SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period
ended September 30, 1996
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the transition period from
to
Commission File Number 1-7831
ELSINORE CORPORATION
(Exact name of registrant as specified in its charter)
Nevada 88 0117544
(State or Other Jurisdiction (IRS Employer
of Incorporation or Organization) Identification No.)
202 FREMONT STREET, LAS VEGAS, NEVADA 89101
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number (Including Area Code): 702/385-4011
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
ninety (90) days.
YES X NO
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
TITLE OF STOCK NUMBER OF SHARES
CLASS DATE OUTSTANDING
Common November 7, 1996 15,891,793
<PAGE>
Elsinore Corporation and Subsidiaries (Debtor-in-Possession)
Form 10-Q
For the Quarter Ended September 30, 1996
INDEX
PART I. FINANCIAL INFORMATION: PAGE
Item 1. Consolidated Financial Statements:
Balance Sheets at September 30, 1996
and December 31, 1995 3 - 4
Statements of Operations for the Three Month
Periods Ended September 30, 1996 and 1995 5
Statements of Operations for the Nine Month
Periods Ended September 30, 1996 and 1995 6
Statements of Cash Flows for the Nine Month
Periods Ended September 30, 1996 and 1995 7
Notes to Financial Statements 8 - 20
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 21 - 25
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 26
Item 5. Other Information 26
Item 6. Exhibits and Reports of Form 8-K 26
SIGNATURES 27
PART 1. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Elsinore Corporation and Subsidiaries (Debtor-In-Possession)
Consolidated Balance Sheets
September 30, 1996 and December 31, 1995
(Dollars in Thousands)
September 30, December 31,
1996 1995
(UNAUDITED)
Assets
Current Assets:
Cash and cash equivalents $ 6,329 $ 3,572
Accounts receivable, less allowance for
doubtful accounts of $253 and $201,
respectively 583 729
Inventories 210 248
Prepaid expenses 1,477 1,029
Total current assets 8,599 5,578
Property and equipment, net 23,911 25,473
Leasehold acquisition costs, net of accumulated
amortization of $4,846 and $4,691,
respectively 1,993 2,148
Investment in Fremont Street Experience LLC, net
of accumulated amortization of $450
and $0, respectively 2,550 3,000
Other assets 821 902
$ 37,874 $ 37,101
See accompanying notes to consolidated financial statements.
Elsinore Corporation and Subsidiaries (Debtor-In-Possession)
Consolidated Balance Sheets
September 30, 1996 and December 31, 1995
(Dollars in Thousands)
September 30, December 31,
1996 1995
(UNAUDITED)
Liabilities and Shareholders' Deficit
Current liabilities:
Accounts payable $ 471 $ 676
Accrued interest 1,154 100
Accrued expenses 6,700 5,352
Current portion of capital
Lease obligations 55 54
Total current liabilities 8,380 6,182
Prepetition liabilities not subject to compromise:
Long-term debt, subject to demand for
acceleration, net of unaccreted discount 3,000 2,902
Capital lease obligations, net of current
portion 1,489 1,531
4,489 4,433
Prepetition liabilities subject to compromise:
Accounts payable 3,509 4,070
Prior period income taxes and related
interest 2,985 2,985
Accrued interest 4,419 4,419
Accrued expenses 28 28
Long-term debt subject to
demand for acceleration 58,425 58,425
69,366 69,927
Total liabilities 82,235 80,542
Shareholders' deficit(note 1):
Common stock, $.001 par value per share.
Authorized 100,000,000 shares. Issued
and outstanding 15,891,793 shares 16 16
Additional paid-in capital 65,315 65,315
Accumulated deficit (109,692) (108,772)
Total shareholders' deficit (44,361) (43,441)
Commitments and contingencies(notes 4 and 6).
$ 37,874 $ 37,101
See accompanying notes to consolidated financial statements.
Elsinore Corporation and Subsidiaries (Debtor-In-Possession)
Consolidated Statements of Operations
Three Month Periods Ended September 30, 1996 and 1995
(Dollars in Thousands, Except Per Share Amounts)
(UNAUDITED)
1996 1995
Revenues:
Casino $ 10,536 $ 9,689
Hotel 2,591 2,183
Food and beverage 2,977 2,709
Other 172 627
Promotional allowances (1,463) (1,452)
14,813 13,756
Costs and Expenses:
Casino 4,437 4,671
Hotel 2,255 2,085
Food and beverage 1,813 1,432
Taxes and licenses 1,612 1,649
Selling, general and administrative 2,559 2,792
Rents 1,010 1,082
Provision for lossess on loans receivable
From Native American Tribes - 4,258
Casino development costs - 1,049
Depreciation and amortization 943 995
Interest (Contractual interest
for 1996 of $1,789) 811 2,400
Interest, prior period income tax
obligation - 264
15,440 22,677
Loss before
reorganization items (627) (8,921)
Reorganization items 977 -
Loss before income taxes (1,604) (8,921)
Income taxes - -
Net loss $ (1,604) $ (8,921)
Loss per
common share (note 5) $ (0.10) $ (0.56)
Weighted average number
of common shares outstanding 15,891,793 15,877,849
See accompanying notes to consolidated financial statements.
Elsinore Corporation and Subsidiaries (Debtor-In-Possession)
Consolidated Statements of Operations
Nine Month Periods Ended September 30, 1996 and 1995
(Dollars in Thousands, Except Per Share Amounts)
(UNAUDITED)
1996 1995
Revenues:
Casino $ 32,401 $ 30,246
Hotel 8,319 6,956
Food and beverage 9,566 8,971
Other 473 1,872
Promotional allowances (4,944) (4,996)
45,815 43,049
Costs and Expenses:
Casino 13,563 15,077
Hotel 6,141 5,904
Food and beverage 5,273 4,466
Taxes and licenses 5,104 5,018
Selling, general and administrative 7,332 8,455
Rents 3,044 3,025
Provision for lossess on loans receivable
From Native American Tribes - 4,258
Casino development costs - 2,086
Depreciation and amortization 2,837 3,033
Interest (Contractual interest
for 1996 of $6,490) 1,326 7,010
Interest, prior period income tax
obligation - 916
44,620 59,247
Income (loss) before
reorganization items 1,195 (16,198)
Reorganization items 2,115 -
Loss before income taxes (920) (16,198)
Income taxes - -
Net loss $ (920) $ (16,198)
Loss per
common share (note 5) $ (0.06) $ (1.05)
Weighted average number
of common shares outstanding 15,891,793 15,383,988
See accompanying notes to consolidated financial statements.
Elsinore Corporation and Subsidiaries (Debtor-In-Possession)
Consolidated Statements of Cash Flows
Nine Month Periods Ended September 30, 1996 and 1995
(Dollars in Thousands)
(UNAUDITED)
1996 1995
Cash flows from operating activities:
Net income (loss) $ (920) $(16,198)
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization 2,837 3,033
Accretion of discount on long-term debt 98 1,021
Write-off of loans receivable from
Native American tribes - 4,258
Write-off of casino development costs - 2,086
Accrued expenses 1,348 -
Change in other assets and
Liabilities,net 588 70
Liabilities subject to compromise:
Accounts payable (561) 3,416
Prior period income taxes
and related interest - (2,284)
Accrued interest and other expenses - 1,597)
Total adjustments 4,310 13,197
Cash provided by (used in)
operating activities 3,390 (3,001)
Cash flows from investing activities:
Notes and loans receivable from Native
American Tribes - (6,646)
Investment in Fremont Street Experience LLC - (350)
Capital expenditures (592) (40)
Cash used in investing
activities (592) (7,036)
Cash flows from financing activities:
Issuance of long-term debt - 1,644
Principal repayments of long-term debt (41) (35)
Proceeds from issuance of common stock,
net of underwriting discounts and
commissions and other direct costs - 3,742
Debt issuance costs - (140)
Cash (used in) provided by
financing activities (41) 5,211
Increase (decrease) in cash and
cash equivalents 2,757 (4,826)
Cash and cash equivalents at beginning of
period (including restricted amounts of
$0 and $3,685 at December 31, 1995
and 1994, respectively) 3,572 7,092
Cash and cash equivalents at end of period $ 6,329 $ 2,266
See accompanying notes to consolidated financial statements.
Elsinore Corporation and Subsidiaries (Debtor-In-Possession)
Notes to Consolidated Financial Statements
September 30, 1996 and December 31, 1995
(Unaudited)
1. Reorganization Under Chapter 11, Liquidity and Financial Condition
On October 31, 1995, Elsinore Corporation and certain subsidiaries filed
voluntary petitions (the "Chapter 11 filing") in the United States Bankruptcy
Court for the District of Nevada (the "Bankruptcy Court") seeking to
reorganize under Chapter 11 of the United States Bankruptcy Code (the
"Bankruptcy Code"). On November 10, 1995, Olympia Gaming Corporation, a
wholly-owned subsidiary, filed a voluntary Chapter 11 petition in the same
court. The Company has operated as a debtor-in-possession under the
supervision of the Bankruptcy Court. As a debtor-in-possession, the Company
may operate its business but may not engage in transactions outside its
ordinary course of business without the approval of the Bankruptcy Court.
Subject to certain exceptions under the Bankruptcy Code, the Company's filing
for reorganization automatically enjoined the continuation of any judicial or
administrative proceedings against the Company. Any creditor actions to
obtain possession of property from the Company or to create, perfect or
enforce any lien against the property of the Company are also enjoined. As a
result, the creditors of the Company are precluded from collecting
pre-petition debts without the approval of the Bankruptcy Court.
On February 28, 1996, the Company filed a plan of reorganization (the "Plan")
and accompanying disclosure statements (see below). The Company then had 60
days to obtain necessary acceptances of the Plan. The disclosure statement
was approved on May 13, 1996 subject to the insertion of certain language
acceptable to the 1993 bondholders.
On July 16, 1996, the Bankruptcy Court conducted a hearing regarding
confirmation of the plan as submitted by the Company. At that time, the
Bankruptcy Court considered the various objections to the plan raised by
certain creditors and equity holders. On July 18, 1996, the Bankruptcy Court
conducted further proceedings with respect to the plan of reorganization
submitted by the Company. At the July 18 hearing, the Bankruptcy Court
concluded that certain modifications to the plan would be necessary for its
confirmation. These modifications included, among others, making no
distribution to the existing equity holders.
Following the July 18 confirmation hearing , but before the entry of an order
incorporating the Bankruptcy Court's ruling on the plan submitted by the
Company, certain of the Company's creditors filed a motion for reconsideration
based upon their withdrawal of objections to the plan. These creditors agreed
to withdraw their objections in return for a reallocation of equity interests
in the reorganized Elsinore.
On August 5, 1996, the Bankruptcy Court conducted a hearing on the
reconsideration motion. After that hearing, the Bankruptcy Court determined
that the relief sought by that motion should be granted and determined that
the confirmation date for the plan should be moved up so that, among other
things, the management transition provided under the plan would not be
delayed. Accordingly, on August 8, 1996, the Bankruptcy Court entered an order
confirming the plan of reorganization submitted by the Company as modified by
that order (the "Plan") with a confirmation date of August 12, 1996.
