SCHEDULE 14C
INFORMATION REQUIRED IN INFORMATION STATEMENT
SCHEDULE 14C INFORMATION
Information Statement Pursuant to Section 14 (c)
of the Securities Exchange Act of 1934
Check the appropriate box:
X Preliminary Information Statement
Confidential, for Use of the Commission Only (as permitted by
Rule 14c-5(d)(2))
Definitive Information Statement
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ELSINORE CORPORATION
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(Name Of Registrant As Specified In Its Charter)
Payment of Filing Fee (check the appropriate box):
No fee required.
X Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11
(1) Title of each class of securities to which transaction applies:
Common Stock, par value $.001 per share ("Common Stock")
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(2) Aggregate number of securities to which transaction applies:
4,929,313 shares of Common Stock*
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it is was determined): $3.16 per
share, plus an additional amount equal to the daily portion of the
accrual on $3.16 at 9.43% compounded annually from June 1, 1997 to the
date immediately preceding the effective date of the merger.
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(4) Proposed maximum aggregate value of transaction: $16,118,853**
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(5) Total fee paid: $3,224
Fee paid previously with preliminary materials.
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Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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* Based on the number of shares of Common Stock outstanding as of October 17,
1997.
** Estimated solely for purpose of calculating the filing fee for this
preliminary information statement. The estimated proposed maximum aggregate
value of the transaction is based on 4,929,313 shares of Common Stock, which is
the number of shares outstanding as of October 17, 1997, multiplied by the
merger consideration of $3.16 per share ($15,576,629 in the aggregate) plus an
additional amount equal to the daily portion of the accrual on $3.16 at 9.43%
compounded annually from June 1, 1997 until, for the purpose of calculating the
filing fee, October 17, 1997 ($542,224 in the aggregate).
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PRELIMINARY COPIES
Elsinore Corporation
202 Fremont Street
Las Vegas, Nevada 89101
Dear Shareholders:
You are cordially invited to attend a special meeting of shareholders
of Elsinore Corporation ("Elsinore" or the "Company") to be held on December 10,
1997 at 9:00 a.m., Pacific Standard Time, at the corporate office of the Company
located at 202 Fremont Street, Las Vegas, Nevada 89101.
Elsinore has entered into an Agreement and Plan of Merger ("Merger
Agreement") with R&E Gaming Corp. ("Gaming"), a Delaware corporation, and
Elsinore Acquisition Sub, Inc. ("EAS"), a Nevada corporation, dated as of
September 15, 1997, pursuant to which EAS would be merged with and into
Elsinore, and each share of common stock, par value $.001, of Elsinore ("Common
Stock") issued and outstanding immediately prior to the effective time of the
merger would be converted into the right to receive $3.16 in cash plus certain
additional consideration,
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as more fully described in the accompanying Information Statement.
Contemporaneously with the execution and delivery of the Merger Agreement,
Gaming executed an Option and Voting Agreement ("Option Agreement") with
Morgens, Waterfall, Vintiadis & Company, Inc., on behalf of certain investment
accounts (collectively, "Option Seller") which own 94.3% of the outstanding
Common Stock. As summarized in the Information Statement, under certain
specified conditions and circumstances, the Option Agreement provides for, among
other things, (i) the grant by the Option Seller to Gaming of an option to
purchase all of the Option Seller's Common Stock; (ii) an obligation by Gaming
to purchase all of the Option Seller's Common Stock, and (iii) the Option
Seller's Common Stock to be present, for purposes of reaching a quorum, at any
meeting of Elsinore's shareholders called to vote upon the Merger Agreement.
Furthermore, the Option Agreement would require the Option Seller to vote its
Common Stock in favor of the transaction contemplated in the Merger Agreement,
and against any action which may conflict with the Merger Agreement.
ACCORDINGLY, HOLDERS OF 94.3% OF THE OUTSTANDING COMMON STOCK HAVE
ALREADY INDICATED THEIR INTENTION TO VOTE IN FAVOR OF THE MERGER AGREEMENT. IF
THEIR SHARES ARE SO VOTED, THE MERGER AGREEMENT WILL HAVE RECEIVED ALL
SHAREHOLDER APPROVALS REQUIRED BY LAW. THEREFORE, THE BOARD OF DIRECTORS OF THE
COMPANY IS NOT SOLICITING PROXIES FOR THE SPECIAL MEETING.
As more fully described in the Information Statement, there are a number
of conditions precedent to the contemplated transaction, including the receipt
of all necessary approvals from the State Gaming Control Board ("Board") and
Nevada Gaming Commission ("Commission"). The transaction contemplated herein
would involve a change in control of Elsinore, and as such would require the
prior approval of the Board and Commission.
The respective Boards of Directors of Elsinore, Gaming and EAS have
approved the transactions contemplated by the Merger Agreement, and the terms
and conditions thereof. Additionally, the Elsinore Board of Directors has
determined that such transactions, and the consideration to be received by the
holders of Common Stock, are fair to, and in the best interests of, the Company
and the Company's shareholders.
Please read carefully the accompanying Information Statement and the
exhibits thereto, and any other material enclosed herewith for additional
information regarding the proposed merger and related matters.
Sincerely,
The Board of Directors
of Elsinore Corporation
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NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To the Shareholders of Elsinore Corporation:
Notice is hereby given that a special meeting of shareholders ("Special
Meeting") of Elsinore Corporation, a Nevada corporation (the "Company"), will be
held on Wednesday, December 10, 1997, at the Company's corporate office located
at 202 Fremont Street, Las Vegas, Nevada 89101, at 9:00 a.m. Pacific Standard
Time, for the following purposes:
1. To consider and vote upon a proposal to approve and adopt
the Agreement and Plan of Merger ("Merger Agreement"), dated as of
September 15, 1997, by and among the Company, R&E Gaming Corp., a
Delaware corporation ("Gaming"), and Elsinore Acquisition Sub, Inc., a
Nevada corporation ("EAS") and a wholly owned subsidiary of Gaming,
pursuant to which (i) EAS will be merged with and into the Company (the
"Merger") and the Company, as the surviving corporation in the Merger,
will become a wholly owned subsidiary of Gaming, and (ii) each share of
the common stock, par value $.001 per share, of the Company (the
"Common Stock") issued and outstanding immediately prior to the
effective time of the Merger will be converted into the right to
receive Three Dollars and Sixteen Cents ($3.16) in cash, plus certain
additional consideration as more fully described in the accompanying
Information Statement.
2. To transact such other business as may properly come before
the Special Meeting or any adjournments or postponements thereof.
The Board of Directors has fixed November 10, 1997 as the record date for
determination of shareholders entitled to notice of and to vote at the Special
Meeting and any adjournments or postponements thereof. Accordingly, only holders
of record of Common Stock at the close of business on such date shall be
entitled to vote at the Special Meeting and any adjournment or postponement
thereof.
Owners of Common Stock are entitled to assert dissenter's rights under
Nevada Revised Statutes Sections 92A.300 through 92A.500. A copy of these
sections is attached hereto as Annex III.
The principal offices of Elsinore Corporation are located at 202
Fremont Street, Las Vegas, Nevada 89101; telephone number (702) 385-4011. This
Information Statement is being mailed to the Company's shareholders on November
13, 1997 by order of the Company's Board of Directors.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED
NOT TO SEND US A PROXY
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BY WRITTEN AGREEMENT, AN AFFILIATED GROUP OF HOLDERS OF 94.3% OF THE
OUTSTANDING COMMON STOCK HAVE ALREADY EXPRESSED THEIR INTENTION TO VOTE IN FAVOR
OF THE MERGER AGREEMENT. ACCORDINGLY, THE MERGER AGREEMENT IS EXPECTED TO BE
APPROVED WITHOUT FURTHER ACTION ON THE PART OF ANY OTHER SHAREHOLDERS.
Pursuant to Nevada corporate law, any Elsinore shareholder is entitled to
dissent from this proposed corporate action, and to obtain the "fair value" of
the Common Stock held by such shareholder. "Fair value" is specially defined
under Nevada law for such purpose, as discussed in the Information Statement.
Although a shareholder is entitled to dissent and obtain payment of "fair value"
in lieu of the consideration provided for in the Merger Agreement, the
shareholder may not challenge the Merger unless the transaction is unlawful or
fraudulent with respect to such shareholder or the Company.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OF SUCH
TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN
THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
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INFORMATION STATEMENT
CONCERNING THE AGREEMENT AND PLAN OF MERGER BY AND AMONG ELSINORE CORPORATION,
ELSINORE ACQUISITION SUB, INC., AND R & E GAMING CORP.
This Information Statement is being mailed on November 13, 1997 to
holders of record of common stock, par value $.001, of Elsinore Corporation
("Elsinore" or the "Company") as of November 10, 1997, in connection with the
proposed merger whereby Elsinore Acquisition Sub, Inc. ("EAS") will be merged
with and into Elsinore (the "Merger"). The Merger is to be consummated pursuant
to the terms of the Agreement and Plan of Merger ("Merger Agreement" or
"Elsinore Merger"), dated as of September 15, 1997, by and among EAS, R & E
Gaming Corp., ("Gaming") and Elsinore. The respective Boards of Directors of
EAS, Gaming and Elsinore have approved the transactions contemplated by the
Merger Agreement. Each share of Elsinore common stock, par value $.001 ("Common
Stock"), issued and outstanding immediately prior to the effective time of the
Merger ("Effective Time") would be converted into the right to receive $3.16 in
cash plus certain additional consideration, as more fully described herein.
Contemporaneously with the execution and delivery of the Merger Agreement,
Gaming executed an Option and Voting Agreement ("Option Agreement") with
Morgens, Waterfall, Vintiadis & Company, Inc., on behalf of certain investment
accounts (collectively, "Option Seller") which own 94.3% of the outstanding
Common Stock. As summarized in this Information Statement, under certain
specified conditions and circumstances the Option Agreement provides for, among
other things, (i) the grant by Option Seller to Gaming of an option to purchase
all of the Option Seller's Common Stock; (ii) an obligation by Gaming to
purchase all of the Option Seller's Common Stock, and (iii) the Option Seller's
Common Stock to be present, for purposes of reaching a quorum, at any meeting of
Elsinore's shareholders called to vote upon the Merger Agreement. Furthermore,
the Option Agreement would require the Option Seller to vote its Common Stock in
favor of the transaction contemplated by the Merger Agreement, and against any
action which may conflict with the Merger Agreement.
ACCORDINGLY, AN AFFILIATED GROUP OF HOLDERS OF 94.3% OF THE OUTSTANDING
COMMON STOCK HAVE ALREADY INDICATED THEIR INTENTION TO VOTE IN FAVOR OF THE
MERGER AGREEMENT. IF THEIR SHARES ARE SO VOTED, THE MERGER AGREEMENT WILL HAVE
RECEIVED ALL SHAREHOLDER APPROVALS REQUIRED BY LAW. THEREFORE, THE BOARD OF
DIRECTORS OF THE COMPANY IS NOT SOLICITING PROXIES FOR THE SPECIAL MEETING.
As more fully described below, there are a number of conditions precedent
to the contemplated transaction, including the receipt of all necessary
approvals from the State Gaming Control Board ("Board") and Nevada Gaming
Commission ("Commission"). The transaction contemplated herein would involve a
change in control of Elsinore, and as such would require the prior approval of
the Board and Commission.
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THE ELSINORE BOARD OF DIRECTORS BELIEVES THAT THE MERGER, AND THE
CONSIDERATION TO BE RECEIVED BY THE HOLDERS OF THE COMMON STOCK, ARE FAIR TO,
AND IN THE BEST INTERESTS OF, THE COMPANY AND THE COMPANY'S SHAREHOLDERS.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A
PROXY.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OF SUCH
TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN
THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
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TABLE OF CONTENTS
AVAILABLE INFORMATION........................................................1
INTRODUCTION.................................................................1
SPECIAL FACTORS........................................ .....................1
THE PARTIES..................................................................1
Elsinore Corporation ("Elsinore" or the "Company")........................1
R&E Gaming Corp. ("Gaming")...............................................2
Elsinore Acquisition Sub, Inc. ("EAS")....................................2
THE SPECIAL MEETING..........................................................2
SPECIFIC RIGHTS OF DISSENTING SHAREHOLDERS...................................2
INTERESTS OF CERTAIN PERSONS IN MERGER.......................................3
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF..............................4
CHANGE IN CONTROL PURSUANT TO ELSINORE'S BANKRUPTCY REORGANIZATION...........5
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...............6
INDEPENDENT PUBLIC ACCOUNTANTS...............................................8
THE MERGER...................................................................8
BACKGROUND OF THE MERGER.....................................................8
DETERMINATION BY THE BOARD...................................................9
CONDITIONS TO THE MERGER....................................................10
THE MERGER AGREEMENT........................................................10
The Merger...............................................................10
Officers and Directors...................................................11
The Effective Time.......................................................11
Merger Consideration.....................................................11
Exchange of Shares.......................................................12
Conditions to Consummation of the Merger.................................12
Certain Covenants........................................................13
No Solicitation of Alternative Transactions..............................14
Termination..............................................................15
THE OPTION AND VOTING AGREEMENT.............................................17
The Option...............................................................17
Voting...................................................................17
Termination..............................................................18
Approval of Option Agreement.............................................18
LETTER OF CREDIT............................................................18
CERTAIN EFFECTS OF THE MERGER...............................................18
SURRENDER OF CERTIFICATES; PAYMENT OF CONSIDERATION.........................19
CERTAIN FEDERAL INCOME TAX CONSEQUENCES.....................................20
REGULATORY APPROVAL.........................................................
GAMING REGULATION AND LICENSING.............................................21
Nevada...................................................................21
New Jersey...............................................................26
Washington...............................................................26
TRADING PRICES AND DIVIDENDS................................................26
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ELSINORE'S BUSINESS AND PROPERTIES..........................................27
GENERAL.....................................................................27
THE FOUR QUEENS CASINO......................................................27
Management...............................................................28
No Solicitation of Alternative Transactions..............................28
LAS VEGAS MARKET............................................................28
THE DOWNTOWN MARKET.........................................................29
General Information......................................................29
The Fremont Street Experience............................................29
LEGAL PROCEEDINGS...........................................................29
SELECTED FINANCIAL DATA.....................................................32
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................................33
VOTING PROCEDURES...........................................................45
CONSOLIDATED FINANCIAL INFORMATION.........................................F-1
ANNEXES
I. Agreement and Plan of Merger
II. Option and Voting Agreement
III. Nevada Revised Statutes ss.ss. 92A.300-92A.500
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AVAILABLE INFORMATION
The Company is subject to the information requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "SEC"). The reports, proxy
statements and other information filed by the Company with the SEC may be
inspected and copied at the Public Reference Section of the SEC at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
SEC's regional offices located at Seven World Trade Center, 13th Floor, New
York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of all or parts of such materials also may be
obtained from the Public Reference Section of the SEC at Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The SEC also
maintains a website at http://www.sec.gov that contains reports and other
information regarding registrants, including the Company, that file
electronically with the SEC.
INTRODUCTION
This Information Statement is being provided to holders of Common Stock
in connection with the proposed Merger. The Merger is to be consummated in
accordance with the terms and conditions contained in the Merger Agreement and
in accordance with the laws of the State of Nevada. The transactions
contemplated by the Merger Agreement would result in EAS being merged into and
with Elsinore, with Elsinore being the surviving corporation. The Articles of
Incorporation and Bylaws of EAS as in effect immediately prior to consummation
of the Merger would become the Articles of Incorporation and Bylaws of Elsinore,
effective upon consummation of the Merger. Furthermore, Elsinore would become a
wholly owned subsidiary of Gaming. The consideration to be paid to Elsinore
shareholders who do not exercise dissenter's rights in the Merger (the "Merger
Consideration") would be $3.16 in cash per share of Common Stock plus an amount
of additional consideration equal to the daily portion of the accrual on $3.16
at 9.43% compounded annually, accruing from June 1, 1997 to the date immediately
preceding the Effective Time; provided, that the Merger Consideration paid to
the MWV Accounts (as defined herein) shall be reduced by the amount of
additional consideration paid to the MWV Accounts pursuant to the Option
Agreement. The Merger Agreement was approved by the respective Boards of
Directors of Elsinore, EAS and Gaming. The Elsinore Board of Directors has
determined that the Merger and the consideration to be received by Elsinore's
shareholders are fair to, and in the best interests of, Elsinore and its
shareholders.
SPECIAL FACTORS
The Parties
Elsinore Corporation ("Elsinore" or the "Company"). The Company is
registered with the Nevada Gaming Commission as a publicly traded holding
company for Four Queens, Inc. ("Four Queens"), the licensed operator of the Four
Queens Hotel and Casino in Las Vegas, Nevada (the "Four Queens Casino") and a
wholly owned subsidiary of the Company.
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The Company's principal executive offices are located at 202 Fremont
Street, Las Vegas, Nevada 89101 and its telephone number is (702) 385-4011.
R&E Gaming Corp. ("Gaming"). Gaming is a Delaware corporation created
for the purpose of acquiring and holding all of the outstanding capital stock
of EAS. If the Merger is consummated, Gaming will hold all of the outstanding
stock of the surviving corporation in the Merger.
The principal executive offices of Gaming are located at Del Mar
Country Club, 6001 Clubhouse Drive, Rancho Santa Fe, California 92067, and its
telephone number at that address is (619) 759-5990.
Elsinore Acquisition Sub, Inc. ("EAS"). EAS is a Nevada corporation
created solely for the purpose of consummating the Merger and is a wholly-owned
subsidiary of Gaming.
The principal executive offices of EAS are located at Del Mar Country
Club, 6001 Clubhouse Drive, Rancho Santa Fe, California 92067, and its telephone
number at that address is (619)759-5990.
The Special Meeting
The Special Meeting will be held at the corporate office of Elsinore
located at 202 Fremont Street, Las Vegas, Nevada 89109 on Wednesday, December
10, 1997 at 9:00 a.m., Pacific Standard Time. At the Special Meeting, Elsinore's
shareholders will vote on the Merger Agreement.
Specific Rights of Dissenting Shareholders
Pursuant to Nevada corporate law, Nevada Revised Statutes ("NRS")
Sections 92A.300-92A.500 attached hereto as Annex III, any Elsinore shareholder
is entitled to dissent from this proposed corporate action, and to obtain the
statutory prescribed fair value of his or her shares of Common Stock. "Fair
value" for this purpose means the value of the shares immediately before the
effectuation of the corporate action to which the shareholder objects, excluding
any appreciation or depreciation in anticipation of the corporate action unless
exclusion would be inequitable. Although the shareholder is entitled to dissent
and obtain payment therefor, the shareholder may not challenge the corporate
action creating his entitlement unless the action is unlawful or fraudulent with
respect to him or the corporation. If a shareholder wishes to assert dissenter's
rights, that shareholder must: (i) deliver to the Company, before the vote is
taken, written notice of his intent to demand payment for his shares if the
Merger is effectuated; and (ii) must not vote his shares in favor of the
proposed action. A shareholder who does not satisfy the requirements referenced
in the preceding sentence is not entitled to payment for his shares under NRS
Chapter 92A. Elsinore will notify shareholders who satisfy the requirements to
assert dissenter's rights of the time period during which such rights may be
exercised.
<PAGE>
INTERESTS OF CERTAIN PERSONS IN MERGER
Shareholders should be aware of certain actual or potential conflicts
of interest in connection with the Merger. John C. "Bruce" Waterfall
("Waterfall") has been found suitable as a controlling shareholder of Elsinore,
and he holds the position of Chairman of the Board of Directors of Elsinore.
Furthermore, Waterfall is also a principal of Morgens, Waterfall, Vintiadis &
Company, Inc. ("MWV") and he has, on behalf of MWV and the various investment
accounts managed by MWV which hold Common Stock (collectively, the "MWV
Accounts"), entered into an Option and Voting Agreement (the "Option Agreement")
with Gaming, as discussed more fully below. The Option Agreement provides that
Gaming shall have an obligation to purchase all of the Common Stock held by the
MWV Accounts, under certain circumstances, and that certain consideration for
that option grant be applied against the Merger Consideration received by the
MWV Accounts. Furthermore, the Option Agreement calls for MWV to cause the
Common Stock owned by the MWV Accounts to be present for purposes of a quorum at
the Special Meeting and for those shares to vote in favor of the Merger and
against any action which may conflict with the Merger.
MWV has also entered into a similar option and voting agreement with
Gaming with respect to Riviera Holdings Corp. ("Riviera") stock held by the MWV
Accounts (the "Riviera Option Agreement") and the proposed merger of Riviera
Acquisition Sub, Inc. ("RAS") into Riviera (the "Riviera Merger"), pursuant to
which Riviera would be the surviving corporation and would also become a
wholly-owned subsidiary of Gaming. (See "THE MERGER Background of the Merger.").
To the Company's knowledge, the MWV Accounts own approximately 25.9% of
Riviera's outstanding stock.
Gaming and EAS have the right to terminate the Merger Agreement in the
event of termination of the Agreement and Plan of Merger entered into by Gaming,
RAS and Riviera ("Riviera Merger Agreement"), which provides for the Riviera
Merger. (See "THE MERGER - Background of the Merger."). Gaming will not be
obligated to purchase the MWV Accounts' Common Stock pursuant to the Option
Agreement if the Riviera Merger Agreement is terminated and Gaming does not
purchase the Riviera stock held by the MWV Accounts pursuant to the Riviera
Option Agreement. If Gaming does purchase the Riviera stock pursuant to the
Riviera Option Agreement, Gaming will be obligated to purchase the Common Stock
owned by the MWV Accounts under the Option Agreement.
From and after the Effective Time, the surviving company, Elsinore,
shall indemnify and hold harmless each person who is, or has been at any time
prior to September 15, 1997 or who becomes prior to the Effective Time, an
officer, director or employee of Elsinore or any of its subsidiaries against all
losses, liabilities, expenses (including attorneys' fees), claims or damages in
connection with any claim, suit, action, proceeding or investigation based in
whole or in part upon the fact that such person is or was a director, officer or
employee of Elsinore or any of its subsidiaries and arising out of acts or
omissions occurring prior to and including the Effective Time, including
transactions contemplated by the Merger Agreement. Such indemnification shall be
to the fullest extent of Nevada law, and shall continue for a period not less
than six years, provided that if any claim were to be asserted in that time
period, all rights to
<PAGE>
indemnification with respect to such claims would continue until final
disposition of any and all such claims.
As of October 17, 1997, the MWV Accounts held 94.3% of the issued and
outstanding Common Stock.
Gaming has also entered into agreements to acquire the outstanding
stock of Riviera which owns, among other things, the Riviera Hotel and Casino
and Riviera Gaming Management Corp. - Elsinore ("RGME"). From August 1996 to
February 1997, RGME managed the Four Queens Casino under an interim management
agreement for a monthly fee of $83,333. A long-term agreement with Elsinore and
Four Queens for RGME's management of the Four Queens Casino went into effect as
of the Plan Effective Date (as defined below in "VOTING SECURITIES AND PRINCIPAL
HOLDERS THEREOF - Change in Control Pursuant to Elsinore's Bankruptcy
Reorganization.").
The current management agreement with RGME was negotiated and went into
effect before Gaming or any affiliates of Gaming entered into negotiations with
Riviera or Elsinore concerning the Merger, the Riviera Merger, the Option
Agreement or the Riviera Option Agreement.
The term of RGME's management agreement for the Four Queens Casino is
approximately 40 months, subject to earlier termination or extension. Either
side may terminate it if the Four Queens Casino's cumulative earnings before
interest, taxes, depreciation and amortization ("EBITDA") for the first two
fiscal years is less than $12.8 million. The term can be extended for an
additional 24 months at RGME's option if certain performance standards are met.
RGME is paid a minimum annual management fee of $1 million in equal monthly
installments. In addition, RGME receives a fee of 25% of the amount by which
EBITDA in any fiscal year exceeds $8 million. Also under the management
agreement, RGME received warrants to purchase 1,125,000 shares of Common Stock
at $1.00 per share. Upon consummation of the Merger, RGME will receive
approximately $2.4 million in respect of the warrants, net of the exercise
price. Either side can terminate the management agreement if (i) substantially
all of Four Queens' assets are sold, (ii) Four Queens is merged or (iii) a
majority of Four Queens' or Elsinore's shares are sold. Upon such termination,
RGME will receive a $2 million termination bonus minus any amount realized or
realizable upon the exercise of the warrants.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
The record date is November 10, 1997. As of October 17, 1997, there
were 4,929,313 shares of Common Stock outstanding. Each share of Common Stock is
entitled to one vote. No other classes of stock are outstanding.
Change in Control Pursuant to Elsinore's Bankruptcy Reorganization
On October 31, 1995, Elsinore and certain of its wholly owned
subsidiaries filed for protection pursuant to Chapter 11 of the U.S. Bankruptcy
Code. The resulting Plan of Reorganization of Elsinore and those subsidiaries
(the "Plan") became effective following the
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close of business on February 28, 1997 (the "Plan Effective Date"). All motions
for rehearing or reconsideration of the Bankruptcy Court's orders confirming the
Plan and allowing the Plan to become effective have been denied or withdrawn.
The time allowed for appeals of such orders have expired without any appeal
having been taken.
Pursuant to the Plan, a change in control of the Company occurred as of
the Plan Effective Date, as described below.
Under the Plan, the Company's common stock that was outstanding prior
to the Plan Effective Date was canceled and 4,929,313 new shares of Common Stock
were issued. The Plan also provides for the future issuance of an additional
70,687 shares of Common Stock to certain classes of creditors of the Company and
Four Queens, whose claims have not yet been resolved. Of the 4,929,313 shares of
Common Stock issued pursuant to the Plan, 4,646,440 shares or 94.3% of the total
outstanding were acquired by the MWV Accounts. Of the shares which the MWV
Accounts acquired, 995,280 shares were purchased at $5.00 per share under the
Subscription Rights Agreement dated October 10, 1996 ("Rights Agreement"), which
was called for by the Plan. Under the Rights Agreement, a total of 1,000,000
shares of Common Stock were subscribed for at $5.00 per share and were issued on
the Plan Effective Date. The other 4,720 shares were subscribed for by certain
holders of the old common stock that was canceled on the Plan Effective Date.
The shares of Common Stock acquired by the MWV Accounts, other than the
995,280 shares which they purchased under the Rights Agreement, were issued to
the MWV Accounts under the Plan (i) in partial satisfaction of the MWV Accounts'
respective allowed claims relating to the Company's 12.5% First Mortgage Notes
due 2000 that were issued in October 1993 or (ii) as a premium for the MWV
Accounts' purchase of Common Stock under the Rights Agreement which was not
subscribed for by other persons entitled to participate under the Rights
Agreement.
Holders of the approximately 15.9 million shares of old common stock that
were canceled on the Plan Effective Date received, in the aggregate, 77,428
shares of new Common Stock (including 4,720 shares purchased under the Rights
Agreement). This represents 1.6% of the Common Stock outstanding on the record
date.
As a condition to the approvals by the Board and the Commission which were
required for the Plan to become effective, limitations were placed on the
persons who could exercise voting and investment power (including dispositive
power) with respect to Common Stock owned by any of the MWV Accounts. Under
those limitations, Waterfall is the only individual who exercises voting and
investment authority over the Common Stock on behalf of any of the MWV Accounts.
Security Ownership of Certain Beneficial Owners and Management
As of October 17, 1997, the beneficial ownership of Common Stock, which
is the only outstanding class of Elsinore equity or voting securities, by each
<PAGE>
person who is known by Elsinore to be the beneficial owner of more than 5% of
the outstanding Common Stock, is as follows (1):
Name and Address of Beneficial Owner Amount and Nature of Percent of Class
- ------------------------------------ -------------------- ----------------
Beneficial Ownership
--------------------
John C. "Bruce" Waterfall, who exercises
voting and investment authority over the
Common Stock owned by the MWV Accounts,
as follows (2)(3):
The Common Fund for Non-Profit
Organizations 232,322 4.7
Morgens Waterfall Income Partners, L.P. 130,100 2.6
MWV Employee Retirement Plan Group Trust 41,818 *
Restart Partners, L.P. 813,127 16.5
Restart Partners II, L.P. 1,156,964 23.5
Restart Partners III, L.P. 803,834 16.3
Restart Partners IV, L.P. 506,462 10.3
Restart Partners V, L.P. 134,747 2.7
Betje Partners 213,736 4.3
Phoenix Partners, L.P. 613,330 12.4
------- ----
Total 4,646,440 94.3
========= ====
* Less than 1% of the outstanding shares.
(1) In addition to the persons reported in the table, RGME holds
warrants to purchase 1,125,000 shares of Common Stock (See "CERTAIN
RELATIONSHIPS AND TRANSACTIONS"). If RGME were to exercise the warrants, it
would become the owner of 18.6% of the outstanding Common Stock. The relevant
Exchange Act rules generally provide that a person is deemed the beneficial
owner of a security if that person has the right to acquire beneficial ownership
of such security within 60 days through the exercise of any option, warrant or
right. Although the warrants, by their terms, are exercisable at any time, the
Company understands that as a condition precedent to such exercise, RGME would
have to apply for and obtain the approval of Nevada gaming authorities. The
Company is not aware of any such application having been filed by RGME.
Furthermore, the Company's understanding is that the timing of the gaming
authorities' decision on any such application to exercise the warrants would be
subject to substantial uncertainty. Accordingly, RGME is not reported in the
table as beneficially owning more than 5% of the Common Stock.
(2) The address for Mr. Waterfall and each of the MWV Accounts is
10 East 50th Street, New York, New York 10022.
(3) Pursuant to agreements and undertakings with the Board and the
Commission which were required in order for the Plan to become effective, Mr.
Waterfall is the only individual who
<PAGE>
exercises voting and investment power (including dispositive power) with respect
to Common Stock owned by the MWV Accounts. MWV and its affiliates other than
Waterfall are either investment advisors to, or trustees or general partners of,
the MWV Accounts. Accordingly, for purposes of the relevant Exchange Act rules,
they could also be deemed the beneficial owners of Common Stock held by the MWV
Accounts. The possible attribution of such beneficial ownership of Common Stock,
expressed in number of shares and percent of the class, to MWV and those
affiliates is as follows: MWV -- 446,058 (9.0%); MW Capital, L.L.C. -- 130,100
(2.6%); Prime Group, L.P. -- 813,127 (16.5%); Prime Group II, L.P. -- 1,156,964
(23.5%); Prime Group III, L.P. -- 803,834 (16.3%); Prime Group Iv, L.P. --
506,462 (10.3%); Prime Group V, L.P. -- 134,747 (2.7%); Prime, Inc. -- 3,415,134
(69.3%); and MW Management, L.L.C. -- 613,330 (12.4%). In view of Mr.
