata
--- ----
allocation or by any other method of allocation that does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 8(d), an Indemnifying Party that
is a holder of Registrable Securities shall not be required to contribute any
amount in excess of the amount by which the total price at which the securities
sold by such Indemnifying Party and distributed to the public
were offered to the public exceeds the amount of any damages that such
Indemnifying Party has otherwise been required to pay by reason of such untrue
or alleged untrue statement or omission or alleged omission. No person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any Person who was not
guilty of such fraudulent misrepresentation.
9. Rule 144.
--------
The Company shall use its best efforts to file the reports required to be
filed by them under the Securities Act and the Exchange Act in a timely manner
and, if at any time the Company is not required to file such reports, it will,
upon the request of any holder of Registrable Securities, make publicly
available
19
<PAGE>
other information so long as necessary to permit sales of their securities
pursuant to Rule 144. The Company further covenants that it will take such
further action as any holder of Registrable Securities may reasonably request,
all to the extent required from time to time to enable such holder to sell
Registrable Securities without registration under the Securities Act within the
limitation of the exemption provided by Rule 144. Upon the request of any holder
of Registrable Securities, the Company shall deliver to such holder a written
statement as to whether it has complied with such requirements. Notwithstanding
the foregoing, nothing in this Section 9 shall be deemed to require the Company
to register any of its securities pursuant to the Exchange Act.
10. Underwritten Registrations.
--------------------------
If any of the Registrable Securities covered by any Demand Registration are
to be sold in an underwritten offering, the investment banker or investment
bankers and manager or managers that will manage the offering will be selected
by the holders of a majority of such Registrable Securities included in such
offering.
No person may participate in any underwritten registration hereunder unless
such Person (a) agrees to sell such person's Registrable Securities on the basis
reasonably provided in any underwriting arrangements approved by the persons
entitled hereunder to approve such arrangements and (b) completes and executes
all questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents reasonably required under the terms of such underwriting
arrangements.
11. Miscellaneous.
-------------
(a) Remedies. In the event of a breach by the Company, or by a holder of
--------
Registrable Securities, of any of their obligations under this Agreement, each
holder of Registrable Securities or the Company, as the case may be, in addition
to being entitled to exercise all rights granted by law, including recovery of
damages, will be entitled to specific performance of its rights under this
Agreement. The Company, and each holder of Registrable Securities, agree that
monetary damages would not be adequate compensation for any loss incurred by
reason of a breach by it of any of the provisions of this Agreement and hereby
further agrees that, in the event of any action for specific performance in
respect of such breach, it shall waive the defense that a remedy at law would be
adequate.
(b) No Inconsistent Agreements. The Company has not entered into, as of
--------------------------
the date hereof, nor shall the Company, on or after the date of this Agreement,
enter into, any agreement with respect to its securities that is inconsistent
with the rights granted to the holders of Registrable Securities in this
Agreement or otherwise conflicts with the provisions hereof.
20
<PAGE>
Except for (i) the Registration Rights Agreement dated October 14, 1994,
pertaining to the Company's 20% Mortgage Notes due 1996 ("Mortgage Notes"), (ii)
the Registration Rights Agreement dated October 14, 1994, pertaining to the
shares of Common Stock issued to the purchasers of the Mortgage Notes, (iii) the
Warrant Shares Registration Rights Agreement dated as of October 8, 1993 by and
among the Company and the purchasers of its 12-1/2% First Mortgage Notes due
2000 (collectively, the "Prior Rights Agreements"), the Company has not
previously entered into any agreement granting to any Person any registration
rights still exercisable on the date hereof with respect to any of its
securities. The rights of the holders of Registrable Securities set forth herein
are subject in all respects to the prior rights, if any, granted to the
purchasers under the Prior Rights Agreements and shall be construed and applied
hereunder so as not to be in conflict or inconsistent with the provisions of the
Prior Rights Agreements. The Purchaser acknowledges that on the date hereof the
Company has entered into registration rights agreements substantially similar to
this Agreement with each other purchaser of its 7 1/2% Convertible Subordinated
Notes due December 31, 1996 being issued on the date hereof, and Purchaser
acknowledges that the rights granted under such agreements are not in conflict
or inconsistent with the provisions of this Agreement. Without limiting the
generality of the foregoing, without the written consent of the holders of a
majority of the then outstanding Registrable Securities, the Company shall not
grant to any person the right to request the Company to register any securities
of the Company under the Securities Act unless the rights so granted are subject
in all respects to the prior rights of the holders of Registrable Securities set
forth herein, and are not otherwise in conflict or inconsistent with the
provisions of this Agreement.