Elsinore Corporation and Subsidiaries (Debtor-In-Possession)
Notes to Consolidated Financial Statements
September 30, 1996 and December 31, 1995
(Unaudited)
Plan of Reorganization
The Plan provides for the continuation of Elsinore and at least three of its
subsidiaries (Four Queens, Inc., ElSub Management Corporation and Palm Springs
East Limited Partnership) as going concerns. Under the Plan, the old common
stock interests in Elsinore Corporation will be canceled and Elsinore, as
reorganized, will issue new common stock (the "New Common Stock"). On the
effective date of the Plan, 80% of the New Common Stock will be distributed to
the following classes of creditors and equity holders in the following
proportions:
Interest Percentage
12.5% First Mortgage noteholders 87.5%
7.5% Convertible Subordinated noteholders 3.5%
Unsecured creditors of Four Queens, Inc 2.5%
Unsecured creditors of Elsinore Corporation 1.0%
Internal Revenue Service 1.9%
Old common stockholders 3.6%
100.0%
The remaining 20% of the New Common Stock will be issued through a rights
offering to raise $5,000,000 to assist in funding the Plan. Initially, the
entire amount of the rights offering will be made available for subscription
to the following classes of creditors and equity holders in the percentages
enumerated below:
Interest Percentage
12.5% First Mortgage noteholders 87.5%
7.5% Convertible Subordinated noteholders 3.5%
Unsecured creditors of Four Queens, Inc 2.5%
Old common stockholders 6.5%
100.0%
Each member of the above classes of creditors and equity holders will be
required to elect whether to exercise the right to purchase the New Common
Stock allocated and whether to purchase additional shares of New Common Stock
if one or more holders of that class do not fully exercise their right to
purchase New Common Stock. The subscription rights of non-exercising members
of the above classes will be reallocated automatically among the other members
of the class electing to exercise their rights to purchase additional shares
of New Common Stock. If any of the members of any class do not elect to
exercise all of the rights allocated to that class, the unexercised rights
will be automatically distributed to the members of the unofficial committee
of the First Mortgage noteholders (the "Bondholder Committee") The Bondholder
Committee has guaranteed a 100% subscription for the $5 million rights
offering, in the event the percentages enumerated above are not otherwise
fully subscribed. On or about October 10, 1996 the rights offering process
commenced with the distribution of subscription rights materials to the class
members.
The effective date of the Plan will be after all regulatory approvals required
by the State of Nevada, including approvals by the gaming authorities, have
been obtained and Elsinore has sufficient cash to fund all distributions.
Currently it is expected that the Plan will be fully effective by the end of
March 1997.
Elsinore Corporation and Subsidiaries (Debtor-In-Possession)
Notes to Consolidated Financial Statements
September 30, 1996 and December 31, 1995
(Unaudited)
Proposed Treatment of Creditors and Equity Interests
The Plan is expected to be funded principally from cash generated from
operations and the $5,000,000 proceeds from the rights offering.
Specifically, the proposed treatment of each of the creditor and equity
interests is as follows:
The 20% Mortgage noteholders have an allowed secured claim equal to the
$3,000,000 principal amount of the notes plus accrued interest thereon at 20%
through the date on which the confirmation order was entered by the Bankruptcy
Court(approximately $675,000) and certain fees and disbursements related
thereto (approximately $125,000). On the effective date of the Plan, each
noteholder will receive its prorata share of restated mortgage notes (the
"Restated Mortgage Notes"), due four years from the confirmation date, in
exchange for its allowed claim.
Interest on the Restated Mortgage Notes will accrue at an annual rate of 11.5%
or other appropriate interest rate approved by the Bankruptcy Court and will
be payable quarterly commencing on the fourth month following the confirmation
date. These noteholders will retain their lien interests as collateral for
repayment of the restated mortgage notes.
The 12.5% First Mortgage noteholders have an allowed claim equal to
approximately $61,000,000. Under the Plan, the secured portion of the claim
is allowed in the amount of $30,000,000. The balance of the claim is
unsecured. On the effective date of the Plan, each noteholder will receive (i)
in exchange for the secured portion of its claim, its prorata share of
$30,000,000 face amount of restated first mortgage notes (the "Restated First
Mortgage Notes") which will accrue interest at an annual rate of 13.5% per
annum payable semi-annually and will be due five years from the confirmation
date, and (ii) in exchange for the unsecured portion of its claim, prorata
portion of the New Common Stock (see above).
The 7.5% convertible subordinated noteholders have an allowed claim equal to
approximately $1,500,000. On the effective date of the Plan, each convertible
subordinated noteholder will receive its prorata share of New Common Stock
(see above) in exchange for its allowed claim.
The company's larger unsecured creditors, other than the 7.5% convertible
subordinated noteholders, will receive payments from a fund of approximately
$1,400,000 over a three-year period and their prorata share, if any, of New
Common Stock (see above).
The Internal Revenue Service ("IRS"), which has both secured and unsecured
claims aggregating approximately $3,000,000 will receive full payment of its
secured claim with interest at 8% per annum over four years and will receive,
with respect to its unsecured claim, proportionately the same type of recovery
which is provided for the Company's larger unsecured creditors. In addition,
the IRS will receive its prorata share of the New Common Stock (see above).
Management Agreements
The Plan also calls for a change in the management of the reorganized
Elsinore. Effective at noon on August 12, 1996, Elsinore entered into an
Interim Management Agreement with Riviera Gaming Management Corp - Elsinore,
Inc. to manage the business operations of the Company subject to the direction
of the existing boards of directors of Elsinore and its subsidiaries. When the
Plan is fully effective, the existing board of directors will be reconstituted
with new directors, four of whom will be chosen by the Bondholders Committee,
and one of whom will be chosen by the Equity Committee appointed in the
Elsinore Corporation and Subsidiaries (Debtor-In-Possession)
Notes to Consolidated Financial Statements
September 30, 1996 and December 31, 1995
(Unaudited)
bankruptcy case (with input from other creditor constituencies in the case).
Under the stipulation between the Company and the Bondholders Committee,
senior management (Thomas E. Martin, President and Chief Executive Officer,
and Frank L. Burrell, Jr., Chairman of the Board) ceased to be compensated
employees of the Company on Monday, August 12, 1996, although they will
continue to serve as directors and authorized officers until replaced.
Other Reorganization Matters
Certain pre-petition liabilities have been paid after obtaining the approval
of the Bankruptcy Court, including certain wages and employee benefits, gaming
related liabilities and hotel room and other customer deposits. Subsequent to
filing and with the approval of the Bankruptcy Court, the Company assumed
executory contracts for all real estate and equipment leases.
In accordance with the Stipulation between the Company and the Bondholders
Committee, the Company (with the participation of the Bondholders Committee)
prior to confirmation of the Plan decided which executory contracts would be
assumed. All executory contracts which were not expressly assumed by the
Company were deemed rejected at the confirmation date. All creditors claims
resulting from the rejection of an executory contract must have been filed
with the Bankruptcy Court no later than September 11, 1996. All such claims
which are timely filed will be treated in a manner identical to the treatment
received by other members of the appropriate class of creditors under the
Plan. All such claims which are not timely filed will be barred and discharged
and the creditor holding such claim will not receive or be entitled to any
distribution under the Plan on account of such claim.
The Company has incurred significant costs associated with the reorganization.
Such amounts are expensed as incurred. As a result of its filing for
protection under Chapter 11 of the Bankruptcy Code, the Company is in default
of substantially all of its debt agreements. All outstanding unsecured and
undersecured debt of the Company has been presented in these financial
statements within the caption "Pre-petition liabilities subject to compromise:
Long-term debt subject to demand for acceleration."
Additional liabilities subject to the proceedings may arise in the future as a
result of the rejection of executory contracts and from the determination by
the Bankruptcy Court (or agreement by parties in interest) of allowed claims
for contingencies and other disputed amounts. Conversely, the assumption of
executory contracts may convert pre-petition liabilities shown as subject to
compromise to debt not subject to compromise.
Trading in the Company's common stock continues to be halted by the American
Stock Exchange ("AMEX") and the Pacific Stock Exchange ("PSE"). Elsinore
intends to pursue reactivation of its listings with AMEX and PSE so that the
New Common Stock in the reorganized Elsinore can be traded publicly following
the effective date of the Plan. There can be no assurance, however, that the
listings on AMEX and PSE will be continued.
2. Reorganization Items
Reorganization expense is comprised of items incurred by the Company as a
result of reorganization under Chapter 11 of the Bankruptcy Code. During the
quarter ended September 30, 1996, in connection with the August 1996
confirmation of the reorganization plan, the Company expensed approximately
$762,000 of executive severance costs, of which approximately $318,000 was
immediately due, with the remainder payable in monthly installments which
Elsinore Corporation and Subsidiaries (Debtor-In-Possession)
Notes to Consolidated Financial Statements
September 30, 1996 and December 31, 1995
(Unaudited)
continue into 1997. Reorganization expenses, consisting primarily of accrued
professional fees and executive severance expenses, was $977,000 and $0 for
the three month periods ended September 30, 1996 and 1995 and $2,115,000 and
$0 for the nine month periods ended September 30, 1996 and 1995, respectively
3. Summary of Significant Accounting Policies
In the opinion of management, the accompanying financial statements include
all adjustments (of a normal recurring nature) which are necessary for a fair
presentation of the results for the interim periods presented. Certain
information and footnote disclosures normally included in financial statements
have been condensed or omitted pursuant to such rules and regulations of the
Securities and Exchange Commission. Although the Company believes that the
disclosures are adequate to make the information presented not misleading, it
is suggested that these condensed consolidated financial statements be read in
conjunction with the consolidated financial statements and the notes thereto
included in the Company's Report on Form 10-K for the fiscal year ended
December 31, 1995.
Certain items in the September 30, 1995 financial statements have been
reclassified for comparability with the September 30, 1996 presentation.
(a) Financial Reporting for Bankruptcy Proceedings
The accompanying financial statements have been prepared on a going concern
basis which assumes continuity of operations and realization of assets and
liquidation of liabilities in the ordinary course of business. The financial
statements do not include any adjustments that might be necessary as a result
of the outcome of the uncertainties discussed herein including the effect of
the Plan.
The American Institute of Certified Public Accountant's Statement of Position
90-7, "Financial Reporting by Entities in Reorganization Under the Bankruptcy
Code" ("SOP 90-7") provides guidance for financial reporting by entities that
have filed petitions with the Bankruptcy Court and expect to reorganize under
Chapter 11 of the Bankruptcy Code.
Under SOP 90-7, the financial statements of an entity in a Chapter 11
reorganization proceeding should distinguish transactions and events that are
directly associated with the reorganization from those of the operations of
the ongoing business as it evolves. Accordingly, SOP 90-7 requires the
following financial reporting or accounting treatments in respect to each of
the financial statements.
Balance Sheet
The balance sheet separately classifies pre-petition and post-petition
liabilities. A further distinction is made between pre-petition liabilities
subject to compromise (generally unsecured and undersecured claims) and those
not subject to compromise (fully secured claims). Pre-petition liabilities
are reported on the basis of the expected amount of such allowed claims, as
opposed to the amounts for which those allowed claims may be settled. Under
an approved final plan of reorganization, those claims may be settled at
amounts substantially less than their allowed amounts.
Elsinore Corporation and Subsidiaries (Debtor-In-Possession)
Notes to Consolidated Financial Statements
September 30, 1996 and December 31, 1995
(Unaudited)
When debt subject to compromise has become an allowed claim and that claim
differs from the net carrying amount of the debt (defined as the face amount
of the debt less unamortized debt issuance costs and unaccreted discount), the
net carrying amount is adjusted to the amount of the allowed claim. The
resulting gain or loss is classified as a reorganization item.
Statement of Operations
Pursuant to SOP 90-7, revenues and expenses, realized gains and losses, and
provisions for losses resulting from the reorganization and restructuring of
the business are reported in the statement of operations separately as
reorganization items. Professional fees are expensed as incurred. Interest
expense is reported only to the extent that it will be paid during the
proceeding or that it is probable that it will be an allowed claim.
Statement of Cash Flows
Reorganization items are reported separately within the operating, investing
and financing categories of the statement of cash flows.