Waterfall's possession of sole voting and investment power over the Common Stock
on behalf of the MWV Accounts, these entities disclaim beneficial ownership of
Common Stock.
As of October 17, 1997, the beneficial ownership of Common Stock by
each of Elsinore's directors and by its directors and officers as a group, as
such ownership is known by Elsinore, is as follows:
Name of Beneficial Owner Amount and Nature of Percent of Class
- ------------------------ -------------------- ----------------
Beneficial Ownership
--------------------
John C. "Bruce" Waterfall,
Chairman of the Board 4,646,440 (1) 94.3
Harry C. Hagerty, III,
Director 53,869 (2) 1.1
Directors and executive
officers as a group 4,700,309 (1)(2) 95.4
(1) See note (3) to the preceding table discussing beneficial owners of
more than 5% of the outstanding Common Stock for information regarding Mr.
Waterfall's beneficial ownership.
(2) Mr. Hagerty is deemed the beneficial owner of 53,869 shares of
Common Stock by virtue of his ownership of a corporation which serves as general
partner of a limited partnership which owns these shares.
INDEPENDENT PUBLIC ACCOUNTANTS
The consolidated financial statements of Elsinore Corporation and subsidiaries,
Debtor-In-Possession as of December 31, 1996 and 1995, and for each of the three
years in the three-year period ended December 31, 1996, have been included in
this Information Statement in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elesewhere herein, and upon
the authority of said firm as experts in accounting and auditing.
The report of KPMG Peat Marwick LLP covering the December 31, 1996 consolidated
financial statements, contains an explanatory paragraph that states that on
October 31, 1995, the Company filed a voluntary petition seeking to reorganize
under Chapter 11 of the United States Bankruptcy Code and that the Company is
currently operating as a Debtor-In-Possession under the jurisdiction of the
Bankruptcy Court and this event and circumstances relating to this event raise
substantial doubt about the entitiy's ability to continue as a going concern.
The consolidated balance sheet as of December 31, 1996, does not include any
adjustments that might result from the outcome of that uncertainty.
Representatives of KPMG Peat Marwick LLP are not scheduled to be at the Special
Meeting.
<PAGE>
THE MERGER
Background of the Merger
In connection with the Plan, on February 20, 1997, the Commission
approved a change in control of the Company and found Jeffrey T. Leeds and S.
Barton Jacka suitable as directors of the Company. Pursuant to the Plan and as
of the Plan Effective Date, the MWV Accounts became the owners of more than 90%
of the Common Stock. Waterfall exercises all voting and investment authority
over such Common Stock on behalf of the MWV Accounts. Waterfall was also found
suitable as a controlling shareholder of the Company and as the Chairman of the
Board of Directors of the Company. Also pursuant to the Plan and as of the Plan
Effective Date, the three above-named individuals and Edward M. Nigro and Harry
C. Hagerty, III became the directors of the Company.
In the first half of 1997, the Company and Mr. Allen E. Paulson
("Paulson") commenced discussions which culminated in an agreement for entities
controlled by Paulson to acquire the outstanding Common Stock for $3.16 per
share plus an amount of additional consideration equal to the daily portion of
the accrual on $3.16 at 9.43% compounded annually, from June 1, 1997 to the date
immediately preceding the date such acquisition is consummated.
Paulson also entered into discussions with Riviera to acquire a
controlling interest in that company as well. Riviera owns and operates the
Riviera Hotel and Casino in Las Vegas, Nevada. On September 15, 1997, Gaming and
RAS entered into the Riviera Merger Agreement, which provides for the Riviera
Merger, pursuant to which Riviera would be the surviving corporation and would
also become a wholly-owned subsidiary of Gaming.
Pursuant to the Plan, RGME, an indirect subsidiary of Riviera, has been
managing the Four Queens Casino under a management contract which guarantees
RGME a management fee plus additional incentive compensation based on the
results of operations of the Four Queens Casino. The management contract also
grants to RGME warrants to purchase 1,125,000 shares of Common Stock at $1.00
per share. Upon consummation of the Merger, RGME would receive approximately
$2.4 million in respect of the warrants, net of the exercise price.
Determination by the Board
Elsinore's Board of Directors has unanimously determined (1) to approve
the Merger Agreement and the consummation of the transactions contemplated
thereby, and (2) that the Merger Agreement, and the terms and conditions
thereof, including the consideration to be received by the shareholders, were
fair from a financial point of view to the shareholders of the Company. In
reaching its conclusions, Elsinore's Board of Directors considered various
factors including the recommendation of the Special Committee which the Board of
Directors appointed to consider, among other things, whether the Merger
Agreement is fair from a financial point of view to the shareholders of the
Company. The Special Committee considered, among other factors, the following:
<PAGE>
(1) the premium which the Merger Consideration represented in
comparison to the reported trading prices for the Common Stock prior to
public disclosure of Paulson's interest in acquiring the entire equity
interest in the Company;
(2) the limited trading market for the Common Stock;
(3) for other selected publicly traded gaming companies, the multiples
of earnings and cash flows which the stock trading prices represented;
(4) in certain other recent acquisitions of gaming companies, the
multiples of the acquired companies' earnings and cash flows which the
acquisition prices represented;
(5) the Company's recent financial performance and projected
performance;
(6) the appropriateness and timeliness of the respective
representations and warranties given by the parties to the Merger
Agreement;
(7) the termination fees payable under certain circumstances in the
event that the Merger is not consummated;
(8) all other terms and conditions of the Merger Agreement; and
(9) the agreement by MWV (on behalf of the MWV Accounts) to grant the
Option to Gaming and to receive, as the price for Gaming's purchase of
the MWV Accounts' Common Stock under the Option Agreement, an amount
equal or substantially equivalent to the Merger Consideration.
No person was retained as an unaffiliated representative to act on
behalf of the shareholders of Elsinore for the purpose of negotiating the terms
of the Merger. Neither Elsinore, EAS, nor Gaming has received any report,
opinion, or appraisal from an outside party relating to the consideration to be
received in connection with the Elsinore Merger, or the fairness of such
consideration to the shareholders of Elsinore, EAS or Gaming. The Board of
Directors of Elsinore retained independent counsel to represent it in evaluating
and negotiating the proposed transactions.
Conditions to the Merger
The obligations of the parties to consummate the Merger are subject to
the satisfaction or waiver of certain conditions contained in the Merger
Agreement, including (i) obtaining requisite shareholder and regulatory
approvals or clearances, (ii) that the Riviera Merger has become effective, and
(iii) that Paulson shall not have become deceased or incapacitated due to
physical or mental illness, injury or disease, which incapacity renders him
unable to perform the requisite duties of the Chief Executive Officer of Gaming
for a consecutive period of ninety days or more. The Merger Agreement is
included in this Information Statement as Annex I.
<PAGE>
The Merger Agreement also contains a number of other conditions which
must be satisfied or waived by the other parties before the Merger can be
consummated, certain of which conditions are summarized herein and can be found
in the Merger Agreement.
The Merger Agreement
The following is a summary of certain terms and provisions of the
Merger Agreement. This summary, and all other discussions of the terms,
conditions and provisions of the Merger Agreement included elsewhere in this
Information Statement are qualified in their entirety by reference to the Merger
Agreement, a copy of which is attached hereto as Annex I, and incorporated
herein by reference.
The Merger. Elsinore has entered into the Merger Agreement with Gaming
and EAS pursuant to which EAS will be merged with and into Elsinore. Each share
of Common Stock issued and outstanding immediately prior to the Effective Time
(as defined below in "The Effective Time"), would be converted into the right to
receive the Merger Consideration. Although Elsinore will be the surviving
corporation, it shall be governed by the Articles of Incorporation and Bylaws of
EAS, with the exception that the Articles of Incorporation will be amended to
reflect the name of the corporation as "Elsinore Corporation." The surviving
Elsinore will be a wholly owned subsidiary of Gaming. Owners of Common Stock
prior to the Merger will have no ownership interest in Elsinore or Gaming after
the Merger.
The Merger shall have those effects set forth in Nevada corporate
merger law. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time, except as otherwise provided, all of the
property, rights, privileges, powers and franchises and title to any real estate
vested in Elsinore and EAS shall vest in the surviving company, Elsinore. Also,
all debts, liabilities and duties of Elsinore and EAS shall become the debts,
liabilities and duties of the surviving company, Elsinore. In addition, those
Elsinore shareholders who do not vote in favor of the Elsinore Merger are
entitled to demand payment by the corporation of the fair value of their shares
upon exercise of their dissenter's rights, as provided in NRS Sections
92A.300-92A.500, a copy of which is attached hereto as Annex III.
Officers and Directors. The officers and directors of the Company at
the Effective Time and, subject to the requirements of Nevada gaming law as
described above, any individuals designated by Gaming at or prior to the
Effective Time, shall be the initial officers and directors of the surviving
corporation, Elsinore. Each shall hold office in accordance with the surviving
corporation's Articles of Incorporation and Bylaws and until such time as his or
her successor is duly elected and qualified.
The Effective Time. Unless the Merger Agreement is terminated, as soon
as practicable after the satisfaction or permissible waiver of the conditions
precedent to the Merger Agreement, the Merger shall become effective at such
time as the articles of merger are filed with the Nevada Secretary of State in
accordance with the provisions of NRS Chapter 92A, or such later date as set
forth in such filing (the "Effective Time"). In no event shall the Effective
Time be later than April 1, 1998, unless such time is extended in accordance
with the Merger Agreement. Prior to
<PAGE>
the above-referenced filing, but no later than 30 days after the satisfaction,
or permissible waiver, of conditions precedent, a closing of the transaction
will occur.
Merger Consideration. At the Effective Time, each share of Common
Stock, with the exception of any shares as to which dissenter's rights are
exercised, shall be converted into and represent the right to receive the Merger
Consideration. From and after the Effective Time, the previously outstanding
shares of Common Stock shall automatically be canceled and retired and shall
cease to exist. Each holder of a certificate representing any such shares shall
cease to have any rights with respect thereto, except the right to receive
Merger Consideration payable to the holder thereof, without interest, upon
surrender of the certificate. "Merger Consideration" means the amount of $3.16
in cash per share, plus an amount of additional consideration equal to the daily
portion of the accrual on $3.16 at 9.43% compounded annually, accruing from June
1, 1997 to the date immediately preceding the Effective Time; provided, that the
Merger Consideration paid to the MWV Accounts shall be reduced by the amount of
additional consideration paid to the MWV Accounts pursuant to the Option
Agreement.
Shareholders who object to the Merger Agreement and who comply with all
provisions of Nevada law concerning the rights of dissenting shareholders, shall
obtain payment of the statutorily prescribed "fair value" of each dissenting
share. Such dissenting shares will not be converted into the right to receive
the Merger Consideration as described above, but instead will be converted into
the right to obtain such consideration as may be determined to be due pursuant
to Nevada law. If, after the Effective Time, such a dissenting shareholder
withdraws his demand for payment or fails to perfect or otherwise loses his
dissenter's rights, his shares would be converted as of the Effective Time into
a right to receive the Merger Consideration, without interest.
No assurance can be given that shareholders who exercise dissenter's
rights under Nevada law will receive consideration which equals or exceeds the
Merger Consideration.
Each pre-Effective Time share of Common Stock owned by Gaming or EAS,
or their shareholders or affiliates, or which is held in treasury by the Company
or any of its subsidiaries, shall be canceled and retired and shall cease to
exist, and no payment of any consideration shall be made with respect thereto.
Each share of capital stock of EAS issued and outstanding immediately
prior to the Effective Time shall be converted into and shall become validly
issued, fully paid and nonassessable shares of common stock, par value $.001 per
share, of the surviving company, Elsinore.
Exchange of Shares. At or prior to the Effective Time, Gaming shall
designate a bank or trust company reasonably acceptable to Elsinore to serve as
exchange agent for the Common Stock. As soon as reasonably practicable after the
Effective Time, Gaming shall deposit with the exchange agent in cash or
immediately available funds an amount that equals the aggregate Merger
Consideration. Promptly after the Effective Time, the surviving company, shall
instruct the exchange agent to mail to each record holder of Common Stock as of
the Effective Time a letter and instructions for use in effecting the surrender
of the share certificates and the receipt of
<PAGE>
payment therefor. All cash paid upon the surrender of the share certificates, in
accordance with the terms of the Merger Agreement, shall be deemed to have been
paid in full satisfaction of all rights pertaining to the shares, and there
shall be no further registration of transfers on the stock transfer books of the
surviving corporation, of the shares which were outstanding immediately prior to
the Effective Time. At any time following the date six months after the
Effective Time, the surviving company may require the exchange agent to deliver
to it any funds that have been made available to the exchange agent that have
not been disbursed to shareholders, and thereafter the shareholders may look to
the surviving company only as general creditors thereof with respect to the
Merger Consideration payable upon the surrender of the stock certificates.
Notwithstanding the foregoing, neither Elsinore nor the exchange agent shall be
liable to any holder of a stock certificate for the Merger Consideration
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law.
Conditions to Consummation of the Merger. The obligations of the
Company, Gaming and EAS to effect the Merger are subject to the satisfaction or
waiver on or prior to the Effective Time of the following conditions: (a) any
waiting period applicable to the consummation of the Elsinore Merger under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, shall have
expired or been terminated, and no action shall have been instituted by the
Department of Justice or Federal Trade Commission challenging or seeking to
enjoin the consummation of the Merger, which action shall not have been
withdrawn or terminated; (b) approval of the Merger by the affirmative vote of
holders of not less than a majority of the outstanding Common Stock, excluding
shares ineligible to vote; (c) the absence of any statute, rule, regulation,
judgment, order or injunction promulgated, entered, enforced, enacted or issued
applicable to the Merger by any governmental entity which, directly or
indirectly, (i) prohibits the consummation of the Merger or the transactions
contemplated by the Option Agreement, (ii) prohibits or materially limits the
ownership or operation by the Company, or any of its respective subsidiaries of
the material portion of the business or assets of the Company and its
subsidiaries, taken as a whole, or seeks to compel the Company, Gaming, or EAS
to dispose of or hold separate any material portion of the business or assets of
the Company or Gaming or EAS and its subsidiaries, taken as a whole, as a result
of the Merger or any of the transactions contemplated by the Merger Agreement,
or (iii) prohibits Gaming or EAS from effectively controlling in any material
respect the business or operations of the Company, taken as a whole; provided,
that the Company, Gaming and EAS shall use their reasonable best efforts to
cause any such statute, rule, regulation, judgment, order or injunction to be
repealed, vacated or lifted; (d) the Riviera Merger shall have become effective;
and (e) all licenses, permits, registrations, authorizations, consents, waivers,
orders or other approvals required to be obtained, and all filings, notices or
declarations required to be made, prior to the Effective Time, by Gaming, EAS,
Paulson, the Company or any of its subsidiaries in order to consummate the
Merger and the transactions contemplated by the Merger Agreement, and in order
to permit the Company and its subsidiaries to conduct their respective
businesses in the jurisdictions regulated by applicable gaming authorities after
the Effective Time in the same manner as conducted by the Company and its
subsidiaries immediately prior to the Effective Time shall have been obtained or
made.
<PAGE>
In addition, the obligations of Gaming and EAS on the one side, and the
Company on the other side, to effect the Merger are subject to the satisfaction
at or prior to the Effective Time of certain additional considerations as
detailed in the Merger Agreement.
Certain Covenants. The Company has agreed that from the date of the
Merger Agreement until the Effective Time, the Company and its subsidiaries will
each conduct its respective operations in the ordinary course of business and
will use its reasonable best efforts to preserve intact its business
organization, keep available the services of its officers and employees and
maintain existing business relationships. The Company has agreed that, prior to
the Effective Time, without the prior written consent of Gaming unless otherwise
provided in the Merger Agreement, the Company will not: (a) amend its Articles
of Incorporation or Bylaws or other comparable organizational documents; (b)
authorize for issuance, issue, pledge, sell, deliver or agree to commit to
issue, sell or deliver (whether through the issuance or granting of options,
warrants, commitments, subscriptions, rights to purchase or otherwise) or
otherwise encumber, any capital stock of any class or any other securities or
equity equivalents (including, without limitation, stock appreciation rights),
except as required by the Plan, warrants or other securities listed on Schedule
2.2 of the Merger Agreement, as such are in effect as of the date of the Merger
Agreement, or amend any of the terms of any such outstanding securities or
agreements; (c) split, combine or reclassify any shares of its capital stock,
declare, set aside or pay any dividend or other distribution (whether in cash,
stock, or property or any combination thereof) in respect of its capital stock,
or redeem, repurchase or otherwise acquire any of its securities or any
securities of its subsidiaries; (d) (i) with certain exceptions disclosed in the
Merger Agreement, create or incur any indebtedness for borrowed money or issue
any debt securities or assume, guarantee or endorse the obligations of any other
person, (ii) make any loans, advances or capital contributions to, or
investments in, any other person, (iii) pledge or otherwise encumber any shares
of capital stock of the Company or any of its subsidiaries, or (iv) mortgage or
pledge any of its assets, tangible or intangible, or create or suffer to exist
any lien thereupon; (e) enter into any transaction, other than in the ordinary
course of business, or make any investment, except for expenditures and
transactions in an aggregate amount not to exceed by more than $350,000 the
aggregate amount of expenditures and transactions set forth in the capital
expenditures plan provided to Gaming by the Company on September 5, 1997; (f)
enter into, adopt or (except as may be required by law or by the terms of any
such arrangement) amend or terminate any bonus, profit-sharing, compensation,
severance, termination, stock option, pension, retirement, deferred
compensation, employment or other employee benefit agreement, trust, plan, fund
or other arrangement for the benefit or welfare of any director, officer or
employee, or increase in any manner the compensation or benefits of any
director, officer, or employee, or grant any benefit or termination or severance
pay to any director, officer or employee not required by any plan or arrangement
as in effect as of the date of the Merger Agreement (including, without
limitation, the granting of stock options) or by law; (g) acquire, sell, lease
or dispose of, or encumber any assets outside the ordinary course of business or
any assets which in the aggregate are material to the Company and its
subsidiaries, taken as a whole, or enter into any contract, agreement,
commitment or transaction outside the ordinary course of business; (h) change
any of the accounting principles or practices used by the Company, except as may
be required as a result of a change in law, SEC guidelines or generally accepted
accounting principles applied on a consistent basis; (i) (i) acquire (including,
without limitation, by merger, consolidation, or
<PAGE>
acquisition of stock or assets) any corporation, partnership or other business
organization or division thereof, (ii) authorize any new capital expenditure or
expenditures except for expenditures and transactions in an aggregate amount not
to exceed by more than $350,000 the aggregate amount of expenditures and
transactions set forth in the capital expenditures plan provided to Gaming by
the Company on September 5, 1997, (iii) settle any litigation for amounts in
excess of $100,000 individually or $500,000 in the aggregate, or (iv) enter into
or amend any contract, agreement, commitment or settle or compromise any tax
liability, other than in the ordinary course of business; (j) pay, discharge or
satisfy any claims, liabilities or obligations (absolute, accrued, asserted or
unasserted, contingent or otherwise), other than the payment, discharge or
satisfaction in the ordinary course of business consistent with past practice or
in accordance with their terms, of liabilities disclosed in the Merger Agreement
or reflected or reserved against in the financial statements (or the notes
thereto) of the Company and its subsidiaries or incurred in the ordinary course
of business consistent with past practice; (k) terminate, modify, amend or waive
compliance with any provision of any material contract or fail to take any
action necessary to preserve the benefits of any such material contract to the
Company or any of its subsidiaries; (l) fail to comply with any laws, ordinances
or other governmental regulations applicable to the Company or any of its
subsidiaries, including, but not limited to, gaming laws and any regulations
promulgated thereunder, that may have a material adverse effect on the Company;
or (m) take, or agree in writing or otherwise take, any of the foregoing
actions.
Each of the parties to the Merger Agreement has agreed to use its
reasonable best efforts to take, or cause to be taken, all actions reasonably
necessary, proper or advisable under the applicable laws and regulations to
consummate the Merger, including preparing any required regulatory filings and
obtaining any required consents and waivers.
No Solicitation of Alternative Transactions. The Company has agreed
that it will not, and its subsidiaries and affiliates will not, and the Company
and its subsidiaries will use their reasonable best efforts to ensure that their
respective officers, directors, employees, investment bankers, attorneys,
accountants and other agents do not, directly or indirectly: (i) initiate,
solicit or encourage, or take any action to facilitate the making of, any offer
or proposal which constitutes or is reasonably likely to lead to any Alternative
Transaction with respect to the Company or any of its subsidiaries or an inquiry
with respect thereto, or (ii) in the event of an unsolicited Alternative
Transaction for the Company or any of its subsidiaries, engage in negotiations
or discussions with, or provide any information or data to any person relating
to any Alternative Transaction, subject to the Board of Directors' good faith
determination, after consulting with outside legal counsel to the Company, that
the failure to engage in such negotiations or discussions or provide such
information would likely result in a breach of the Board of Directors' fiduciary
duties under applicable law if such Alternative Transaction would provide the
Company's shareholders with a purchase price per share that is higher (the
amount of such excess in the purchase price per share of Common Stock being
referred to as the "Spread") than the Merger Consideration. The Company will
notify Gaming and EAS orally and in writing of any such inquiries, offers or
proposals (including, without limitation, the terms and conditions thereof and
the identity of the person making such), within 24 hours of the receipt thereof.
The Company and its subsidiaries and affiliates will immediately cease and cause
to be terminated all
<PAGE>
existing discussions and negotiations, if any, with any parties conducted with
respect to any Alternative Transaction relating to the Company or any of its
subsidiaries.
"Alternative Transaction" means any tender or exchange offer for Common
Stock or equivalent securities of the Company's subsidiaries, any proposal for a
merger, consolidation or other business combination involving any such person,
any proposal or offer to acquire in any manner a 10% or more equity interest in,
or 10% or more of the business or assets of, such person, any proposal or offer
with respect to any recapitalization or restructuring with respect to such
person or any proposal or offer with respect to any other transaction similar to
any of the foregoing with respect to such person or any subsidiary of such
person, except that "Alternative Transaction" does not apply to any such
transaction involving Gaming, EAS or their affiliates.
Each of the parties has agreed to normal and customary covenants and
stand-still provisions related to the Merger prior to the Effective Time.
Specifically, EAS and Gaming have agreed that none of their officers, directors
or shareholders will attempt to influence, direct or cause the direction of the
management or policies of the Company pending receipt of all required approvals
from gaming authorities, pursuant to applicable gaming laws, for the
transactions contemplated by the Merger Agreement and the Option Agreement.
Termination. The Merger Agreement may be terminated and the Merger
abandoned at any time prior to the Effective Time, notwithstanding the approval
by the Company's shareholders: (a) by mutual written consent of Gaming, EAS and
the Company; (b) by Gaming and EAS or the Company if any court or governmental
authority issues an order, decree or ruling or takes any other action
restraining or otherwise prohibiting the Merger, and such order, decree, ruling
or action becomes final and non-appealable, however, Gaming and the Company must
use their reasonable best efforts to have such injunction lifted; (c) by Gaming
and EAS or the Company, at any time after April 1, 1998, if the Merger has not
occurred by that date; however, if the Merger has not occurred solely because
the required approvals of the Nevada gaming authorities have not been obtained
and the Nevada gaming authorities have informed Paulson, Gaming or the Company
that a review of the applications for such approvals is scheduled for a later
date, then the termination date of the Merger Agreement will be extended until
such approvals have been granted or denied, but under no circumstances will the
termination date be extended beyond June 1, 1998; in addition, the right to
terminate the Merger Agreement because of the foregoing is not available to any
party whose failure to fulfill any obligations under the Merger Agreement is the
principal cause of the failure of the Merger to have occurred by such date; (d)
by Gaming and EAS if (i) the Company has breached any representations,
warranties, covenants or agreements which would have a material adverse effect
or prevent the consummation of the Merger and the breach has not been cured on
or prior to ten business days following notice of such breach, (ii) the
Company's Board of Directors withdraws or modifies in a manner adverse to Gaming
its approval or recommendation of the Merger Agreement, the Merger or the
transactions contemplated thereby or recommends, or the Company enters into an
agreement providing for, an Alternative Transaction, (iii) the Merger Agreement
is not approved by the requisite vote of the Company's shareholders, or (iv)
Paulson becomes deceased or disabled; (e) by the Company if (i) Gaming has
breached any representations, warranties, covenants or agreements which would
have a material adverse effect or prevent the
<PAGE>
consummation of the Merger and the breach has not been cured on or prior to ten
business days following notice of such breach, (ii) the Company's Board of
Directors determines in good faith after consulting with outside legal counsel
that it is required in the exercise of its fiduciary duties to enter into a
definitive agreement with respect to an Alternative Transaction, or (iii) the
Agreement is not approved by the requisite vote of the Company's shareholders;
or (f) by the Company if the closing has not occurred within 30 days following
the receipt of the required approvals of the gaming authorities, provided all of
the conditions to Gaming's obligations which the Company is required to fulfill
to effect the Merger must be satisfied or waived by Gaming.
If the Merger Agreement is terminated because the Company's Board of
Directors has determined in the exercise of its fiduciary duties to withdraw or
modify in a manner adverse to Gaming its approval or recommendation of the
Merger Agreement, the Merger, or the transactions contemplated thereby or the
Company enters into a definitive agreement providing for an Alternative
Transaction; or if the Agreement is not approved by the requisite vote of the
Company's shareholders; or if the Company's Board of Directors determines in
good faith after consulting with outside legal counsel that it is required in
the exercise of its fiduciary duties to enter into a definitive agreement with
respect to an Alternative Transaction, the Company will be required to pay to
Gaming a "Termination Fee" upon the closing of an Alternative Transaction. The
Termination Fee will be the aggregate amount equal to 3% of the consideration
for the equity of the Company which is received by the Company or the
shareholders in the Alternative Transaction valued at the higher of the value of
the consideration on the date of (i) the execution of the definitive agreement
with respect to the Alternative Transaction or (ii) the closing of the
Alternative Transaction. The ability of Gaming and EAS to terminate their
obligations under the Merger Agreement without creating an obligation to pay the
Company consideration is predicated upon certain representations of Paulson that
he has discussed, in detail with his Nevada counsel, his background and knows of
no reason why he would not be able to obtain all necessary approvals of gaming
authorities prior to April 1, 1998, and that Paulson has agreed that he will
pursue vigorously and will give complete and prompt attention to all requests
from gaming authorities for information and will do nothing to delay the receipt
of all necessary approvals.
The Option and Voting Agreement
The following is a summary of certain provisions of the Option
Agreement. This summary and all other discussions of the terms of the Option
Agreement included elsewhere in this Information Statement are qualified in
their entirety by reference to the Option Agreement, a copy of which is attached
hereto as Annex II, and incorporated herein by reference.
The Option. The MWV Accounts beneficially own 4,646,440 shares of
Common Stock, constituting 94.3% of the issued and outstanding Common Stock.
Contemporaneously with the Merger Agreement, Gaming and MWV (acting through
Waterfall on behalf of the MWV Accounts) entered into the Option Agreement. In
partial consideration for the Option Agreement and except in certain specified
circumstances, Gaming agreed to pay MWV on behalf of the MWV Accounts an amount
equal to $2,936,550.08 if the transactions contemplated by the
<PAGE>
Merger Agreement are not consummated. To ensure payment of the aforementioned
amount, Gaming delivered a letter of credit in that face amount to MWV, which
provides that it may be drawn on in the event that the Merger Agreement and the
transactions contemplated therein are not consummated, unless the failure to
consummate such transactions is the result of certain specified circumstances.
The Option Agreement also grants Gaming an irrevocable option to
purchase the shares of Common Stock owned by the MWV Accounts, at any time until
the earlier of the consummation of the Merger or June 1, 1998, provided that the
exercise of such option does not violate any law, including Nevada gaming law,
at an exercise price of $3.16 per share. Under the terms of the Option
Agreement, until the earlier of the termination or the closing date of the
Option Agreement, Gaming will continue to make monthly payments to MWV (on
behalf of the MWV Accounts) at the rate of 9.43% per annum on $3.16, for all
shares of Common Stock held by the MWV Accounts. In the event the Merger is
consummated, the option shall terminate automatically and the Common Stock held
by the MWV Accounts shall be converted into the right to receive the Merger
Consideration. The Option Agreement also acknowledges the parties' understanding
that, upon consummation of the Merger, the Merger Agreement provides for a
reduction of the consideration payable to MWV on account of any interest
previously paid to MWV pursuant to the terms of the Option Agreement.
Voting. In connection with the Merger and pursuant to the terms and
conditions of the Option Agreement, MWV (acting through Waterfall on behalf of
the MWV Accounts) covenanted to Gaming that at any meeting of shareholders of
Elsinore called to vote upon the Merger and the Merger Agreement, or in any
other circumstances where a vote, consent or other approval with respect to the
Merger or Merger Agreement is sought, the shares of Common Stock owned by the
MWV Accounts will be present for purposes of a quorum and will be voted in favor
of the Merger and Merger Agreement, and each of the transactions contemplated
therein. MWV (acting through Waterfall on behalf of the MWV Accounts) also
agreed that the Common Stock owned by the MWV Accounts would be voted against
any other action which may be adverse to the Merger Agreement and the
transactions contemplated therein. Furthermore, MWV (acting through Waterfall on
behalf of the MWV Accounts) agreed to negotiate exclusively with Gaming with
respect to the disposition of Common Stock held by the MWV Accounts, and that
such Common Stock would not be sold or transferred except pursuant to the Option
Agreement. MWV also agreed that if the Merger is consummated, it will waive any
rights it may have to require Elsinore to repurchase all or part of the
$29,104,000 principal amount of 13.5% second mortgage notes issued under an
indenture dated March 3, 1997, by and among Elsinore, certain guarantors and
First Trust National Association.
Termination. The Option Agreement shall terminate without further
action by the parties if (i) the purchase option or put option provided therein
is exercised and closed; (ii) the purchase or put option has not been exercised
and the Merger is consummated; (iii) the Merger Agreement is terminated pursuant
to other circumstances; or (iv) the option has not been exercised by June 1,
1998.
<PAGE>
Approval of Option Agreement. NRS Section 78.438 prevents a Nevada
corporation from engaging in any merger or certain other activities with a
person who is an "interested stockholder" of such corporation for three years
following the acquisition of such shares unless the activity or the purchase of
shares is previously approved by the board of directors of such Nevada
corporation. By entering into the Option Agreement with MWV, Gaming may be
deemed an "interested stockholder" within the meaning of the Nevada statute. The
Company's Board of Directors gave prior approval to the Option Agreement and
Gaming's acquisition of Common Stock pursuant to the Option Agreement.