(c) No Piggyback on Registrations. The Company will not, and none of its
-----------------------------
securityholders (other than the holders of Registerable Securities in such
capacity pursuant to the applicable Section hereof) may, include securities of
the Company or such securityholders in any Demand Registration (except to the
extent that the inclusion of such securities by the Company or such
securityholders would not, in the good faith opinion of the managing underwriter
selected by the holders of Registrable Securities, adversely affect the success
of the offering proposed to be made by holders of Registrable Securities).
(d) Amendments and Waivers. The provisions of this Agreement, including the
----------------------
provisions of this sentence, may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may not be given,
unless the Company has obtained the written consent of the holders of a majority
of the then outstanding of Registrable Securities; provided, however, that, for
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the purpose of this Agreement, Registrable Securities that are owned, directly
or indirectly, by the Company or an Affiliate of the Company are not deemed
outstanding. Notwithstanding the foregoing, a waiver or consent
21
<PAGE>
to depart from the provisions hereof with respect to a matter that relates
exclusively to the rights of holders of Registrable Securities whose securities
are being sold pursuant to a Registration Statement and that does not directly
or indirectly affect the rights of other holders of Registrable Securities may
be given by holders of a majority of the Registrable Securities being sold by
such holders pursuant to such Registration Statement; provided, however, that
-------- -------
the provisions of this sentence may not be amended, modified, or supplemented
except in accordance with the provisions of the immediately preceding sentence.
(e) Notices. All notices and other communications provided for herein shall
-------
be made in writing by hand-delivery, next-day air courier, certified first-class
mail, return receipt requested, telex or facsimile to:
(i) the intended recipient at the "Address for Notices" specified
below its name on the signature pages hereof, or
(ii) if to any other person who is then the registered holder of any
Registrable Securities, to the address of such holder as it appears in the
stock register of the Company.
Except as otherwise provided in this Agreement, all such communications
shall be deemed to have been duly given: when delivered by hand, if personally
delivered; one business day after being timely delivered to a next-day air
courier; five business days after being deposited in the mail, postage prepaid,
if mailed; when answered back, if telexed; and when receipt is acknowledged by
the recipient's telecopier machine, if telecopied.
(f) Successors and Assigns. This Agreement shall inure to the benefit of
----------------------
and be binding upon the successors and permitted assigns of each of the parties
and shall inure to the benefit of each holder of any Registrable Securities.
The Company may not assign their rights or obligations hereunder without the
prior written consent of each holder of any Registrable Securities.
Notwithstanding the foregoing, no transferee shall have any of the rights
granted under this Agreement until such transferee shall acknowledge its rights
and obligations hereunder by a signed written statement of such transferee's
acceptance of such rights and obligations.
(g) Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and, all of which taken
together shall constitute one and the same Agreement.
22
<PAGE>
(h) Governing Law; Submission to Jurisdiction; Waiver of Jury Trial.
---------------------------------------------------------------
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN
THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. THE
COMPANY HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY NEW YORK STATE
COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK OR ANY FEDERAL
COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK IN RESPECT OF
ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, AND
IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND
UNCONDITIONALLY, JURISDICTION OF THE AFORESAID COURTS. THE COMPANY IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW,
TRIAL BY JURY AND ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING
OF THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH
COURT AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH
COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. NOTHING HEREIN SHALL AFFECT
THE RIGHT OF ANY HOLDER OF A REGISTRABLE SECURITY TO SERVE PROCESS IN ANY MANNER
PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST
THE COMPANY IN ANY OTHER JURISDICTION.
(i) Severability. The remedies provided herein are cumulative and not
------------
exclusive of any remedies provided by law. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their reasonable efforts to find and employ an alternative
means to achieve the same or substantially the same result as that contemplated
by such term, provision, covenant or restriction. It is hereby stipulated and
declared to be the intention of the parties that they would have executed the
remaining terms, provisions, covenants and restrictions without including any of
such that may be hereafter declared invalid, illegal, void or unenforceable.