(b) Principles of Consolidation
The consolidated financial statements include the accounts of Elsinore
Corporation and its wholly and majority-owned subsidiaries. All material
intercompany balances and transactions have been eliminated in consolidation.
(c) 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 of providing such promotional allowances are included in
casino costs and expenses and consist of the following:
Three Month Periods Ended
September 30,
1996 1995
(Dollars in Thousands)
Hotel $ 289 $ 385
Food & Beverage 959 1,122
Total $1,248 $1,507
Nine Month Periods Ended
September 30,
1996 1995
(Dollars in Thousands)
Hotel $ 987 $1,318
Food & Beverage 3,156 3,670
Total $4,143 $4,988
Elsinore Corporation and Subsidiaries (Debtor-In-Possession)
Notes to Consolidated Financial Statements
September 30, 1996 and December 31, 1995
(Unaudited)
(d) Investment in Fremont Street Experience
The Company and seven other downtown Las Vegas property owners, who together
operate ten casinos, have formed the Fremont Street Experience LLC (FSELLC), a
limited liability company of which the Company is a one-sixth owner, to
develop the Fremont Street Experience attraction. The Fremont Street
Experience has transformed four blocks of Fremont Street into a covered
pedestrian mall featuring a 10-story celestial vault, sound effects and a high
tech light show which add to the neon signs and marquees for which the
downtown area is already famous. The Company's $3,000,000 capital contribution
for its one-sixth ownership of FSELLC was paid in full by January 1994. The
project was completed at the end of November 1995 and the grand opening
ceremonies held on December 13, 1995. As FSELLC is expected to operate at a
loss for the foreseeable future, the $3,000,000 capital contribution is being
amortized over five years using the straight-line method. The Company's
allocated share of the operating costs of the Fremont Street Experience are
expensed as incurred.
(e) Earnings (Loss) Per Share
Earnings (loss) per share has been computed by dividing net income (loss) by
the weighted average common shares outstanding during the period.
(f) Use of Estimates
Management of the Company has made estimates and assumptions relating to the
reporting of assets and liabilities and the disclosure of contingent assets
and liabilities to prepare these financial statements in conformity with
generally accepted accounting principles. Actual results could differ from
those estimates.
4. Native American Casino Operations
Spotlight 29 Casino
Since March 1995, Elsinore Corporation, its wholly owned subsidiary Elsub
Management Corporation, and Palm Springs East Limited Partnership, of which
Elsub is the general partner (collectively the "Company"), and the Twenty-Nine
Palms Band of Mission Indians (the "Band") have been involved in a dispute
regarding, among other things, the terms of a management contract (the
"Contract") under which the Company had the exclusive right to manage and
operate the Spotlight 29 Casino (the "Spotlight 29"), owned by the Band,
located near Palm Springs, California.
On April 17, 1995, the Company was ousted as manager of Spotlight 29 and on
April 19, 1995, the Company issued a demand letter to the Band declaring a
breach of the Contract and a related loan agreement under which the Company
had lent approximately $12,500,000 to the Band for construction of Spotlight
29 and for working capital contributions. The demand letter claimed damages
in the full amount of the funds which had been advanced to the Band.
In light of the Company's disassociation with the operations of Spotlight 29,
management determined to write off, during the quarter ended March 31, 1995,
the unamortized balance of casino development costs incurred for the project
of $1,037,000 and ceased the accrual of interest on the project note and loans
evidencing working capital advances. On May 16, 1995, in response to the
Company's demand, the Band delivered to the Company a "Notice to Terminate
Management Agreement." The notice asserted material breaches of the Contract
and requested payment of approximately $1,500,000 by June 16, 1995 to cover
working capital shortfalls or the Contract would be terminated.
Elsinore Corporation and Subsidiaries (Debtor-In-Possession)
Notes to Consolidated Financial Statements
September 30, 1996 and December 31, 1995
(Unaudited)
On October 31, 1995, the Company filed a voluntary petition for reorganization
under Chapter 11 of the Bankruptcy Code with the United States Bankruptcy
Court for the District of Nevada (Las Vegas, Nevada). The Company has been
involved in protracted negotiations with the Band for a settlement of the
respective claims asserted by the parties since the events described above.
Based upon the progress of the aforementioned negotiations at the time, in
September 1995 the Company wrote-down to $9,000,000 the aggregate amount
advanced to the Band and accrued interest thereon.
As of March 29, 1996, the Company has reached a settlement with the Band,
which has been approved by the Bankruptcy Court and which has received final
clearance by the Bureau of Indian Affairs (the "BIA"). The Company has
received a promissory note from the Band in the principal amount of
$9,000,000. While the note has an initial 36-month amortization schedule,
monthly payments are limited to 20% of Spotlight 29's monthly net income. In
the event that net income is insufficient to pay the note in full at the end
of 36 months, the note will be extended automatically for up to an additional
two years. If still not fully paid at the end of the extension period, it may
be extended up to an additional two years upon the approval of the National
Indian Gaming Commission (the "NIGC"). If not paid at the end of the final
extension period, the note will be forgiven. Interest on the note is at an
annual rate equal to the greater of 10% or the maximum rate allowed under
California law, not to exceed 12%. The first payment under the settlement was
made by the band on October 29, 1996. Given that the $9 million recovery is
limited to 20% of the net income generated by Spotlight 29, management
determined not to reduce the allowance for loss in the amount of $9,000,000
against the aggregate receivable, which was provided during the quarter ended
December 31, 1995.
7 Cedars Casino
Elsinore Corporation, through its wholly-owned subsidiary, Olympia Gaming
Corporation (collectively the "Company"), has a Gaming Project Development and
Management Agreement (the "Contract") to operate the 7 Cedars Casino (the "7
Cedars") which is located on the Olympic Peninsula in the state of Washington.
7 Cedars is owned by the Jamestown S'Klallam Tribe (the "Tribe"). In
addition, pursuant to a loan agreement, the Company lent $9,000,000 to the
Tribe for the construction of 7 Cedars.
Under the terms of the Contract, the Company is obligated to establish a
reserve fund for "working capital", which is not defined in the Contract. The
Company believes the parties did not intend to apply a "working capital"
definition in the Contract based upon generally accepted accounting principles
which, in the Company's view, would be impracticable in the context of the
Contract and which, in practice, has never been followed. Since its opening
on February 3, 1995, the Casino has incurred a substantial cumulative net loss
and an attendant decrease in working capital.
On November 1, 1995, the Tribe asserted that the Company had defaulted on the
June, July, August and September 1995 minimum guaranteed payments to the
Tribe, as defined by the Contract, in the aggregate amount of $100,000 and
requested immediate payment.
In addition, the Tribe demanded that sufficient monies be paid to enable all
current gaming project expenses to be paid and working capital reserve to be
maintained at the required funding level. The Tribe demanded that a minimum
of $2,540,000 be paid immediately and also contended that the working capital
shortfall could be as high as approximately $5,390,000 according to its
interpretation of the Contract. On November 13, 1995, the Company received a
Elsinore Corporation and Subsidiaries (Debtor-In-Possession)
Notes to Consolidated Financial Statements
September 30, 1996 and December 31, 1995
(Unaudited)
letter from the Tribe dated November 9, 1995 asserting that the Contract had
been terminated as a result of the Company's failure to make the payments
which has been demanded.
On November 10, Olympia Gaming filed a voluntary petition for reorganization
under Chapter 11 of the Bankruptcy Code with the United States Bankruptcy
Court for the District of Nevada (Las Vegas, Nevada). Based on the November
10, 1995 bankruptcy filing, the Company maintains that the Contract has not
been terminated.
Pursuant to the terms of the Contract, the Company is to receive a management
fee equal to 30% of the net distributable profits of 7 Cedars (subject to the
Tribe receiving a $25,000 per month guaranteed payment).The Tribe is to
receive the balance of the net distributable profits. The Contract's initial
term expires February 2, 2000, subject to renewal for an additional two years
in the event that the project loan is not paid in full by the end of the
initial term. The project loan to finance the development and construction of
7 Cedars is payable solely from the Tribe's share of the net distributable
profits of 7 Cedars, and will amortize over the five-year term of the contract
at an annual interest rate of 10.9%.
As a result of significantly lower than projected gaming revenues, 7 Cedars
has incurred substantial operating losses since its opening. Management
believes the following are the principal factors contributing to the lower
gaming revenues.
A significantly lower than anticipated propensity for the 3,000,000 plus
tourists visiting the Olympic Peninsula in the summer to gamble. This
includes both the numbers of tourist customers and their level of play
in the casino.
A significantly higher than anticipated impact of competition for the
locals market. Native American casino openings in May 1995 (Muckleshoot
near Auburn, Washington) and January 1996 (Suquamish, north of
Bremerton, Washington) have resulted in substantially reduced visitation
to 7 Cedars from Kitsap County residents. While Kitsap County,
approximately 50 miles to the east of 7 Cedars, was originally
identified as a secondary market, its larger, younger, population proved
to be a significant market in the first several months following the
opening of 7 Cedars.
A substantially lower than expected average table games wager.
In response to declining revenues following the first several months of
operations, management undertook certain cost-cutting measures in the late
spring and summer 1995 and increased marketing activities in an effort to
achieve profitability. In November 1995 and January 1996, more substantial
expense reductions were effected through reductions in the hours of operation
of 7 Cedars and deeper, "across the board" cost cutting. In light of the
existing competition in the Puget Sound area, the demographics of 7 Cedars
primary locals' markets and the apparent low propensity for destination
tourists to the Olympic Peninsula to gamble, there exists substantial
uncertainty as to whether, during the remaining term of the management and
loan agreements, 7 Cedars can achieve the level of profitability required to
obtain full recovery of the loan principal and accrued interest thereon. The
outlook for 7 Cedars could change dramatically, however, if the State of
Washington was to allow electronic gaming machines at Native American casinos.
An initiative to allow limited numbers of electronic gaming machines at Native
American casinos was defeated in the November 1996 election . Given this
defeat, it is uncertain if gaming machines will be allowed in Washington
casinos in the future.
Elsinore Corporation and Subsidiaries (Debtor-In-Possession)
Notes to Consolidated Financial Statements
September 30, 1996 and December 31, 1995
(Unaudited)
During the quarter ended December 31, 1995 management provided an allowance
for loss equal to the $9,000,000 outstanding balance of the project loan plus
accrued interest thereon.
Previously, as of September 1, 1995,the Company ceased accruing interest on
the project loan and wrote-off the remaining unamortized balance of
capitalized casino development costs of approximately $242,000.