Letter of Credit
Gaming has delivered a letter of credit in the face amount of
$2,936,550.08 to MWV (the "Letter of Credit"). The Letter of Credit ensures
payment to MWV of such amount as partial consideration under the Option
Agreement for the grant by MWV of the purchase option to Gaming if (a) the
Merger Agreement is terminated (except pursuant to a non-payment termination
event as defined in the Option Agreement) or (b) the Elsinore Merger does not
occur in accordance with the terms thereof on or before April 1, 1998 (or, if
the termination date is extended in accordance with the terms of the Merger
Agreement, June 1, 1998) for any reason other than the occurrence of a
non-payment termination event; provided, that MWV shall be entitled to receive
the consideration described above in the event MWV is entitled to receive
consideration as described in the Riviera Option Agreement and in accordance
with the terms thereof; and, provided further, that MWV shall be entitled to the
consideration described above if the Merger is not consummated as a result of a
breach by Gaming, EAS, or Paulson of any covenants or warranties made by or
about them in the Merger Agreement.
Certain Effects of the Merger
The Elsinore Merger shall have the effects set forth in Nevada
corporate merger law. Without limiting the generality of the foregoing, at the
Effective Time, except as otherwise provided in the Merger Agreement, all of the
property, rights, privileges, powers and franchises, and title to any real
estate vested in the Company and EAS shall vest in Elsinore, as the surviving
company. Additionally, all debts, liabilities and duties of Elsinore and EAS
shall become the debts, liabilities and duties of Elsinore as the surviving
company.
The Articles of Incorporation and Bylaws of EAS in effect immediately
prior to the Effective Time shall become the Articles of Incorporation and
Bylaws of Elsinore, as the surviving corporation, except that Article I of the
Articles of Incorporation shall be amended to read as follows: "The name of the
corporation shall be Elsinore Corporation."
The officers and directors of Elsinore at the Effective Time and,
subject to the requirements of Nevada gaming law, any additional individuals
designated by Gaming at or prior to the Effective Time, shall be the initial
officers and directors of Elsinore as the surviving corporation, and each shall
hold their position in accordance with the provisions of the Articles of
Incorporation and Bylaws of the surviving corporation, until his or her
successor is duly appointed and qualified.
<PAGE>
Each share of Common Stock held by Gaming, EAS, or their shareholders
or affiliates, or which is held in treasury by the Company, shall be canceled
and retired and shall cease to exist, and no payment of any consideration shall
be made with respect to the same. From and after the Effective Time, all
previously outstanding shares of Common Stock shall be automatically canceled
and retired, and shall cease to exist. Furthermore, any holder of a certificate
representing shares of Common Stock shall cease to have any rights with respect
thereto, except the right to receive the Merger Consideration, upon surrender of
the certificate.
Each share of capital stock of EAS issued and outstanding immediately
prior to the Effective Time shall be converted into and shall become one validly
issued, fully paid and nonassessable share of common stock, par value $.001 per
share, of the surviving corporation. Each record holder of pre-Merger Common
Stock may deliver the certificates representing such Common Stock to the
exchange agent designated by Gaming. In turn, the exchange agent shall transmit
the Merger Consideration to which such holder is entitled, and the share
certificate shall be canceled.
Surrender of Certificates; Payment of Consideration
In order to receive payment of the Merger Consideration after the
Effective Time, shareholders must complete the letter of transmittal which will
be provided by the exchange agent designated by Gaming or by the surviving
corporation in the Merger, and must present the letter of transmittal and such
certificates to the exchange agent. The holders of certificates should carefully
read and follow the instructions set forth in the letter of transmittal.
Certain Federal Income Tax Consequences
The following discussion sets forth certain federal income tax
consequences of the Merger to Company shareholders. The discussion does not
purport to consider all aspects of federal income taxation which may be relevant
to a shareholder, and the tax treatment of a shareholder may vary according to
the shareholder's situation. Certain shareholders (including insurance
companies, tax-exempt organizations, financial institutions, broker-dealers,
foreign corporations and persons who are not citizens or residents of the United
States) may be subject to special rules not discussed below. In addition, the
discussion does not consider the effect of any foreign, state or local tax laws.
The discussion assumes that shareholders hold their Common Stock as "capital
assets" (generally property held for investment) within the meaning of Section
1221 of the Internal Revenue Code of 1986, as amended. Finally, shareholders
should be aware that the conclusions set forth in the following discussions
could be affected by future legislation, case law, or administrative
interpretations.
The receipt of cash in exchange for Common Stock pursuant to the Merger
will be a taxable transaction for federal income tax purposes and may also be a
taxable transaction under applicable state, local and foreign tax laws. A
shareholder will generally recognize gain or loss for federal income tax
purposes in an amount equal to the difference between such shareholder's
adjusted tax basis in the Common Stock and the cash received by such
shareholder. Such gain or loss will be a capital gain or loss if such Common
Stock was held as a capital asset.
<PAGE>
Under the Taxpayer Relief Act of 1997, in the case of individuals and
other persons not taxed as corporations, if the holding period for the Common
Stock is more than 18 months as of the Effective Time, the maximum federal
income tax rate on any capital gain recognized by the shareholder is 20%. A
non-corporate shareholder whose holding period is more than 12 months but not
more than 18 months as of the Effective Time will be subject to a maximum
capital gains tax rate of 28%. Net gains on the sale of capital assets held 12
months or less are taxed as ordinary income. A capital loss of a non-corporate
shareholder may be offset against ordinary income up to $3,000; capital losses
in excess of $3,000 may be carried forward to future years. In the case of
corporate shareholders, capital gains and capital losses continue to be
classified as long-term if the holding period exceeds one year. Although
capital losses may be offset by capital gains, for corporate shareholders net
long-term capital gains are taxed at the regular corporate income tax rates.
The receipt of the Merger Consideration may be subject, under certain
circumstances, to "backup withholding" at a 31% rate. This withholding generally
applies only if the shareholder (i) fails to furnish his or her social security
or other taxpayer identification number ("TIN") within a reasonable time after
the request therefor, (ii) furnishes an incorrect TIN, (iii) is notified by the
Internal Revenue Service that he or she has failed to report properly interest
or dividends, or (iv) fails, under certain circumstances, to provide a certified
statement, signed under penalty of perjury, that the TIN provided is the correct
number and that he or she is not subject to backup withholding. Amounts paid as
backup withholding (but not any applicable penalties) are creditable against a
shareholder's federal income tax liability.
The foregoing discussion may not apply to shareholders who acquire
Common Stock pursuant to the exercise of employee stock options or other
compensation arrangements with the Company, who are not citizens or residents of
the United States or who are otherwise subject to special tax treatment. EACH
SHAREHOLDER IS URGED TO CONSULT HIS, HER OR ITS TAX ADVISOR WITH RESPECT TO THE
TAX CONSEQUENCES OF THE MERGER, INCLUDING THE EFFECTS OF APPLICABLE STATE, LOCAL
OR OTHER TAX LAWS.
Regulatory Approval
The Merger is subject to the requirements of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), and the rules
and regulations promulgated thereunder, which provide that certain transactions
may not be consummated until required information and materials have been
furnished to the Antitrust Division of the Department of Justice (the "Antitrust
Division") and the Federal Trade Commission (the "FTC") and certain waiting
periods have expired or been terminated. Elsinore and Gaming each intend to file
shortly notification and report forms under the HSR Act with the FTC and the
Antitrust Division. The waiting period under the HSR Act will expire 30 days
after the date of filing of such forms unless such waiting period is terminated
earlier or any of the parties to the Merger receives a request for additional
information from the FTC or the Antitrust Division prior to such date. If a
request for additional information is received, the waiting period will
terminate 20 days after such persons have substantially complied with the
request.
<PAGE>
Compliance with the HSR Act does not preclude the Antitrust Division or
the FTC from challenging the Merger on antitrust grounds either before or after
expiration of the waiting period. Accordingly, at any time before or after the
Effective Time, and not withstanding that the HSR Act waiting period has
expired, either the Antitrust Division or the FTC could take such action under
the antitrust laws as it deems necessary or desirable in the public interest, or
certain other persons could take action under the antitrust laws, including
seeking to enjoin the Merger. There can be no assurance that a challenge to the
Merger will not be made or that, if such a challenge is made, Elsinore will
prevail.
Gaming Regulation and Licensing
Nevada. Elsinore is registered with the Commission as a publicly traded
company and has been found suitable as the sole shareholder of Four Queens. Four
Queens holds a nonrestricted gaming license to conduct nonrestricted gaming
operations at the Four Queens Casino. As such, various aspects of the Merger may
be subject to the jurisdiction and prior approval of the Commission and the
Board. Accordingly, it is important to note that the ownership and operation of
casino gaming facilities in Nevada, as well as the manufacture and distribution
of gaming devices, are subject to extensive state and local regulation. Publicly
traded parent corporations and holding companies of Nevada gaming licensees, as
well as the licensed subsidiaries, are subject to the Nevada Gaming Control Act
and the regulations promulgated thereunder (the "Nevada Act") and various local
regulations. A registered company and its gaming operations and companies are
subject to the licensing and regulatory control of the Commission, the Board,
the Clark County Liquor Gaming Licensing Board and possibly other local agencies
throughout the State of Nevada, including the City of Las Vegas (collectively,
the "Nevada Gaming Authorities").
The laws, regulations and supervisory procedures of the Nevada Gaming
Authorities have their genesis in various declarations of public policy which
are concerned with, among other things: (i) the prevention of unsavory or
unsuitable persons from having a direct or indirect involvement with gaming at
any time or in any capacity; (ii) the establishment and maintenance of
responsible accounting practices and procedures; (iii) the maintenance of
effective controls over the financial practices of licensees, including the
establishment of minimum procedures for internal fiscal affairs and the
safeguarding of assets and revenues, providing reliable record keeping and
requiring the filing of periodic reports with the Nevada Gaming Authorities;
(iv) the prevention of cheating and fraudulent practices; and (v) the creation
of a source of state and local revenues through taxation and licensing fees.
Neither gaming licenses nor the registration approvals given to publicly traded
corporations are transferable. Changes in such laws, regulations and procedures
could have an adverse effect on the Company's operation.
Since the Company is registered with the Commission as a publicly
traded corporation and has been found suitable as the sole shareholder of Four
Queens, it is required to submit, upon application and on a periodic basis,
detailed financial and operating reports to the Commission. Additionally, the
Company may be required to furnish any other information requested by the
Commission. No person may become a shareholder of, or receive any percentage of
profits from
<PAGE>
licensed Nevada operating companies without first obtaining licenses and
approvals from the Nevada Gaming Authorities.
The Nevada Gaming Authorities may investigate any individual who has a
material relationship to, or material involvement with, any registered company
or its licensed subsidiary in order to determine whether such individual is
suitable or should be licensed as a business associate of a gaming licensee.
Officers, directors and certain key employees of the licensed subsidiary must
file applications with the Nevada Gaming Authorities and may be required to be
licensed or found suitable by the Nevada Gaming Authorities. Officers, directors
and key employees of the registered company who are actively and directly
involved in the gaming activities of the licensed subsidiary may be required to
be licensed or found suitable by the Nevada Gaming Authorities. The Nevada
Gaming Authorities may deny an application for licensing for any cause deemed
reasonable. A finding of suitability is comparable to licensing, and both
require the submission of detailed personal and financial information followed
by a thorough investigation. An applicant for licensing or a finding of
suitability must pay all of the costs of the investigation. Changes in licensed
positions with the registered company or its licensed subsidiary must be
reported to the Nevada Gaming Authorities. In addition to their authority to
deny an application for a finding of suitability or licensure, the Nevada Gaming
Authorities also have jurisdiction to disapprove a change in a corporate
position.
If the Nevada Gaming Authorities were to find an officer, director or
key employee unsuitable for licensing or unsuitable to continue having a
relationship with the registered company or its licensed subsidiary, the
companies involved would be required to sever all relationships with such a
person. Additionally, the Commission may require the registered company or its
licensed subsidiary to terminate the employment of any person who refuses to
file appropriate applications. Determinations of suitability or questions
pertaining to licensing are not subject to judicial review in Nevada.
Elsinore and Four Queens are required to submit detailed financial and
operating reports to the Commission. Substantially all loans, leases, sales of
securities and similar financing transactions by Four Queens must be reported
to, or approved by, the Commission.
If it were determined that the Nevada Act was violated by the licensed
subsidiary or the registered company, the gaming licenses or registration held
by the registered company and its licensed subsidiary could be limited,
conditioned, suspended or revoked subject to compliance with certain statutory
and regulatory procedures. Moreover, at the discretion of the Commission, the
registered company and its licensed subsidiary and persons involved could be
subject to substantial fines for each separate violation of the Nevada Act.
A beneficial holder of the registered 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 registered company's voting securities determined if 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 Nevada Gaming Authorities in conducting such
an investigation. Also, the Clark
<PAGE>
County Liquor Gaming Licensing Board and the City of Las Vegas have taken the
position that it has the authority to approve all persons owning or controlling
the stock of any corporation controlling a gaming license.
The Nevada Act requires any person who acquires more than 5% of the
registered company's voting securities to report the acquisition to the
Commission. The Nevada Act requires that beneficial owners of more than 10% of
the registered company's voting securities apply to the Commission for a finding
of suitability within 30 days after the Chairman of the Board mails written
notice requiring such a filing. Under certain circumstances, an "institutional
investor," as defined in the Nevada Act, which acquires more than 10%, but not
more than 15% of the registered company's voting securities may apply to the
Commission for a waiver of such a finding of suitability if such institutional
investor holds the voting securities for investment purposes only. An
institutional investor shall not be deemed to hold the voting securities for
investment purposes only unless the voting securities were acquired and are held
in the ordinary course of business as an institutional investor and not for the
purpose of causing, directly or indirectly, the election of a majority of the
members of the board of directors of the registered company, any change in the
registered company's corporate charter, bylaws, management, policies or
operations of the registered company, or any of its gaming affiliates, or any
other action which the Commission finds to be inconsistent with holding the
registered company's voting securities for investment purposes only. Activities
which are not deemed to be inconsistent with holding voting securities for
investment purposes only include: (i) voting on all matters voted on by
shareholders; (ii) making financial and other inquiries of management of the
type normally made by securities analysts for informational purposes and not to
cause a change in its management, policies or operations; and (iii) such other
activities as the Commission may determine to be consistent with such investment
intent. If the Commission grants a waiver to an "institutional investor" the
waiver does not include a waiver or exemption from the requirement for prior
approval to "acquire control" of a registered corporation. If the beneficial
holder of voting securities who must be found suitable is a corporation,
partnership or trust, it must submit detailed business and financial information
including a list of beneficial owners. The applicant is required to pay all
costs of investigation.
Any person who fails or refuses to apply for a finding of suitability
or a license within 30 days after being ordered to do so by the Commission or
the Chairman of the Board may be found unsuitable. The same restriction applies
to a record owner if the record owner, after request, fails to identify the
beneficial owners. Any shareholder found unsuitable and who holds, directly or
indirectly, any beneficial ownership of the common stock of a registered
corporation beyond such period of time as may be prescribed by the Commission
may be guilty of a criminal offense. The registered company is subject to
disciplinary action if, after it receives notice that a person is unsuitable to
be a shareholder or to have any other relationship with the registered company
or its Subsidiaries, the registered company (i) pays that person any dividend or
interest upon voting securities of the registered 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.
<PAGE>
The Commission may, in its sole discretion, require the holder of any
debt security of a registered corporation to file applications, be investigated
and be found suitable to own the debt security of the registered corporation. If
the Commission determines that a person is unsuitable to own such security, then
pursuant to the Nevada Act, the registered corporation can be sanctioned,
including the loss of its approvals, if without the prior approval of the
Commission, it: (i) pays to the unsuitable person any dividend, interest, or any
distribution whatsoever; (ii) recognizes any voting right by such unsuitable
person in connection with such securities; (iii) pays the unsuitable person
remuneration in any form; or (iv) makes any payment to the unsuitable person by
way of principal, redemption, conversion, exchange, liquidation, or similar
transaction.
The registered company is required to maintain a current stock ledger
in Nevada which may be examined by the Nevada Gaming Authorities at any time. If
any securities are held in trust by an agent or by a nominee, the record holder
may be required to disclose the identity of the beneficial owner to the Nevada
Gaming Authorities. A failure to make such a disclosure may be grounds for
finding the record holder unsuitable. The registered company is also required to
render maximum assistance in determining the identity of the beneficial owner.
The Commission has the power to require the registered company's stock
certificates to bear a legend indicating that the securities are subject to the
Nevada Act.
Elsinore may not make a public offering of its securities without the
prior approval of the Commission if the securities or the proceeds therefrom are
intended to be used to construct, acquire or finance gaming facilities in
Nevada, or to retire or extend obligations incurred for such purposes. Any such
approval, if given, does not constitute a finding, recommendation or approval by
the Commission or the Board as to the accuracy or adequacy of the prospectus or
the investment merits of the securities. Any representation to the contrary is
unlawful.
Application for approval of public offering and the like may be filed
without complete documentation related thereto so long as the documents and
information are supplied to the Board and Commission as they become available in
accordance with the normal and customary practice of the securities industry.
Additionally, the Commission may, either generally or specifically, exempt any
person, security or transaction from application pursuant to its regulations
regarding publicly traded corporations.
Changes in control of the registered company or its subsidiaries
through merger, consolidation, stock or asset acquisitions, management or
consulting agreements, or any act or conduct by a person whereby he obtains
control, may not occur without the prior approval of the Commission. Entities
seeking to acquire control of a registered corporation must satisfy the Board
and the Commission in a variety of stringent standards prior to assuming control
of such registered corporation. The Commission may also require controlling
shareholders, officers, directors and other persons having a material
relationship or involvement with the entity proposed to acquire control, to be
investigated and licensed as part of the approval process related to the
transaction.
<PAGE>
License fees and taxes, computed in various ways dependent upon the
type of gaming activity involved, are payable to the State of Nevada and to the
counties and cities in which the Nevada licensee's respective operations are
conducted. Depending upon the particular fee or tax involved, these fees and
taxes are payable either monthly, quarterly or annually and are based upon
either: (i) a percentage of gross revenues received; (ii) the number of gaming
devices operated; or (iii) the number of table games operated. A casino
entertainment tax is also paid by casino operations where entertainment is
furnished in connection with the selling of food or refreshments. Nevada
licensees that hold a license as an operator of a slot route, or a
manufacturer's or distributor's license, also pay certain fees and taxes to the
State of Nevada.
Any person who is licensed, required to be licensed, registered, or
required to be registered, or is under common control with such person
(hereinafter collectively referred to as "Licensees"), and who propose to become
involved in a gaming venture outside the State of Nevada are required to deposit
with the Board, and thereafter maintain, a revolving fund in the amount of
$10,000 to pay the expenses of investigation by the Board of their participation
in such foreign gaming. The revolving fund is subject to increase or decrease in
the discretion of the Commission. Thereafter, Licensees are required to comply
with certain reporting requirements imposed by the Nevada Act. Licensees are
also subject to disciplinary action by the Commission if it knowingly violates
any laws of the foreign jurisdiction pertaining to the foreign gaming operation,
fails to conduct the foreign gaming operation in accordance with the standards
of honesty and integrity required of Nevada gaming operations, engages in
activities that are harmful to the State of Nevada or its ability to collect
gaming taxes and fees, or employs a person in the foreign operation who has been
denied a license or finding of suitability in Nevada on the basis of personal
unsuitability.
It is important to note that the granting of any registrations,
amendment of orders of registration, findings of suitability, approvals or
licenses to be sought in connection with the Plan of Reorganization are
discretionary with the Gaming Authorities. The burden of demonstrating the
suitability or desirability of certain business transactions is at all times
upon the applicants. Any licensing or approval process requires the submission
of detailed financial, business and possible personal information, and the
completion of a thorough investigation.
New Jersey. The New Jersey Casino Service license held by Four Queens
expired September 30, 1997. A new license application has been filed and is
being investigated, which was required due to a change in control of the
Company. Transactional waivers have been obtained from the State of New Jersey
pending completion of the license investigation. The transactional waivers will
expire on April 1, 1998.
Washington. Elsinore's subsidiary, Olympia Gaming Corporation, has not
renewed its gaming license issued by the State of Washington as it is no longer
performing under, or seeking, a management contract in that state.
TRADING PRICES AND DIVIDENDS
There is no organized or established trading market for the Common
Stock. The Common Stock's prices are reported on the NASDAQ "bulletin board."
<PAGE>
As of the close of business on October 17, 1997, there were
approximately 600 record owners of Common Stock.
The trading market for the Common Stock is extremely thin. The MWV
Accounts own 94.3% of the outstanding Common Stock, which they acquired pursuant
to the Plan, and they have not bought or sold any Common Stock since the Plan
became effective. The Common Stock held by the MWV Accounts is deemed
beneficially owned by Elsinore's Chairman of the Board, and Elsinore's directors
and executive officers as a group are deemed to own beneficially 95.4% of the
outstanding Common Stock. The remaining 4.6% of the outstanding shares is widely
dispersed among numerous small shareholders.
On May 14, 1997, the last full day preceding Elsinore's filing with the
SEC of its Form 10-Q which reported, among other things, that Paulson had
expressed an interest in acquiring all of the outstanding Common Stock, both the
high and low sale prices of the Common Stock reported on the NASDAQ "bulletin
board" were $0.13 1/2 (13 1/2(cents)). The last high and low sale prices of the
Common Stock reported on the NASDAQ "Bulletin Board" as of October 17, 1997 were
both $2.375. In view of the thinness of the trading market, Elsinore cautions
investors that these reported prices may not be indicative of the price at which
any shareholder may be able to sell his or her shares or the price which a
shareholder may receive by exercising dissenter's rights under Nevada law with
respect to the Merger in lieu of receiving the Merger Consideration.
The Company has not paid any dividends on the Common Stock in the past
two years and does not currently expect to pay any dividends in the foreseeable
future.
ELSINORE'S BUSINESS AND PROPERTIES
General
Elsinore is registered with the Commission as a publicly traded holding
company of Four Queens, the licensed operator of the Four Queens Casino. Four
Queens also held a casino service license in New Jersey allowing it to
distribute its casino game "multiple action blackjack." Four Queens currently
distributes the game to eight casinos in New Jersey. The Four Queens' New Jersey
license expired September 30, 1997; however, it has obtained transactional
waivers from the State of New Jersey pending completion of the license
investigation associated with a change in control of Elsinore. Gaming management
activities of Elsinore's other subsidiaries, such as those in Washington, have
terminated. After the Merger, Elsinore will be a wholly-owned subsidiary of
Gaming. Shareholders of Elsinore prior to the merger will no longer own Elsinore
stock nor will they become shareholders of Gaming.
See also "VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF - Change in
Control Pursuant to Elsinore's Bankruptcy Reorganization."
The Four Queens Casino
Four Queens owns the Four Queens Casino, which has been in operation
since 1966. The Four Queens Casino has consistently concentrated on delivering
high quality, traditional Las Vegas-style gaming and entertainment. The Four
Queens Casino is located on a leased site of approximately two acres adjacent to
the Golden Nugget Hotel & Casino in the heart of Fremont
<PAGE>
Street in downtown Las Vegas. The property features approximately 690 hotel
rooms, including 45 suites, 32,000 square feet of casino space, two full-service
restaurants, three bars, a gift shop, a comedy showroom, six retail concessions,
12,000 square feet of function space and approximately 560 parking spaces. The
casino has approximately 1,000 slot machines, 26 gaming tables, a keno lounge
and a sports book. RGME, which has been managing the Four Queens Casino since
August 1996, has focused primarily on slot play versus previous management's
philosophy of marketing to high limit table players. This plan has changed the
customer base at the property and allows the Four Queens Casino to concentrate
on what RGME considers to be Las Vegas' most profitable revenue source, which is
the slot player market. Also, aggressive marketing strategy on Fremont Street
was implemented with the objective of attracting into the Four Queens Casino the
20,000-plus daily visitors to the downtown area.
Management. Since August 1996, RGME, an indirect subsidiary of Riviera,
has been managing the Four Queens Casino. Under the current management contract,
RGME receives a minimum annual management fee of $1,000,000 plus additional
compensation contingent upon operating results of the Four Queens Casino. The
management contract also grants to RGME warrants to purchase 1,125,000 shares of
Common Stock at $1.00 per share. (See "CERTAIN RELATIONSHIPS AND TRANSACTIONS")
Upon consummation of the Merger, RGME would receive approximately $2.4 million
in respect of the warrants, net of the exercise price.
Either party to the management contract can terminate it if (i)
substantially all of Four Queens' assets are sold; (ii) Four Queens is merged;
or (iii) a majority of the Four Queens' or Elsinore's shares is sold. Upon such
termination, RGME would receive a $2 million termination bonus minus any amount
realized or realizable upon exercise of the warrants.
No Solicitation of Alternative Transactions. The Merger Agreement
restricts the Company and its subsidiaries and affiliates from soliciting or
otherwise encouraging third parties to acquire the Company, and in certain cases
Gaming will have the right to receive a termination fee if the Company enters
into an Alternative Transaction (as defined).
The Las Vegas Market
Las Vegas is one of the largest and fastest growing entertainment
markets in the country. According to the Las Vegas Convention and Visitors
Authority (the "LVCVA"), the number of visitors traveling to Las Vegas has
increased at a steady and significant rate for the last eleven years from 15.2
million in 1986 to 29.6 million in 1996, a compounded annual growth rate of
6.9%. The gaming business in Clark County has continued to grow at a compounded
annual rate of 9.2% from $2.4 billion in 1986 to $5.8 billion in 1996.
Las Vegas is the largest city in Nevada, with a population in excess of
one million, and is Nevada's principal tourist center. Gaming and tourism are
the major attractions, complemented by warm weather and the availability of many
year-round recreational activities. Although Las Vegas' principal markets are
the western regions of the United States, most significantly southern California
and Arizona, Las Vegas also serves as a destination resort for visitors from all
over the world. A significant percentage of visitors originate from Latin
America and Asia.
<PAGE>
Historically, Las Vegas has had one of the strongest hotel markets in
the country. The number of hotel and motel rooms in Las Vegas has increased by
over 40% from approximately 67,000 at the end of 1989 to 95,000 at the end of
1996, giving Las Vegas the most hotel and motel rooms of any metropolitan area
in the country. Despite this increase in the supply of rooms, the occupancy rate
exceeded 91% for each of 1993, 1994, 1995 and 1996. Since January 1, 1996, there
were over 9,200 hotel rooms under construction and the LVCVA estimated that
approximately 60,000 additional hotel rooms were proposed for construction. The
new rooms under construction are primarily being designed to attract the
high-end gaming and convention customers, and based on construction costs will
be priced at rates well above those which have been or can be charged by the
Four Queens Casino based on the Company's investment in that facility.
The Downtown Market
General Information. Downtown Las Vegas, with its famous neon lighting
and its 12 major casinos all located within close proximity of each other,
attracts a significant number of loyal customers comprised of both visitors to
Las Vegas and local residents.
Recent results of the downtown Las Vegas casinos have been adversely
affected by, among other things, the opening of themed mega-casinos on the Las
Vegas Strip. In the 1989-1991 period, the opening of the Mirage and Excalibur
casino/hotels depressed the growth rate of downtown Las Vegas gaming revenues.
Similarly, the openings of the MGM Grand, Luxor and Treasure Island
casino/hotels have had an adverse effect on downtown gaming revenue. In
addition, two new themed casino resorts, namely Monte Carlo and New York New
York, opened on the southern part of the Strip in 1996 and early 1997,
respectively.
The Fremont Street Experience. Casino operators in downtown Las Vegas
formed the Downtown Progress Association to improve the downtown area. The most
noteworthy improvement is the Fremont Street Experience, which features a
celestial vault and light show. The celestial vault is a 100-foot high, 100-foot
wide, 1,340-foot long frame spanning Fremont Street, from Main Street to Fourth
Street, which is closed to traffic to create a pedestrian mall. The celestial
vault is the framework for a high-tech light show using reflectors, strobe
lights, and laser image projectors. Nine major entertainment venues, including
the Four Queens Casino, that together offer 17,000 slot machines, over 500
blackjack and other table games, 41 restaurants and 8,000 hotel rooms are
connected by the project, which opened on December 13, 1995. The project also
includes a 1,500-space parking facility. The goal of the Fremont Street
Experience is to create a special attraction for gaming customers and other
visitors to Las Vegas through such activities as street events and entertainment
in this extraordinary setting. A special themed event at the Fremont Street
Experience can draw as many as 80,000 people. Through such attractions, the
Fremont Street Experience draws visitors to the downtown area and provides
competition with the larger and new gaming and entertainment complexes located
on or near the Strip.
The Company and several of the other downtown casino operators
collectively own the Fremont Street Experience through their ownership of the
company which holds title to the
<PAGE>
project. The Company has a one-sixth ownership share and is responsible for a
proportionate share of the project's operating costs.
Legal Proceedings
The Company is a defendant in two consolidated lawsuits pending in the
federal court for the District of New Jersey, alleging violation by the Company
and certain of its subsidiaries and affiliates of the Worker Adjustment and
Retraining Notification Act (the "WARN Act") and breach of contract.
The plaintiffs filed three proofs of claims in the Company's and Four
Queens' bankruptcy proceedings. Two of the proofs of claims, one for the union
employees and one for the non-union employees, totaled $14 million and allege
liability under the WARN Act for failure to notify employees properly in advance
of cessation of operations of Elsinore Shore Associates. The third proof of
claim in the amount of $800,000 was based upon retroactive wage agreements
executed by Elsinore Shore Associates promising to pay its employees deferred
compensation if the employees remained with Elsinore Shore Associates during its
reorganization. The proofs of claims were filed as priority claims, not general
unsecured claims.
Based upon the Order For Verdict Upon Liability Issues issued by the
presiding judge in New Jersey, as well as the Bankruptcy Code, the Bondholders'
Committee in the bankruptcy proceeding filed an objection to the WARN Act proofs
of claims. The Bankruptcy Court tentatively approved the objection and
disallowed the claims pending entry of the final order from the New Jersey
court. No final appealable order has been entered as of yet by the Bankruptcy
Court. A second objection was filed on behalf of the Bondholders' Committee to
the $800,000 proof of claim regarding the retroactive wage benefits. Because the
New Jersey court had found the Company to be liable on these obligations
together with Elsinore Shore Associates, the objection filed by the Bondholders'
Committee did not dispute the allowability of the proof of claim to participate
with the other unsecured creditors in the Company's bankruptcy proceedings.
However, the Bondholders' Committee objected to the claim of priority status in
the Company's proceedings. The Bondholders' Committee objected to the claim in
its entirety in the Four Queens' bankruptcy proceeding. The Bankruptcy Court
granted the objections and ruled that the proof of claim for retroactive wage
benefits would be an allowed unsecured claim against the Company to be treated
in Class 10 of the Plan with final determination of the actual amount of the
claim to be made by the New Jersey District Court. The plaintiffs thereafter
filed a motion for reconsideration regarding the Bankruptcy Court's order, which
motion was ultimately denied. The final order was entered by the court in July
1997, and the plaintiffs have appealed the order to the Ninth Circuit Bankruptcy
Appellate Panel.