(j) Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof. All
references made in this Agreement to "Section" or "paragraph" refer to such
Section or paragraph in this Agreement unless expressly stated otherwise.
(k) Attorneys' Fees. In any action or proceeding brought to enforce any
---------------
provision of this Agreement, or where any provision hereof or thereof is validly
asserted as a defense, the prevailing party, as determined by the court, shall
be entitled to recover reasonable attorneys' fees in addition to any other
available remedy.
23
<PAGE>
(l) Termination. Provided at least 50% of the Notes issued on the date
-----------
hereof repaid, redeemed or converted into Shares, this Agreement shall terminate
and be of no further force and effect from and after the earliest of (w) the
date on which 33% or less of the Registrable Securities remain outstanding (x)
with respect to any holder of Registrable Securities, the date on which all of
the Shares held by such holder may be sold pursuant to Rule 144(k), (y) with
respect to
24
<PAGE>
any holder of Registrable Securities, the date on which all of the Shares held
by such holder may be sold in a three-month period pursuant to Rule 144, and (z)
10 years from the date hereof; provided, however, with respect to clauses (x)
-------- -------
and (y) of this subsection 12(1) that this Agreement shall not terminate until
such time as the Company shall have delivered to each of the holders of Shares
an opinion of counsel of the Company stating that the conditions contained in
such clause (x) or (y) have been satisfied.
IN WITNESS WHEREOF, the parties hereto have caused this Warrant Shares
Registration Rights Agreement to be duly executed, all as of the day first
written above.
ELSINORE CORPORATION
By _______________________________
Thomas E. Martin
President
PURCHASER:
G & O PARTNERS, L.P.
By /s/ Paul Orwicz
--------------------------------
Paul Orwicz
as General Partner
GRORAN LLC1
By Ganek & Orwicz Partners, Inc.,
Its Investment Manager
By /s/ Paul Orwicz
--------------------------------
President
----------------------------------
Paul Orwicz
----------------------------------
David Ganek
25
<PAGE>
STOCK PLEDGE AGREEMENT
DATE: March __, 1995
FROM: Elsinore Corporation,
a Nevada corporation
202 Fremont Street
Las Vegas, NV 89101 ("Shareholder")
TO: Magnolia Partners, L.P.
Mojave Partners, L.P.
G & O Partners, L.P.
c/o Magnolia Partners, L.P.
[ ]
("Secured Party")
FOR VALUE RECEIVED, in consideration for the agreement by Secured Party
to purchase the Note from Shareholder, and to secure the performance of the
Obligations owed to Secured Party under this Stock Pledge Agreement, the Note,
the Note Purchase Agreement and each and every other Security Document,
Shareholder grants Secured Party a security interest in the Collateral, in
accordance with the definitions and terms set forth below:
1. Definitions.
1.1 Obligations. "Obligations" shall mean all amounts now or
hereafter owed by Obligor to Secured Party under the Note and the Note Purchase
Agreement, and any other liability or obligation owed by Obligor to Secured
Party under the Note, the Note Purchase Agreement, any Security Document,
whether direct, indirect, or contingent, and whether now existing or arising
anytime hereafter.
1.2 Obligor. "Obligor" shall mean Elsinore Corporation, a Nevada
Corporation.
1.3 Note Purchase Agreements. The "Note Purchase Agreements" shall
mean the Note Purchase Agreements dated as of March __, 1995 between Obligor and
Magnolia Partners, L.P., Mojave Partners, L.P. and G & O Partners, L.P.
<PAGE>
1.4 Note. The "Note" shall mean the 7-1/2% Convertible Subordinated
Notes in the original principal amount of $1,675,000 issued by Shareholder to
Secured Party pursuant to the Note Purchase Agreements.
1.5 Security Document. "Security Document" shall mean this Stock
Pledge Agreement (hereinafter this "Agreement"), any other stock pledge
agreement delivered to Secured Party by Obligor, and any other document relating
to or necessary to effectuate the foregoing.
1.6 Subsidiary. "Subsidiary" shall mean Mojave Gaming, Inc. a Nevada
corporation.
2. Pledge and Grant of Security Interest. Shareholder pledges and grants
to Secured Party a security interest in all of its right, title and interest in
the property described in Section 3 below (collectively and severally, the
"Collateral"), to secure performance of the Obligations.