5. Earnings (Loss) Per Share
Because of the Chapter 11 proceedings, certain contractual interest
obligations, debt discount and debt issue costs were not expensed during the
three and nine month periods ended September 30, 1996, respectively. In
addition, bankruptcy related reorganization items were incurred and expensed
during the respective periods. The effect on earnings and earnings per share
of such items follow:
Three Month Periods Ended
September 30,
1996 1995
(Dollars in thousands,
except per share amounts)
Net loss per consolidated
statements of operations $(1,604) $(8,921)
Subtract:
Interest (879) -
Debt discount and
debt issuance costs (201) -
Add:
Reorganization items 977 -
Net loss as adjusted $(1,707) $(8,921)
Per Share:
Loss per common share reflected
on consolidated statements of operations $ (0.10) $ (0.56)
Per share effect of such items (0.01) -
Loss per common share
adjusted for such items $ (0.11) $ (0.56)
Nine Month Periods Ended
September 30,
1996 1995
(Dollars in thousands,
except per share amounts)
Net loss per consolidated
statements of operations $ (920) $ (16,198)
Subtract:
Interest (4,645) -
Debt discount and
debt issuance costs (1,041) -
Add:
Reorganization items 2,115 -
Net loss as adjusted $(4,491) $ (16,198)
Per Share:
Loss per common share reflected
on consolidated statements of operations $ (0.06) $ (1.05)
Per share effect of such items (0.22) -
Loss per common share
adjusted for such items $ (0.28) $ (1.05)
Elsinore Corporation and Subsidiaries (Debtor-In-Possession)
Notes to Consolidated Financial Statements
September 30, 1996 and December 31, 1995
(Unaudited)
6. Commitments and Contingencies
Chapter 11 Reorganization
On October 31, 1995, the Company and certain of its subsidiaries filed a
voluntary petition in the United States Bankruptcy Court for the District of
Nevada seeking to reorganize under Chapter 11 of the United States Bankruptcy
Code. On November 10, 1995, Olympia Gaming Corporation filed a voluntary
petition in the same Court. Since the Bankruptcy filing, several entities
have filed administrative claims requesting the Bankruptcy Court order the
Company to reimburse or compensate such entities for goods, taxes and services
they allege the Company has received or collected, but for which they claim
the Company has not paid.
The Company currently estimates that the administrative claims will be
approximately $1.5 million; however, there can be no assurance that additional
amounts will not be claimed or the extent to which administrative claims may
be allowed by the Bankruptcy Court. The Bankruptcy Code requires that all
administrative claims be paid on the effective date of a plan of
reorganization unless the respective claimants agree to different treatment.
Most administrative claims in the bankruptcy case have been paid . The Company
does not expect that the balance of any outstanding administrative claims will
affect its ability to consumate its plan of reorganization.
Hyland Litigation
Thomas Hyland, a professional card counter and blackjack player, filed a
complaint on August 23, 1995 in Federal District Court in Camden, New Jersey,
No. 95CV2236 (JEI), against the Company and virtually every other casino
company in the United States. The complaint alleges violations of the
antitrust, consumer fraud and fair credit reporting laws by the defendants in
illegally conspiring to prevent Mr. Hyland and other professional card
counters from playing blackjack at their respective casinos. The complaint
alleges that the defendants share information concerning card counters and
then act in concert to implement industry wide policy in banning them at the
blackjack tables.
Management believes that the claims are without merit and does not
believe that the lawsuit will have a material adverse effect on the Company's
operating results.
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, would be based 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.
Elsinore Corporation and Subsidiaries (Debtor-In-Possession)
Notes to Consolidated Financial Statements
September 30, 1996 and December 31, 1995
(Unaudited)
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.
On June 30, 1995, the presiding judge entered an Order for Verdict Upon
Liability Issues in which he ruled that: (i) the plaintiffs had failed to
prove any liability under the WARN Act; but (ii) that Elsinore and certain of
its subsidiaries are jointly liable for certain retroactive wages due to
former employees of Elsinore Shore Associates under a collective bargaining
agreement, plus prejudgment interest on such wages. The total amount of
judgment the plaintiffs would be entitled to under this ruling has not yet
been determined. The plaintiffs' attorney asserts that the amount due as of
October 1, 1995, taking into account interest on that date, was approximately
$676,000. On March 4, 1996, the plaintiffs' attorney submitted a proof of
claim for retroactive wages in the amount of $800,000 to the Bankruptcy Court.
Because of the filing of the bankruptcy petitions, the WARN Act litigation in
the New Jersey Court has been stayed by operation of Bankruptcy Code Section
362(a). However, the plaintiff's $800,000 claim is currently the subject of
claims litigation in the Bankruptcy Court. It is the Company's position that
the claim submitted by the plaintiffs should be reduced to zero. However there
can be no assurance as to the success of the Company's attempt to reduce the
claim.
Action Against Twenty-Nine 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 Band in
the United States District Court for the Central District of California, case
no. CV 95-1669-RG(MCx). The complaint sought injunctive and declaratory
relief based upon alleged breaches by the Band of the Spotlight 29 Contract
when it installed Class III electronic gaming machines at the casino without
the Company's consent and without any involvement whatsoever by the Company in
the operation of the machines. The suit was dismissed without prejudice on
April 21, 1995. As described in note 4, the Company has reached a settlement
with the Band.
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. During
April, 1996, U.S District Judge Lloyd George approved defense motions to
Elsinore Corporation and Subsidiaries (Debtor-In-Possession)
Notes to Consolidated Financial Statements
September 30, 1996 and December 31, 1995
(Unaudited)
dismiss such lawsuits saying plaintiffs had failed to state a claim or prove
their case. However, the plaintiffs were given additional time to file an
amended complaint. Management believes 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.
Other
At September 30, 1996, the Company and its subsidiaries were parties to
various other claims and lawsuits arising in the normal course of business.
Management is of the opinion that all pending legal matters are either covered
by insurance or, if not insured, will not have a material adverse effect on
the financial position or the results of operations of the Company.
<PAGE>
Elsinore Corporation and Subsidiaries (Debtor-In-Possession)
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations
This discussion and analysis should be read in conjunction with the
consolidated financial statements and notes thereto.
OVERVIEW
Chapter 11 Proceedings: On October 31, 1995, the Company and certain of its
subsidiaries filed a voluntary petition in the United States Bankruptcy Court
for the District of Nevada to reorganize under chapter 11 of Title 11 of the
United States Bankruptcy Code. On November 10, 1995 an additional subsidiary
of the Company also filed a voluntary petition to reorganize under Chapter 11
in the same court. The Company is continuing to manage its business affairs as
a debtor-in-possession under the supervision of the Bankruptcy Court.
On February 28, 1996, Elsinore and its subsidiaries filed a plan of
reorganization with the Bankruptcy Court. Following negotiations between the
Company and its creditors and equity holders, the Bankruptcy Court entered an
order confirming an amended plan of reorganization (the "Plan") on August 8,
1996. The Plan, once fully effective, will result in the cancellation and/or
restructuring of substantial debt obligations of the Company and will not
eliminate the interests of its common shareholders; however the interests of
the current common stockholders in the Company will be substantially reduced.
There can be no assurance, however, that, even with the Plan, the Company can
generate sufficient cash to sustain operations.
Going Concern Basis: The accompanying financial statements have been prepared
on a going concern basis which assumes continuity of operations and
realization of assets and liquidation of liabilities in the ordinary course of
business. The consolidated financial statements do not include all of the
consequences of the proceedings under Chapter 11 nor all adjustments that
might be necessary should the Company be unable to continue as a going
concern. The Company's ability to continue as a going concern is dependent
upon, among other things, its obtaining the required regulatory approvals from
the State of Nevada, including approvals by the gaming authorities, obtaining
sufficient cash to fund all distributions and cash reserves required at the
time the Plan becomes effective and achieving profitable operations and
sufficient cash flows to meet future obligations required by the Plan. The
outcome of these matters is not presently determinable.
Elsinore Corporation and Subsidiaries (Debtor-In-Possession)
Management's Discussion and Analysis of Financial
Condition and Results of Operations
FINANCIAL CONDITION
Liquidity and Capital Resources
Cash and cash equivalents
Cash and cash equivalents increased $2,757,000 during the nine month period
ended September 30, 1996. Uses of cash during the period included capital
expenditures of $592,000.
Liquidity
Currently, the Company's primary sources of liquidity are cash flows from the
operations of the Four Queens Hotel and Casino. Four Queens revenues,
operating results and cash flows increased during the nine month period ended
September 30, 1996, primarily because of an increase in Four Queens hotel
guests and casino visitors, which apparently occurred due to an overall
increase in the number of visitors to Las Vegas and related visitor (and local
residents) interest in the Fremont Street Experience attraction in downtown
Las Vegas.
During the nine month period ended September 30, 1996, the Company experienced
less liquidity pressure because of the protection afforded by the bankruptcy
laws in the payment of obligations incurred prior to the filing and arising
under certain executory contracts entered into prior to the filing of the
bankruptcy petition and because of the increased visitors to Las Vegas and the
opening of the Fremont Street Experience.
RESULTS OF OPERATIONS
Three Month Periods Ended September 30, 1996 and 1995
Revenues
During the quarter ended September 30, 1996, total revenues, net of
promotional allowances, increased $1,057,000 (7.7%) over the quarter ended
September 30, 1995, primarily because of an increase in the number of Four
Queens hotel guests and casino visitors, which apparently resulted from an
overall increase in the number of visitors to Las Vegas and related visitor
(and local residents) interest in the Fremont Street Experience attraction in
downtown Las Vegas. Other income decreased $455,000, primarily as a result of
the nonaccrual of interest income related to the Native American loans, which
were fully reserved at December 31, 1995. Casino revenues increased $847,000
(8.7%). Promotional allowances, which are subtracted from gross revenues, were
comparable with the 1995 quarter.
The increase in Casino revenues of $847,000 from the comparable prior period,
consisted of a $824,000 (12.1%) increase in slot revenues and a $23,000 (0.8%)
increase in table games revenues. The increase in slot revenues is
attributable to both favorable increases in volumes of play and win variances.
Table games revenues, excluding poker revenues, decreased during the quarter
primarily as a result of unfavorable craps drop and win variances.
Elsinore Corporation and Subsidiaries (Debtor-In-Possession)
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Hotel revenue increased $408,000 (18.7%) primarily because of an increase in
room rates and a slight increase in hotel occupancy. Food and beverage
revenues increased by $268,000 (9.9%) primarily due to increased numbers of
hotel guests and visitors during the 1996 quarter.
Costs and Expenses
Total costs and expenses, excluding interest, depreciation, casino development
costs, provisions for losses on receivables from Native American Tribes and
reorganization items was comparable with the three month period ended
September 30, 1995. All casino development costs and provisions for losses on
receivables from Native American tribes were expensed before 1996.
Casino costs and expenses decreased $233,000 (5.0%) primarily due to a
decrease in costs allocated to the casino for promotional allowances (which
was lower, as a result of a reduction in the ratio of complimentary sales to
total sales of rooms, food and beverages during the three month period ended
September 30, 1996). Correspondingly, hotel expenses increased 170,000 (8.1%)
primarily because of the decrease in complimentary costs allocated to the
casino which was partially offset by operating cost decreases. Food and
beverage expenses increased $381,000 (26.6%) during the quarter primarily due
to increased casino and food service patronage and to a lesser extent because
of decreased allocation of complimentary costs to the casino.
Taxes and licenses decreased $37,000 (2.2%) for the quarter as increased
gaming taxes related to revenue increases were offset by decreases
in other taxes and licenses. Selling, general and administrative expenses
decreased $233,000 (8.3%) from 1995 primarily due to reductions in payroll
costs of corporate administrative and development staff. Rent expenses were
comparable with the 1995 quarter.
Depreciation and amortization decreased $52,000 (9.3%), primarily because of
decreased amortization of debt issue costs (unamortized debt issue costs,
incurred in connection with the 12.5% First Mortgage notes, were charged to
expense as reorganization items at October 31, 1995) and slightly lower
depreciation of property and equipment, which was mostly offset by the
start-up (January 1, 1996) of amortization (over 60-months) of the $3,000,000
investment in the Fremont Street Experience.