In summary, the Company believes that any claims listed above, if
allowed, would be included in the Class 10 Unsecured Creditor's pool of the
bankruptcy proceedings, which is capped at $1.4 million and, therefore, will not
have a material financial effect on the Company.
The Company is a party to other claims and lawsuits as detailed in
Schedule 2.11 of the Merger Agreement. Management believes that such matters are
either covered by insurance or, if
<PAGE>
not insured, will not have a material adverse effect on the financial position
or results of operations of the Company.
SELECTED FINANCIAL DATA
Set forth below is selected consolidated historical financial data with
respect to the Company for the five years ended December 31, 1996. This data
should be read in conjunction with the consolidated financial statements and
notes thereto set forth elsewhere herein.
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------------------
1996 1995 1994 1993 1992
(Dollars in thousands except per share amounts)
Balance Sheet Data:
<S> <C> <C> <C> <C> <C>
Total Assets $42,627 $37,101 $67,315 $71,923 $41,961
Current Portion
of Long-Term Debt 50 54 59 204 3,051
Long-Term Debt Net of
Current Portion:
Notes Payable 61,425 61,327 59,040 53,018 28,513
Capital Leases 1,487 1,531 1,290 1,350 1,555
Stockholder's Equity
(Deficit) (40,710) (43,441) (1,664) 4,567 (182)
========= ========= ======== ======= ========
Operations Data:
Revenues (Net) $61,199 $56,973 $62,706 $66,852 $63,998
======= ======= ======= ======= =======
(Loss) Before
Extraordinary Items $(1,556) $(45,749) $(10,176) $(2,252) $(1,780)
Extraordinary Items:
Gain (Loss) on
Extinguishment of Debt - - 735 (285) -
--------- ---------- ------ ----- ---------
Net Loss $(1,556) $(45,749) $( 9,441) $(2,537) $(1,780)
======== ========= ========== ======== ========
Per Share Amounts:
Loss Before
Extraordinary Items $ (.10) $ (2.95) $ (.84) $ (.19) $ (.15)
Extraordinary Items - - .06 (.02) -
------- ------------ --------- ---------- ----------
Net Loss $ (.10) $ (2.95) $ (.78) $ (.21) $ .15)
========= ========== ========= ========= =========
Capital Costs:
Depreciation and
Amortization $ 3,816 $ 3,948 $ 3,990 $ 3,206 $ 3,302
Interest Related to Prior-
Period Tax Obligation - 590 885 4,256 213
Interest Expense 2,505 8,006 9,086 1,385 3,124
----- --------- --------- --------- ---------
$ 6,321 $ 2,544 $ 13,961 $ 8,847 $ 6,639
========= ========= ========= ========= =========
</TABLE>
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 and discussion of the Plan
set forth elsewhere herein.
Three Months Ended June 30, 1997 and 1996 and
Six Months Ended June 30, 1997 and 1996
The following tables set forth certain operating information for the
Company for the three months ended June 30, 1997 and 1996 and six months ended
June 30, 1997 and 1996. Revenues and promotional allowances are shown as a
percentage of net revenues. Departmental costs are shown as a percentage of
departmental revenues. All other percentages are based on net revenues.
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
June 30, 1997 June 30, 1996
-------------------------------------------------------------------------
(000's) % (000's) %
(Unaudited) (Unaudited)
-------------------------------------------------------------------------
Revenues, net:
<S> <C> <C> <C> <C>
Casino 9,051 68.6% 10,691 70.7%
Hotel 2,406 18.3% 2,732 18.1%
Food and beverage 2,270 17.2% 3,088 20.4%
Other 355 2.7% 130 .9%
-------------------------------------------------------------------------
Gross revenue 14,082 106.8% 16,641 110.1%
Less promotional allowances (896) (6.8%) (1,525) (10.1%)
-------------------------------------------------------------------------
Revenues, net 13,186 100.0% 15,116 100.0%
-------------------------------------------------------------------------
Costs and expenses:
Casino 3,576 39.5% 4,244 39.7%
Hotel 2,155 89.6% 2,021 74.0%
Food and beverage 1,504 66.3% 1,711 55.4%
Taxes and licenses 1,381 105% 1,681 11.1%
Selling, general and
administrative 2,043 15.5% 2,323 15.4%
Rents 1,025 7.7% 1,017 6.7%
-------------------------------------------------------------------------
Total costs and expenses 11,684 88.6% 12,997 86.0%
------------------------------------------------------------------------
<PAGE>
Earnings before interest, taxes,
depreciation and amortization
(EBIDTA) 1,502 11.4% 2,119 14.0%
-------------------------------------------------------------------------
Depreciation and amortization 551 4.2% 924 6.1%
Interest 1,285 9.7% 251 1.7%
-------------------------------------------------------------------------
Income (loss) before
reorganizational items
and income taxes (334) (2.5%) 944 6.2%
-------------------------------------------------------------------------
Reorganizational items - - 604 4.0%
Income taxes 30 .2% - -
-------------------------------------------------------------------------
Net income (loss) (364) (2.8%) 340 2.2%
=========================================================================
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
June 30, 1997 June 30, 1996
-------------------------------------------------------------------------
(000's) % (000's) %
(Unaudited) (Unaudited)
-------------------------------------------------------------------------
Revenues, net:
<S> <C> <C> <C> <C>
Casino 19,522 69.4% 21,865 70.5%
Hotel 5,006 17.8% 5,728 18.5%
Food and beverage 4,910 17.5% 6,589 21.2%
Other 670 2.3% 301 1.0%
-------------------------------------------------------------------------
Gross revenue 30,108 107.0% 34,483 111.2%
Less promotional allowances (1,976) 7.0% (3,481) (11.2%)
-------------------------------------------------------------------------
Revenues, net 28,132 100.0% 31,002 100.0%
-------------------------------------------------------------------------
Costs and expenses:
Casino 7,450 38.2% 9,112 41.7%
Hotel 4,259 85.1% 3,894 68.0%
Food and beverage 3,156 64.3% 3,466 52.6%
Taxes and licenses 2,868 10.2% 3,492 11.3%
Selling, general and
administrative 4,639 16.5% 4,773 15.4%
Rents 2,033 7.2% 2,034 6.6%
-------------------------------------------------------------------------
Total costs and expenses 24,405 86.8% 26,771 86.4%
-------------------------------------------------------------------------
<PAGE>
Earnings before interest, taxes,
depreciation and amortization
(EBIDTA) 3,727 13.2% 4,231 13.6%
-------------------------------------------------------------------------
Depreciation and amortization 1,249 4.4% 1,894 6.0%
Interest 2,450 8.7% 515 1.7%
-------------------------------------------------------------------------
Income (loss) before reorganizational
items and income taxes
28 .1% 1,822 5.9%
-------------------------------------------------------------------------
Reorganizational items - - 1,138 3.7%
Income taxes 30 .1% - -
-------------------------------------------------------------------------
Net income (loss) (2) (.0%) 684 2.2%
=========================================================================
</TABLE>
Three Months Ended June 30, 1997 Compared To Three Months Ended June 30, 1996
Revenues
Net revenues decreased by approximately $1,930,000 or 12.8%, from
$15,116,000 for the three months ended June 30, 1996 to $13,186,000 for the
three months ended June 30, 1997 due to competition, the construction disruption
caused by the installation of an additional 60 feet of air doors at the Fremont
Street entrance, and the general softness in the Las Vegas market.
Casino revenues decreased by approximately $1,640,000, or 15.3%, from
$10,691,000 during the 1996 period to $9,051,000 during the 1997 period due
primarily to a $665,000, or 25.8%, decrease in table games revenues and a
$1,636,000, or 21%, decrease in slot revenue. Management has eliminated certain
unprofitable marketing programs which generated significant volume in the second
quarter of 1996. During the second quarter of 1997 table games drop decreased
$7,688,000 or 38.7%. However, the win percentage increased by 2.7% as a result
of more stringent controls over the dice games and a change in customer mix from
comp credit players to cash paying vacationers. Slot coin-in decreased
$34,257,000, or 23%, due to the competition from aggressive marketing programs
to $1.00 slot players, competitive pressures from the opening of new properties,
and construction disruptions.
Hotel revenues decreased by approximately $326,000, or 11.9%, from
$2,732,000 during the 1996 period to $2,406,000 during the 1997 period due
primarily to a decrease in complimentary room revenues of $341,000 resulting
from the elimination of the unprofitable table games marketing programs. The
majority of the complimentary rooms were replaced with cash paying customers at
lower room rates.
<PAGE>
Food and beverage revenues decreased approximately $818,000, or 26.5%,
from $3,088,000 during the 1996 period to $2,270,000 during the 1997 period due
to a decrease in complimentary revenues of $365,000 resulting from the
elimination of the unprofitable table games marketing programs and the closure
of two unprofitable food outlets which were replaced by profitable leased Burger
King and Pizza Hut franchises.
Other revenues increased by approximately $225,000, or 173.1%, from
$130,000 during the 1996 period to $355,000 during the 1997 period, due
primarily to an increase in interest income resulting from increased cash
balances, additional rental income as a result of new tenant leases (including
two leased food outlets) and a payment received under a settlement agreement
with the Twenty-Nine Palms Band of Mission Indians.
Promotional allowances decreased by approximately $629,000, or 41.3%,
from $1,525,000 during the 1996 period to $896,000 during the 1997 period due to
a decrease in complimentary rooms, food and beverage resulting from the
elimination of the unprofitable table games marketing programs.
Direct Costs And Expenses Of Operating Departments
Total direct costs and expenses of operating departments (including
taxes and licenses) decreased by approximately $1,041,000, or 10.8%, from
$9,657,000 for the three months ended June 30, 1996 to $8,616,000 for the three
months ended June 30, 1997.
Casino expense decreased by approximately $668,000, or 15.7%, from
$4,244,000 during the 1996 period to $3,576,000 during the 1997 period due to a
decrease in payroll and the cost of complimentary rooms, food and beverage.
Casino expenses as a percentage of revenues remained constant at approximately
40% as management has redirected the Company's marketing efforts from table
games to slots.
Hotel expense increased by approximately $134,000, or 6.6%, from
$2,021,000 during the 1996 period to $2,155,000 during the 1997 period, and
costs as a percentage of revenues increased from 74% to 89.6%, due to the
reduction in cost of complimentary rooms transferred to the Casino department.
Food and beverage costs and expenses decreased by approximately
$207,000, or 12.1%, from $1,711,000 during the 1996 period to $1,504,000 during
the 1997 period resulting from a corresponding decrease in revenues.
Tax and license expenses decreased by approximately $300,000, or
17.9%, from $1,681,000 to $1,381,000 due to the decrease in casino revenues.
Other Operating Expenses
Selling, general and administrative expenses decreased by approximately
$280,000, or 12.1%, from $2,323,000 for the three months ended June 30, 1996 to
$2,043,000 for the three months ended June 30, 1997 due to refunds of listing
fees received from the American Stock
<PAGE>
Exchange and refunds of deposits on background investigations from the National
Indian Gaming Commission which had been expensed in prior years. As a percentage
of total net revenues, selling, general and administrative expenses remained
constant at approximately 15.5%.
EBITDA
EBITDA decreased by approximately $617,000, or 29.1%, from $2,119,000
during the three months ended June 30, 1996 to $1,502,000 during the three
months ended June 30, 1997. The decrease was due to lower revenues which were
partially offset by management's elimination of unprofitable marketing expenses.
Other Expenses
Depreciation and amortization decreased by approximately $373,000, or
40.4%, from $924,000 during the 1996 period to $551,000 during the 1997 period
due to revaluation of property and equipment as a result of fresh start
accounting.
Interest expense increased by approximately $1,034,000, from $251,000
during the three months ended June 30, 1996 to $1,285,000 for the three months
ended June 30, 1997, due to the restatement of notes and restructured debt as of
August 12, 1996, the date of Plan confirmation. Interest had been stayed while
the Company was under the protection of the Bankruptcy Court.
Reorganization items totaling $604,000 in 1996 consisted primarily of
accrued professional fees incurred by the Company as a result of the
reorganization under Chapter 11 of the Bankruptcy Code. During the 1997 period
there were no reorganization items.
Income Taxes
Income taxes totaled $30,000 for estimated federal income tax payments
resulting from the alternative minimum tax.
Net Income (Loss)
As a result of the factors discussed above, net income decreased by
approximately $704,000, from $340,000 during the three months ended June 30,
1996 to a loss of $364,000 during the three months ended June 30, 1997.
Six Months Ended June 30, 1997 Compared To Six Months Ended June 30, 1996
Revenues
Net revenues decreased by approximately $2,870,000 or 9.3%, from
$31,002,000 for the six months ended June 30, 1996 to $28,132,000 for the six
months ended June 30, 1997.
<PAGE>
Casino revenues decreased by approximately $2,343,000, or 10.7%, from
$21,865,000 during the 1996 period to $19,522,000 during the 1997 period due
primarily to a $1,256,000, or 23.1% decrease in table games revenues and a
$832,000, or 5.4% decrease in net slot revenue. Management has eliminated
certain unprofitable marketing programs which generated significant volume in
the first half of 1996. During the first half of 1997 table games drop decreased
$16,442,000 or 36.9%, and slot coin-in decreased $60,188,000, or 20.6%. The
decrease in table game volume was partially offset by a 2.7% increase in win
percent.
Hotel revenues decreased by approximately $722,000, or 12.6%, from
$5,728,000 during the 1996 period to $5,006,000 during the 1997 period due
primarily to a decrease in complimentary room revenues of $880,000 resulting
from the elimination of the unprofitable table games marketing programs. The
majority of the complimentary rooms were replaced with cash paying customers at
lower room rates.
Food and beverage revenues decreased approximately $1,679,000, or
25.5%, from $6,589,000 during the 1996 period to $4,910,000 during the 1997
period due to a decrease in complimentary revenues of $870,000 resulting from
the elimination of the unprofitable table games marketing programs and the
closure of two unprofitable food outlets which were replaced by profitable
leased Burger King and Pizza Hut franchises.
Other revenues increased by approximately $369,000, or 122.6%, from
$301,000 during the 1996 period to $670,000 during the 1997 period, due
primarily to a refund of $83,000 from prior year's insurance premiums on the
Company's health and welfare plan, an increase in interest income due to
increased cash balances, and additional rental income as a result of new tenant
leases. Additionally, a payment was received under the settlement agreement
reached with the Twenty-Nine Palms Band of Mission Indians.
Promotional allowances decreased by approximately $1,505,000, or 43.2%,
from $3,481,000 during the 1996 period to $1,976,000 during the 1997 period due
to a decrease in complimentary rooms, food and beverage resulting from the
elimination of the unprofitable table games marketing programs.
Direct Costs And Expenses Of Operating Departments
Total direct costs and expenses of operating departments (including
taxes and licenses) decreased by approximately $2,231,000, or 11.2%, from
$19,964,000 for the six months ended June 30, 1996 to $17,733,000 for the six
months ended June 30, 1997.
Casino expense decreased by approximately $1,662,000, or 18.2%, from
$9,112,000 during the 1996 period to $7,450,000 during the 1997 period due to a
decrease in payroll and complimentary expenses. Casino expenses as a percentage
of revenues decreased from 41.7% to 38.2% due to management's redirection of the
Company's marketing efforts from table games to slots.
Hotel expense increased by approximately $365,000, or 9.4%, from
$3,894,000 during the 1996 period to $4,259,000 during the 1997 period, and
costs as a percentage of revenues
<PAGE>
increased from 68.0% to 85.1%, due to the reduction in cost of comps transferred
to the casino department.
Food and beverage costs and expenses decreased by approximately
$310,000, or 9.0%, from $3,466,000 during the 1996 period to $3,156,000 during
the 1997 period resulting from a corresponding decrease in revenues.
Tax and license expenses decreased by approximately $624,000, or
17.9%, from $3,492,000 to $2,868,000 resulting from a corresponding decrease in
casino revenues.
Other Operating Expenses
Selling, general and administrative expenses decreased by approximately
$134,000, or 2.8%, from $4,773,000 for the six months ended June 30, 1996 to
$4,639,000 for the six months ended June 30, 1997 primarily due to refunds of
listing fees received from the American Stock Exchange and refunds of deposits
on background investigations from the National Indian Gaming Commission which
had been expensed on prior years. As a percentage of total net revenues,
selling, general and administrative expenses increased from 15.4% during the
1996 period to 16.5% during the 1997 period.
EBITDA
EBITDA decreased by approximately $504,000, or 13.5%, from $4,231,000
during the six months ended June 30, 1996 to $3,727,000 during the six months
ended June 30, 1997. Management's redirection of the Company's marketing efforts
from table games to slots was responsible for keeping the operation competitive
while revenues were generally down in the Fremont Street market. The reductions
in payroll and complimentaries in table games, allowed the Company to
concentrate its efforts in marketing and advertising slots.
Other Expenses
Depreciation and amortization decreased by approximately $645,000, or
34.1%, from $1,894,000 during the 1996 period to $1,249,000 during the 1997
period due to revaluation of property and equipment as a result of fresh start
accounting.
Interest expense increased by approximately $1,935,000, or 375.7%, from
$515,000 during the six months ended June 30, 1996 to $2,450,000 for the six
months ended June 30, 1997, due to the restatement of the Company's mortgage
notes under the Plan. These notes began accruing interest as of August 12, 1996,
the date of Plan confirmation.
Reorganization items totaling $1,138,000 in 1996 consisted primarily of
accrued professional fees incurred by the Company as a result of the
reorganization under Chapter 11 of the Bankruptcy Code. During the 1997 period
there were no reorganization items.
<PAGE>
Income Taxes
Income taxes totaled $30,000 for estimated federal income tax payments
resulting from the alternative minimum tax.
Net Income (Loss)
As a result of the factors discussed above, net income decreased by
approximately $686,000, from $684,000 during the six months ended June 30, 1996
to a loss of $2,000 during the six months ended June 30, 1997.
Liquidity And Capital Resources
The Company had cash and cash equivalents (including restricted amounts
of $425,000) of approximately $11.0 million at June 30, 1997, a decrease of
$636,000 from December 31, 1996. Significant debt service on the Company's
restated 1993 Mortgage Notes ("New Second Mortgage Notes") and other debt issued
pursuant to the Plan is paid in August and February and should be considered in
evaluating cash increases or decreases in the second and fourth quarters.
Pursuant to the Subscription Rights Agreement provided for in the Plan,
$5,000,000 in cash was received by the Company as of the close of business on
February 28, 1997.
For the first half of 1997, the Company's net cash provided (used) by
operating activities was $(103,000) compared to $2.5 million provided by
operating activities in the first half of 1996 due primarily to the payment of
accrued interest on the New Second Mortgage Notes which had accrued since August
12, 1996. EBITDA for the first half of 1997 and 1996 was $3.7 million and $4.2
million, respectively. Management believes that sufficient cash flow will be
available to cover the Company's debt service for the next 12 months and enable
investment in remaining budgeted capital expenditures of approximately $5.4
million for 1997, including an arrangement to finance slot machine purchases of
$1.4 million in 1997, of which $500,000 has been used as of June 30, 1997.
Scheduled interest payments on the New Second Mortgage Notes and other
indebtedness are $4.3 million in 1997 declining to $3.9 million in 2001. Cash
flow from operations is not expected to be sufficient to pay 100% of the $30
million principal of the New Second Mortgage Notes at maturity on August 20,
2001. Accordingly, the ability of the Company to repay the New Second Mortgage
Notes at maturity will be dependent upon its ability to refinance them. There
can be no assurance that the Company will be able to refinance the principal
amount of the New Second Mortgage Notes at maturity. The New Second Mortgage
Notes are redeemable at the option of the Company at 100% at any time without
premium.
The New Second Mortgage Note Indenture provides for mandatory
redemption by the Company upon the order of the Nevada gaming authorities. The
indenture also provides that, in certain circumstances, the Company must offer
to repurchase the New Second Mortgage Notes upon the occurrence of a change of
control or certain other events at 101%. The Company is also required to offer
to purchase all of its restated 1994 Mortgage Notes, the principal amount of
which is $3.9 million, at 101% upon any "Change of Control," as defined in the
agreement
<PAGE>
governing those notes. The Merger would be deemed a "Change of Control" for
purposes of that agreement. In the event of such mandatory redemption or
repurchase prior to maturity, the Company would be unable to pay the principal
amount of the New Second Mortgage Notes without a refinancing.
Management considers it important to the competitive position of the
Four Queens Casino that expenditures be made to upgrade the property. Management
has budgeted approximately $7 million for capital expenditures in 1997. The
Company expects to finance such capital expenditures from cash on hand, cash
flow and slot lease financing. Uses of cash during the six month period included
capital expenditures of $1,672,000. Based upon current operating results and
cash on hand, the Company has sufficient operating capital to fund its operation
and capital expenditures for the next 12 months.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Liquidity And Capital Resources
Capital Resources: On January 25, 1995, through a public offering of
its common stock, the Company raised approximately $3,747,000, net of
underwriting discounts and commissions and other direct offering costs, in
consideration for the issuance of 2,500,000 shares of common stock. The net
proceeds were used for debt service and other working capital purposes.
On March 31, 1995, the Company sold, through a private placement to six
purchasers, an aggregate of $1,706,250 principal amount of 7.5% Convertible
Subordinated Notes. The net proceeds of $1,566,000 were used for debt service
and other working capital purposes.
As provided in the Subscription Rights Agreement dated October 10, 1996
("Rights Agreement"), pursuant to the Plan of Reorganization, the Company issued
stock subscription rights to purchase up to an aggregate of one million shares
of Common Stock at an exercise price of $5.00 per share. The rights that were
not exercised by the specified deadline were transferred automatically to the
members of the Bondholder Committee and exercised by them prior to the Plan
Effective Date.
As the Rights Agreement proceeds were received, they were deposited in
a separate Company bank account and were reflected in the December 31, 1996
balance sheet classification "Cash and Cash Equivalents Restricted." As of
December 31, 1996, Rights Agreement proceeds of $4,287,000 had been received by
the Company.
Cash and cash equivalents (including restricted amounts of $4,445,000
at December 31, 1996) increased $8,081,000 to $11,653,000 at December 31, 1996.
Net cash provided by operating activities for the year ended December 31, 1996
was approximately $4,852,000. Major uses of cash during 1996 included payments
of $1,431,000 of reorganization administrative costs, $578,000 of reorganization
severance costs, $139,000 of interest on the old 1994 Second Mortgage Notes and
$1,001,000 of capital expenditures.
<PAGE>
Liquidity: The Company's primary sources of liquidity are cash flows
from the operations of the Four Queens Casino. Four Queens Casino revenues,
operating results and cash flows increased during the year ended December 31,
1996, primarily because of an increase in Four Queens Casino hotel guests and
casino visitors, because of 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 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
Total revenues, net of promotional allowances, increased $4,226,000
(7.4%). Casino revenues increased $2,336,000 (5.8%), as compared to 1995.
Promotional allowances, which are subtracted from gross revenues, decreased
$496,000 (7.4%) in 1996 compared to 1995. Overall, management believes that the
increase in 1996 revenues over 1995 was at least partially attributable to
increased visitors to downtown because of (1) the Fremont Street Experience and
(2) the related improvement of vehicular traffic flow to downtown Las Vegas
following completion of its construction in November 1995.
The increase in casino revenues in 1996, as compared to 1995, included
a $2,971,000 (10.9%) increase in slot revenues and a $635,000 (5.0%) decrease in
table games revenues. The increase in slot revenues was in both the volume of
play and win percentage. The decrease in table games revenues resulted primarily
from a decrease in the volume of play.
Hotel revenues increased $1,638,000 (17.1%) during 1996 due to an
increase in average room rate and slightly higher room occupancy. Food and
beverage revenues increased $237,000 (2.0%). An increase in beverage revenues,
reflecting increased customer traffic, was partially offset by decreased food
complimentary sales during the year.
Interest and other income decreased $481,000 primarily because of
decreases in interest income accrued on Native American loans, which were fully
reserved at December 31, 1995. However, in 1996, the Company received its first
payment under the settlement agreement reached with the Twenty-Nine Palms Band
of Mission Indians.
Total costs and expenses, excluding interest, depreciation and
amortization and provisions for losses on loans receivable from Native American
Tribes, casino development costs and reorganization items decreased $1,337,000
(2.4%) in 1996 as compared to 1995.
Casino costs and expenses decreased $2,011,000 (10.2%) 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) and to a lesser extent by cost
containment.
<PAGE>
Correspondingly, hotel expenses increased $585,000 (7.4%) because of
lower promotional cost allocations to the casino and because of slightly higher
payroll costs. Food and beverage expenses increased $1,078,000 (17.9%) over 1995
almost entirely because of a lesser allocation of promotional costs to the
casino.
Taxes and licenses were comparable with 1995 consisting of increased
payroll and slot taxes which were mostly offset by lower table games and
property taxes. Selling, general and administrative expenses decreased
$1,057,000 (9.3%) from 1995 primarily as a result of reduced payroll costs of
corporate administrative and development staff. Rent expenses were comparable
with 1995.
Depreciation and amortization decreased $132,000 (3.3%) in 1996
primarily because the remaining unamortized balance of debt issue costs related
to the old 1993 First Mortgage Notes was charged to reorganization items at
October 31, 1995 (see Notes 1 and 8 of Notes to Consolidated Financial
Statements for the years ended December 31, 1996, 1995 and 1994) 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 for 1996 decreased $5,501,000 from 1995 as
reorganization proceedings continued. As of December 31, 1996, interest expense
of approximately $1,575,000 had been accrued from the August 12, 1996 Plan
confirmation date on the face amount of the new Restated Second Mortgage Notes
($30 million at 13.5% per annum) which were later issued when the Plan became
effective. In addition, interest of approximately $170,000 has been accrued from
the Plan confirmation date on the new Restated 11.5% First Mortgage Notes
(approximately $3.8 million face) which were later issued when the Plan became
effective. Because of the Chapter 11 proceedings, there had been no accrual of
interest on the old $57,000,000 12.5% 1993 First Mortgage Notes since October
31, 1995. If accrued to the Plan confirmation date, the interest expense on the
old 12.5% 1993 First Mortgage Notes would have been approximately $4,394,000 in
1996. (In addition, the remaining unaccreted discount balance related to the old
12.5% 1993 First Mortgage Notes was charged to expense as a reorganization item
at October 31, 1995). There also had been no 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 interest expense on the 7.5% notes
would have been approximately $67,000 in 1996. In addition, there had 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 Plan confirmation date
on prior period tax obligations would have been approximately $185,000 for 1996.
Reorganization expense is comprised of items incurred by the Company as
a result of reorganization under Chapter 11 of the Bankruptcy Code. As of the
Plan confirmation date in August 1996, the Company expensed approximately
$761,000 of executive severance costs, of which approximately $318,000 was
immediately due, with the remainder payable in monthly installments which
continue into 1997.
Reorganization expenses for 1996 follow:
<PAGE>
December 31, 1996
($ in thousands)
Officer severance expenses $ 761
Administrative expenses, net 1,431
Total reorganization items $2,192
Year Ended December 31, 1995 Compared To Year Ended December 31, 1994
Total revenues, net of promotional allowances, decreased $5,733,000
(9.1%). Casino revenues, decreased $6,306,000 (13.6%), as compared to 1994.
Promotional allowances, which are subtracted from gross revenues, decreased
$837,000 (11.1%) in 1995 compared to 1994 for the same reasons.
The decrease in casino revenues in 1995, as compared to 1994, consisted
primarily of a $3,178,000 (20.1%) decrease in table game revenues and a
$3,078,000 (10.1%) decrease in slot revenues. The decreases in table games
revenues resulted from decreases in both volumes of play and win percentages.
The decrease in slot revenues resulted from decreases in volumes of play.
Overall, management believes that these decreases were primarily due to the
disruption of traffic flow to downtown Las Vegas caused by construction of the
Fremont Street Experience and related infrastructure improvements and lower than
expected hold percentages in table games.
Hotel revenues increased slightly during 1995 due to a small increase
in average room rate which was partially offset by a small decrease in
occupancy. Food and beverage revenues decreased $557,000 (4.4% in 1995)
reflecting the lower volume of customer traffic during the period. The total of
interest and other income was comparable with 1994.
Casino costs and expenses decreased $3,161,000 (13.8%) primarily as a
result of reduced casino payroll expenses resulting from cost containment
programs and the decrease in casino volume. Hotel expenses increased $252,000
(3.3%).
In 1995, food and beverage expenses decreased $240,000 (3.8%),
as compared to 1994 due to cost containment programs.
Costs incurred as a result of taxes and license fees decreased $328,000
(4.7%) in 1995 with higher payroll taxes offset by lower gaming tax expenses.
Selling, general and administrative expenses decreased $507,000 (4.3%) from 1994
primarily as a result of reduced payroll expenses resulting from cost
containment programs.
In 1995, rent expenses increased $642,000 (19.4%) primarily because
of an increase in gaming equipment leased under operating leases.
Depreciation and amortization decreased $42,000 (1.1%) in 1995
primarily because the remaining unamortized balance of debt issue costs related
to the old 12.5% 1993 First Mortgage Notes was charged to reorganization items
at October 31, 1995 (see Notes 1 and 8 of Notes to Consolidated Financial
Statements for the years ended December 31, 1996, 1995 and 1994).
<PAGE>
Interest on prior period income tax obligations decreased $295,000
primarily because of adjustment of accruals to lower effective rates for the
year. Interest expense, excluding interest on prior period income taxes,
decreased $1,080,000 (11.9%) because, in connection with the reorganization
proceedings, interest subsequent to October 31, 1995 was only accrued on the
$3,000,000 principal of the old 20% 1994 Second Mortgage Notes. In addition, the
unaccreted debt discount balance related to the old 12.5% 1993 First Mortgage
Notes was charged to reorganization expense at October 31, 1995.
During the year ended December 31, 1995, the Company charged off
$23,598,000 of loans receivable from Native American Tribes and wrote off
$2,323,000 of casino development costs related to Native American Casino
projects (for additional information, see Note 4 of Notes to Consolidated
Financial Statements for the years ended December 31, 1996, 1995 and 1994).
For 1995, reorganization items consisted of the following:
(in thousands)
Debt issue costs charge-off $ 293
Debt discount charge-off 2,695
Administrative expenses, net 5,690
Total reorganization items $8,678
Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for certain forward-looking statements. Certain matters discussed in
this Information Statement could be characterized as forward-looking statements,
such as statements relating to plans for future expansion, as well as other
capital spending, financing sources and effects of regulation and competition.