3. Collateral. The Collateral shall consist of the following:
(a) _______ shares of common stock of Subsidiary, ___ par value, owned
by Shareholder, which represents 100 percent of the issued and outstanding
common stock of Subsidiary, including any stock issuable in the future upon the
conversion or exercise of any warrant, right or option to acquire common stock
of Subsidiary ("Outstanding Stock"), the certificates for which (together with
stock powers properly executed in blank) have been delivered by Shareholder to
Secured Party, together with all new, substituted and additional securities
issued at any time with respect to those shares (collectively and severally, the
"Pledged Shares");
(b) All now existing and hereafter arising rights with respect to the
Pledged Shares, including, without limitation, all voting rights and all rights
to cash and non-cash dividends on account of the Pledged Shares, subject to the
terms of Section 7 hereof;
(c) All proceeds of the foregoing Collateral. For purposes of this
Agreement, the term "proceeds" includes whatever is receivable or received when
any of the Collateral or proceeds is sold, collected, exchanged or otherwise
disposed of, whether such disposition is voluntary or involuntary, and includes,
without limitation, all rights to payment, including return premiums, with
respect to any insurance relating thereto and also includes all interest,
dividends and other property receivable or received on account of the Collateral
or proceeds thereof. Shareholder shall be entitled to substitute for the
2
<PAGE>
stock certificates under Section 3(a) replacement certificates containing
legends with respect to restrictions on the transferability of the shares
evidenced by the certificates, which restrictions (other than with respect to
those imposed by the Gaming Authorities (as defined in the Note Purchase
Agreements)) will not apply to Secured Party or the exercise of its rights under
this Agreement.
4. Representations and Warranties. Shareholder represents and warrants
that: (a) except as contemplated herein, delivery and performance by Shareholder
of this Agreement will not contravene, constitute a default under or result in
the imposition of a lien upon any property of Shareholder pursuant to any
applicable law or regulation or any contract, agreement, judgment, order, decree
or other instruments binding upon or affecting Shareholder; (b) this Agreement
constitutes the legal, valid and binding obligation of Shareholder, enforceable
in accordance with its terms (except as enforceability may be affected by
bankruptcy, insolvency or other similar laws affecting the enforcement of
creditor's rights), and this Agreement grants to Secured Party a valid, first
priority, perfected and enforceable lien on the Collateral (except as
enforceability may be affected by bankruptcy, insolvency, or other similar laws
affecting the enforcement of creditor's rights); (c) as of the date hereof,
there is no action, suit or proceeding pending or threatened against Shareholder
that might adversely affect the Collateral in any material respect; (d)
Shareholder is the sole owner of the Pledged Shares in the percentages set forth
above (or, in the case of after-acquired Collateral, at the time Shareholder
acquires rights in the Collateral, will be the sole owner thereof); (e) the
Pledged Shares represent 100 percent of the Outstanding Stock of Subsidiary and
Subsidiary has no shares of its capital stock issued and outstanding other than
shares of its common stock; (f) except for the security interest in favor of
Secured Party, no person has (or, in the case of after-acquired Collateral, at
the time the owner of such Collateral acquires rights therein, will have) any
right, title, claim or interest (by way of security interest or other lien or
charge or otherwise) in, against or to the Collateral superior to that of
Secured Party; (g) all material information concerning the financial condition
of Shareholder and Subsidiary heretofore, herein or hereafter supplied to
Secured Party by Shareholder in connection with the execution of this Agreement
and the Security Documents is true and correct in all material respects; (h)
there are no misrepresentations or any misstatements of any material facts by
Shareholder in any of the Security Documents; and (i) the Pledged Shares have
been validly issued and are fully paid and non-assessable.