Interest of approximately $560,000 has been accrued from the August 12, 1996
plan confirmation date on the face amount of the new restated First Mortgage
notes payable ($30 million at 13.5% per annum) which are to be issued when the
plan becomes fully effective, which is expected to occur by the end of March
1997. In addition, interest of approximately $59,000 has been accrued from the
plan confirmation date on the new restated 11.5% First Mortgage notes payable
($3.8 million face) which are to be issued when the plan becomes fully
effective. Because of the Chapter 11 proceedings, there has been no accrual of
interest on the $57,000,000, 12.5% First Mortgage notes since October 31,
1995. If accrued to the plan confirmation date, the quarterly interest expense
on the 12.5% notes would have been approximately $831,000 for the three month
period ended September 30, 1996. (In addition, the remaining unaccreted
discount balance related to the 12.5% first mortgage notes was charged to
expense as a reorganization item at October 31, 1995). There also has been no
Elsinore Corporation and Subsidiaries (Debtor-In-Possession)
Management's Discussion and Analysis of Financial
Condition and Results of Operations
accrual of interest on the $1,425,000, 7.5% Convertible Subordinated Notes
since October 31, 1995. If accrued to the plan confirmation date, the
quarterly interest expense on the 7.5% notes would have been approximately
$13,000 for the three month period ended September 30, 1996. In addition,
there has been no accrual of interest on the $2,950,000 of prior period tax
obligations since October 31, 1995. If accrued to the plan confirmation date,
the interest expense on prior period tax obligations may have totaled
approximately $35,000 for the three month period ended September 30, 1996.
Reorganization expense is comprised of items incurred by the Company as a
result of reorganization under Chapter 11 of the Bankruptcy Code. During the
quarter ended September 30, 1996, in connection with the August 1996
confirmation of the reorganization plan, the Company expensed approximately
$762,000 of executive severance costs, of which approximately $318,000 was
immediately due, with the remainder payable in monthly installments which
continue into 1997. Reorganization expenses, consisting primarily of accrued
professional fees and executive severance expenses, was $977,000 and $0 for
the three month periods ended September 30, 1996 and 1995, respectively.
Nine Month Periods Ended September 30, 1996 and 1995
Revenues
During the nine month period ended September 30, 1996, total revenues, net of
promotional allowances, increased $2,766,000 (6.4%) primarily because of an
increase in the number of Four Queens hotel guests and casino visitors, which
apparently resulted from an overall increase in the number of visitors to Las
Vegas and related visitor (and local residents) interest in the Fremont Street
Experience attraction in downtown Las Vegas. Other income decreased
$1,399,000, primarily as a result of the nonaccrual of interest income related
to the Native American loans, which were fully reserved at December 31, 1995.
Casino revenues increased $2,155,000 (7.1%). Promotional allowances, which are
subtracted from gross revenues, were comparable to 1995.
The increase in Casino revenues of $2,155,000 from the comparable prior
period, consisted of a $2,349,000 (11.4%) increase in slot revenues and a
$194,000 (2.0%) decrease in table games revenues. The increase in slot
revenues is attributable to both favorable increases in volumes of play and
win variances. The decrease in table games revenues is primarily due to
unfavorable craps win and volume variances.
Hotel revenue increased $1,363,000 (19.6%) primarily because of an increase in
room rates. Food and beverage revenues increased by $595,000 (6.6%) primarily
as a result of an increase in the average price per food cover.
Costs and Expenses
Total costs and expenses, excluding interest, depreciation, casino development
costs, provisions for losses on receivables from Native American Tribes and
reorganization items decreased $365,000 (1.1%) during the nine month period
ended September 30, 1996.
Casino costs and expenses decreased $1,514,000 (10.0%) primarily due to (1) a
decrease in costs allocated to the casino for promotional allowances (which
was lower, as a result of a reduction in the ratio of complimentary sales to
total sales of rooms, food and beverages during the nine month period ended
Elsinore Corporation and Subsidiaries (Debtor-In-Possession)
Management's Discussion and Analysis of Financial
Condition and Results of Operations
September 30, 1996) and (2) to a lesser extent, because of a decrease in
French Quarter Lounge entertainment expenses. Correspondingly, hotel expenses
increased 238,000 (4.0%) primarily because of the decrease in complimentary
costs allocated to the casino which was offset partially by operating cost
decreases. Food and beverage expenses increased $807,000 (18.1%) primarily due
to decreased allocations of the costs of promotional allowances to the casino
(14.5%) as explained above and to a lesser extent because of increased costs
associated with higher revenues (3.6%).
Taxes and licenses increased 86,000 (1.7%) primarily because of increased
taxable gaming revenues during the period. Selling, general and
administrative expenses decreased $1,123,000 (13.3%) from 1995 primarily due
to reductions in payroll costs of corporate administrative and development
staff. Rent expenses were comparable with 1995.
Depreciation and amortization decreased $196,000 (6.5%), primarily because of
decreased amortization of debt issue costs (unamortized debt issue costs,
incurred in connection with the 12.5% First Mortgage notes, were charged to
expense as reorganization items at October 31, 1995) and slightly lower
depreciation of property and equipment, which was mostly offset by the
start-up (January 1, 1996) of amortization (over 60-months) of the $3,000,000
investment in the Fremont Street Experience.
Interest expense of approximately $560,000 has been accrued from the August
12, 1996 plan confirmation date on the face amount of the new restated First
Mortgage notes payable ($30 million at 13.5% per annum) which are to be issued
when the plan becomes fully effective, which is expected to occur by the end
of March 1997. In addition, interest of approximately $59,000 has been accrued
from the confirmation date on the new restated 11.5% First Mortgage notes
payable (approximately $3.8 million face) which are to be issued when the plan
becomes fully effective. Because of the Chapter 11 proceedings, there has been
no accrual of interest on the $57,000,000, 12.5% First Mortgage notes since
October 31, 1995. If accrued to the plan confirmation date, the interest
expense on the 12.5% notes would have been approximately $4,394,000 for the
nine month period ended September 30, 1996. (In addition, the remaining
unaccreted discount balance related to the 12.5% first mortgage notes was
charged to expense as a reorganization item at October 31, 1995). There also
has been no accrual of interest on the $1,425,000, 7.5% Convertible
Subordinated Notes since October 31, 1995. If accrued to the confirmation
date, the interest expense on the 7.5% notes would have been approximately
$67,000 for the nine month period ended September 30, 1996. In addition,
there has been no accrual of interest on the $2,950,000 of prior period tax
obligations since October 31, 1995. If accrued, the interest expense to the
confirmation date on prior period tax obligations may have been approximately
$185,000 for the nine month period ended September 30, 1996.
Reorganization expense is comprised of items incurred by the Company as a
result of reorganization under Chapter 11 of the Bankruptcy Code. During the
quarter ended September 30, 1996, in connection with the August 1996
confirmation of the reorganization plan, the Company expensed approximately
$762,000 of executive severance costs, of which approximately $318,000 was
immediately due, with the remainder payable in monthly installments which
continue into 1997. Reorganization expenses, consisting primarily of accrued
professional fees and executive severance expenses, was $977,000 and $0 for
the three month periods ended September 30, 1996 and 1995 and $2,115,000 and
$0 for the nine month periods ended September 30, 1996 and 1995, respectively.
Elsinore Corporation and Subsidiaries (Debtor-In-Possession)
Other Information
PART II. OTHER INFORMATION
Item 1. Legal Proceedings:
Disclosed in Note 6 of the Condensed Consolidated
Financial Statements in Part 1 and is incorporated by
reference herein.
Item 5. Other Information:
Described in Notes 1 and 6 of the Condensed
Consolidated Financial Statements in Part 1 and is
incorporated by reference herein.
Item 6. Exhibits and Reports of Form 8-K:
Form 8-K - dated August 8, 1996, Bankruptcy Court
entry of order confirming the plan of
reorganization submitted by the Company
as modified by that order.
Exhibit 10 - Subscription Rights Agreement, dated
October 10, 1996.
SIGNATURES
Pursuant to the requirements 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 authorized.
ELSINORE CORPORATION
(Registrant)
By: /s/ Thomas E. Martin
THOMAS E. MARTIN, President
and Chief Executive Officer
By: /s/ Brent E. Duncan
BRENT E. DUNCAN, Secretary
and Treasurer and Principal
Accounting Officer
Dated: November 13, 1996
A special phone number has been set up to respond to questions which
Rightholders may have concerning this Subscription Rights Agreement.
Rightholders should call (702) 387-5161 if they wish to discuss such
questions by telephone.
SUBSCRIPTION RIGHTS AGREEMENT
This SUBSCRIPTION RIGHTS AGREEMENT (the "Agreement"), dated for
reference purposes as of October 10, 1996, is made by and between Elsinore
Corporation, a Nevada corporation (the "Company"), and the persons (each a
"Rightholder" and collectively, the "Rightholders") entitled to stock
subscription rights under this Agreement pursuant to the terms of the Order
Confirming First Amended Plan Of Reorganization Proposed Jointly By The
Debtors And The Unofficial Bondholders Committee, entered on August 9, 1996
(the "Order"), in connection with the proceedings for reorganization under
Chapter 11 of Elsinore Corporation, et al., Case Nos. 95-24685 RCJ, 95-24686
RCJ, 95-24687 RCJ, 95-24688 RCJ, 95-24689 RCJ, and 95-24839 RCJ.
WHEREAS, the Bankruptcy Court, through the Order, authorized and
directed the Company and the Rightholders to enter into an agreement in the
form hereof;
NOW, THEREFORE, in compliance with the Order and in consideration of
the premises, covenants and agreements contained herein and for other good
and valuable consideration, the sufficiency and adequacy of which are
hereby acknowledged, and intending to be legally bound hereby, the Company
agrees to issue to the Rightholders stock subscription rights, as
hereinafter described (each a "Right" and collectively, the "Rights"), to
purchase up to an aggregate of one million (1,000,000) shares (each a
"Share" and collectively, the "Shares") of Common Stock, par value $0.001
per share, of the Company (the "Common Stock").
Article 1. Definitions of Certain Terms
The terms "Allowed Claim," "Bankruptcy Court," "Bondholders
Committee," "Class 11 New Stock," "Class 13 New Stock," "Confirmation
Date," "Convertible Noteholders," "Elsinore Equity Holders," "Elsinore
Equity Interest," "FQI," "Old Elsinore Common Stock," "Unsecured
Creditors," "1993 Bondholders," and any other capitalized terms not defined
in this Agreement shall have the meanings specified in the First Amended
Plan of Reorganization Proposed Jointly By Debtors And The Unofficial
Bondholders Committee (the "Plan"), as confirmed by the Order.
Article 2. Allocation, Transfer and Form of Rights
2.1 Registration. The Rights shall be evidenced by certificates,
as described in Section 2.4 ("Rights Certificates"), which shall be
numbered and registered on the books of the Company when issued.
2.2 Allocation. Each Right shall constitute a right to
purchase one Share on the terms and conditions provided herein. The
Company shall distribute the Rights to five (5) different classes of
Rightholders (each a "Class" and collectively, the "Classes")
according to the following allocation:
Class Percentage of Rights Number of Rights and
and Shares Allocated Shares
to Class Allocated to Class
Elsinore Equity Holders 6.5% 65,000
Convertible Noteholders 3.5% 35,000
Unsecured Creditors of the Company 1% 10,000
Unsecured Creditors of FQI 1.5% 15,000
1993 Bondholders 87.5% 75,000
TOTAL 100% 1,000,000
2.3 Transfer. The Rights shall not be transferable or assignable,
except as provided in this Section and Section 3.1(b).
(a) If the Rightholders in any Class do not exercise
all of the Rights allocated to that Class by 5:00 p.m., Pacific
time, on December 13, 1996 (the "Termination Date"), such non-exercised
Rights shall be transferred automatically to the members
of the Bondholders Committee (the "Committee Members") in the
proportions specified in a Standby Commitment Agreement executed or
to be executed by the Company and the Committee Members pursuant to
the Plan (the "Standby Commitment"). The Standby Commitment
provides, or shall provide, for (i) a premium of additional shares
of Common Stock, up to a maximum of 250,000 shares (the "Stock
Premium"), to be issued to the Committee Members based upon the
percentage of the Rights in excess of 87.5% which they exercise and
(ii) the date by which Committee Members must exercise the Rights
transferred to them pursuant to this Section 2.3(a). Pursuant to
the Plan, the Stock Premium will come from a reduction in Class 11
New Stock, Class 13 New Stock or both, which would otherwise be
issued to Rightholders other than the 1993 Bondholders.