Such forward-looking statements involve important risks and uncertainties that
could cause actual results to differ materially from those anticipated in such
forward-looking statements. Readers should not place undue reliance on
forward-looking statements, which reflect management's view only as of the date
of this filing. The Company undertakes no obligation to revise publicly these
forward-looking statements to reflect subsequent events or circumstances.
VOTING PROCEDURES
Approval of the Merger Agreement requires the affirmative vote of the
holders of not less than a majority of the outstanding Common Stock, excluding
any outstanding Common Stock owned by Gaming, EAS or their stockholders or
affiliates.
By written agreement, an affiliated group of holders of 94.3% of the
outstanding Common Stock have already expressed their intention to vote in favor
of the Merger Agreement. Accordingly, the Merger Agreement is expected to be
approved without further action on the part of any other shareholders.
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
TABLE OF CONTENTS
INDEPENDENT AUDITOR'S REVIEW REPORT ON THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS...................................................................F-2
CONDENSED CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 1997 (REORGANIZED COMPANY)
(UNAUDITED) AND DECEMBER 31, 1996 (PREDECESSOR COMPANY)......................F-4
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE
30, 1997 (REORGANIZED COMPANY) AND THREE MONTHS ENDED JUNE 30, 1996 (PREDECESSOR
COMPANY) (UNAUDITED).........................................................F-6
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE FOUR MONTHS ENDED JUNE
30, 1997 (REORGANIZED COMPANY); TWO MONTHS ENDED FEBRUARY 28, 1997 (PREDECESSOR
COMPANY) AND SIX MONTHS ENDED JUNE 30, 1996 (PREDECESSOR COMPANY); COMBINED
REORGANIZED AND PREDECESSOR COMPANY FOR THE SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED)..................................................................F-8
CONDENSED STATEMENTS OF CASH FLOWS FOR THE FOUR MONTHS ENDED JUNE 30, 1997
(REORGANIZED COMPANY); TWO MONTHS ENDED FEBRUARY 28, 1997 (PREDECESSOR COMPANY)
AND SIX MONTHS ENDED JUNE 30, 1996 (PREDECESSOR COMPANY); COMBINED REORGANIZED
AND PREDECESSOR COMPANY FOR THE SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED).................................................................F-10
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1997..........F-11
INDEPENDENT AUDITORS' REPORT ON THE CONSOLIDATED BALANCE SHEETS AS OF DECEMBER
31, 1996 AND 1995 AND RELATED CONSOLIDATED STATEMENTS OF OPERATIONS,
SHAREHOLDERS' EQUITY (DEFICIT) AND CASH FLOWS FOR THE THREE-YEAR PERIOD ENDED
DECEMBER 31, 1996...........................................................F-16
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1996 AND 1995................F-17
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1996,
1995 AND 1994...............................................................F-19
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1996,
1995 AND 1994...............................................................F-21
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT) FOR THE YEARS ENDED
DECEMBER 31, 1996, 1995 AND 1994............................................F-23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 1996, 1995 AND 1994............................................F-24
<PAGE>
Independent Auditor's Review Report
The Board of Directors and Shareholders
Elsinore Corporation:
We have reviewed the condensed consolidated balance sheet of Elsinore
Corporation and subsidiaries (Reorganized Company) as of June 30, 1997, and the
condensed consolidated statements of operations and cash flows for the three
months ended June 30, 1997 and the period from March 1, 1997 through June 30,
1997 and the condensed consolidated statements of operations and cash flows of
Elsinore Corporation and subsidiaries, Debtor-In-Possession (Predecessor
Company) for the period January 1, 1997 through February 28, 1997. These
condensed consolidated financial statements are the responsibility of the
Reorganized and Predecessor Companies' management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to the consolidated financial statements referred to above
for them to be in conformity with generally accepted accounting principles.
As discussed in Note 1 to the condensed consolidated financial
statements, on February 28, 1997, Elsinore Corporation emerged from bankruptcy.
The consolidated financial statements of the Reorganized Company reflect the
impact of adjustments to reflect the fair value of assets and liabilities under
fresh start reporting. As a result, the financial statements of the Reorganized
Company are presented on a different basis of accounting than those of the
Predecessor Company and, therefore, are not comparable in all respects.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet of Elsinore Corporation and
subsidiaries, Debtor-In-Possession as of December 31, 1996 and the related
consolidated statements of operations, shareholders' equity (deficit) and cash
flows for the year then ended (not presented herein); and in our report dated
February 19, 1997, we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying condensed consolidated balance sheet as of December 31, 1996, is
fairly stated, in all material respects, in relation to the consolidated balance
sheet from which it has been derived.
<PAGE>
Our report dated February 19, 1997, on the consolidated financial
statements of Elsinore Corporation and subsidiaries, Debtor-In-Possession as of
and for the year ended December 31, 1996, contains an explanatory paragraph that
states that on October 31, 1995, the Company filed a voluntary petition seeking
to reorganize under Chapter 11 of the United States Bankruptcy code and that the
Company is currently operating as a Debtor-In-Possession under the jurisdiction
of the Bankruptcy Court and this event and circumstances relating to this event
raise substantial doubt about the entity's ability to continue as a going
concern. The consolidated balance sheet as of December 31, 1996, does not
include any adjustments that might result from the outcome of that uncertainty.
KPMG Peat Marwick LLP
Las Vegas, Nevada
August 1, 1997
<PAGE>
<TABLE>
<CAPTION>
Elsinore Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
June 30, 1997 and December 31, 1996
(Dollars in Thousands)
Reorganized Company Predecessor Company
June 30, 1997 December 31, 1996
----------------------------- -----------------------------
(Unaudited)
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents 10,592 7,208
Accounts receivable, less allowance for doubtful
accounts of $308 and $347, respectively 334 815
Inventories 256 354
Prepaid expenses 1,708 1,177
----------------------------- -----------------------------
Total current assets 12,890 9,554
----------------------------- -----------------------------
Cash and cash equivalents, restricted 425 4,445
Property and equipment, net 37,141 25,485
Investment in Fremont Street Experience LLC 2,400
Reorganization value in excess of amounts allocable to
identifiable assets 378 -
Other assets 743 743
----------------------------- -----------------------------
Total assets 51,577 42,627
============================= =============================
Liabilities and Shareholders' Equity (Deficit)
Current liabilities:
Accounts Payable 1,071 1,065
Accrued interest 1,491 2,137
Accrued expenses 5,107 6,176
Current portion of long-term debt 958 50
----------------------------- -----------------------------
Total current liabilities 8,627 9,428
----------------------------- -----------------------------
Estimated liabilities subject to Chapter 11 proceedings - 73,909
Long-term debt, less current portion 37,762 -
----------------------------- -----------------------------
Total liabilities 46,389 83,337
----------------------------- -----------------------------
Commitments and contingencies
<PAGE>
Elsinore Corporation and Subsidiaries
Condensed Consolidated Balance Sheets (Continued)
June 30, 1997 and December 31, 1996
(Dollars in Thousands)
Shareholders' equity (deficit):
Predecessor company, Common stock, $.001 par value
per share. Authorized 100,000,000 shares.
Issued and outstanding 15,891,793 shares -- 16
Reorganized company, Common stock, $.001 par value
per share. Authorized 100,000,000 shares.
Issued and outstanding 4,929,313 shares 5 --
Additional paid-in capital 4,995 69,602
Retained earnings (accumulated deficit) 188 (110,328)
----------------------------- -----------------------------
Total shareholders' equity (deficit) 5,188 (40,710)
----------------------------- -----------------------------
Total liabilities and shareholders' equity (deficit) 51,577 42,627
============================= =============================
See accompanying notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Elsinore Corporation and Subsidiaries
Condensed Consolidated Statements of Operations
(Dollars in Thousands, Except Per Share Amounts)
(Unaudited)
Reorganized Predecessor
----------- -----------
Three Months Ended June 30, Three Months Ended June 30,
1997 1996
------------------------------- -------------------------------
Revenues, net:
<S> <C> <C>
Casino 9,051 10,691
Hotel 2,406 2,732
Food and beverage 2,270 3,088
Other 355 130
Promotional allowances (896) (1,525)
------------------------------- -------------------------------
Total revenues, net 13,186 15,116
Costs and expenses:
Casino 3,576 4,244
Hotel 2,155 2,021
Food and beverage 1,504 1,711
Taxes and licenses 1,381 1,681
Selling, general and administrative 2,043 2,323
Rents 1,025 1,017
Depreciation and amortization 551 924
Interest 1,285 251
------------------------------- -------------------------------
Total costs and expenses 13,520 14,172
------------------------------- -------------------------------
Income (loss) before reorganization items (334) 944
Reorganization items -- 604
------------------------------- -------------------------------
Net income (loss) before income taxes (334) 340
Income taxes 30 --
------------------------------- -------------------------------
Net income (loss) (364) 340
=============================== ===============================
Income (Loss) Per Share:
Income (loss) per common share $(.07) $0.02
=============================== ===============================
Weighted average number of common
shares outstanding 4,929,313 15,891,793
=============================== ===============================
See accompanying notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Elsinore Corporation and Subsidiaries
Condensed Consolidated Statements of Operations (Continued)
(Dollars in Thousands, Except Per Share Amounts)
(Unaudited)
Combined
Reorganized and
Reorganized Predecessor
Company Predecessor Company Company
----------- -------------------------- ---------------
Period from Period from
March 1 to January 1 to Period from Six Months
June 30, February 28, January 1 to Ended
1997 1997 June 30, 1996 June 30, 1997
---------- ------------ ------------- -------------
Revenues, net:
<S> <C> <C> <C> <C>
Casino 12,600 6,922 21,865 19,522
Hotel 3,270 1,736 5,728 5,006
Food and beverage 3,165 1,745 6,589 4,910
Other 517 153 301 670
Promotional allowances (1,216) (760) (3,481) (1,976)
------- ----- ------- -------
Total revenues, net 18,336 9,796 31,002 28,132
Costs and expenses:
Casino 4,740 2,710 9,112 7,450
Hotel 2,849 1,410 3,894 4,259
Food and beverage 2,051 1,105 3,466 3,156
Taxes and licenses 1,888 980 3,492 2,868
Selling, general and
administrative 2,832 1,807 4,773 4,639
Rents 1,360 673 2,034 2,033
Depreciation and
amortization 720 529 1,894 1,249
Interest 1,678 772 515 2,450
----- --- --- -----
Total costs and
expenses 18,118 9,986 29,180 28,104
------ ----- ------ ------
Income (loss) before
reorganization items,
extraordinary gain
on elimination of
debt and income taxes 218 (190) 1,822 28
==
Reorganization items - - 1,138
Extraordinary gain on
elimination of debt - 35,977 -
Income taxes 30 - -
--------- --------- ---------
Net income (loss) 188 35,787 684
Retained earnings (deficit) at beginning of
period - (110,328) (108,772)
Fresh start adjustments - 74,541
--------- ------ -------
Retained earnings (deficit) at end of period 188 - (108,088)
========= ========= =========
Income (Loss) Per Share:
Income (loss) before
extraordinary gain on
elimination of debt $0.04 $(0.01) $0.04
Extraordinary gain on elimination of debt - $2.26 -
------------- ------------ -------------
Net income (loss) $0.04 $2.25 $2.25
===== ===== =====
Weighted average number of common shares
outstanding 4,929,313 15,891,793 15,891,793
========= ========== ==========
See accompanying notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Elsinore Corporation and Subsidiaries
Condensed Statements of Cash Flows
(Dollars in Thousands)
(Unaudited)
Combined
Reorganized
and
Reorganized Predecessor
Company Predecessor Company Company
----------- ------------------------------------ -----------
Period from
Period from January 1 to Period from Six Months
March 1 to February 28, January 1 to Ended
June 30, 1997 1997 June 30, 1996 June 30, 1997
------------- ----------- ------------- -------------
Cash flows from operating activities:
<S> <C> <C> <C> <C>
Net income (loss) $188 $(190) $684 $(2)
Adjustments to reconcile net income
(loss) to net cash provided by (used
in) operating activities:
Depreciation and amortization 720 529 1,894 1,249
Accretion of discount on long-term debt - - 98 -
Change in other assets and
liabilities, net (2,678) 1,328 (141) (1,350)
------- ----- ----- -------
Net cash provided by (used in)
operating activities (1,770) 1,667 2,535 (103)
------- ----- ----- -----
Cash flows from investing activities:
Capital expenditures (1,531) (141) (431) (1,672)
------- ----- ----- -------
Net cash used in investing activities (1,531) (141) (431) (1,672)
------- ----- ----- -------
Cash flows from financing activities:
Repayment of debt (74) (12) (27) (86)
Incurrence of debt 512 - - 512
Proceeds from issuance of common stock
and subscription rights
- 713 - 713
----- ----- ---- -----
Net cash provided by (used in)
financing activities 438 701 (27) 1,139
--- --- ---- -----
</TABLE>
<TABLE>
<CAPTION>
<PAGE>
Elsinore Corporation and Subsidiaries
Condensed Statements of Cash Flows (continued)
(Dollars in Thousands)
(Unaudited)
Reorganized and
Reorganized Predecessor
Company Predecessor Company Company
----------- ---------------------------------- --------------
Period from
Period from January 1 to Period from Six Months
March 1 to February 28, January 1 to Ended
June 30, 1997 1997 June 30, 1996 June 30, 1997
------------- --------------- ------------- -------------
Net increase (decrease) in cash and
<S> <C> <C> <C> <C>
cash equivalents (2,863) 2,227 2,077 (636)
------- ----- ----- -----
Cash and cash equivalents at beginning
of period, including restricted cash 13,880 11,653 3,572 11,653
------ ------ ----- ------
Cash and cash equivalents at
end of period, including
restricted cash $11,017 $13,880 $5,649 $11,017
======= ======= ====== =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
Elsinore Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
June 30, 1997
1. Chapter 11 Reorganization
On October 31, 1995, Elsinore Corporation filed a voluntary petition to
reorganize under Chapter 11 of the Federal Bankruptcy Code and continued to
operate as a debtor in possession (Elsinore Corporation, D.I.P.) ("Predecessor
Company"). On August 12, 1996, the Plan of Reorganization filed by the
Predecessor Company (the "Plan") was confirmed and became effective following
the close of business on February 28, 1997 (the "Effective Date"). Upon
effectiveness of the Plan, Elsinore Corporation (the "Reorganized Company" or
the "Company") adopted fresh start reporting in accordance with Statement of
Position 90-7, "Financial Reporting by Entities in Reorganization under the
Bankruptcy Code" ("SOP 90-7") of the American Institute of Certified Public
Accountants. As a result of fresh start reporting, the material adjustments made
by the Company were the revaluation of property and equipment, write-off of the
investment in Fremont Street Experience, the revaluation of mortgage notes and
other liabilities, including the related gain on forgiveness of indebtedness,
and write-off of the accumulated deficit, additional paid-in-capital and common
stock of the Predecessor. Accordingly, the Company's post-reorganization balance
sheet and statement of operations have not been prepared on a consistent basis
with such pre-reorganization financial statements. For accounting purposes, the
inception date of the Reorganized Company is deemed to be March 1, 1997.
The Company has prepared the accompanying financial statements without
audit, pursuant to rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
the financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. In the opinion of management, the accompanying unaudited financial
statements contain all adjustments necessary to present fairly its financial
position as of June 30, 1997 and the results of its operations and its cash
flows for the two months ended February 28, 1997 for the Predecessor Company,
four months ended June 30, 1997 for the Reorganized Company, and the three
months and six months ended June 30, 1996 for the Predecessor Company.
2. Per Share Data
The Company will adopt the provision of Statement of Financial
Accounting Standards No. 128, Earnings Per Share (Statement 128) in the fourth
quarter of 1997. Basic and diluted EPS are equal to the amount presented on the
Income Statement.
Earnings per share for the three months ended June 30, 1997 and the
three months ended June 30, 1996 are based upon the weighted average number of
shares of common stock outstanding as there were no common stock equivalents
outstanding during the period.
<PAGE>
<TABLE>
<CAPTION>
Elsinore Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
June 30, 1997
3. Shareholders' Equity
Common Stock
--------------------------------------
Total
Additional Accumulated Shareholders'
Outstanding Shares Paid-In Earnings Equity (Deficit)
Amount Capital (Deficit)
------------------- ------------------ --------------- ------------------ --------------------
Balance,
<S> <C> <C> <C> <C> <C>
December 31, 1996 15,891,793 $16 $69,602 $(110,328) $(40,710)
Stock Subscription
Rights Offering 713 713
Income(loss)before
reorganization items and
extraordinary gain on
elimination of debt (190) (190)
------------------- ------------------ --------------- ------------------ --------------------
Balance,
February 28, 1997 15,891,793 16 70,315 (110,518) (40,187)
Gain on Forgiveness (Debt
Discharge) 35,977 35,977
Fresh Start Adjustments (15,891,793) (16) (70,315) 74,541 4,210
=================== ================== =============== ================== ====================
Balance, After Fresh Start
Adjustments - - - - -
Issuance of Stock 1,000,000 1 4,995 - 4,996
Issuance of Stock 3,929,313 4 - - 4
------------------- ------------------ --------------- ------------------ --------------------
Balance, March 1, 1997 4,929,313 5 4,995 - 5,000
Net Income (Loss) 552 552
------------------- ------------------ --------------- ------------------ --------------------
Balance, March 31, 1997 4,929,313 5 4,995 552 5,552
Net Income (Loss) (364) (364)
------------------- ------------------ --------------- ------------------ --------------------
Balance, June 30, 1997 4,929,313 $5 $4,995 $188 $5,188
=================== ================== =============== ================== ====================
</TABLE>
There were no changes in other shareholders' equity for the six months ended
June 30, 1996.
<PAGE>
Elsinore Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
June 30, 1997
4. Commitments and Contingencies
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 filed three proof of claims in both the Company's, as
well as Four Queens, Inc.'s, bankruptcy proceedings. Two of the proof of claims,
one for the union employees and one for the non-union employees, totaled
$14,000,000 and allege liability under the WARN Act for failure to properly
notify employees in advance of cessation of operations of Elsinore Shore
Associates. The third proof of claim in the amount of $800,000 was based upon
retroactive wage agreements executed by Elsinore Shore Associates promising to
pay its employees deferred compensation if the employees remained with Elsinore
Shore Associates during its reorganization. The proof of claims were filed as
priority claims, not general unsecured claims.
Based upon the Order for Verdict Upon Liability Issues issued by the
presiding judge in New Jersey, as well as the Bankruptcy Code, the Bondholders'
Committee filed an objection to the WARN Act proofs of claims. The Bankruptcy
Court tentatively approved the objection and disallowed the claims pending entry
of the final order from the New Jersey court. No final appealable order has been
entered as of yet by the Bankruptcy Court. A second objection was filed on
behalf of the Bondholders' Committee to the $800,000 proof of claim regarding
the retroactive wage benefits. Because the New Jersey court had found the
Company to be liable on these obligations together with Elsinore Shore
Associates, the objection filed by the Bondholders' Committee did not dispute
the allowability of the proof of claim to participate with the other unsecured
creditors in the Company's bankruptcy proceedings. However, the Bondholders'
Committee objected to the claim of priority status in the Company's proceedings.
The Bondholders' Committee objected to the claim in its entirety in the Four
Queens, Inc.'s proceeding. The Bankruptcy Court granted the objections and ruled
that the proof of claim for retroactive wage benefits would be an allowed
unsecured claim against the Company to be treated in Class 10 of the Plan with
final determination of the actual amount of the claim to be made by the New
Jersey District Court. The plaintiffs thereafter filed a motion for
reconsideration regarding the Bankruptcy Court's order, which motion was
ultimately denied. The final order was entered by the court in July 1997, and
the plaintiffs have appealed the order to the Ninth Circuit Bankruptcy Appellate
Panel.
In summary, management believes that any claims listed above, if
allowed, would be included in the Class 10 Unsecured Creditor's pool, which is
capped at $1.4 million, and, therefore, will not have a material financial
effect on the Company.
At June 30, 1997, 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 effect on the
financial position of the Company.
5. Recently Issued Accounting Standards
In February 1997, the Financial Accounting Standards Board issued\
SFAS No. 129, "Disclosure of Information about Capital Structure" (SFAS No.
129). SFAS No. 129
<PAGE>
Elsinore Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
June 30, 1997
establishes standards for disclosing information about an entity's capital
structure. The Company intends to comply with the disclosure requirements of
this statement which is effective for periods ending after December 15, 1997.
In June 1997, the Financial Accounting Standards Board issued No. 130,
"Reporting Comprehensive Income" (SFAS No. 130). SFAS No. 130 requires companies
to classify items of other comprehensive income by their nature in a financial
statement and display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in capital in the equity
section of a statement of financial position, and is effective for financial
statements issued for fiscal years beginning after December 15, 1997. The
Company is currently assessing the impact on the financial statements.
In June 1997, the Financial Accounting Standards Board issued No. 131,
"Disclosure About Segments of an Enterprise and Related Information" (SFAS No.
131). SFAS No. 131 establishes additional standards for segment reporting in the
financial statements and is effective for fiscal years beginning after December
15, 1997. The Company is currently assessing the impact on the financial
statements.
6. Proposed Merger
Mr. Allen Paulson has commenced discussions with the Company to acquire
all of the Company's outstanding shares, through a merger of the Company into a
corporation which he controls. The Company and Mr. Paulson are discussing an
acquisition price of $3.16 per share, subject to adjustment. The price per share
and other terms and conditions of any such transaction are subject to further
negotiation. Any such acquisition would be subject to prior approval by Nevada
gaming and other licensing authorities and various other conditions. There can
be no assurance at this time that the Company and Mr. Paulson will reach an
agreement, the required approvals of licensing authorities will be obtained, and
that the other conditions to consummation of the acquisition will be satisfied.
7. Finley Lease
Under a 20-year lease, which expires on December 31, 1997, the Company leases
from Finley Company ("Finley") approximately 7,000 square feet of the Four
Queens Casino premises affecting the northeast corner of that property. The
Company and Finley are in negotiations for an extension of the lease on new
terms reflecting current market conditions. There is no assurance at this time
that the Company and Finley will agree to continue to use this space for part of
the Four Queens Casino premises after December 31, 1997. However, an oral
agreement in principle has been reached whereby the rents would be increased to
market rate and a letter of credit for one year's rental payments would be
posted to guaranty payment of the monthly rentals.
<PAGE>
Independent Auditors' Report
The Board of Directors and Shareholders
Elsinore Corporation, Debtor-In-Possession
We have audited the consolidated balance sheets of Elsinore Corporation
and subsidiaries, Debtor-In-Possession, as of December 31, 1996 and 1995 and the
related consolidated statements of operations, shareholders' equity (deficit)
and cash flows for each of the years in the three-year period ended December 31,
1996. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Elsinore
Corporation and subsidiaries, Debtor-In-Possession, as of December 31, 1996 and
1995, and the results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1996, in conformity with
generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
1 to the consolidated financial statements, on October 31, 1995 the Company
filed a voluntary petition seeking to reorganize under Chapter 11 of the United
States Bankruptcy Code. The Company is currently operating as a
Debtor-In-Possession under the jurisdiction of the Bankruptcy Court and this
event and circumstances relating to this event raise substantial doubt about the
Company's ability to continue as a going concern. On August 8, 1996, the
Bankruptcy Court entered an order confirming the Company's plan of
reorganization, as modified, with a confirmation date of August 12, 1996. 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 consolidated financial
statements do not include any adjustments that might result from the outcome of
these uncertainties.
KPMG Peat Marwick LLP
Las Vegas, Nevada
February 19, 1997
<PAGE>
<TABLE>
<CAPTION>
Elsinore Corporation and Subsidiaries (Debtor-In-Possession)
Consolidated Balance Sheets
December 31, 1996 And 1995
(Dollars In Thousands)
1996 1995
---------------------- -----------------------
Assets
Current Assets:
<S> <C> <C>
Cash and cash equivalents $ 7,208 $3,572
Accounts receivable, less allowance
for doubtful accounts of $347
and $201, respectively 815 729
Inventories 354 248
Prepaid expenses 1,177 1,029
---------------------- -----------------------
Total current assets 9,554 5,578
---------------------- -----------------------
Cash and cash equivalents - restricted (note 1) 4,445 -
Property and equipment, net (notes 5 and 8) 23,544 25,473
Leasehold acquisition costs, net of accumulated
amortization of $4,898 and $4,691, respectively 1,941 2,148
Investment in Fremont Street Experience, LLC 2,400 3,000
Other assets (note 6) 743 902
---------------------- -----------------------
$42,627 $37,101
---------------------- -----------------------
Liabilities and Shareholders' Deficit
Current Liabilities:
Accounts payable $ 1,065 $ 676
Accrued interest 2,137 100
Accrued expenses (note 7) 6,176 5,352
Current portion of capital lease obligations
(note 12) 50 54
---------------------- -----------------------
Total current liabilities 9,428 6,182
---------------------- -----------------------
Prepetition liabilities not subject to compromise:
Long-term debt, subject to demand for
acceleration (note 8) 3,000 2,902
Capital lease obligations, net of current
portion (note 12) 1,487 1,531
---------------------- -----------------------
4,487 4,433
---------------------- -----------------------
Prepetition liabilities subject to compromise:
Accounts payable 3,565 4,070
Prior period income taxes and related interest
(note 9) 2,985 2,985
Accrued interest 4,419 4,419
Accrued expenses 28 28
Long-term debt subject to demand for
acceleration (note 8) 58,425 58,425
---------------------- -----------------------
69,422 69,927
---------------------- -----------------------
Total liabilities 83,337 80,542
---------------------- -----------------------
Shareholders' deficit (note 10):
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 69,602 65,315
Accumulated deficit (110,328) (108,772)
---------------------- -----------------------
Total shareholders' deficit (40,710) (43,441)
---------------------- -----------------------
Commitments and contingencies
(notes 4, 11 and 12)
$42,627 $37,101
====================== =======================
See accompanying notes to consolidated financial statements.
<PAGE>
Elsinore Corporation and Subsidiaries (Debtor-In-Possession)
Consolidated Statements of Operations
Years Ended December 31, 1996, 1995 and 1994
(Dollars in Thousands, Except Per Share Amounts)
-------------------- --------------------- --------------------
1996 1995 1994
-------------------- --------------------- --------------------
Revenues, net:
Casino $42,300 $39,964 $46,270
Hotel 11,202 9,564 9,234
Food and beverage 12,373 12,136 12,693
Interest and other 1,502 1,983 2,020
Promotional allowances (6,178) (6,674) (7,511)
-------------------- --------------------- --------------------
61,199 56,973 62,706
-------------------- --------------------- --------------------
Costs and Expenses:
Casino 17,694 19,705 22,866
Hotel 8,482 7,897 7,645
Food and beverage 7,088 6,010 6,250
Taxes and licenses (note 14) 6,592 6,627 6,955
Selling, general and administrative 10,328 11,385 11,892
Rents 4,055 3,955 3,313
Provision for losses on loans receivable from
Native American Tribes (note 4) - 23,598 -
Casino development costs (note 4) - 2,323 -
Depreciation and amortization 3,816 3,948 3,990
Interest (contractual interest for 1996 and
1995 of $7,661 and $9,212 respectively)
(note 8) 2,505 8,006 9,086
Interest, prior period income tax obligation
(note 9) - 590 885
-------------------- --------------------- --------------------
60,563 94,044 72,882
-------------------- --------------------- --------------------
Income (loss) before reorganization items 636 (37,071) (10,176)
Reorganization items (note 2) (2,192) (8,678) -
-------------------- --------------------- --------------------
Loss before income taxes and
extraordinary item (1,556) (45,749) (10,176)
Income taxes (note 9) - - -
-------------------- --------------------- --------------------
Loss before extraordinary item (1,556) (45,749) (10,176)
Extraordinary item (note 15) - - 735
-------------------- --------------------- --------------------
Net loss $(1,556) $(45,749) $(9,441)
==================== ===================== ====================
Loss per common share:
Loss before extraordinary item $(0.10) $(2.95) $(0.84)
Extraordinary item - - 0.06
==================== ===================== ====================
$(0.10) $(2.95) $(0.78)
==================== ===================== ====================
Weighted average number of common shares outstanding 15,891,793 15,511,983 12,106,778
==================== ===================== ====================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
Elsinore Corporation and Subsidiaries (Debtor-In-Possession)
Consolidated Statements of Cash Flows
Years Ended December 31, 1996, 1995 and 1994
(Dollars in Thousands)
-------------------- ------------------- --------------------
1996 1995 1994
-------------------- ------------------- --------------------
Cash flows from operating activities:
<S> <C> <C> <C>
Net loss $(1,556) $(45,749) $(9,441)
-------------------- ------------------- --------------------
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 3,816 3,948 3,990
Accretion of discount on long-term debt 98 1,170 1,171
Provision for loss of loans receivable from Native
American Tribes - 23,598 -
Write-off of casino development costs - 2,323 -
Write-off of Fremont Street Experience
operating costs - 525 -
Extraordinary loss on extinguishment of debt - - (735)
Reorganization items 2,192 8,678 -
Accrued expenses (1,368) 5,352 -
Change in other assets and liabilities, net 2,166 3,111 (227)
Liabilities subject to compromise:
Accounts payable (505) 1,982 (204)
Prior period income taxes and related
interest - (3,475) (50)
Accrued interest and other expenses - (2,119) 2,059
-------------------- ------------------- --------------------
Total adjustments 6,399 45,093 6,004
-------------------- ------------------- --------------------
Cash provided by (used in) operating
activities 4,843 (656) (3,437)
-------------------- ------------------- --------------------
Cash flows from investing activities:
Notes and loans receivable from Native American Tribes - (6,646) (15,908)
Casino development costs - (1,073) (302)
Investment in Fremont St. Experience LLC - (525) (1,122)
Capital expenditures (1,001) (148) (4,364)
-------------------- ------------------- --------------------
Cash used in investing activities (1,001) (8,392) (21,696)
-------------------- ------------------- --------------------
Cash flows from financing activities:
Issuance of long-term debt - 1,706 3,000
Principal repayments of long-term debt (48) (62) (204)
Proceeds from issuance of common stock, net of
underwriting discounts and commissions and other
direct costs - 3,747 15
Proceeds from issuance of common stock subscription
rights (note 1) 4,287 - -
Debt issuance costs - (140) (1,416)
Modification of capital lease obligation - 277 -
-------------------- ------------------- --------------------
Cash provided by financing activities 4,239 5,528 1,395
-------------------- ------------------- --------------------
Increase (decrease) in cash and cash equivalents 8,081 (3,520) (23,738)
Cash and cash equivalents at beginning of year 3,572 7,092 30,830
-------------------- ------------------- --------------------
Cash and cash equivalents at end of year
(Including restricted amounts of $4,445
and $3,685 at December 31, 1996 and
1994, respectively) $11,653 $3,572 $7,092
==================== =================== ====================
</TABLE>
Supplemental Disclosures of Cash Flow Information:
The Company paid $367,000, $3,998,000 and $7,750,000 for interest in
1996, 1995 and 1994, respectively, and $0, $3,475,000 and $50,000 for income
taxes in 1996, 1995 and 1994, respectively.