3
<PAGE>
5. Covenants of Shareholder. Shareholder agrees (a) to do all acts that may
be necessary to maintain, preserve and protect the Collateral; (b) not to use or
permit to be used any of the Collateral unlawfully or in violation of any
provision of the Security Documents or any applicable statute, regulation or
ordinance or any policy of insurance covering the Collateral; (c) to pay
promptly when due all taxes, assessments, charges, encumbrances and liens now or
hereafter imposed upon or affecting any of the Collateral and not to allow or
grant any other lien or security interest with respect to the Collateral
superior to that of Secured Party; (d) to procure, execute and deliver from time
to time any endorsements, assignments, financing statements and other writings
deemed necessary or appropriate by Secured Party to perfect, maintain and
protect its security interests hereunder and the priority thereof; (e) to appear
in and defend any action or proceeding that may affect Shareholder's title to or
Secured Party's interest in the Collateral; (f) to provide Secured Party with
such records or copies thereof and such other reports and information relating
to the Collateral as Secured Party may reasonably request from time to time; (g)
not to sell, transfer, surrender or lose possession of (other than to Secured
Party) any Collateral or right or interest therein; (h) to account fully for and
promptly deliver to Secured Party, in the form received, all dividends and other
distributions received in respect of the Collateral, endorsed to Secured Party
as appropriate, and until so delivered all such property shall be held by
Shareholder in trust for Secured Party, separate from all other property of such
owners and identified as the property of Secured Party; (i) to deliver to
Secured Party such assignments, stock transfer powers, or other documents as
Secured Party may reasonably request in compliance with the terms of this
Agreement; (j) to cause Subsidiary to refrain from issuing any additional shares
or rights to acquire shares of its capital stock without the prior written
consent of Secured Party; and (k) not to cause Subsidiary to liquidate, merge or
reorganize under any bankruptcy, insolvency, or other similar laws now or
hereafter in effect, without the prior written consent of Secured Party.
6. Authorized Action by Secured Party. Shareholder irrevocably appoints
Secured Party as its attorney-in-fact to do (but Secured Party shall not be
obligated to and shall incur no liability to Shareholder or any third party for
failure so to do), after and during the continuance of an Event of Default
hereunder, any act which Shareholder is obligated by this Agreement to do, and
to exercise such rights and powers as Shareholder might exercise with respect to
the Collateral, including, without limitation, the right to (a) enter into any
extension, reorganization, deposit, merger, consolidation or other agreement
pertaining to, or deposit, surrender, accept,
4
<PAGE>
hold or apply other property in exchange for, the Collateral; (b) transfer the
Collateral to Secured Party's own or its nominee's name; and (c) take any other
action Secured Party deems advisable for the purpose of protecting the
Collateral. Such care as Secured Party gives to the safekeeping of its own
property of like kind shall constitute reasonable care of the Collateral when in
Secured Party's possession; provided, however, that Secured Party shall not be
required to make any presentment, demand or protest, or give any notice and need
not take any action to preserve any rights against any prior party or any other
person in connection with the Obligations or with respect to the Collateral.
7. Administration of the Pledged Shares.
(a) So long as no Event of Default shall have occurred and is not
continuing, Shareholder shall be entitled to vote or consent with respect to the
Pledged Shares in any manner and on all matters not inconsistent with the
Security Documents, and similarly Secured Party shall have no voting rights to
the Pledged Shares absent an Event of Default. If there shall have occurred and
be continuing an Event of Default and Secured Party shall have notified the
Shareholder that Secured Party desires to exercise its proxy rights with respect
to all or a portion of the Pledged Shares, Shareholder hereby grants to Secured
Party an irrevocable proxy for the Pledged Shares pursuant to which proxy
Secured Party shall be entitled to vote or consent, in its discretion. This
irrevocable proxy is coupled with an interest. In such event Shareholder agrees
to deliver to Secured Party such further evidence of the grant of such proxy as
Secured Party may request, but no further evidence shall be required in order to
allow Secured Party to exercise its voting rights.
(b) If at any time or from time to time after the date hereof, with
respect to the Pledged Shares, Shareholder shall receive or shall become
entitled to receive any dividend or any other distribution, whether in
securities or other property, by way of liquidation, stock-split, spin-off,
split-up or reclassification, combination of shares or the like, or in case of
any reorganization, consolidation or merger, Shareholder shall immediately
deliver all such securities or property, in pledge, to Secured Party as security
for the payment and performance of the Obligations in the manner provided for in
this Agreement. Secured Party shall have the authority, whether or not an Event
of Default shall have occurred or be continuing, to receive any cash or other
property distributions with respect to the Pledged Stock and to apply such
payments against the Obligations in such order as it may elect. Shareholder
shall turn over any such payments to Secured Party immediately or shall notify
Subsidiary to make
5
<PAGE>
all such payments directly to Secured Party. Secured Party may endorse, in its
own name or in that of Shareholder, any and all instruments by which any payment
on the Collateral may be made, and may take such action as it may deem
appropriate from time to time, in its own name or in that of Shareholder, to
enforce collection of the Collateral. For such purpose, Shareholder
constitutes and appoints Secured Party and each of its officers the
attorneys-in-fact of Shareholder, under powers coupled with interests, with
full power of substitution in each.