(b) In the event of a transfer of Rights pursuant to
this Section or Section 3.1(b), the Company shall (i) issue to the
transferee Rightholder a new Rights Certificate, registered in the
name of such transferee, evidencing such transferred Rights and (ii)
record on its books the cancellation of the Rights Certificate
registered in the name of the transferor Rightholder; provided,
however, that if for any reason the Company does not take the
aforesaid actions, the transfer of Rights provided for in this
Section or Section 3.1(b), as the case may be, shall nevertheless be
effective and binding on the Company, the transferor and the
transferee.
2.4 Rights Certificate. The form and content of the Rights
Certificates and the corresponding form of Election to Purchase Shares for
Rightholders in the Class of 1993 Bondholders (the "Group A Rightholders")
shall be substantially as set forth in Schedule 1. The form and content of
the Rights Certificates and the corresponding form of Election to Purchase
Shares for Rightholders in all Classes other than the 1993 Bondholders
(collectively, the "Group B Rightholders") shall be substantially as set
forth in Schedule 2. The Rights Certificates shall be executed on behalf
of the Company by its Chief Executive Officer, President or Chief Operating
Officer. The Rights Certificates shall be dated as of the date of
signature thereon by the Company, either upon initial issuance or upon
exchange, substitution or transfer pursuant to Section 2.3 or Section
3.1(b).
2.5 Legend on Shares. Each certificate for Shares initially issued
upon exercise of the Rights shall bear the following legend:
"No sale, transfer, pledge or other disposition
of these Shares shall be made except pursuant to
registration under the Securities Act of 1933, as
amended, and registration or qualification under
state securities laws or pursuant to an opinion of
counsel satisfactory to the issuer that such
registration is not required."
Any certificate issued at any time in exchange or in substitution for
any certificate bearing such legend (except a new certificate issued upon
completion of a public distribution pursuant to a registration statement
under the Securities Act of 1933, as amended, of the securities represented
thereby) shall also bear the above legend unless the Company receives an
opinion of counsel acceptable to the Company that registration or
qualification of the securities represented thereby under the laws referred
to therein is not required.
Article 3. Term of Rights; Exercise of Rights
3.1 Exercise Period and Procedures for Group A Rightholders. The
terms and conditions for the exercise of Rights by Group A Rightholders
shall be as provided in this Section 3.1.
(a) Subject to the terms of this Agreement and the Plan, each
Group A Rightholder can exercise its Rights at any time during the period
commencing at 9:00 a.m., Pacific time, on October 18, 1996, and ending at
5:00 p.m., Pacific Time, on the date specified in paragraph (b) of this
Section, and thereby purchase from the Company up to the number of whole
Shares which the Group A Rightholder may at that time be entitled to
purchase pursuant to paragraph (b). Such Rights can only be exercised by
surrendering to the Company, at its principal office in Las Vegas, Nevada,
the Rights Certificate together with (i) the accompanying Election to
Purchase form for Group A Rightholders duly completed and signed and (ii)
payment to the Company of the "Rights Price" (as specified in Article 6)
for the number of whole Shares which the Group A Rightholder is purchasing.
Payment of the Rights Price shall be made in cash or by certified or
cashier's check and shall be non-refundable.
(b) Each Group A Rightholder initially shall be entitled to
exercise the number of Rights which bears the same proportion to the
aggregate number of Rights allocated to the Class of 1993 Bondholders
pursuant to Section 2.2 as the Group A Rightholder's Allowed Claim bears to
the Allowed Claims of all Group A Rightholders. If any Group A
Rightholders do not exercise their initial allocation of Rights by November
22, 1996, such non-exercised Rights shall automatically be transferred to
the "Electing Group A Rightholders," which means the Group A Rightholders
who (i) fully exercised their initial allocation of Rights in accordance
with this Section and (ii) elected, by so indicating on the Election to
Purchase form submitted to the Company pursuant to paragraph (a) of this
Section, to exercise Rights that were not exercised by those Group A
Rightholders to whom such Rights were initially distributed. Such transfer
to the Electing Group A Rightholders shall be made in such manner as the
Company shall reasonably determine. The Electing Group A Rightholders may
then exercise such transferred Rights at any time up to 5:00 p.m., Pacific
time, on the Termination Date, in accordance with the procedures specified
in paragraph (a) of this Section.
3.2 Exercise Period and Procedures for Group B Rightholders.
Subject to the terms of this Agreement and the Plan, each Group B
Rightholder shall have the right at any time during the period commencing
at 9:00 a.m., Pacific time, on October 18, 1996 and ending on the
Termination Date, to subscribe for whole Shares up to the number of Shares
allocated to the Group B Rightholder's Class pursuant to Section 2.2. Such
subscription can only be made by surrendering to the Company, at its
principal office in Las Vegas, Nevada, the Rights Certificate together with
(i) the accompanying Election to Purchase form for Group B Rightholders
duly completed and signed and (ii) payment to the Company of the "Rights
Price" (as specified in Article 6) for the number of whole Shares for which
the Group B Rightholder is subscribing. Payment of the Rights Price shall
be made in cash or by certified or cashier's check and shall be
non-refundable, except as provided in Section 3.4. Oversubcriptions shall be
treated in the manner provided in Sections 3.3(b) and 3.4.
3.3 Issuance of Shares.
(a) Subject to the terms of this Agreement and the Plan, if a
Rightholder surrenders the Rights Certificate and pays the Rights Price in
accordance with Section 3.1(a) or 3.2, whichever is applicable, then as of
the Effective Date the Company shall issue and cause to be delivered to,
and in the name of, such Rightholder a certificate or certificates for the
number of duly authorized, fully paid and nonassessable whole Shares
specified in paragraph (b) of this Section (the "Issued Shares"). Such
certificate or certificates shall be deemed to have been issued and the
Rightholder named therein shall be deemed to have become a holder of the
Issued Shares as of the close of business on the Effective Date,
notwithstanding that the certificates representing such Issued Shares shall
not actually have been delivered by that time or that the stock transfer
books of the Company shall then be closed.
(b) For Group A Rightholders, the number of Issued Shares shall
be determined in accordance with Section 3.1(b). For Group B Rightholders,
if the number of Shares for which a Group B Rightholder subscribes under
Section 3.2 ("Subscribed Shares"), when aggregated with the total number of
Subscribed Shares for all other Group B Rightholders in the same Class,
does not exceed the aggregate number of Shares allocated to that Class
under Section 2.2, then the number of Issued Shares for the Group B
Rightholder shall equal that Group B Rightholder's number of Subscribed
Shares. If the aggregate number of Subscribed Shares for all Group B
Rightholders in a particular Class exceeds the aggregate number of Shares
allocated to that Class under Section 2.2, then the Company shall allocate
the Issued Shares among subscribing Group B Rightholders in that Class by
accepting in full the subscription of the Group B Rightholder in that class
who subscribes for the greatest number of shares. Following such
acceptance, if any Shares allocated to that Class remain available for
issuance, the Company will accept the subscription of the Group B
Rightholder in that Class who subscribes for the second greatest number of
Shares (to the extent that Shares allocated to that Class remain available
for issuance after the Company has accepted the larger subscription), and
so on according to this principle until the Company has accepted
subscriptions for all Shares allocated to that Class. If two (2) or more
Group B Rightholders in the same Class have the same number of Subscribed
Shares and are entitled to have their subscriptions accepted by the Company
according to this principle, then the number of Issued Shares for each of
those Group B Rightholders shall be in proportion to their respective
Allowed Claims (in any Class other than the Elsinore Equity Holders) or
their respective Elsinore Equity Interests (in the Class of Elsinore Equity
Holders).
3.4 Refund of Oversubscriptions. If the aggregate number of
Subscribed Shares for Group B Rightholders in any Class exceeds the number
of Shares allocated to that Class under Section 2.2, the Company shall
refund the subscription payments of Group B Rightholders to the extent that
their subscriptions are not accepted under Section 3.3(b). The Company
shall mail such refunds, in the form of checks, to the Group B Rightholders
within three (3) business days after the Company determines which
subscriptions of Group B Rightholders it will accept under Section 3.3(b).
Article 4. Mutilated or Missing Rights Certificate
In case a Rights Certificate is mutilated, lost, stolen or destroyed,
the Company shall, at the request of the Rightholder, issue and deliver in
exchange and substitution for and upon cancellation of the mutilated Rights
Certificate, or in lieu of and in substitution for the Rights Certificate
lost, stolen or destroyed, a new Rights Certificate of like tenor and
representing an equivalent right or interest, but only upon receipt of
evidence satisfactory to the Company of such loss, theft or destruction of
such Rights Certificate and of a bond of indemnity, if requested, also
satisfactory to the Company in form and amount, and issued at the
applicant's cost. An applicant for such substitute Rights Certificate
shall also comply with such other reasonable regulations and pay such other
reasonable charges as the Company may prescribe.
Article 5. Reservation of Shares
The Company has reserved, and shall at all times so long as any
Rights remain outstanding, keep reserved, out of its authorized but
unissued Common Stock, such number of Shares as shall be subject to
purchase under the Rights. Every transfer agent for the Common Stock
issuable upon the exercise of the Rights shall be irrevocably authorized
and directed at all times to reserve such number of authorized Shares as
shall be requisite for such purpose. The Company shall keep a copy of this
Agreement on file with every transfer agent for the Common Stock issuable
upon the exercise of the Rights. The Company shall supply such transfer
agent(s) with duly executed stock and other certificates for such purpose.
Article 6. Subscription Price
The price per share at which Rights can be exercised (the "Rights
Price") is Five Dollars ($5.00).
Article 7. Fractional Interests
A fractional Right may only be exercised by a Rightholder together
with one or more other fractional Rights held by that Rightholder as a
result of transfers of Rights pursuant to Sections 2.3(a) or 3.1(b),
provided that such fractional Rights represent in the aggregate a whole
number of Rights. If a fractional Right can not be exercised, or is not
exercised, by a Rightholder, such fractional Right shall be deemed a
non-exercised Right and shall therefore be subject to the automatic transfer
provisions of Sections 2.3(a) or 3.1(b), as the case may be.
Article 8. Certain Highly Significant Risk Factors
(a) Definitions. Italicized terms in this Article 8 have the
meanings given to those terms as they appear elsewhere in this Agreement
with a capitalized first letter of each word.
(b) IMMEDIATE AND SUBSTANTIAL DILUTION OF INVESTMENT. Rightholders
WHO PURCHASE Shares UNDER THIS Agreement WILL INCUR IMMEDIATE AND SUBSTANTIAL
DILUTION IN THE NET TANGIBLE BOOK VALUE OF THOSE Shares. THE NET TANGIBLE
BOOK VALUE OF THE Company AS OF THE Effective Date, WITHOUT GIVING EFFECT TO
THE SALE AND ISSUANCE OF Shares PURSUANT TO THIS Agreement, IS NOT EXPECTED TO
EXCEED $1,259,000, OR APPROXIMATELY $0.31 PER SHARE OF Common Stock. THIS
EXPECTATION IS BASED ON EVIDENCE PRESENTED AT THE BANKRUPTCY COURT HEARINGS
ON CONFIRMATION OF THE Plan AND THE FINDINGS AND CONCLUSIONS OF THE
BANKRUPTCY COURT IN CONFIRMING THE Plan. BY GIVING EFFECT TO THE SALE OF
1,000,000 Shares AT $5.00 PER SHARE (THE Rights Price) PURSUANT TO THIS
Agreement, IT IS EXPECTED THAT THE PRO FORMA NET TANGIBLE BOOK VALUE OF THE
Company AS OF THE Effective Date WOULD NOT EXCEED $6,259,000 OR APPROXIMATELY
$1.25 PER SHARE OF Common Stock. THIS REPRESENTS AN IMMEDIATE DILUTION OF
$3.75 PER SHARE (OR 75% OF THE RIGHTS PRICE) TO Rightholders WHO EXERCISE THE
Rights UNDER THIS Agreement AT $5.00 PER SHARE.