Supplemental Schedule of Non-Cash Financing and Investing Activities:
The Company reduced equipment and related accumulated depreciation by
$1,909,000 in 1994, to reflect the write-off of fully depreciated assets taken
out of service.
In connection with the supplemental issuance in 1994 of 750,000 stock
purchase warrants, the Company recorded a discount on the First Mortgage Notes
and increased additional paid-in capital by $1,125,000, the fair market value of
the stock purchase warrants.
In connection with the Private Placement in 1994 of the Company's 20.0%
Mortgage Notes due 1996, the Company recorded a discount on the Notes and
increased additional paid-in capital by $268,000, the fair value of the 126,050
shares of common stock issued with the notes.
In 1995, the holders of Convertible Notes with a face amount of
$281,250 effected conversion of the notes into 256,579 shares of the Company's
common stock.
<PAGE>
<TABLE>
<CAPTION>
Elsinore Corporation and Subsidiaries (Debtor-In-Possession)
Consolidated Statements of Shareholders' Equity (Deficit)
Years Ended December 31, 1996, 1995 and 1994
(Dollars in Thousands)
Additional
Common Shares Common Paid-in Accumulated Treasury
Stock Capital Deficit Stock Total
--------------- ----------- ------------- ---------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993 12,070,017 12 58,149 (53,582) (12) 4,567
Issuance of stock purchase warrants
to First Mortgage noteholders
(note 8) - - 1,125 - - 1,125
Issuance of 17,000 shares,
including 7,853 shares held in
treasury, upon exercise of stock
options 9,147 - 3 - 12 15
Issuance of shares as partial
consideration for debt (note 8) 126,050 - 268 - - 268
Issuance of shares in exchange for
First Mortgage Notes (notes 8
and 15) 930,000 1 1,801 - - 1,802
Net loss - - - (9,441) - (9,441)
--------------- ----------- ------------- ---------------- ----------- ------------
Balance, December 31, 1994 13,135,214 13 61,346 (63,023) - 1,664
Issuance of shares (note 10) 2,500,000 3 3,744 - - 3,747
Issuance of shares upon partial
conversion of 7.5% convertible
notes 256,579 - 225 - - 225
Net loss - - - (45,749) - (45,749)
--------------- ----------- ------------- ---------------- ----------- ------------
Balance, December 31, 1995 15,891,793 16 65,315 (108,772) - (43,441)
Issuance of common stock
subscription rights - - 4,287 - - 4,287
Net loss - - - (1,556) - (1,556)
=============== =========== ============= ================ =========== ============
Balance, December 31, 1996 15,891,793 16 69,602 (110,328) - (40,710)
=============== =========== ============= ================ =========== ============
</TABLE>
<PAGE>
See accompanying notes to consolidated financial statements.
Elsinore Corporation and Subsidiaries (Debtor-In-Possession)
Notes to Consolidated Financial Statements
Years Ended December 31, 1996, 1995 and 1994
1. Reorganization Under Chapter 11, Liquidity and Financial Condition.
Chapter 11 Proceedings.
On October 31, 1995, Elsinore and certain of its subsidiaries filed a
voluntary petition in the United States Bankruptcy Court for the District of
Nevada (Las Vegas, Nevada) (the "Bankruptcy Court") to reorganize under Chapter
11 of the United States Bankruptcy Code (the "Bankruptcy Code"). The file number
in the case is 95-24685 RCJ with Judge Robert C. Jones presiding. On November
10, 1995, Olympia Gaming Corporation, a wholly-owned subsidiary of the Company,
also filed a voluntary petition in the same Court. The Company is currently
operating 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 of the ordinary course of business without
the approval of the Bankruptcy Court.
Plan of Reorganization.
General.
Under the Bankruptcy Code, the Company's pre-petition liabilities are
subject to settlement under a plan of reorganization. The Bankruptcy Code also
requires that all administrative claims be paid on the effective date of the
plan of reorganization unless the respective claimants agree to different
treatment.
During the course of the bankruptcy proceedings, an unofficial
committee of a majority of the holders of the 1993 First Mortgage Notes was
formed (the "Bondholders Committee"). Beginning in approximately December 1995,
the Company and the Bondholders Committee participated in settlement
negotiations in an effort to consensually resolve their concerns in the case.
The result of these negotiations was an agreed upon conceptual framework for a
plan of reorganization, which was thereafter embodied in a stipulation (the
"Stipulation").
On February 28, 1996, the Company filed a plan of reorganization, which
was consistent with the terms of the Stipulation, together with an accompanying
disclosure statement. The disclosure statement was approved on May 13, 1996
subject to the insertion of certain language acceptable to the 1993 First
Mortgage Noteholders.
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
<PAGE>
modifications to the plan would be necessary for its confirmation. These
modifications included, among others, making no distribution to the Company's
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. 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.
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.
Management believes the only remaining condition to effectiveness to be
satisfied is the Nevada Gaming Authorities granting its approval of the members
of the Company's reconstituted Board of Directors.
Currently, it is expected that the Plan will be fully effective by March 1997.
Terms of 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 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:
<PAGE>
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 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.
As defined in the Subscription Rights Agreement dated October 10, 1996,
pursuant to the Plan of Reorganization, as confirmed by the Bankruptcy court,
the Company agreed to issue to the Rightholders stock subscription rights
("Rights") to purchase up to an aggregate of one million (1,000,000) shares of
Common Stock, par value $0.001 per share, of the Company, at an exercise price
of $5.00 per share. In the event such Rights were not exercised by 5 P.M.
Pacific time on December 13, 1996, such non-exercised Rights were transferred
automatically to the members of the Bondholder Committee in the proportions
specified in a Standby Commitment. As the Rights proceeds are received, they are
deposited in a separate Company bank account and are reflected in the
accompanying 1996 balance sheet classification "Cash and Cash Equivalents
Restricted." As of December 31, 1996, Rights proceeds of $4,287,000 (including
interest of $19,000) had been received by the Company, representing the exercise
of Rights to approximately 854,000 shares of New Common Stock. The Company will
issue the related shares, including shares applicable to the bondholders Standby
Commitment, when the Plan becomes effective, which is expected to occur in
March, 1997.
As a result of the rights offering, members of the Bondholders
Committee will receive 995,280 shares of the New Common Stock and members of the
creditor and equity holder constituencies will receive an aggregate, 4,720
shares of New Common stock. Therefore, upon effectiveness of the plan, it is
expected that members of the bondholders committee will hold, in the aggregate
4,495,280 shares of the 5,000,000 issued and outstanding shares of New Common
Stock.
<PAGE>
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 1994 Mortgage Note holders 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 1994 Mortgage Note holder will receive its pro rata 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 1993 First Mortgage Note holders 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 1993 First Mortgage Note holder will
receive (i) in exchange for the secured portion of its claim, its pro rata 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, pro rata portion of the
New Common Stock (see above).
The Convertible Note holders have an allowed claim equal to
approximately $1,500,000. On the effective date of the Plan, each Convertible
Note holder will receive its pro rata share of New Common Stock (see above) in
exchange for its allowed claim.
The Company's larger unsecured creditors, other than the Convertible
Note holders, will receive payments from a fund of approximately $1,400,000 over
a three-year period and their pro rata 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 (commencing on the effective
date) 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 pro rata share
of the New Common Stock (see above).
<PAGE>
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 to manage
the business operations of the Company subject to the direction of the existing
boards of directors of Elsinore and its subsidiaries.
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.
The Plan contemplated that management of the Company from the date of
the Plan's confirmation until the Plan's Effective Date would be undertaken by a
nominee of the Bondholders Committee. The Company and Riviera Gaming Management
Corp. - Elsinore ("Riviera"), the nominee of the Bondholders Committee, have
entered an Interim Management Agreement (the "Interim Agreement") pursuant to
which Riviera has assumed exclusive managerial responsibility over the Four
Queens Hotel and Casino and ancillary facilities (together the "Four Queens
Hotel"), subject to supervision of the Boards of Directors of Elsinore and FQI.
Under the Interim Agreement, Riviera is responsible for providing training to
Four Queens Hotel personnel, marketing and sales at the Four Queens Hotel,
internal accounting and other managerial tasks. In return, Riviera receives a
management fee of $83,333 per month. All personnel employed at the Four Queens
Hotel, other than those hired by Riviera for purposes of fulfilling its
responsibilities, remain the employees of the Company. In addition, during the
interim agreement, the Company retains full responsibility for payment of all
expenses related to the operation of the Four Queens Hotel. Riviera has no
obligation to pay any expenses or to make any capital expenditure with respect
to the Four Queens hotel which are not funded by the Company. The interim
agreement by its terms will terminate upon the commencement of the first
calendar quarter following the Plan's Effective Date.
Board of Directors
The Plan also calls for the Company's Board of Directors to be
reconstituted upon effectiveness of the Plan. Four of the new directors are to
be chosen by the Bondholders Committee and one will be appointed by the Equity
Committee appointed in the Bankruptcy Case. Both the Bondholders Committee and
the Equity Committee have selected their proposed representatives to the
Company's Board. Those proposed directors have been submitted to the Nevada
gaming authorities for approval. Upon such approval, the Company believes all
conditions to the Plan's effectiveness will be satisfied.
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
<PAGE>
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.
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. However, by letter dated January 27,
1997, Elsinore was informed of AMEX's intention to pursue the delisting of
Elsinore's Common Stock. By letter dated February 3, 1997, the Company requested
that AMEX defer a final decision on delisting until mid-March 1997 so that the
reconstituted board of directors has an opportunity to decide on a course of
action. By letter dated February 5,1997 AMEX agreed to extend the Company's time
to request an appeal to March 14, 1997.
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. Such items
for 1996 and 1995 (none in 1994) consisted of the following (in thousands):
1996 1995
----------------- -----------------
Administrative expenses $1,431 $293
Severance expenses 761 -
Write-off of debt issuance costs - 2,695
Write-off of original issue discount on debt - 5,690
================== ================
$2,192 $8,678
================== ================
3. Summary of Significant Accounting Policies
(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. As a result
of the reorganization proceedings, there are significant
<PAGE>
uncertainties relating to the ability of the Company to continue as a going
concern. 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 of reorganization.
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/accounting treatments in respect to each of the financial
statements. The Company will the adopt fresh-start reporting provisions of SOP
90-7 upon the effective date of the Plan and anticipates reporting the results
for the quarter ending March 31, 1997 under those provisions.
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 will be settled. Under the
approved final plan of reorganization, those claims will be settled at amounts
substantially less than their allowed amounts.
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.
<PAGE>
(b) Principles of Consolidation
The consolidated financial statements include the accounts of Elsinore
Corporation and its wholly-owned subsidiaries. All material intercompany
balances and transactions have been eliminated in consolidation.
(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:
Years Ended December 31,
1996 1995 1994
--------------------------------------------------------------
(Dollars in Thousands)
Hotel $1,215 $1,608 $2,179
Food & Beverage 3,908 4,869 5,022
--------------------------------------------------------------
Total $5,123 $6,477 $7,201
==============================================================
(d) Cash Equivalents
Cash equivalents include highly liquid investments purchased with an
original maturity date of 90 days or less.
(e) Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market.
(f) Property and Equipment
Property and equipment are stated at cost. Depreciation is provided
over the estimated useful lives of the assets using the straight-line method.
Useful lives range from 8 to 40 years. Equipment held under capital lease are
recorded at the net present value of minimum lease payments at the inception of
the lease and are amortized over the shorter of the terms of the leases or
estimated useful lives of the related assets.
(g) Leasehold Acquisition Costs
The costs of acquiring leasehold interests are deferred and amortized
using the straight-line method over the shorter of the term of the lease or the
useful life of the property which is 33 years.
<PAGE>
(h) Amortization of Original Issue Discount and Debt Issuance Costs
Original issue discount is accreted over the life of the related
indebtedness using the effective interest method.
Costs associated with the issuance of the debt are deferred and
amortized over the life of the related indebtedness using the straight-line
method.
See discussion in notes 2 and 8 regarding the write-off of unamortized
amounts as of December 31, 1995 in connection with the reorganization
proceedings.
(i) Casino Development Costs
Casino development costs consist of costs incurred by the Company in
connection with the development of the Palm Springs and Washington Casinos and
legal and other costs incurred to enter into management contracts with the
respective Indian Tribes and to obtain necessary federal and state regulatory
approvals. Pursuant to the respective management contracts, costs incurred by
the Tribes (as defined in the contracts) to construct and develop the casinos
were loaned to the Tribal enterprises in the form of promissory notes. Other
casino development costs were deferred to be amortized over the five-year terms
of the related management contracts. See note 4 for discussion of the write-off
of previously deferred amounts as of December 31, 1995.
(j) 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. 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. During 1995, the Company paid approximately $525,000 to FSELLC,
representing its allocated share of the 1995 operating costs of the Fremont
Street Experience. These costs were capitalized and expensed upon the opening of
the project. As FSELLC is expected to operate at a loss for the foreseeable
future, the $3,000,000 capital contribution will be amortized over five years
using the straight line method. The Company's allocated share of the operating
costs of the Fremont Street Experience ($1,000,000 in 1996) are expensed as
incurred.
(k) Income Taxes
Income taxes have been provided for using the asset and liability
method in accordance with Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes." Under the asset and liability method, deferred
tax assets and liabilities are recognized for the
<PAGE>
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carryforwards. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. Under Statement 109, the effect on deferred
tax assets and liabilities of a change in tax rates is recognized in income in
the period that includes the enactment date.
(l) Loss Per Share
Loss per share has been computed by dividing net loss by the weighted
average common shares outstanding during the year.
(m) Stock Based Compensation
Prior to January 1, 1996, the Company accounted for its stock option
plan in accordance with the provisions of Accounting Principles Board ("APB")
Opinion No. 25, Accounting for Stock Issued to Employees, and its related
interpretations. As such, compensation expense would be recorded on the date of
grant only if the current market price of the underlying stock exceeded the
exercise price. On January 1, 1996, the Company adopted SFAS No. 123, Accounting
for Stock-Based Compensation, which permits entities to recognize as expense
over the vesting period the fair value of all stock-based awards on the date of
grant. Alternatively, SFAS No. 123 also allows entities to continue to apply the
provisions of APB Opinion No. 25 and provide proforma net income and proforma
earnings per share disclosures for employee stock option grants made in 1995 and
future years as if the fair-value-based method defined in SFAS No. 123 had been
applied. The Company has elected to continue to apply the provisions of APB
Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123.
(n) Long-lived Assets
In March, 1995, the FASB issued Statement Of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of", which requires impairment losses to be
recorded on long-lived assets used in operations when indicators of impairment
are present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount. Statement 121 also addresses
the accounting for long-lived assets that are expected to be disposed of. The
Company adopted Statement 121 in the first quarter of 1996 and there was no
write-down of assets.
(o) Reclassification
Certain items in the 1995 and 1994 financial statements have been
reclassified for comparability with the 1996 presentation.
<PAGE>
(p) 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.
(q) Fair Value of Financial Instruments
The carrying amounts of cash equivalents, receivables and accounts
payable approximates fair value because of the short term maturity of these
instruments. It is not practical to estimate the fair market value of
prepetition liabilities subject to compromise due to the bankruptcy and the fact
that there has been no active trading of long-term debt subject to compromise.
The carrying amount of the long-term debt which is not subject to compromise
approximates fair value because it is deemed to be fully secured and bears
interest at an appropriate rate.
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 the
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 million by June 16, 1995 to cover working capital
shortfalls or the Contract would be terminated.
<PAGE>
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, as of December 31, 1995 the Company wrote off the
accrued interest and fully reserved the $9,000,000 principal balance.
On March 29, 1996, the Company 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 Company has received a promissory note from
the Band in the principal amount of $9,000,000. While the note has a 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 fully pay
the note at the end of 36 months, the note will be automatically extended 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 Company has received a total of $353,000
of interest which was recorded in the year ended December 31, 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 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, for purposes of this part of Note 4, 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 and 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, in
the amount of $500,000 for the operation of 7 Cedars. The Company believes that
in negotiating the contract the parties did not intend to apply a "working
capital" definition 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,
<PAGE>
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 their interpretation of the
Contract. On November 13, 1995, the Company received a 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).
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) and the
Tribe 70%. The Contract has an initial term of five years (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%.
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.
Based upon the foregoing, management determined during the quarter
ended December 31, 1995 to provide an allowance for loss against the $9,000,000
outstanding balance of the project loan plus accrued interest thereon.
On 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.
Mojave Valley Resort Project
As a condition to its participation in the Mojave Valley Resort
Project, a joint venture between Mojave Gaming, Inc. ("Mojave Gaming"), a wholly
owned subsidiary of Elsinore Corporation and Mojave Valley Resort Casino
Company, an affiliate of Temple
<PAGE>
Development Company, to develop a master planned casino resort on land leased
from the Fort Mojave Indian Tribe, Mojave Gaming was required to make a capital
contribution to the venture by September 30, 1995. The contribution was not made
and therefore, the contract terminated. Based upon the foregoing, in September
1995 management wrote-off as casino development costs approximately $807,000,
representing all capitalized costs incurred for the project.
5. Property and Equipment, Net
Property and equipment, net, consists of the following:
December 31,
1996 1995
----------------------------------
(Dollars in Thousands)
Land $ 1,275 $ 1,275
Buildings 39,240 39,207
Equipment 24,488 23,564
Construction in Progress 53 -
65,056 64,046
Less Accumulated Depreciation and
Amortization 41,512 38,573
==================================
$23,544 $25,473
==================================
6. Other Assets
Other assets consist of the following:
December 31,
1996 1995
---------------------------------
(Dollars in Thousands)
Debt Issuance Costs, Net $ - $ 79
Deposits and Other 743 823
================================
$ 743 $ 902
================================
7. Accrued Expenses:
Accrued expenses consist of the following:
December 31,
1996 1995
---------------------------------
(Dollars in Thousands)
Salaries and Wages $1,584 $1,559
Payroll Taxes and Employee Benefits 883 617
Gaming Taxes 107 625
Slot Club Liability 546 396
Outstanding chip & token liability 692 843
Other 2,364 1,312
--------------------------------
$6,176 $5,352
================================
8. Long-Term Debt:
Long-term debt subject to demand for acceleration consists of the
following:
December 31,
1996 1995
-------------------------------
(Dollars in Thousands)
12.5% First Mortgage Notes Payable $57,000 $57,000
20% Mortgage Notes Payable, net of
unaccreted Discount of $0 and $ 98, at
December 31, 1996 and 1995, respectively 3,000 2,902
7.5% Convertible Subordinated Notes Payable 1,425 1,425
------------------------------
Total long-term debt 61,425 61,327
Long-term debt subject to demand for
acceleration-not subject to compromise 3,000 2,902
------------------------------
Long-term debt subject to demand for
acceleration-subject to compromise $ 58,425 $58,425
==============================
First Mortgage Notes
On October 8, 1993, the Company completed a private placement of
$60,000,000 aggregate principal amount of the Company's 12.5% First Mortgage
Notes due 2000 (the "First Mortgage Notes") and warrants (the "Warrants") to
purchase 3,100,340 shares of the Company's common stock at an exercise price of
$5.50 per share, subject to certain anti-dilution provisions. The net proceeds
of the offering were approximately $57.4 million. In December 1994, $3,000,000
aggregate principal amount of the First Mortgage Notes were redeemed and
retired, in consideration for which the Company issued to the noteholder 930,000
shares of common stock.
Convertible Subordinated Notes
On March 31, 1995, the Company completed the private placement of
$1,706,250 of the Company's 7.5% Convertible Subordinated Notes due December 31,
1996 ("Convertible Notes"). The Convertible Notes are convertible into the
Company's common stock at $1.125 per share subject to certain antidilution
provisions. On September 6, 1995, the holders of Convertible Notes with a face
amount of $281,250, effected the conversion of the notes and accrued interest
thereon into 256,579 shares of the Company's common stock.
Adjustments To Long-Term Debt Pursuant to Reorganization Proceedings
The First Mortgage Notes and Convertible Notes are classified as
pre-petition liabilities subject to compromise (the First Mortgage Notes on the
basis that the claim is undersecured
<PAGE>
considering the reorganization value for the Company) and the outstanding
principal and accrued interest thereon through the date of filing have become
allowed claims, SOP 90-7 requires that the recorded amount of the debt be
adjusted to the amount of the allowed claim. Accordingly, unamortized debt
issuance costs of $2,695,000 and unaccreted original issue discount of
$5,690,000 were written off to adjust the carrying amounts of these notes to the
allowed amounts.
Further, interest expense on the First Mortgage Notes and Convertible
Notes was not recognized since the date of petition through August 12, 1996, the
confirmation date of the Plan.
The first Mortgage Notes, Mortgage notes and Convertible Subordinated
notes are expected to be treated under the Plan as described in note 1.
The 1993 first Mortgage Note holders 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 1993 First Mortgage Note holder will
receive (i) in exchange for the secured portion of its claim, its pro rata 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, a pro rata portion of
the New Common Stock.
The 1994 mortgage note holders 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 1994 Mortgage Note Holder will receive its pro rata 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% and is payable quarterly commencing in the fourth month following the
confirmation date. These noteholders will retain their lien interests as
collateral for repayment of the restated mortgage notes.
The Convertible Note holders have an allowed claim of approximately
$1,500,000. On the effective date of the Plan, each Convertible Note holder will
receive its pro rata share of New Common stock in exchange for its allowed
claim.
9. Income Taxes:
No income tax benefit related to the 1996, 1995 and 1994 losses has
been recorded due to the uncertain ability of the Company to utilize its net
operating loss carryforwards.
<PAGE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented
below:
<TABLE>
<CAPTION>
December 31,
1996 1995
---------------- -----------------
(Dollars in Thousands)
Deferred Tax Assets:
<S> <C> <C>
Accounts Receivable Principally Due to Allowance for Doubtful Accounts $135 $68
Accrued Compensation, Principally Due to Accrual for Financial Reporting
Purposes 738 500
Progressive Slot Accrual 143 74
Net Operating Loss Carryforwards 34,887 36,210
General Business Credit Carryforward, Principally Due to Investment
Tax Credit Generated in Prior Years 640 640
Alternative Minimum Tax (AMT) Credit Carry-forward from
AMT Paid in Prior Years 312 253
Contribution Deduction Carryforward, Principally Due to Amounts
Not Deductible in Prior Periods 63 58
Tax Loss Due to Sale of New Jersey Subsidiaries in Prior Periods 714 702
Loan Receivable Principal Due to Allowance For Uncollectibility 8,023 8,023
Reorganization items, principally due to amounts not currently
deductible for tax purposes 3,723 2,951
---------------- -----------------
Total Gross Deferred Tax Assets 49,378 49,479
Less Valuation Allowance (45,099) (44,965)
---------------- -----------------
Net Deferred Tax Assets 4,279 4,514
================ =================
Deferred Tax Liabilities:
Plant and Equipment, Principally Due to Differences in Depreciation
(3,966) (4,219)
Prepaid Expenses, Principally Due to Deduction for Tax Purposes (313) (295)
---------------- -----------------
Total Gross Deferred Tax Liabilities (4,279) (4,514)
---------------- -----------------
Net Deferred Tax Liability $ - $ -
================ =================
</TABLE>
As of December 31, 1996, the Company has a net operating loss
carryforward for federal income tax purposes of approximately $102,600,000. As a
result of ownership changes in prior years, Internal Revenue Code Section 382
("Section 382") limits the amount of loss carryforward currently available to
offset federal taxable income. As of December 31, 1996, the amount of loss
carryforward not limited by Section 382 and therefore available to offset
current federal taxable income is approximately $64,000,000. The amount of the
loss carryforward which is not limited by Section 382 increases annually by
$4,653,000. The loss carryforwards begin to expire in the year 1999 and will be
completely expired by 2007.
<PAGE>
The Company has general business tax credit carryforwards for federal
income tax purposes of approximately $640,000 which are available to reduce
future federal income taxes, if any, through 1999. In addition, the Company has
alternative minimum tax credit carryforwards of approximately $312,000 which are
available to reduce future federal income taxes, if any, over an indefinite
period.
Special Provisions of IRS Section 382 Available to Corporations in Bankruptcy.
A corporation in bankruptcy may be eligible for treatment under Section
382(1)(5) whereby the corporations existing net operating losses will not be
subject to the Section 382 limitation even though the magnitude of the ownership
changes effected by the plan of reorganization would otherwise cause the
corporation to exceed Section 382's 50% change threshold. The key difference in
the 50% ownership change calculation applied in Section 382(1)(5) is that
creditors who will be converting all or a portion of their debt to equity are,
in effect, not counted as part of the ownership change if they have held their
debt more than 18 months (the "Qualified Debt"). Even if Section 382(1)(5)
applies, the existing net operating losses are reduced by cancellation of debt
income and interest on the Qualified debt during a specific period.
Section 382(1)(5), if available to the Company based upon the
provisions of the final plan of reorganization approved by the Bankruptcy Court,
would severely limit further ownership changes for the three-year period
following plan effectiveness.
As the applicability of Section 382(1)(5) is dependent upon the
ownership changes provided in the final plan of reorganization by the Bankruptcy
Court and changes in the ownership of the First Mortgage Notes that may occur
prior to the effective date of the plan, it is not possible to determine with
any degree of certainty, such section's ultimate applicability.
In the event that the Company elects out of Section 382(1)(5), or fails
to qualify under its terms, existing net operating losses will be subject to the
Section 382 limitation. However, in this case, the stock value used for purposes
of computing the limitation is the market value immediately after the ownership
change,(rather than immediately preceding the change, as is the case in the
general Section 382 calculation) thereby taking into account the increase in
stock value attributable to the conversion of debt pursuant to the
reorganization.
Prior Period Tax Obligation
In August 1984, the IRS commenced an examination of the Company's
consolidated income tax returns for the fiscal years ended January 31, 1980,
1981 and 1982, and in October 1988 commenced examinations of the fiscal year
ended January 31, 1983 and the eleven months ended December 31, 1983. As a
result of its examination, the IRS proposed certain adjustments for the fiscal
years ended January 31, 1980, 1981 and 1982 regarding the deductibility of
pre-opening costs associated with the Atlantis facility (a former Atlantic City
New Jersey hotel casino operated by the Company) and utilization of certain
investment tax credits regarding the Four Queens and Atlantis facilities. In
October 1994, the IRS completed and delivered to the
<PAGE>
Company a final assessment (the "IRS Assessment") relating to such adjustments
and in November 1994, the IRS filed and recorded a Notice of Tax Lien against
the Company and its subsidiaries in the amount of the IRS Assessment. The IRS
Assessment called for the Company to pay aggregate tax and interest of
approximately $5.7 million (exclusive of interest accruing during any period of
repayment), in addition to $3.5 million the Company deposited with the IRS in
March 1991. On December 6, 1994, the Company and the IRS entered into an
installment payment agreement (the "Installment Agreement"). As of December 31,
1995, the Company had a remaining obligation to the IRS in the amount of
approximately $2,985,000.
The Company believes that it has available sufficient net operating
loss ("NOL") carryforwards to satisfy any tax liabilities with respect to
periods subsequent to 1983.
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 (commencing
on the effective date) and will receive with respect to its unsecured claim,
proportionately the same type of recovery which is provided to the Company's
larger unsecured creditors. In addition, the IRS will receive its pro rata share
of the New Common Stock.
10. Common Stock Offering
On January 25, 1995, the Company completed a public offering of
2,500,000 shares of the Company's common stock for $1.75 per share. Net proceeds
to the Company after payment of underwriting discounts and commissions and other
direct costs of the offering was approximately $3,747,000.
11. 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 $2.1 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 of the
administrative claims in the bankruptcy case have been paid. The Company does
not expect that
<PAGE>
the balance of any outstanding administrative claims will affect its ability to
consummate the 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
financial statements taken as a whole.
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.
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
<PAGE>
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.
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 dismiss such lawsuits
holding that the 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 December 31, 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 such legal matters are either covered by
insurance or, if not insured, will not have a material adverse effect on the
Company's financial statements taken as a whole.
12. Leases:
All non-cancelable leases have been classified as capital or operating leases.
At December 31, 1996, the Company had leases for real and personal property
which expire in various years through 2075. Under most leasing arrangements, the
Company pays the taxes, insurance, and the operating expenses related to the
leased property. Certain leases on real property provide for
<PAGE>
adjustments of rents based on the cost-of-living index. Buildings and equipment
leased under capital leases, included in property and equipment, are as follows:
December 31,
1996 1995
---------------- -----------------
(Dollars in Thousands)
Building $2,062 $2,062
Equipment 324 316
---------------- -----------------
2,386 2,378
Less Accumulated Amortization (817) (663)
---------------- -----------------
$1,569 $1,715
================ =================
Amortization of assets held under capital leases is included with
depreciation and amortization expense in the Consolidated Statements of
Operations.
The following is a schedule of future minimum lease payments for
capital and operating leases (with initial or remaining terms in excess of one
year) as of December 31, 1995:
Capital Leases Operating
Years Ending December 31, Leases
- ------------------------------------ --------------- ----------------
(Dollars in Thousands)
1997 $280 $3,810
1998 223 2,979
1999 223 2,967
2000 223 2,945
2001 223 2,945
Thereafter 7,134 94,709
--------------- ----------------
Total Minimum Lease Payments $8,306 $110,355
================
Less: Amount Representing Interest(at imputed
rates ranging from 11.5% to 15.0% 6,769
---------------
Present Value of Net Minimum Capital Lease
Payments 1,537
Less: Current Portion 50
---------------
Capital lease obligations,
excluding current portion $1,487
===============
13. Benefit Plans:
Four Queens, Inc. makes contributions to several multi-employer pension
and welfare benefit plans covering its union employees. The plans provide
defined benefits to covered employees. Amounts charged to pension cost and
contributed to the plans for the years 1996, 1995 and 1994 totaled $87,000,
$97,000 and $103,000, respectively. While the Company is
<PAGE>
liable for its share of unfunded vested benefits, the Company believes the
amount, if any, would not be material to the consolidated financial statements.
On October 1, 1990, the Company instituted a savings plan qualified
under Section 401(k) of the Internal Revenue Code of 1986, as amended. The
savings plan covers substantially all employees who are not covered by a
collective bargaining agreement. Employee contributions to the savings plan are
discretionary. The Company matches and contributes to each employee's account an
amount equal to 25% of the employee's contributions to the savings plan up to a
maximum employee contribution of 8% of each employee's gross compensation. The
Company's contribution was $130,488, $138,000 and $147,000 for 1996, 1995 and
1994, respectively. There were 469, 496 and 465 participants in the savings plan
as of December 31, 1996, 1995 and 1994, respectively.