(c) So long as any of the Obligations remain outstanding, Shareholder
will not transfer, whether by sale, gift or otherwise, any ownership interest
in the Collateral without Secured Party's prior written approval.
8. Events of Default. Any one or more of the following events constitutes
an event of default hereunder ("Event of Default"):
(a) Any Event of Default under the Note Purchase Agreement;
(b) A material breach of any of the terms of this Agreement, relating to
the accuracy of the representations and warranties contained in Section 4 and
the fulfillment of the covenants in Section 5; or
(c) The failure of Obligor to perform any other Obligation under this
Agreement within 15 days after receipt of written notice from Secured Party
specifying the nature of the default, or, with respect to a default under any
other Security Document, within the cure period provided therein. No notice of
default and no opportunity to cure shall be required if during the prior twelve
months Secured Party has already sent a notice to the Obligor concerning default
in performance of the same Obligation.
9. Rights of Secured Party Upon Default.
9.1 Upon the occurrence of any Event of Default, Secured Party may, in
its sole discretion and with or without further notice to Obligor, and in
addition to all rights and remedies at law or in equity or otherwise:
(a) - Foreclose or otherwise enforce Secured Party's security interest
in the Collateral in any manner permitted by law or provided for herein;
(b) Sell or otherwise dispose of the Collateral or any part thereof in
accordance with the standards set forth in Section 9.2 below.
6
<PAGE>
9.2 Shareholder and Secured Party acknowledge and agree that the
Collateral consists of restricted, unregistered stock which is difficult to
value and for which no public market exists. The parties further agree that the
Collateral is not subject to sale in a "recognized market" as that phrase is
used in the Uniform Commercial Code. Shareholder and Secured Party wish to agree
to reasonable standards for conducting a commercially reasonable sale of the
Collateral in the event of a default by Obligor. The standards which Shareholder
and Secured Party agree to are as follows:
(a) Following default, the Secured Party may set a date for a public
sale of the Collateral.
(b) Any public sale shall take place at the hour of 10:00 a.m. at
Stoel Rives Boley Jones & Grey, 900 SW Fifth Avenue, Suite 2300, Portland,
Oregon 97204 or at such other place designated by Secured Party. The sale may be
adjourned by Secured Party from time to time.
(c) Within 30 days of receipt of a written request from Secured Party,
Shareholder shall provide to Secured Party a list (the "Bidders List") of names
and addresses of potential bidders for the Collateral. Notice of the date, time
and place of the public sale shall be mailed by certified mail, return receipt
requested, and by regular mail to all names on the Bidders List. Secured Party
may mail notice of the sale to any other potential bidders of whom Secured Party
may be aware or to any other persons; provided, that Secured Party's failure to
give notice of the sale to any persons or entities other than those contained in
the Bidders List shall not be deemed commercially unreasonable.
(d) Secured party shall also give notice of the sale by publishing a
notice describing the date, time, place and conditions of the sale as set forth
herein, containing a description of the Collateral, and describing the
Obligations which the Collateral secures, in a newspaper of general circulation
in Nevada and the Wall Street Journal. Such newspaper notices shall appear in
-----------------------
the designated newspapers for no less than seven (7) consecutive days prior to
the date of sale.
(e)- On the date, time and place of the sale all bidders shall appear
in person or through representatives. Bidding shall begin promptly at the hour
designated. Bids will be made orally in the presence of a representative of
Secured Party and a representative of Shareholder, if Shareholder elects to send
a representative. The successful bidder will be required to tender the amount of
the bid in cash or by certified check, cashier's check or money order within 24
hours
7
<PAGE>
of the close of bidding on the date of sale, except that the Secured Party may
bid at the sale by bidding in all or a portion of the amounts owed to Secured
Party.
(f) Provided that Secured Party complies with the standards set forth
above, the sale shall conclusively be deemed to be a commercially reasonable
public sale within the meaning of the Uniform Commercial Code.