MOREOVER, AT THE BANKRUPTCY COURT HEARINGS, THE ESTIMATED NET
TANGIBLE BOOK VALUE OF THE COMPANY AS OF THE EFFECTIVE DATE WAS BASED ON
THE ASSUMPTION THAT THE EFFECTIVE DATE WOULD BE SEPTEMBER 18, 1996. AS OF
THE DATE OF THIS AGREEMENT, HOWEVER, THE EFFECTIVE DATE IS EXPECTED TO BE
LATER THAN NOVEMBER 30, 1996. THIS MAY RESULT IN ADDITIONAL PRE-EFFECTIVE
DATE EXPENSES OF THE COMPANY WHICH, IN TURN, WOULD CAUSE THE COMPANY'S NET
TANGIBLE BOOK VALUE AS OF THE EFFECTIVE DATE TO BE LOWER THAN THE VALUE
ESTIMATED AT THE BANKRUPTCY COURT HEARINGS.
The following table illustrates the expected dilution in net tangible
book value per share as of the Effective Date for Rightholders who exercise
Rights. The figures reported in the table are qualified by reference to
the discussion above regarding the possible lower net tangible book value
resulting from an Effective Date which will be later than the date assumed
at the bankruptcy court hearings.
Rights Price $5.00
Expected net tangible book value per
share of the Common Stock as of the
Effective Date without giving effect
to the sale of Shares pursuant to
the exercise of all Rights $0.31
Deduct: Pro forma net tangible book
value per share of the Common Stock
as of the Effective Date after giving
effect to the sale of one million
Shares at $5.00 pursuant to the exercise
of all Rights 1.25
Dilution per share for Rightholders who exercise
their Rights at $5.00 per share $3.75
(c) Substantial Control by 1993 Bondholders. AFTER GIVING EFFECT TO THE
ISSUANCE OF Shares PURSUANT TO THIS Agreement, INCLUDING THE POSSIBLE ISSUANCE
OF Shares AND THE Stock Premium TO THE Committee Members PURSUANT TO SECTION 2.3
AND THE Standby Commitment, THE 1993 Bondholders ARE LIKELY TO HAVE AN OWNERSHIP
INTEREST AMOUNTING TO NINETY PERCENT (90%) OR MORE OF THE OUTSTANDING Common
Stock ("90% OWNERSHIP") OR VERY CLOSE TO 90% OWNERSHIP. IF THE 1993
Bondholders ACHIEVE 90% OWNERSHIP OR IF THEY, TOGETHER WITH OTHER OWNERS OF
Common Stock, ACHIEVE 90% OWNERSHIP, THEY MAY HAVE VIRTUALLY ABSOLUTE POWER
UNDER NEVADA LAW TO EFFECT A MERGER OF THE Company UNDER WHICH SHAREHOLDERS
OF THE Company (OTHER THAN THOSE WHO HAVE THE 90% OWNERSHIP) RECEIVE, IN
EXCHANGE FOR THEIR Common Stock, A CASH PAYMENT EQUAL TO THE FAIR VALUE OF
THE Common Stock. SUCH FAIR VALUE MAY BE SUBSTANTIALLY LESS THAN THE Rights
Price.
IN ADDITION, THE 1993 Bondholders WILL CONTROL VIRTUALLY ALL MATTERS
REQUIRING APPROVAL BY SHAREHOLDERS OF THE Company.
(d) 500,000 SHARES OF Common Stock ISSUABLE UNDER THE Plan TO Group B
Rightholders WILL BE REDUCED IF THE Group B Rightholders DO NOT FULLY EXERCISE
THEIR Rights. SEPARATE FROM THE Shares ISSUABLE UNDER THIS Agreement,
THE Plan PROVIDES FOR ISSUANCE OF AN AGGREGATE OF 4,000,000 SHARES OF Common
Stock TO Rightholders. OF THAT AMOUNT, 500,000 SHARES ARE ISSUABLE TO Group B
Rightholders. THOSE SHARES CONSIST OF 400,000 SHARES OF Class 13 New Stock AND
100,000 SHARES OF Class 11 New Stock, THE LATTER OF WHICH ARE ALLOCATED ONLY
TO THE Convertible Noteholders. THE Plan FURTHER PROVIDES THAT THE Stock
Premium FOR Committee Members, AS DESCRIBED IN SECTION 2.3 OF THIS Agreement,
WILL COME FROM A REDUCTION IN THE Class 13 New Stock OR Class 11 New Stock,
OR BOTH, IF THE Group B Rightholders DO NOT EXERCISE ALL 125,000 Rights
ALLOCATED TO THEIR RESPECTIVE Classes. FURTHERMORE, EVEN IF A Class OF Group
B Rightholders FULLY EXERCISES ITS SHARE OF THE 125,000 Rights, THE Class 13
New Stock ISSUABLE TO THAT CLASS MAY STILL BE REDUCED IF ANY OTHER Class OF
Group B Rightholders DOES NOT EXERCISE ITS RESPECTIVE SHARE OF THE 125,000
Rights.
(e) Rights ALLOCATED TO MOST Rightholders ARE A VERY SMALL PERCENTAGE
OF THE NUMBER OF SHARES TO BE OUTSTANDING ON THE Effective Date. THE NUMBER
OF OUTSTANDING SHARES OF Common Stock ON THE Effective Date IS EXPECTED TO BE
5,000,000. THE 1,000,000 Shares WHICH Rightholders COLLECTIVELY MAY PURCHASE
UNDER THIS Agreement HAVE BEEN ALLOCATED TO EACH Class AS SPECIFIED IN SECTION
2.2. BASED ON THAT ALLOCATION, THE MAXIMUM PERCENTAGE OF THE Company's
OUTSTANDING Common Stock AS OF THE Effective Date WHICH A Rightholder IN ANY
Class (OTHER THAN THE 1993 Bondholders) CAN ACQUIRE BY EXERCISING RIGHTS IS AS
FOLLOWS:
Elsinore Equity Holders 1.30%
Convertible Noteholders 0.70%
Unsecured Creditors of the Company 0.20%
Unsecured Creditors of FQI 0.30%
MOREOVER, A Rightholder CAN ONLY ACQUIRE THIS PERCENTAGE IF (i) THE
Rightholder SUBSCRIBES, AT $5.00 PER SHARE, FOR ALL OF THE Shares ALLOCATED TO
THE Rightholder's Class UNDER SECTION 2.2 (NOT FOR JUST THE Rightholder's
PROPORTIONATE SHARE OF THE ALLOCATION TO THAT Class), AND (ii) NO OTHER
Rightholder IN THE SAME Class SUBSCRIBES FOR ALL OF THE Shares ALLOCATED TO THAT
Class.
(f) THE Company IS REQUIRED BY A COURT ORDER TO OFFER THE SHARES
UNDER THIS AGREEMENT. THE Company IS REQUIRED UNDER THE TERMS OF THE Order
AND THE Plan TO ISSUE THE Rights AND OFFER Shares TO THE Rightholders
PURSUANT TO THIS Agreement. THE Company MAKES NO RECOMMENDATION THAT
Rightholders EXERCISE THE Rights. MOREOVER, THE Company MAKES NO
REPRESENTATIONS AS TO WHETHER THE Rights PRICE REPRESENTS THE PER SHARE VALUE
OF THE Common Stock OR AS TO THE LIKELIHOOD THAT Rightholders WHO EXERCISE THE
Rights WILL EVER RECOUP THEIR INVESTMENT.
Article 9. Certain Gaming Law Investment Considerations
The gaming operations of the Company (on a consolidated basis with
its subsidiaries) are subject to the Nevada Gaming Control Act, regulations
promulgated thereunder, and various local regulations. Consequently, any
beneficial holder 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 holder of the
Company's voting securities be determined if the Nevada Gaming Commission
(the "Commission") has reason to believe that such ownership would
otherwise be inconsistent with the declared policies of the State of
Nevada. The applicant must pay all costs of the investigation incurred by
the Commission, Nevada State Gaming Control Board, Clark County Liquor
Gaming Licensing Board or City of Las Vegas in such an investigation. In
addition, the Clark County Liquor Gaming Licensing Board has taken the
position that it has the authority to approve all persons owning or
controlling the stock of any corporation controlling a gaming license.
Any person who fails or refuses to apply for a finding of suitability
or a license within thirty (30) days after being ordered to do so by the
Commission or the Chairman of the Nevada State Gaming Control Board may be
found unsuitable. The same restrictions apply to a record owner if the
record owner, after request, fails to identify the beneficial owners. Any
stockholder found unsuitable and who holds, directly or indirectly, any
beneficial ownership of the common stock of a registered corporation (such
as the Company) beyond such period of time as may be prescribed by the
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 its subsidiaries, the Company (i) pays that person any dividend
or interest on the 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.
Article 10. No Rights as a Shareholder
Nothing in this Agreement or in the Rights Certificates shall be
construed as conferring upon a Rightholder or its transferee any rights as
a shareholder of the Company, including the right to vote, receive
dividends, consent or receive notices as a shareholder with respect to any
meeting of shareholders for the election of directors of the Company or any
other matter (except that as of the Effective Date, Rightholders will have
the rights referred to in Section 3.3(a) to the extent they become entitled
to Issued Shares).
Article 11. Notices; Telephone Inquiries
Any notice to the Company pursuant to this Agreement shall be given
by hand delivery, first class mail (registered or certified, return receipt
requested), or overnight courier guaranteeing next business day delivery
addressed as follows:
Elsinore Corporation
202 Fremont Street
Las Vegas, NV 89101
Attention: President
The date of each such notice shall be deemed, and the date on which
each such notice shall be deemed given shall be: at the time delivered, if
personally delivered or mailed; or the next business day after timely
delivery to the courier, if sent by overnight courier guaranteeing next
business day delivery.
The Company may from time to time change the address to which notices
to it are to be given hereunder by notice in accordance herewith to the
Rightholders.
Any inquiries which Rightholders wish to make by telephone concerning
the Agreement should be directed to the following special telephone number
which has been set up for this purpose: (702) 387-5161.
Article 12. Successors
Subject to the provisions of this Agreement restricting
transferability and assignability of the Rights, all the covenants and
provisions of this Agreement by or for the benefit of the Company or the
Rightholders shall bind and inure to the benefit of their respective
successors and permitted assigns.
Article 13. Governing Law
This Agreement, the Rights Certificate and the Rights shall be
governed by, and construed in accordance with, the laws of the State of
Nevada without regard to the conflict of laws principles thereof.
Article 14. Benefits of this Agreement
Nothing in this Agreement shall be construed to give to any person or
entity other than the Company and the Rightholders any legal or equitable
right, remedy or claim under this Agreement, and this Agreement shall be
for the sole and exclusive benefit of the Company and the Rightholders.
IN WITNESS WHEREOF, the Company has executed this Agreement as of
the day and year first above written.