In 1991, the Board of Directors adopted, and the stockholders approved,
the Elsinore Corporation 1991 Stock Option Plan (the "1991 Plan"). The Board
reserved 600,000 shares of common stock for issuance thereunder. The 1991 Plan
provides for the grant of non-statutory options to purchase common stock to
salaried officers and key employees of the Company and its corporate
subsidiaries. The exercise price for options granted under the 1991 Plan may not
be less than the fair market value of the stock on the date of grant.
On March 15, 1993, the Board of Directors adopted and the stockholders
approved, the Elsinore Corporation 1993 Long-Term Stock Incentive Plan (the
"1993 Plan") and reserved 600,000 shares of common stock for issuance
thereunder. On April 8, 1994, the Board of Directors adopted and the
shareholders approved an increase of the number of shares reserved under the
1993 Plan to 1,200,000 shares. On May 11, 1995, the Board of Directors approved
an additional increase in the number of shares reserved to 1,980,000 shares. The
1993 Plan provides for awards of restricted shares, stock units, options or
stock appreciation rights to all employees of the Company and its subsidiaries.
Non-statutory stock options granted under the 1993 Plan are granted at fair
market value at date of grant and generally vest in equal annual increments over
a three-year period.
At December 31, 1996, there were 509,500 and 1,702,300 additional
shares available for grant under the 1991 and 1993 Plans, respectively. There
were no shares granted during 1993. Therefore the per share weighted average
fair value of stock options granted during 1996 and 1995 was $0 and $.07 on the
date of grant using the black Scholes option -pricing model with the following
weighted-average assumptions for 1995: expected dividend yield of 0%, risk free
interest rate of 6.01% and an expected life of one year.
The Company applies APB Opinion No. 25 in accounting for its Plans and,
accordingly, no compensation cost has been recognized for their stock options in
the financial statements. Had the Company determined compensation cost based on
the fair value at the grant date for their stock options under SFAS 123, the
impact on the Company's net income would not be material, therefore proforma net
income and earnings per share disclosures have not been presented.
<PAGE>
Stock option activity during the periods indicated for the Company's
two stock option plans is as follows:
Weighted Average
Number of Shares Exercise Price
------------------------------------------
Outstanding at December 31, 1993 1,130,300 $3.41
Granted 829,400 2.65
Exercised (17,000) (.88)
Canceled (64,100) (5.22)
----------------
Outstanding at December 31, 1994 1,878,600 3.03
Granted 171,000 1.32
Exercised - -
Canceled (543,400) (2.51)
----------------
Outstanding at December 31, 1995 1,506,200 3.03
Granted -- --
Exercised -- --
Canceled (1,200,000) (2.94)
---------------
Outstanding at December 31, 1996 306,200 3.40
=========================================
All outstanding options will be canceled upon the effective date of the
plan when the old common stock interests in Elsinore are canceled.
14. Taxes and Licenses, Other Than Income Taxes
Taxes and licenses, other than income taxes, principally include
payroll taxes, gaming licenses and gross revenue taxes, and are summarized as
follows:
Operating Departments
(Dollars in Thousands)
Food and
Casino Hotel Beverage Other Total
----------- ----------- ------------ ------------ ------------
1996 $4,496 $468 $497 $1,132 $6,592
1995 4,377 454 483 1,313 6,627
1994 $4,710 $474 $535 $1,236 $6,955
====== ==== ==== ====== ======
15. Extraordinary Item:
On December 29, 1994, $3 million of the original $60 million principal
amount of First Mortgage Notes was repurchased by the Company and retired in
exchange for the issuance to the noteholder of 930,000 shares of Common Stock of
the Company. The Company recorded an extraordinary gain of $735,000 as a result
of this debt retirement. Income taxes are not applicable to this extraordinary
item.
<PAGE>
16. Supplemental Financial Information
A summary of additions and deductions to the allowance for doubtful
accounts receivable for the years ended December 31, 1996, 1995 and 1994
follows:
Allowance for Doubtful
Accounts Balance at Balance at
Years Ended Beginning of Year Additions Deductions End of Year
-----------------------------------------------------
1996 $201 $321 $175 $347
1995 214 68 81 201
1994 $200 $40 $26 $214
==== === === ====
<PAGE>
Annex I
AGREEMENT AND PLAN OF MERGER
by and among
R&E GAMING CORP.,
ELSINORE ACQUISITION SUB, INC.
and
ELSINORE CORPORATION
Dated as of September 15, 1997
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of September 15,
1997 (the "Agreement"), by and among R&E Gaming Corp., a Delaware corporation
("Gaming"), Elsinore Acquisition Sub, Inc., a Nevada corporation and a wholly
owned subsidiary of Gaming ("EAS"), and Elsinore Corporation, a Nevada
corporation (the "Company").
WHEREAS, the respective Boards of Directors of Gaming, EAS and
the Company have each approved the transactions contemplated by the terms and
conditions set forth in this Agreement;
WHEREAS, in furtherance thereof, upon the terms and subject to
the conditions of this Agreement, (i) EAS would be merged with and into the
Company (the "Elsinore Merger") and (ii) each share of common stock, par value
$.001 per share, of the Company (the "Common Stock"), issued and outstanding
immediately prior to the Effective Time (as defined herein) (the "Shares")
would, except as otherwise expressly provided herein, be converted into the
right to receive the Merger Consideration (as defined herein);
WHEREAS, Gaming and EAS are unwilling to enter into this
Agreement unless Gaming, contemporaneously with the execution and delivery of
this Agreement, enters into an Option and Voting Agreement (the "Elsinore Option
Agreement") with Morgens, Waterfall, Vintiadis & Company, Inc., on behalf of
certain investment accounts (the "Option Seller"), providing for, among other
things, (i) the grant by the Option Seller to Gaming of an option and, under
certain circumstances set forth in the Elsinore Option Agreement, the obligation
of Gaming to purchase all of the Shares owned by the Option Seller and (ii) the
agreement by the Option Seller to cause the Shares owned by it to be present for
quorum purposes at any meeting of the stockholders of the Company (the "Company
Stockholders") called to vote upon the Elsinore Merger, and to vote for the
transactions contemplated by this Agreement and against any Alternative
Transaction (as defined in Section 4.8(b) hereof) and any other action which may
be adverse to the transactions contemplated in this Agreement; and the Board of
Directors of the Company (the "Board") has approved the execution and delivery
of the Elsinore Option Agreement which is being executed contemporaneously with
the execution hereof;
WHEREAS, on or prior to the date hereof Gaming has entered
into an Agreement and Plan of Merger (the "Riviera Merger Agreement"), by and
among Gaming, Riviera Acquisition Sub, Inc., a Nevada corporation and a wholly
owned subsidiary of Gaming ("RAS"), and Riviera Holdings Corporation, a Nevada
corporation ("Riviera"), which provides for, among other things, the merger of
RAS with and into Riviera (the "Riviera Merger"); and
WHEREAS, the Board has determined that the Elsinore Merger and
the consideration to be received by the holders of the Shares are fair to, and
in the best interests of, the Company and the Company Stockholders.
1
<PAGE>
NOW, THEREFORE, in consideration of the foregoing premises,
the mutual representations, warranties and covenants contained herein, and for
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the parties hereto, intending to be legally bound, agree as
follows:
ARTICLE I
THE MERGER
Section 1.1 The Elsinore Merger. At the Effective Time and
upon the terms and subject to the conditions of this Agreement, and in
accordance with the applicable provisions of Nevada law, EAS shall be merged
with and into the Company, whereupon the separate existence of EAS shall cease
and the Company shall continue as the surviving corporation of the Elsinore
Merger (the "Surviving Corporation"), and shall be a wholly owned subsidiary of
Gaming.
Section 1.2 Effective Time; Closing. Unless this Agreement
shall have been terminated pursuant to Section 6.1 hereof, as soon as
practicable after the satisfaction or (if permissible) waiver of the conditions
set forth in Article V of this Agreement, the Company will file articles of
merger with the Secretary of State of the State of Nevada in accordance with the
provisions of Section 92A.005 et seq. of the Nevada Revised Statutes (the
"Nevada Merger Law") and make all other filings or recordings required by law in
connection with the Elsinore Merger. The Elsinore Merger shall become effective
at such time (the "Effective Time") as the articles of merger are filed with the
Secretary of State of the State of Nevada in accordance with the provisions of
Chapter 92A of the Nevada Revised Statutes, or such later date as set forth in
such filing, but in no event later than April 1, 1998, unless extended as
provided in Section 6.1(c) hereof. Prior to such filing, but no later than 30
days after the satisfaction or (if permissible) waiver of the conditions set
forth in Article V of this Agreement, a closing (the "Closing") shall be held at
the offices of Skadden, Arps, Slate, Meagher & Flom LLP, 300 South Grand Avenue,
Los Angeles, California 90071, or such other place as the parties to this
Agreement shall agree, for the purpose of confirming the satisfaction or waiver
of the conditions set forth in this Agreement. The date on which the Closing
occurs shall be referred to herein as the "Closing Date."
Section 1.3 Effects of the Elsinore Merger. The Elsinore
Merger shall have the effects set forth in the Nevada Merger Law. Without
limiting the generality of the foregoing, and subject thereto, at the Effective
Time, except as otherwise provided herein, all of the property, rights,
privileges, powers and franchises of a public as well as of a private nature,
and the title to any real estate vested by deed or otherwise in the Company and
EAS shall vest in the Surviving Corporation, and all debts, liabilities and
duties of the Company and EAS shall become the debts, liabilities and duties of
the Surviving Corporation.
Section 1.4 Articles of Incorporation and Bylaws. (a) The
Articles of Incorporation of EAS in effect immediately prior to the Effective
Time, attached hereto as Exhibit A,
2
<PAGE>
shall be the Articles of Incorporation of the Surviving Corporation (the
"Surviving Corporation Articles of Incorporation"), until amended in accordance
with Nevada law, except that Article I thereof shall be amended to read in its
entirety as follows: "The name of the corporation shall be Elsinore
Corporation."
(b) The Bylaws of EAS in effect at the Effective Time shall,
attached hereto as Exhibit B, shall be the Bylaws of the Surviving Corporation
(the "Surviving Corporation Bylaws"), until amended in accordance with Nevada
law and the Surviving Corporation Articles of Incorporation.
Section 1.5 Directors. The directors of the Company at the
Effective Time, and, subject to the requirements of Gaming Laws (as defined
herein), any additional individuals designated by Gaming at or prior to the
Effective Time, shall be the initial directors of the Surviving Corporation,
each to hold office in accordance with the Surviving Corporation Articles of
Incorporation and the Surviving Corporation Bylaws and until his or her
successor is duly elected and qualified.
Section 1.6 Officers. The officers of the Company at the
Effective Time, and, subject to the requirements of Gaming Laws, any additional
individuals designated by Gaming at or prior to the Effective Time, shall be the
initial officers of the Surviving Corporation from and after the Effective Time,
each to hold office in accordance with the Surviving Corporation Articles of
Incorporation and the Surviving Corporation Bylaws and until his or her
successor is duly appointed and qualified.
Section 1.7 Consideration for the Merger. At the Effective
Time, by virtue of the Elsinore Merger and without any action on the part of
Gaming, EAS, the Company or the holder of any of the following securities:
(a) Each Share (other than (i) Shares to be cancelled pursuant
to Section 1.7(c) hereof, (ii) the Dissenting Shares (as defined below) and
(iii) as specified in Section 1.9 hereof) shall be converted into and represent
the right to receive the Merger Consideration (as defined herein). From and
after the Effective Time, all Shares shall no longer be outstanding and shall
automatically be cancelled and retired and shall cease to exist, and each holder
of a certificate representing any of the Shares (a "Certificate") shall cease to
have any rights with respect thereto, except the right to receive the Merger
Consideration payable to the holder thereof, without interest, upon surrender of
such Certificate in the manner provided in Section 1.8 hereof. As used herein,
"Merger Consideration" means the amount of $3.16 in cash per Share, plus an
amount of additional consideration (the "Additional Consideration") equal to the
daily portion of the accrual on $3.16 at 9.43% compounded annually, accruing
from June 1, 1997 to the date immediately preceding the Effective Time;
provided, that the Merger Consideration paid to the Option Seller shall be
reduced by the amount of Additional Consideration paid to the Option Seller
pursuant to Section 1.2(b) of the Elsinore Option Agreement. It being understood
that, assuming consummation of the Elsinore Merger, the proviso in the preceding
sentence shall have the effect of causing the consideration per Share to be
received hereunder and under the
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Elsinore Option Agreement by the Option Seller from Gaming on account of the
Shares owned by the Option Seller to be equal to the consideration per Share
received by the Company Stockholders (other than the Option Seller) hereunder on
account of the Shares owned by Company Stockholders (other than the Option
Seller). Each of Gaming and EAS represents and warrants that the Merger
Consideration to be received hereunder by the Option Seller for each Share owned
by the Option Seller and any other consideration paid by Gaming or EAS to the
Option Seller for such Shares (but excluding consideration paid under the
Elsinore Option Agreement) shall be equal to the Merger Consideration received
by the other holders of Shares.
(b) Notwithstanding anything in this Agreement to the
contrary, any issued and outstanding shares of Common Stock held by a person (a
"Dissenting Stockholder") who objects to the Merger and complies with all the
provisions of Nevada law concerning the right of holders of Common Stock to
dissent from the Merger and obtain payment of the fair value of such Dissenting
Stockholder's shares of Common Stock ("Dissenting Shares") shall not be
converted as described in Section 1.7(a) hereof but shall become the right to
receive such consideration as may be determined to be due to such Dissenting
Stockholder pursuant to the laws of the State of Nevada. If, after the Effective
Time, such Dissenting Stockholder withdraws his demand for payment or fails to
perfect or otherwise loses his dissenters' rights, in any case pursuant to the
Nevada Merger Law, his shares of Common Stock shall be deemed to be converted as
of the Effective Time into the right to receive the Merger Consideration,
without interest. The Company shall give Gaming and EAS (i) prompt notice of any
demands for payment pursuant to dissenters' rights with respect to shares of
Common Stock received by the Company and (ii) the opportunity to participate in
and direct all negotiations and proceedings with respect to any such demands.
The Company shall not, without the prior written consent of Gaming and EAS, make
any payment with respect to, or settle, offer to settle or otherwise negotiate,
any such demands.
(c) Each Share owned by Gaming, EAS or their stockholders or
affiliates (the "Paulson Shares"), or which is held in the treasury of the
Company or any of its subsidiaries, shall be cancelled and retired and shall
cease to exist, and no payment of any consideration shall be made with respect
thereto.
(d) Each share of capital stock of EAS issued and outstanding
immediately prior to the Effective Time shall be converted into and shall become
one validly issued, fully paid and nonassessable share of common stock, par
value $.001 per share, of the Surviving Corporation.
Section 1.8 Exchange of Shares. (a) At or prior to the
Effective Time, Gaming shall designate a bank or trust company reasonably
acceptable to the Company to serve as exchange agent (the "Exchange Agent") for
the Shares. As soon as reasonably practicable after the Effective Time, Gaming
shall deposit, or shall cause to be deposited, with the Exchange Agent for the
benefit of the holders of Certificates, cash or immediately available funds in
United States dollars in an amount that equals the aggregate Merger
Consideration. Such funds (the "Payment Fund") shall be invested by the Exchange
Agent as directed by Gaming in obligations of or obligations guaranteed by the
United States of America, in commercial paper
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obligations rated A-1 or P-1 or better by Moody's Investor Services, Inc. or
Standard & Poor's Corporation, respectively, or in certificates of deposit, bank
repurchase agreements, or bankers acceptances of commercial banks with capital
exceeding $500 million; provided, however, that in the event that the Payment
Fund shall realize a loss on such investment, Gaming shall promptly thereafter
deposit in the Payment Fund cash in an amount sufficient to enable the Payment
Fund to satisfy all remaining obligations originally contemplated to be paid out
of the Payment Fund.
(b) Promptly after the Effective Time, the Surviving
Corporation shall instruct the Exchange Agent to mail to each record holder of
outstanding Certificates as of the Effective Time, a form of letter of
transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon proper delivery of the
Certificates to the Exchange Agent) and instructions for use in effecting the
surrender of the Certificates for payment therefor. Upon surrender to the
Exchange Agent of a Certificate, together with such letter of transmittal duly
executed, the holder of such Certificate shall be entitled to receive in
exchange therefor the amount of cash that such holder has the right to receive
under this Article I, and such Certificate shall forthwith be cancelled. If
payment (or any portion thereof) is to be made to a person other than the person
in whose name the Certificate surrendered is registered, it shall be a condition
of payment that the Certificate so surrendered shall be properly endorsed or
otherwise in proper form for transfer and that the person requesting such
payment shall pay to the Exchange Agent any transfer or other taxes required by
reason of the payment to a person other than the registered holder of the
Certificate surrendered or such person shall establish to the satisfaction of
the Exchange Agent that such tax has been paid or is not applicable. Until
surrendered in accordance with the provisions of this Section 1.8, each
Certificate (other than Certificates representing (i) Shares to be cancelled
pursuant to Section 1.7(c) hereof, (ii) the Dissenting Shares and (iii) Shares
specified in Section 1.9 hereof) shall represent, for all purposes, the right to
receive the Merger Consideration multiplied by the number of Shares previously
evidenced by such Certificate, without any interest thereon.
(c) All cash paid upon the surrender of the Certificates in
accordance with the terms of this Article I shall be deemed to have been paid in
full satisfaction of all rights pertaining to the Shares theretofore represented
by such Certificates, and there shall be no further registration of transfers on
the stock transfer books of the Surviving Corporation of the Shares which were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Certificates are presented to the Surviving Corporation for any reason,
they shall be cancelled and exchanged as provided in this Article I, except as
otherwise provided by Nevada law.
(d) At any time following the date six months after the
Effective Time, the Surviving Corporation shall be entitled to require the
Exchange Agent to deliver to it any funds (including any interest received with
respect thereto) that have been made available to the Exchange Agent and that
have not been disbursed to holders of Certificates and, thereafter, such holders
shall be entitled to look to the Surviving Corporation (subject to abandoned
property, escheat or other similar laws) only as general creditors thereof with
respect to the Merger
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Consideration payable upon surrender of their Certificates. Notwithstanding the
foregoing, neither the Surviving Corporation nor the Exchange Agent shall be
liable to any holder of a Certificate for the Merger Consideration delivered to
a public official pursuant to any applicable abandoned property, escheat or
similar law.
Section 1.9 Company Plans.
(a) At the Effective Time, each Share held in trust for the
benefit of participants in the Four Queens' Employees' Retirement/Savings Plan
and Trust, as in effect on the date hereof (the "Company Plan"), shall be
cancelled, and the Surviving Corporation shall pay into the trust with respect
to each such cancelled Share an amount in cash equal to the product of (i) the
number of such Shares held in trust, and (ii) the Merger Consideration per
Share.
(b) At the Effective Time, the warrants issued by the Company
to Riviera shall be cancelled and Riviera shall receive an amount equal to
$2,441,250.
Section 1.10 Stockholders' Meeting. The Company, acting
through the Board, shall, in accordance with applicable law, the Company
Articles of Incorporation and the Restated and Amended Bylaws of the Company
(the "Company Bylaws"), as soon as practicable following the date hereof:
(a) duly call, give notice of, convene and hold an annual or
special meeting of the Company Stockholders (the "Stockholders' Meeting") for
the purpose of approving and adopting this Agreement and the transactions
contemplated hereby;
(b) subject to the fiduciary duties of the Board under
applicable law, recommend that the Company Stockholders vote in favor of
approving and adopting this Agreement and the transactions contemplated hereby;
and
(c) subject to the fiduciary duties of the Board under
applicable law, use its reasonable best efforts to obtain the necessary
approvals by the Company Stockholders of this Agreement and the transactions
contemplated hereby.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Gaming as follows:
Section 2.1 Organization and Qualification; Subsidiaries. (a)
Each of the Company and its subsidiaries is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation, and has all requisite corporate power and authority to own, lease
and operate its properties and to carry on its business as now
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being conducted, except where the failure to be so organized, existing and in
good standing or to have such power and authority would not, individually or in
the aggregate, have a Company Material Adverse Effect (as defined herein). When
used in this Agreement, the term "Company Material Adverse Effect" means any
change or effect (i) that would be materially adverse to the business, results
of operations, conditions (financial or otherwise) or prospects of the Company
and its subsidiaries, taken as a whole, or (ii) that would impair the ability of
the Company to consummate the transactions contemplated hereby.
(b) Each of the Company and its subsidiaries is duly qualified
or licensed (excluding gaming and liquor licenses, which are covered by Section
2.5 hereof) and in good standing to do business in each jurisdiction in which
the property owned, leased or operated by it or the nature of the business
conducted by it makes such qualification or licensing necessary, and to perform
all of its obligations under any contract under which the Company or any of its
subsidiaries (a) has or may acquire any rights, (b) has or may become subject to
any obligation or liability or (c) is or may, or any of the assets used or owned
by it are or may, become bound, except where the failure to be so duly qualified
or licensed and in good standing or to effect such performance would not,
individually or in the aggregate, have a Company Material Adverse Effect.
(c) The Company has heretofore furnished or made available to
Gaming complete and correct copies of the Company Articles of Incorporation and
the Company Bylaws and the equivalent organizational documents of each of its
subsidiaries, each as amended to the date hereof. The Company Articles of
Incorporation, the Company Bylaws and equivalent organizational documents are in
full force and effect. The Company is not in violation of any of the provisions
of the Company Articles of Incorporation or the Company Bylaws, and no
subsidiary of the Company is in violation of any of the provisions of such
subsidiary's equivalent organizational documents. The organizational documents
of the subsidiaries of the Company do not contain any provision limiting or
otherwise restricting the ability of the Company to control such subsidiaries.
(d) The Company has heretofore furnished or made available to
Gaming a complete and correct list of the subsidiaries of the Company, which
list sets forth the amount of capital stock of or other equity interests in such
subsidiaries owned by the Company, directly or indirectly.
Section 2.2 Capitalization of the Company and its
Subsidiaries. The authorized capital stock of the Company consists of (i)
100,000,000 shares of Common Stock of which, as of July 31, 1997, 4,929,313
Shares were issued and outstanding. All outstanding shares of capital stock of
the Company have been validly issued, and are fully paid, nonassessable and free
of preemptive rights. Except as set forth on Schedule 2.2 hereof, as of July 31,
1997, there are outstanding (i) no shares of capital stock or other voting
securities of the Company, (ii) no securities of the Company convertible into or
exchangeable for shares of capital stock or voting securities of the Company,
(iii) no options, subscriptions, warrants, convertible securities, calls or
other rights to acquire from the Company, and no obligation of the Company to
issue, deliver
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or sell any capital stock, voting securities or securities convertible into or
exchangeable for capital stock or voting securities of the Company, and (iv) no
equity equivalents, performance shares, interests in the ownership or earnings
of the Company or other similar rights issued by the Company (collectively,
"Company Securities"). Except as set forth on Schedule 2.2 hereto, there are no
outstanding obligations of the Company or any of its subsidiaries to repurchase,
redeem or otherwise acquire any Company Securities. Except as set forth on
Schedule 2.2 hereto, each of the outstanding shares of capital stock of each of
the Company's subsidiaries is duly authorized, validly issued, fully paid and
nonassessable and is directly or indirectly owned by the Company, free and clear
of all security interests, liens, claims, pledges, charges, voting agreements or
other encumbrances of any nature whatsoever (collectively, "Liens"). Except as
set forth on Schedule 2.2 hereto, there are no existing options, calls or
commitments of any character relating to the issued or unissued capital stock or
other equity securities of any subsidiary of the Company.
Section 2.3 Power and Authority. The Company has the requisite
corporate power and authority to execute and deliver this Agreement and, subject
to approval of this Agreement by the Company Stockholders, to consummate the
transactions contemplated by this Agreement. The execution and delivery of this
Agreement by the Company and the consummation by the Company of the transactions
contemplated by this Agreement have been duly authorized by all necessary
corporate action on the part of the Company, subject, in the case of this
Agreement, to approval of this Agreement by the Company Stockholders. This
Agreement has been duly executed and delivered by the Company and, assuming this
Agreement constitutes a valid and binding obligation of Gaming and EAS,
constitutes the valid and binding obligation of the Company, enforceable against
the Company in accordance with its terms, except as such enforcement may be
limited by bankruptcy, insolvency, moratorium, or other similar laws affecting
or relating to the enforcement of creditors' rights generally (collectively, the
"Bankruptcy Exceptions") and subject to general principles of equity.
Section 2.4 Approval of Options. The Company has taken all
action necessary to authorize and approve the grant of options to acquire Shares
pursuant to the Elsinore Option Agreement and the sale of such Shares upon the
exercise of such options.
Section 2.5 Compliance. (a) Except as set forth in Schedule
2.5(a), since February 28, 1997, the Company, its subsidiaries and affiliates
and their respective officers or directors or, to the best knowledge of the
Company, their respective agents or employees (if any), have been and are in
compliance with all applicable laws and regulations of foreign, Federal, state
and local governmental authorities applicable to the businesses conducted by any
of the Company and its subsidiaries (including without limitation any federal,
state, local or foreign statute, ordinance, rule, regulation, permit, consent,
approval, license, judgment, order, decree, injunction or other authorization
governing or relating to the current or contemplated casino, liquor related
activities and gaming activities and operations, including, without limitation,
the Nevada Gaming Control Act, as amended (the "Nevada Act"), and the Indian
Gaming Regulatory Act (the "Indian Gaming Act") and the rules and regulations
promulgated thereunder, or applicable to the properties owned or leased and used
by the Company or its
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subsidiaries (collectively, "Gaming Laws")), and neither the Company, nor, to
the best knowledge of the Company, any of its subsidiaries or affiliates, is
aware of any claim of violation, or of any actual violation, of any such laws
and regulations, by the Company or any of its subsidiaries, except where such
failure or violation (whether actual or claimed) would not have a Company
Material Adverse Effect. None of the Company or its subsidiaries, any employee,
officer, director or stockholder or, to the best knowledge of the Company or
affiliate, thereof, has received any written claim, demand, notice, complaint,
court order or administrative order from any governmental authority since
February 28, 1997, asserting that a license of it or them, as applicable, under
any Gaming Laws should be revoked or suspended.
(b) Except as set forth in Schedule 2.5(b), since February 28,
1997, each of the Company and its subsidiaries has and currently possesses, and
is current on all fees with regard to, all franchises, certificates, licenses,
permits and other authorizations from any governmental authorities and all
patents, trademarks, service marks, trade names, copyrights, licenses and other
rights that are necessary to each of the Company and its subsidiaries for the
present ownership, maintenance and operation of its business, properties and
assets (including, without limitation, all gaming and liquor licenses), except
where the failure to possess such franchises, certificates, licenses, permits,
and other authorizations, patents, trademarks, service marks, trade names,
copyrights, licenses and other rights (other than those required to be obtained
by the Nevada Gaming Commission (the "Gaming Commission"), the Nevada State
Gaming Control Board (the "Control Board"), the Clark County Liquor and Gaming
Licensing Board (the "CCB"), the City of Las Vegas ("Las Vegas") and the
National Indian Gaming Commission (the "Indian Gaming Commission") (the Gaming
Commission, the Control Board, the CCB, Las Vegas and the Indian Gaming
Commission are collectively referred to as the "Gaming Authorities"), including
approvals under the Gaming Laws) would not have a Company Material Adverse
Effect; and none of the Company and its subsidiaries is in violation of any
thereof, except where such violation would not have a Company Material Adverse
Effect.
(c) Since February 28, 1997, neither the Company nor any of
its subsidiaries is in violation of, or has violated (with or without notice or
lapse of time), any applicable provisions of (i) any laws, rules, statutes,
orders, ordinances or regulations, or (ii) any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise, or other instrument or
obligations to which the Company or any of its subsidiaries is a party or by
which the Company or any of its subsidiaries or its or any of their respective
properties are bound or affected, which, individually or in the aggregate, would
have a Company Material Adverse Effect.
(d) Except as set forth in Schedule 2.5(d), since February 28,
1997: (i) the Company and each of its subsidiaries is, and has been, in full
compliance with all of the terms and requirements of each award, decision,
injunction, judgment, order, ruling, subpoena, or verdict (each, an "Order")
entered, issued, made, or rendered by any court, administrative agency, or other
governmental entity, officer or authority or by any arbitrator to which it, or
any of the assets owned or used by it, is or has been subject, and (ii) no event
has occurred or circumstance exists that may constitute or result in (with or
without notice or lapse of time) a
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violation of or failure to comply with any term or requirement of any Order to
which the Company or its subsidiaries, or any of the assets owned or used by the
Company or its subsidiaries, is subject except where such non-compliance,
violation or failure to comply would not have a Company Material Adverse Effect.
(e) Neither the Company nor any of its subsidiaries has
received, at any time since February 28, 1997, any notice or other communication
(whether oral or written) regarding any actual, alleged, possible, or potential
violation of, or failure to comply with, any term or requirement of any Order to
which the Company or its subsidiaries, or any of the assets owned or used by the
Company or its subsidiaries, is or has been subject and which would have a
Company Material Adverse Effect.
(f) No investigation or review by any government entity,
officer or authority with respect to the Company or its subsidiaries is pending
or, to the knowledge of the Company, threatened, nor, to the knowledge of the
Company, has any government entity, officer or authority indicated an intention
to conduct the same, other than, in each case, those which would not have a
Company Material Adverse Effect.
Section 2.6 Non-Contravention; Required Filings and Consents.
(a) Except as set forth in Schedule 2.6 hereto and as contemplated by Section
2.6(b), the execution, delivery and performance by the Company of this Agreement
and the consummation of the transactions contemplated hereby (including, without
limitation, the Elsinore Option Agreement and the Elsinore Merger) do not and
will not (i) contravene or conflict with the Company Articles of Incorporation
or the Company Bylaws or the equivalent organizational documents of any of its
subsidiaries or any resolution adopted by the Board or the Company Stockholders
or the board of directors or stockholders of any of the Company's subsidiaries,
(ii) contravene or conflict with or constitute a violation of any provision of
any law, regulation, judgment, injunction, order or decree binding upon or
applicable to the Company, any of its subsidiaries or any of their respective
properties, (iii) contravene, conflict with, or result in a violation of any of
the terms or requirements of, or give any governmental entity, official or
authority right to revoke, withdraw, suspend, cancel, terminate or modify, any
authorization that is held by the Company or any of its subsidiaries, or that
otherwise relates to the business of, or any of the assets owned by, the Company
or any of its subsidiaries, (iv) conflict with, or result in the breach or
termination of any provision of or constitute a default (with or without the
giving of notice or the lapse of time or both) under, or give rise to any right
of termination, cancellation, or loss of any benefit to which the Company or any
of its subsidiaries is entitled under any provision of any agreement, contract,
license or other instrument binding upon the Company, any of its subsidiaries or
any of their respective properties, or allow the acceleration of the performance
of, any obligation of the Company or any of its subsidiaries under any
indenture, mortgage, deed of trust, lease, license, contract, instrument or
other agreement to which the Company or any of its subsidiaries is a party or by
which the Company or any of its subsidiaries or any of their respective assets
or properties is subject or bound, or (v) result in the creation or imposition
of any Lien on any asset of the Company or any of its subsidiaries, except in
the case of clauses (i), (ii), (iii) and (iv) for any such contraventions,
conflicts, violations, breaches, terminations,
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defaults, cancellations, losses, accelerations and Liens which would not,
individually or in the aggregate, have a Company Material Adverse Effect or be
reasonably expected to prevent the consummation by the Company of the
transactions contemplated by this Agreement.