(g) At any sale of any of the Pledged Shares, if it deems it advisable
to do so, Secured Party may restrict the prospective bidders or purchasers to
persons or entities who (i) will represent and agree that they are purchasing
for their own account, for investment, and not with a view to the distribution
or sale of any of the Pledged Shares and (ii) satisfy the offeree and purchaser
requirements for a valid private placement transaction under Section 4(2) of the
Securities Act of 1933, as amended ("the Act"), and under Securities and
Exchange Commission Regulation D, or under any similar state or federal
statutes, rule or regulations. Shareholder agrees that disposition of the
Pledged Shares pursuant to any private sale made as provided in this paragraph
(g) may be at prices and on other terms less favorable than if the Pledged
Shares were sold at public sale under the Act, and that Secured Party has no
obligation to delay the sale of any Pledged Shares for public sale under the
Act.
10. General Provisions.
------------------
(a) Cumulative Rights. The rights, powers and remedies of Secured Party
under this Agreement shall be in addition to all rights, powers and remedies
given to Secured Party by virtue of any statute or rule of law, or any other
agreement, all of which rights, powers and remedies shall be cumulative and may
be exercised successively or concurrently without impairing Secured Party's
security interest in the Collateral.
(b) Waiver. Any waiver, forbearance, failure or delay by Secured Party
in exercising, or the exercise or beginning of exercise by Secured Party of any
right, power or remedy, simultaneous or later, shall not preclude the further,
simultaneous or later exercise thereof, and every right, power or remedy of
Secured Party shall continue in full force and effect until such right, power or
remedy is specifically waived in a writing executed by Secured Party.
(c) Setoff. Shareholder agrees that Secured Party may exercise its right
of setoff, if any, with respect to the Obligations in the same manner as if the
Obligations were unsecured.
8
<PAGE>
(d) Waiver of Rights. Shareholder hereby irrevocably waives, disclaims
and relinquishes all claims against Subsidiary which Shareholder otherwise has
or would have by virtue of having executed this Agreement, specifically
including, but not limited to, all rights of indemnity, contribution or
exoneration.
(e) Severability. If any of the provisions of this Agreement shall be
held invalid or unenforceable, this Agreement and the rights and obligations of
the parties hereto shall be construed without reference to such provision and
enforced accordingly.
(f) Benefit and Assignment. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective
successors and assigns. Shareholder may not voluntarily or involuntarily assign
his interests under this Agreement without the prior consent of the Secured
Party.
(g) Governing Law: Jurisdiction. The construction and performance of
this Agreement will be governed by the laws of the State of New York. With
respect to any action or suit in respect of this Agreement or any document or
instrument delivered hereunder, each of the parties (a) irrevocably consents to
the jurisdiction of any court of the State of New York sitting in New York City
(or the United States District Court for the Southern District of New York) in
any and all actions between or among the parties, and (b) irrevocably consents
to service of process in any such action or suit by first class certified mail,
return receipt requested, postage prepaid, to the address at which such party is
to receive notice in accordance with Section 9(h).
(h) Notices. Any notice, demand or request required or permitted to be
given under the provisions of this Agreement shall be in writing and shall be
deemed to have been duly delivered on the date of personal delivery or on the
date of receipt if mailed by registered or certified mail, postage prepaid and
return receipt requested, and shall be deemed to have been received on the date
of personal delivery or on the date set forth on the return receipt, to the
following addresses, or to such other address as any party may request:
9
<PAGE>
Shareholder: Elsinore Corporation
202 Fremont Street
Las Vegas, NV 89101
Attn: President
With a copy to:
Pillsbury Madison & Sutro
Attn: Gregg F. Vignos
235 Montgomery Street
San Francisco, CA 94104
Secured Party: Magnolia Partners, L.P.
Mojave Partners, L.P.
G&O Partners, L.P.
c/o Magnolia Partners, L.P.
[ ]
(i) Counterparts. This Agreement may be executed in one or more
counterparts. The signature of one party on any counterpart shall bind such
party just as if all parties had signed that counterpart. Each counterpart will
be deemed an original. All counterparts of the Agreement shall together
constitute one original document.
(j) Attorneys' Fees: Expenses. In the event suit or action is instituted
to enforce any of the terms of this Agreement, the prevailing party shall be
entitled to recover its reasonable attorneys' fees at trial, on any appeal and
on any petition for review, in addition to all other sums provided by law.