COMPANY:
Elsinore Corporation, a Nevada corporation
By:
Name: Thomas E. Martin
Title: President and
Chief Executive Officer
<PAGE>
SCHEDULE 1
________________________________________
Name of Rightholder
RIGHTS TO PURCHASE UP TO SHARES OF
COMMON STOCK OF ELSINORE CORPORATION
(FOR "GROUP A RIGHTHOLDERS")
CLASS OF RIGHTHOLDER: 1993 Bondholders
THIS RIGHTS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED ("SECURITIES ACT"), OR UNDER ANY APPLICABLE STATE
SECURITIES LAWS, AND IT MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED,
PLEDGED, OR HYPOTHECATED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT AND UNDER ANY APPLICABLE STATE SECURITIES LAWS, OR WITHOUT
AN OPINION FROM COUNSEL, SATISFACTORY TO THE COMPANY, THAT AN EXEMPTION FROM
REGISTRATION IS AVAILABLE (EXCEPT IN THE CASE OF AN AUTOMATIC TRANSFER OF
THIS RIGHTS CERTIFICATE, AS SPECIFIED BELOW). TRANSFER OR ASSIGNMENT OF THIS
RIGHTS CERTIFICATE OR THE RIGHTS PROVIDED FOR HEREIN IS RESTRICTED AS
PROVIDED IN THE SUBSCRIPTION RIGHTS AGREEMENT DATED OCTOBER 10, 1996.
THIS CERTIFIES that the above-named person or entity (the
"Rightholder") is entitled, subject to the terms and conditions set forth
in this Rights Certificate and the Subscription Rights Agreement dated
October 10, 1996 (the "Rights Agreement") between Elsinore Corporation, a
Nevada corporation (the "Company"), and the "Rightholders" (as defined in
the Rights Agreement), to purchase from the Company up to
shares of Common Stock of the Company, $0.001 par value (the "Shares"), at
any time commencing at 9:00 a.m., Pacific time, on October 18, 1996 and
continuing up to 5:00 p.m., Pacific time, on (i) November 22, 1996 or
(ii) in the case of Rights transferred to the Rightholder pursuant to
Section 3.1(b) of the Rights Agreement, the "Termination Date" (as defined
in the Rights Agreement), at Five Dollars ($5.00) per Share (the "Rights
Price").
Subject to the terms and conditions set forth herein and in the
Rights Agreement, the rights provided for in this Rights Certificate (the
"Rights") may be exercised by the Rightholder, in whole or in part (but not
as to a fractional Right, unless exercised together with other fractional
Rights held by the Rightholder which represent, in the aggregate, a whole
number of Rights), by the surrender of this Rights Certificate with the
accompanying form of Election to Purchase duly executed, at the principal
office of the Company (or at such other address as the Company may
designate by notice in writing to the Rightholder in accordance with the
notice provisions of the Rights Agreement), together with payment to the
Company of the Rights Price in cash or by certified or cashier's check.
Shares so purchased shall be issued to the Rightholder as of the "Effective
Date" (as defined in the Rights Agreement).Nothing contained herein shall be
construed to confer upon the Rightholder, as such, any of the rights of a
shareholder of the Company. Subject to the automatic transfer provisions in
the next paragraph of this Rights Certificate, the Company may treat the
Rightholder as the absolute owner of this Rights Certificate for the purpose
of any exercise hereof and for all other purposes, and the Company shall not
be affected by any notice to the contrary.
THIS RIGHTS CERTIFICATE AND THE CORRESPONDING RIGHTS SHALL BE
AUTOMATICALLY TRANSFERRED, WITH NO PAYMENT TO THE RIGHTHOLDER IN EXCHANGE
FOR SUCH TRANSFER AND WITH NO ACTION ON THE PART OF THE RIGHTHOLDER IF,
AND TO THE EXTENT THAT, THE RIGHTS ARE NOT EXERCISED BY NOVEMBER 22, 1996
OR BY THE "TERMINATION DATE," WHICHEVER IS APPLICABLE ACCORDING TO THE
RIGHTS AGREEMENT.
Dated: October 10, 1996 Elsinore Corporation, a Nevada corporation
By:
Name: Thomas E. Martin
Title: President and
Chief Executive Officer
<PAGE>
ELSINORE CORPORATION
ELECTION TO PURCHASE
Elsinore Corporation
202 Fremont Street
Las Vegas, Nevada 89101
Attention: President
The undersigned hereby irrevocably elects to exercise the right of purchase
represented by the accompanying Rights Certificate for, and to purchase
thereunder, the number of Shares specified below. The undersigned has read,
understands and agrees to all of the terms and conditions of the
Rights Agreement. Without limiting the generality of the foregoing, the
undersigned fully understands the "Certain Highly Significant Risk Factors"
discussed in Article 8 of the Rights Agreement and is choosing to exercise
its rights hereunder with full knowledge of, and with full willingness to
bear, such risks and their consequences.
[CHECK ONE:]
In addition to the exercise of Rights as provided above, the undersigned
elects to exercise Rights that are not exercised by other 1993 Bondholders
(also referred to in the Rights Agreement as "Group A Rightholders") by
November 22, 1996.
The undersigned does NOT elect to exercise Rights that are not exercised
by other 1993 Bondholders.
Date: , 1996
Number of Shares Being Purchased: ___________________________________________
Name of Rightholder (Please print):
Address:
Social Security Number or Taxpayer Identification Number:
Signature:
<PAGE>
SCHEDULE 2
RIGHT TO SUBSCRIBE FOR SHARES OF
COMMON STOCK OF ELSINORE CORPORATION
(FOR "GROUP B RIGHTHOLDERS")
CLASS OF RIGHTHOLDER:
[Check One]
NUMBER OF SHARES ALLOCATED TO EACH CLASS:
Elsinore Equity Holders 65,000
Convertible Noteholders 35,000
Unsecured Creditors of Elsinore Corporation 10,000
Unsecured Creditors of Four Queens, Inc. 15,000
THIS RIGHTS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED ("SECURITIES ACT"), OR UNDER ANY APPLICABLE STATE
SECURITIES LAWS, AND IT MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED, PLEDGED,
OR HYPOTHECATED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT AND UNDER ANY APPLICABLE STATE SECURITIES LAWS, OR WITHOUT AN
OPINION FROM COUNSEL, SATISFACTORY TO THE COMPANY, THAT AN EXEMPTION FROM
REGISTRATION IS AVAILABLE (EXCEPT IN THE CASE OF AN AUTOMATIC TRANSFER OF
THIS RIGHTS CERTIFICATE, AS SPECIFIED BELOW). TRANSFER OR ASSIGNMENT OF THIS
RIGHTS CERTIFICATE OR THE RIGHTS PROVIDED FOR HEREIN IS RESTRICTED AS
PROVIDED IN THE SUBSCRIPTION RIGHTS AGREEMENT DATED OCTOBER 10, 1996.
THIS CERTIFIES that the above-named Rightholder (the "Rightholder") is
entitled, subject to the terms and conditions set forth in this Rights
Certificate and the Subscription Rights Agreement dated October 10, 1996
(the "Rights Agreement") between Elsinore Corporation, a Nevada corporation
(the "Company"), and the "Rightholders" (as defined in the Rights Agreement),
to subscribe for up to the number of shares of Common Stock of the
Company, $0.001 par value (the "Shares"), allocated to the Rightholder's
Class, as specified above, at any time commencing at 9:00 a.m., Pacific time, on
October 18, 1996 and continuing up to 5:00 p.m., Pacific time, on the
"Termination Date" (as defined in the Rights Agreement) at Five Dollars
($5.00) per Share (the "Rights Price").
Subject to the terms and conditions set forth herein and in the Rights
Agreement, the Rightholder may subscribe for all or less than all of the
Shares which are subject to the rights provided for in this Rights
Certificate (the "Rights") (but no fractional Shares) by presenting and
surrendering this Rights Certificate with the accompanying form of Election
to Purchase duly executed, at the principal office of the Company (or at such
other address as the Company may designate by notice in writing to the
Rightholder in accordance with the notice provisions of the Rights Agreement),
together with payment to the Company of the Rights Price in cash or by
certified or cashier's check. If a subscription is properly submitted to, and
accepted by the Company pursuant to the terms of the Rights Agreement, the
Shares so subscribed for will be issued to the Rightholder as of the
"Effective Date" (as defined in the Rights Agreement)., Nothing contained
herein shall be construed to confer upon the Rightholder, as such, any of the
rights of a shareholder of the Company.
Subject to the automatic transfer provisions in the next paragraph of this
Rights Certificate, the Company may treat the Rightholder as the absolute
owner of this Rights Certificate for the purpose of any exercise hereof and
for all other purposes, and the Company shall not be affected by any notice
to the contrary.
THIS RIGHTS CERTIFICATE AND THE CORRESPONDING RIGHTS SHALL BE AUTOMATICALLY
TRANSFERRED, WITH NO PAYMENT TO THE RIGHTHOLDER IN EXCHANGE FOR SUCH TRANSFER
AND WITH NO ACTION ON THE PART OF THE RIGHTHOLDER IF, AND TO THE EXTENT THAT,
THE RIGHTS ARE NOT EXERCISED BY THE "TERMINATION DATE," AS PROVIDED
IN THE RIGHTS AGREEMENT.
Dated: October 10, 1996 Elsinore Corporation, a Nevada corporation
By:
Name: Thomas E. Martin
Title: President and
Chief Executive Officer
<PAGE>
ELSINORE CORPORATION
ELECTION TO PURCHASE
Elsinore Corporation
202 Fremont Street
Las Vegas, Nevada 89101
Attention: President
Pursuant to the subscription rights represented by the accompanying Rights
Certificate, and subject to the terms of the Rights Agreement referenced
therein, the undersigned hereby irrevocably subscribes for the number of
Shares specified below. The undersigned acknowledges that if (i) the
aggregate number of Shares subscribed for by members of the undersigned's
Class exceeds the number of Shares allocated to that Class and (ii) the
undersigned has not subscribed for all the Shares allocated to the
undersigned's Class or is not otherwise the largest subscriber for Shares
allocated to that Class, then the undersigned's subscription might be
rejected by the Company. If, and to the extent that, the Company rejects
the subscription, the Company will refund the undersigned's subscription
payment in accordance with the Rights Agreement.
The undersigned has read, understands and agrees to all of the terms and
conditions of the Rights Agreement. Without limiting the generality of
the foregoing, the undersigned fully understands the "Certain Highly
Significant Risk Factors" discussed in Article 8 of the Rights Agreement and
is choosing to exercise the subscription rights hereunder with full
knowledge of, and with full willingness to bear, such risks and their
consequences.
Date: , 1996
Number of Shares Subscribed for: ____________________________________________
Name of Rightholder (Please print):
Address:
Social Security Number or Taxpayer Identification Number:
Signature:
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS UNAUDITED SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE SEPTEMBER 30, 1996 FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FORM 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 6329
<SECURITIES> 0
<RECEIVABLES> 836
<ALLOWANCES> 253
<INVENTORY> 210
<CURRENT-ASSETS> 8599
<PP&E> 64626
<DEPRECIATION> 40715
<TOTAL-ASSETS> 37874
<CURRENT-LIABILITIES> 8380
<BONDS> 61425
0
0
<COMMON> 16
<OTHER-SE> (44377)
<TOTAL-LIABILITY-AND-EQUITY> 37874
<SALES> 45342
<TOTAL-REVENUES> 45815
<CGS> 4294
<TOTAL-COSTS> 43294
<OTHER-EXPENSES> 2115
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1326
<INCOME-PRETAX> (920)
<INCOME-TAX> 0
<INCOME-CONTINUING> (920)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (920)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