Further, Shareholder shall be liable for all costs, expenses and attorneys' fees
incurred by the Secured Party in enforcing its rights under this Agreement in
connection with any nonjudicial action (including the exercise of nonjudicial
remedies), any bankruptcy case, proceeding or motion (including motions for
relief from the automatic stay), and any administrative, arbitrative, mediation
or dispute resolution process or proceeding. Whether or not any court action is
involved, all reasonable expenses incurred by Secured Party (including
attorneys' fees and costs) that are necessary at any time in Secured Party's
opinion for the protection of its interests or the enforcement of its rights
shall become a part of the amounts payable by Shareholder to Secured Party and
shall bear interest from the date of expenditure until repaid at the rate of 10%
per annum.
ELSINORE CORPORATION
a Nevada corporation
10
<PAGE>
By:
-------------------------------
Title:
----------------------------
By:
-------------------------------
Title:
----------------------------
11
<PAGE>
Exhibit 21.1
------------
LIST OF SUBSIDIARIES
--------------------
Eagle Gaming, Inc. Nevada
Elsinore of Atlantic City, L.P. New Jersey
Elsinore of New Jersey, Inc. New Jersey
Elsinore Finance Corporation New Jersey
Elsinore-Missouri Gaming, Inc. Nevada
Elsinore Shore Associates New Jersey
Elsinore Tahoe, Inc. Nevada
ELSUB Corporation New Jersey
ELSUB Management Corporation Nevada
Four Queens Experience Corporation Nevada
Four Queens, Inc. Nevada
Mojave Gaming, Inc. Nevada
Olympia Gaming Corporation Nevada
Palm Springs East Limited Partnership Nevada
Pinnacle Gaming, Inc. Nevada
<PAGE>
INDEPENDENT AUDITORS' CONSENT
The Board of Directors and Stockholders
Elsinore Corporation:
We consent to incorporation by reference in the registration statements on Form
S-8 of Elsinore Corporation of our report dated March 29, 1995, relating to the
consolidated balance sheets of Elsinore Corporation and subsidiaries as of
December 31, 1994 and 1993, and the related consolidated statements of
operations, stockholders' equity (deficit) and cash flows and related schedule
for each of the years in the three-year period ended December 31, 1994, which
report appears in the December 31, 1994 annual report on Form 10-K of Elsinore
Corporation.
Our report dated March 29, 1995, contains an explanatory paragraph that states
that the Company has suffered recurring losses from operations, has a net
capital deficiency, has a working capital deficiency, must obtain waivers from
noteholders for debt covenant noncompliance in order to avoid default under
terms of the First Mortgage and Mortgage Notes payable, must negotiate the
termination of the management contract with and repayment of advances to a
Native American tribe, and obtain additional financing to meet its obligations,
all of which raise substantial doubt about its ability to continue as a going
concern. Additionally, the Company is involved in certain litigation, the
ultimate outcome of which cannot presently be determined. The consolidated
financial statements and financial statement schedule do not include any
adjustments that might result from the outcome of these uncertainties.
Our reports refers to a change to adopt the provisions of the Financial
Accounting Standards Board's Statement of Financial Accounting Standards No.
109, Accounting for Income Taxes.
KPMG PEAT MARWICK LLP
Las Vegas, Nevada
March 30, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 3,407
<SECURITIES> 0
<RECEIVABLES> 956
<ALLOWANCES> 214
<INVENTORY> 396
<CURRENT-ASSETS> 6,204
<PP&E> 64,598
<DEPRECIATION> 36,257
<TOTAL-ASSETS> 67,315
<CURRENT-LIABILITIES> 16,709
<BONDS> 52,081
<COMMON> 13
0
0
<OTHER-SE> (1,677)
<TOTAL-LIABILITY-AND-EQUITY> 67,315
<SALES> 13,161
<TOTAL-REVENUES> 62,706
<CGS> 5,606
<TOTAL-COSTS> 63,782
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 14
<INTEREST-EXPENSE> 9,971
<INCOME-PRETAX> (10,176)
<INCOME-TAX> 0
<INCOME-CONTINUING> (10,176)
<DISCONTINUED> 0
<EXTRAORDINARY> 735
<CHANGES> 0
<NET-INCOME> (9,441)
<EPS-PRIMARY> (0.78)
<EPS-DILUTED> (0.78)
</TABLE>