(b) The execution, delivery and performance by the Company of
this Agreement and the consummation of the transactions contemplated hereby
(including, without limitation, the Elsinore Option Agreement, the Escrow
Agreement and the Elsinore Merger) by the Company require no action by or in
respect of, or filing with, any governmental entity, official or authority
(either domestic or foreign) other than (i) the filing of articles of merger in
accordance with the Nevada Merger Law, (ii) compliance with any applicable
requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), (iii) compliance with any applicable requirements of
the Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder (the "Exchange Act"), and state securities, takeover and
Blue Sky laws, (iv) obtaining all necessary gaming approvals, including those
required by the Gaming Authorities, including approvals under the Gaming Laws,
and (v) such additional actions or filings which, if not taken or made, would
not, individually or in the aggregate, have a Company Material Adverse Effect or
be reasonably expected to prevent the consummation by the Company of the
transactions contemplated by this Agreement.
Section 2.7 SEC Reports. (a) The Company has filed all
required forms, reports and documents with the Securities and Exchange
Commission (the "SEC") since February 28, 1997. The Company has made available
to Gaming, in the form filed with the SEC, the Company's (i) Quarterly Reports
on Form 10-Q filed by the Company with the SEC since February 28, 1997 and (ii)
all Current Reports on Form 8-K and registration statements filed by the Company
with the SEC since February 28, 1997 (collectively and as amended as required,
the "SEC Reports"). As of their respective dates, the SEC Reports complied in
all material respects with all applicable requirements of the Securities Act of
1933, as amended, and the rules and regulations promulgated thereunder (the
"Securities Act"), and the Exchange Act, each as in effect on the dates such SEC
Reports were filed. As of their respective dates, none of the SEC Reports,
including, without limitation, any financial statements or schedules included
therein, contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. No subsidiary of the Company is required, as of the date hereof,
to file any form, report, or other document with the SEC under Section 12 of the
Exchange Act. The audited consolidated financial statements and unaudited
consolidated interim financial statements of the Company included in the SEC
Reports fairly present in all material respects, in conformity with GAAP (as
defined in Section 7.12 of this Agreement) applied on a consistent basis (except
as may be indicated in the notes thereto), the consolidated financial position
of the Company and its consolidated subsidiaries as of the dates thereof and
their consolidated results of operations and cash flows for the periods then
ended (subject to normal year-end adjustments in the case of any unaudited
interim financial statements). The Company has heretofore made available or
promptly will make available to Gaming a complete and correct copy of any
amendments or modifications, which are required to be filed with the SEC but
have not yet been filed with the SEC, to the SEC Reports.
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(b) Except as set forth in Schedule 2.7(b) hereto, the Company
and its subsidiaries have no liabilities of any nature (whether accrued,
absolute, contingent or otherwise), except for (i) liabilities set forth in the
audited balance sheet of the Company dated March 31, 1997 or on the notes
thereto, contained in the Company's Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 1997, (ii) liabilities incurred in the ordinary
course of business consistent with past practice since March 31, 1997 and (iii)
liabilities which would not, individually or in the aggregate, have a Company
Material Adverse Effect.
Section 2.8 Absence of Certain Changes. Except as set forth in
Schedule 2.8 hereto, since February 28, 1997, the Company and its subsidiaries
have conducted their respective businesses only in the ordinary course, and
there has not been (i) any declaration, setting aside or payment of any dividend
or other distribution with respect to its capital stock, (ii) any incurrence,
assumption or guarantees by the Company or any of its subsidiaries of any
indebtedness for borrowed money other than in the ordinary course of business,
(iii) any making of any loan, advance or capital contributions to, or
investments in, any other person, (iv) any split, combination or
reclassification of any of its capital stock or any issuance or the
authorization of any issuance of any other securities in respect of, in lieu of
or in substitution for shares of its capital stock, (v) (x) any granting by the
Company or any of its subsidiaries to any officer of the Company or any of its
subsidiaries of any increase in compensation, except in the ordinary course of
business (including in connection with promotions) consistent with past practice
or as was required under employment agreements in effect as of the date of the
most recent audited financial statements included in the SEC Reports filed and
publicly available prior to the date of this Agreement, (y) any granting by the
Company or any of its subsidiaries to any such officer of any increase in
severance or termination pay, except as part of a standard employment package to
any person promoted or hired, or as was required under employment, severance or
termination agreements in effect as of the date of the most recent audited
financial statements included in the SEC Reports filed or (z) except termination
arrangements in the ordinary course of business consistent with past practice
with employees other than any executive officer of the Company, any entry by the
Company or any of its subsidiaries into any employment, severance or termination
agreement with any such officer, (vi) any damage, destruction or loss (other
than a decline of revenue or net income), whether or not covered by insurance,
that would be expected to have a Company Material Adverse Effect, (vii) any
transaction or commitment made, or any contract or agreement entered into, by
the Company or any of its subsidiaries relating to any of their assets or
business (including the acquisition or disposition of any assets) or any
relinquishment by the Company or any of its subsidiaries or any contract or
other right, in either case, material to the Company and its subsidiaries, taken
as a whole, other than transactions and commitments in the ordinary course of
business and those contemplated by this Agreement, (viii) any change in
accounting methods, principles or practices by the Company materially affecting
its assets, liabilities or business, except insofar as may have been required by
a change in generally accepted accounting principles or (ix) any other change
(other than a decline of revenue or net income) which would have a Company
Material Adverse Effect.
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Section 2.9 Proxy Statement. The proxy or information
statement or similar materials distributed to the Company's Stockholders in
connection with the Elsinore Merger, including any amendments or supplements
thereto (the "Proxy Statement"), shall not, at the time filed with the SEC, at
the time mailed to the Company Stockholders, at the time of the Stockholders'
Meeting or at the Effective Time, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they are made, not misleading. Notwithstanding the foregoing, the
Company makes no representation or warranty with respect to any information
provided by Gaming specifically for use in the Proxy Statement. The Proxy
Statement will comply as to form in all material respects with the provisions of
the Exchange Act.
Section 2.10 No Brokers. The Company has not employed any
broker, finder or financial advisor or incurred any liability for any brokerage
fees, commissions, finders' or financial advisory fees in connection with the
transactions contemplated hereby.
Section 2.11 Absence of Litigation. Except as disclosed in
Schedule 2.11 hereto, since February 28, 1997, there has not been any action,
suit, claim, investigation or proceeding pending against, or to the knowledge of
the Company, threatened against, the Company or any of its subsidiaries or any
of their respective properties or the Board before any court or arbitrator or
any administrative, regulatory or governmental body, or any agency or official
which, individually or in the aggregate, would have a Company Material Adverse
Effect. Except as disclosed in Schedule 2.11 hereto, since February 28, 1997,
there has not been any action, suit, claim, investigation or proceeding pending
against, or to the knowledge of the Company, threatened against, the Company or
any of its subsidiaries or any of their respective properties or the Board
before any court or arbitrator or any administrative, regulatory or governmental
body, or any agency or official which (i) challenges or seeks to prevent,
enjoin, alter or delay the Elsinore Merger or any of the other transactions
contemplated hereby or (ii) alleges any criminal action or inaction. Except as
disclosed in Schedule 2.11 hereto, since February 28, 1997, neither the Company
nor any of its subsidiaries nor any of their respective properties has been
subject to any order, writ, judgment, injunction, decree, determination or award
having, or which would have a Company Material Adverse Effect or which would
prevent or delay the consummation of the transactions contemplated hereby.
Section 2.12 Taxes. Except as set forth in Schedule 2.12
hereto, (a) the Company and its subsidiaries have filed, been included in or
sent, all material returns, material declarations and reports and information
returns and statements required to be filed or sent by or relating to any of
them relating to any Taxes (as defined herein) with respect to any material
income, properties or operations of the Company or any of its subsidiaries
(collectively, "Returns"); (b) as of the time of filing, the Returns correctly
reflected in all material respects the facts regarding the income, business,
assets, operations, activities and status of the Company and its subsidiaries
and any other material information required to be shown therein; (c) the Company
and its subsidiaries have timely paid or made provision for all material Taxes
that have been shown as due and payable on the Returns that have been filed; (d)
the Company and its
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subsidiaries have made or will make provision for all material Taxes payable for
any periods that end before the Effective Time for which no Returns have yet
been filed and for any periods that begin before the Effective Time and end
after the Effective Time to the extent such Taxes are attributable to the
portion of any such period ending at the Effective Time; (e) the charges,
accruals and reserves for Taxes reflected on the books of the Company and its
subsidiaries are adequate under generally accepted accounting principles to
cover the Tax liabilities accruing or payable by the Company and its
subsidiaries; (f) neither the Company nor any of its subsidiaries is delinquent
in the payment of any material Taxes or has requested any extension of time
within which to file or send any material Return (other than extensions granted
to the Company for the filing of its Returns as set forth in Schedule 2.12),
which Return has not since been filed or sent; (g) no material deficiency for
any Taxes has been proposed, asserted or assessed in writing against the Company
or any of its subsidiaries other than those Taxes being contested in good faith
by appropriate proceedings and set forth in Schedule 2.12 (which shall set forth
the nature of the proceeding, the type of return, the deficiencies proposed,
asserted or assessed and the amount thereof, and the taxable year in question);
(h) neither the Company nor any of its subsidiaries has granted any extension of
the limitation period applicable to any material Tax claims other than those
Taxes being contested in good faith by appropriate proceedings; and (i) neither
the Company nor any of its subsidiaries is subject to liability for Taxes of any
person (other than the Company or its subsidiaries).
For purposes of this Agreement, "Tax" or "Taxes" means all
Federal, state, local and foreign taxes, and other assessments of a similar
nature (whether imposed directly or through withholding), including any
interest, additions to tax, or penalties applicable thereto, imposed by any Tax
Authority (as defined herein). "Tax Authority" means the Internal Revenue
Service and any other domestic or foreign governmental authority responsible for
the administration of any Taxes.
Section 2.13 Employee Benefits. (a) Schedule 2.13(a) hereto
contains a true and complete list of each bonus, deferred compensation,
incentive compensation, stock purchase, stock option, severance or termination
pay, hospitalization or other medical, dental, life, disability or other
insurance, supplemental unemployment benefits, profit-sharing, pension, savings
or retirement plan, program, agreement or arrangement, and each other employee
benefit plan, program, agreement or arrangement, sponsored, maintained or
contributed to or required to be contributed to by the Company or by any trade
or business, whether or not incorporated (an "ERISA Affiliate"), that together
with the Company would be deemed a "single employer" within the meaning of
section 4001 of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), for the benefit of any employee or terminated employee of the Company
or any ERISA Affiliate (the "Plans"). Schedule 2.13(a) hereto identifies each of
the Plans that is an "employee benefit plan," as that term is defined in section
3(3) of ERISA (the "ERISA Plans"). Neither the Company nor any ERISA Affiliate
has ever maintained, administered, contributed to or had any contingent
liability with respect to any employee pension benefit plan subject to Title IV
of ERISA or Section 412 of the Code (as defined herein), other than the
multiemployer plans (as defined in Section 3(37)(A) of ERISA) which are
identified on Schedule 2.13(a) hereto.
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(b) With respect to each Plan, the Company has heretofore
delivered or made available to Gaming true and complete copies of each of the
following documents (to the extent applicable):
(i) a copy thereof;
(ii) a copy of the most recent annual report
and actuarial report, if required under ERISA, and the most recent report
prepared with respect thereto in accordance with Statement of Financial
Accounting Standards No. 87, Employer's Accounting for Pensions;
(iii) a copy of the most recent actuarial
report prepared with respect thereto in accordance with Statement of Financial
Accounting Standards No. 106, Employer's Accounting for Non-Pension
Postretirement Benefits;
(iv) a copy of the most recent Summary Plan
Description;
(v) if the Plan is funded through a trust or
any third party
funding vehicle, a copy of the trust or other funding agreement and the
latest financial statements thereof; and
(vi) the most recent determination letter
received from the
Internal Revenue Service with respect to each Plan intended to qualify
under section 401(a) of the Internal Revenue Code of 1986, as amended
(the "Code").
(c) Neither the Company nor any ERISA Affiliate has incurred
any liability under Title IV of ERISA, including any "withdrawal liability"
(within the meaning of Section 4201 of ERISA) with respect to any benefit plan,
and, to the knowledge of the Company, no condition exists that presents a
material risk to the Company or any ERISA Affiliate of incurring a material
liability under such Title.
(d) Neither the Company nor any ERISA Affiliate, nor, to the
knowledge of the Company, any ERISA Plan, any trust created thereunder, nor any
trustee or administrator thereof has engaged in a transaction in connection with
which the Company or any ERISA Affiliate, any ERISA Plan, any such trust, or any
trustee or administrator thereof, or any party dealing with any ERISA Plan or
any such trust would be subject to either a civil penalty assessed pursuant to
section 409 or 502(i) of ERISA or a Tax imposed pursuant to section 4975 or 4976
of the Code, except for such penalties and Taxes which would not, individually
or in the aggregate, have a Company Material Adverse Effect.
(e) All contributions required to be made with respect to any
ERISA Plan (whether pursuant to the terms of any ERISA Plan or otherwise) on or
prior to the Effective Time have been timely made.
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(f) To the knowledge of the Company, each Plan has been
operated and administered in all material respects in accordance with its terms
and applicable law, including but not limited to ERISA and the Code except where
such noncompliance would not be expected to have a Company Material Adverse
Effect.
(g) Each ERISA Plan intended to be "qualified" within the
meaning of section 401(a) of the Code has been drafted with the intention to be
so qualified and has received a favorable determination letter from the Internal
Revenue Service on or before the date hereof.
(h) To the Company's knowledge, except as reasonably estimated
and as set forth in Schedule 2.13(h), no amounts payable under the Plans as a
result of the consummation of the transactions contemplated by this Agreement
will fail to be deductible for federal income tax purposes by application of
section 280G of the Code.
(i) Except as set forth on Schedule 2.13(i) hereto, no Plan
provides benefits, including without limitation death or medical benefits
(whether or not insured), with respect to current or former employees of the
Company or any ERISA Affiliate beyond their retirement or other termination of
service (other than (i) coverage mandated by applicable law or (ii) death
benefits or retirement benefits under any "employee pension plan," as that term
is defined in section 3(2) of ERISA).
(j) Except as provided in Schedule 2.13(j) hereto, the
consummation of the transactions contemplated by this Agreement will not (i)
entitle any current or former employee or officer of the Company or any ERISA
Affiliate to severance pay, unemployment compensation or any other payment, or
(ii) accelerate the time of payment or vesting, or increase the amount of
compensation due any such employee or officer.
(k) There are no pending or, to the knowledge of the Company,
threatened claims by or on behalf of any Plan, by any employee or beneficiary
covered under any such Plan, or otherwise involving any such Plan (other than
routine claims for benefits).
(l) The Company has reserved the right to amend or terminate
any Plan which is a welfare benefit plan, as that term is defined in section
3(l) of ERISA.
Section 2.14 Intellectual Property. Except as disclosed in the
SEC Reports filed prior to the date of this Agreement or as set forth in
Schedule 2.14 hereto, the Company and each of its subsidiaries owns, or is
licensed or has the right to use (in each case, free and clear of any Liens),
all Intellectual Property (as defined below) used in or necessary for the
conduct of its business substantially as currently conducted, to the knowledge
of the Company, the use of any Intellectual Property by the Company and its
subsidiaries does not infringe on or otherwise violate the rights of any person;
and, to the knowledge of the Company, no person is challenging, infringing on or
otherwise violating any right of the Company or any of its subsidiaries with
respect to any Intellectual Property owned by and/or licensed to the Company and
its subsidiaries, except in each case for such infringements or failures to own
or be licensed
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as would not, individually or in the aggregate, have a Company Material Adverse
Effect. For purposes of this Agreement, "Intellectual Property" shall mean
trademarks, service marks, brand names, certification marks, trade dress,
assumed names, trade names and other indications of origin, the goodwill
associated with the foregoing and any registration in any jurisdiction of, and
applications in any jurisdiction to register, the foregoing, including any
extension, modification or renewal of any such registration or application;
inventions, discoveries and ideas, whether patentable or not in any
jurisdiction; patents, applications for patents (including, without limitation,
divisions, continuations, continuations in part and renewal applications), and
any renewals, extensions or reissues thereof, in any jurisdiction; nonpublic
information, trade secrets and confidential information and rights in any
jurisdiction to limit the use or disclosure thereof by any person; writings and
other works, whether copyrightable or not in any jurisdiction; registrations or
applications for registration of copyrights in any jurisdiction, and any
renewals or extensions thereof; and any similar intellectual property or
proprietary rights.
Section 2.15 Material Contracts. Except as set forth in
Schedule 2.15 hereto, there are no (i) agreements of the Company or any of its
subsidiaries containing an unexpired covenant not to compete or similar
restriction applying to the Company or any of its subsidiaries, (ii) interest
rate, currency or commodity hedging, swap or similar derivative transactions to
which the Company or any of its subsidiaries is a party nor (iii) other
contracts or amendments thereto that would be required to be filed and have not
been filed as an exhibit to a Form 10-K filed by the Company with the SEC as of
the date of this Agreement (collectively, the "Material Contracts"). Assuming
each Material Contract constitutes a valid and binding obligation of each other
party thereto, each Material Contract is a valid and binding obligation of the
Company or a subsidiary of the Company, as the case may be. To the Company's
knowledge, each Material Contract is a valid and binding obligation of each
other party thereto, and each such Material Contract is in full force and effect
and is enforceable by the Company or its subsidiaries in accordance with its
terms, except as enforcement may be limited by the Bankruptcy Exceptions and
subject to the general principles of equity. There are no existing defaults (or
circumstances or events that, with the giving of notice or lapse of time or both
would become defaults) of the Company or any of its subsidiaries (or, to the
knowledge of the Company, any other party thereto) under any of the Material
Contracts except for defaults that would not, individually or in the aggregate,
have a Company Material Adverse Effect.
Section 2.16 Insurance. The Company and its subsidiaries have
obtained and maintained in full force and effect insurance with responsible and
reputable insurance companies or associations in such amounts, on such terms and
covering such risks, including fire and other risks insured against by extended
coverage, as is consistent with industry practice for companies (i) engaged in
similar businesses and (ii) of at least similar size, to that of the Company and
its subsidiaries, and the Company and each of its subsidiaries have maintained
in full force and effect public liability insurance, insurance against claims
for personal injury or death or property damage occurring in connection with any
of the activities of the Company or its subsidiaries or any of any properties
owned, occupied or controlled by the Company or its subsidiaries, in such amount
as reasonably deemed necessary by the Company or its subsidiaries. Schedule 2.16
hereto sets forth a complete and correct list of all material insurance policies
(including a brief
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summary of the nature and terms thereof and any amounts paid or payable to the
Company or any of its subsidiaries thereunder) providing coverage in favor of
the Company or any of its subsidiaries or any of their respective properties.
Each such policy is in full force and effect, no notice of termination,
cancellation or reservation of rights has been received with respect to any such
policy, there is no default with respect to any provision contained in any such
policy, and there has not been any failure to give any notice or present any
claim under any such policy in a timely fashion or in the manner or detail
required by any such policy, except for any such failures to be in full force
and effect, any such terminations, cancellations, reservations or defaults, or
any such failures to give notice or present claims which, individually or in the
aggregate, would have a Company Material Adverse Effect.
Section 2.17 Labor Matters. (a) Except as set forth in
Schedule 2.17(a) hereto, neither the Company nor any of its subsidiaries is a
party to any collective bargaining or other labor union contract applicable to
persons employed by the Company or any of its subsidiaries, no collective
bargaining agreement is being negotiated by the Company or any of its
subsidiaries and the Company has no knowledge of any material activities or
proceedings (i) involving any unorganized employees of the Company or its
subsidiaries seeking to certify a collective bargaining unit or (ii) of any
labor union to organize any of the employees of the Company or its subsidiaries.
There is no labor dispute, strike or work stoppage against the Company or any of
its subsidiaries pending or, to the Company's knowledge, threatened which may
interfere with the respective business activities of the Company or any of its
subsidiaries, except where such dispute, strike or work stoppage would not have
a Company Material Adverse Effect.
(b) Except as set forth in Schedule 2.17(b) hereto, the
Company and each of its subsidiaries have paid in full, or fully accrued for in
their financial statements, all wages, salaries, commissions, bonuses, severance
payments, vacation payments, holiday pay, sick pay, pay in lieu of compensatory
time and other compensation due or to become due to all current and former
employees of the Company and each Subsidiary for all services performed by any
of them on or prior to the date hereof. The Company and its subsidiaries are in
compliance with all applicable federal, state, local and foreign laws, rules and
regulations relating to the employment of labor, including without limitation,
laws, rules and regulations relating to payment of wages, employment and
employment practices, terms and conditions of employment, hours, immigration,
discrimination, child labor, occupational health and safety, collective
bargaining and the payment and withholding of Taxes and other sums required by
governmental authorities.
Section 2.18 Real Property. Schedule 2.18 hereto identifies
all real property owned, leased or used by the Company or its subsidiaries in
the conduct of its business. Except as set forth in Schedule 2.18, the Company
and each of its subsidiaries have good and marketable title to all of their
properties and assets, free and clear of all Liens, except for those disclosed
in the financial statements and except Liens for taxes not yet due and payable
and such Liens or other imperfections of title, if any, as do not materially
detract from the value of or interfere with the present use of the property
affected thereby or which, individually or in the aggregate, would not have a
Company Material Adverse Effect; and all leases pursuant to which
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the Company or any of its subsidiaries lease from others real or personal
property are in good standing, valid and effective in accordance with their
respective terms, and there is not, to the knowledge of the Company, under any
of such leases, any existing material default or event of default (or event
which with notice or lapse of time, or both, would constitute a material default
and in respect of which the Company or such subsidiary has not taken adequate
steps to prevent such a default from occurring) except where the lack of such
good standing, validity and effectiveness, or the existence of such default or
event, would not have a Company Material Adverse Effect.
Section 2.19 Bankruptcy. The plan of reorganization of the
Company, which became effective on February 28, 1997, has been confirmed by the
appropriate court, and the confirmation order issued by such court (the
"Confirmation Order") has been entered. All motions for rehearing or
reconsideration of the Confirmation Order have been denied or withdrawn. The
time allowed for appeals of the Confirmation Order has expired without any
appeal having been taken or, if the confirmation order has been appealed, no
stay is in effect. The Company has not defaulted and has fully complied with the
Confirmation Order.
Section 2.20 Environmental Matters. (a) Except as set forth on
Schedule 2.20 (i) the Company and its subsidiaries are in compliance with all
Environmental Laws (as defined herein), except where the failure to be in
compliance would not have a Company Material Adverse Effect, and (ii) to the
best knowledge of the Company, there are not, with respect to the Company or any
of its subsidiaries, any past violations of Environmental Laws, releases of any
material into the environment, actions, activities, circumstances, conditions,
events, incidents, contractual obligations or other legal requirements that may
give rise to any liability, cost or expense under any Environmental Laws, which
liabilities, costs or expenses, either individually or in the aggregate, would
have a Company Material Adverse Effect.
(b) As used in this Section 2.20, the term "Environmental
Laws" means the applicable common law and all applicable Federal, state, local
and foreign laws relating to pollution or protection of human health or the
environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata), including, without limitation,
laws relating to emissions, discharges, releases or threatened releases of, or
exposure to, chemicals, pollutants, contaminants, asbestos-containing materials
or industrial, toxic or hazardous substances or wastes into the environment, as
well as all applicable authorizations or codes, decrees, injunctions, judgments,
licenses, orders, permits or regulations in effect thereunder.
Section 2.21 Representations Complete.
None of the representations or warranties made by the Company herein or in any
Schedule or Exhibit hereto contains or will contain at the Effective Time any
untrue statement of a material fact, or omits or will omit at the Effective Time
any material fact required or necessary in order to make the statements
contained herein or therein, in light of the circumstances under which they are
made, not misleading.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF GAMING AND EAS
Each of Gaming and EAS represents and warrants to the Company
as follows:
Section 3.1 Organization; Power and Authority. Each of Gaming
and EAS is a corporation duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation, and has all requisite
corporate power and authority to execute and deliver this Agreement, to perform
its obligations hereunder and to consummate the transactions contemplated
hereby, except where the failure to be so organized, existing and in good
standing or to have such power and authority would not, individually or in the
aggregate, have a Gaming Material Adverse Effect (as defined herein). When used
in this Agreement, the term "Gaming Material Adverse Effect" means any change or
effect (i) that would be materially adverse to the business, results of
operations, conditions (financial or otherwise) or prospects of Gaming and EAS
and their subsidiaries, taken as a whole, or (ii) that would impair the ability
of Gaming and EAS to consummate the transactions contemplated hereby. Each of
Gaming and EAS has the requisite corporate power and authority to execute and
deliver this Agreement and consummate the transactions contemplated hereby. The
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby have been duly and validly authorized by
all necessary corporate action on the part of each of Gaming and EAS and by the
sole stockholder of each of Gaming and EAS, and no other corporate proceedings
on the part of Gaming or EAS are necessary to authorize this Agreement or to
consummate the transactions so contemplated. This Agreement has been duly and
validly executed and delivered by each of Gaming and EAS and, assuming this
Agreement constitutes a valid and binding agreement of the other parties hereto,
constitutes a legal, valid and binding agreement of each of Gaming and EAS,
enforceable against each of Gaming and EAS in accordance with its terms, except
as such enforcement may be limited by the Bankruptcy Exceptions and subject to
the general principles of equity.
Section 3.2 Non-Contravention; Required Filings and Consents.
(a) Except as set forth on Schedule 3.2(a) hereto, the execution, delivery and
performance by each of Gaming and EAS of this Agreement and the consummation of
the transactions contemplated hereby (including, without limitation, the
Elsinore Option Agreement, the Escrow Agreement and the Elsinore Merger) do not
and will not: (i) contravene or conflict with the Certificate of Incorporation
or Bylaws of Gaming or the equivalent organizational documents of EAS, or any
resolution adopted by the board of directors or stockholders of Gaming or EAS,
(ii) assuming that all consents, authorizations and approvals contemplated by
subsection (b) below have been obtained and all filings described therein have
been made, contravene or conflict with or constitute a violation of any
provision of any law, regulation, judgment, injunction, order or decree binding
upon or applicable to Gaming or to EAS or any of their respective properties,
(iii) contravene, conflict with, or result in a violation of any of the terms or
requirements of, or give any governmental entity, official or authority right to
revoke, withdraw, suspend, cancel, terminate or modify, any authorization that
is held by Gaming or EAS or that otherwise relates
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to the business of, or any of the assets owned by Gaming or EAS, (iv) conflict
with, or result in the breach or termination of any provision of or constitute a
default (with or without the giving of notice or the lapse of time or both)
under, or give rise to any right of termination, cancellation, or loss of any
benefit to which either Gaming or EAS is entitled under any provision of any
agreement, contract, license or other instrument binding upon either Gaming or
EAS, or allow the acceleration of the performance of, any obligation of either
Gaming or EAS under any other agreement to which Gaming or EAS is a party or by
which Gaming or EAS is subject or bound, or (v) result in the creation or
imposition of any Lien on any asset of Gaming or EAS, except in the case of
clauses (ii), (iii) and (iv) for any such contraventions, conflicts, violations,
breaches, terminations, defaults, cancellations, losses, accelerations and Liens
which would not individually or in the aggregate have a Gaming Material Adverse
Effect or be reasonably expected to prevent the consummation by Gaming or by EAS
of the transactions contemplated by this Agreement.
(b) The execution, delivery and performance by Gaming and by
EAS of this Agreement and the consummation of the transactions contemplated
hereby (including the Elsinore Option Agreement, the Escrow Agreement and the
Elsinore Merger) by Gaming and by EAS require no action by or in respect of, or
filing with, any governmental entity, official or authority (either domestic or
foreign), other than: (i) the filing of Articles of Merger in accordance with
the Nevada Merger Law; (ii) compliance with any applicable requirements of the
HSR Act; (iii) compliance with any applicable requirements of the Exchange Act
and state securities, takeover and Blue Sky laws; (iv) obtaining all necessary
gaming approvals, including those required by the Gaming Authorities, including,
without limitation, approvals under the Gaming Laws, if any; and (v) such
additional actions or filings which, if not taken or made, would not
individually or in the aggregate have a Gaming Material Adverse Effect or be
reasonably expected to prevent the consummation by Gaming or by EAS of the
transactions contemplated by this Agreement.
Section 3.3 Absence of Litigation. Since February 28, 1997,
there has not been any action, suit, claim, investigation or proceeding pending
against, or to the knowledge of Gaming or EAS, threatened against, Gaming or EAS
or any of their subsidiaries or any of their respective properties, or their
respective boards of directors, before any court or arbitrator or any
administrative, regulatory or governmental body, or any agency or official
which, individually or in the aggregate, would have a Gaming Material Adverse
Effect. Since February 28, 1997, neither Gaming nor EAS nor any of their
subsidiaries nor any of their respective properties has been subject to any
order, writ, judgment, injunction, decree, determination or award having, or
which would have, a Gaming Material Adverse Effect or which would prevent or
delay the consummation of the transactions contemplated hereby.
Section 3.4 Proxy Statement. None of the information provided
by Gaming specifically for use in the Proxy Statement shall, at the time filed
with the SEC, at the time mailed to the Company Stockholders, at the time of the
Stockholders' Meeting or at the Effective Time, contain any untrue statement of
a material fact or omit to state any material fact required
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to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading.
Section 3.5 No Prior Activities. Since the date of its
incorporation, neither Gaming nor EAS has engaged in any activities other than
in connection with or as contemplated by this Agreement, the Riviera Merger or
in connection with arranging any financing required to consummate the
transactions contemplated hereby.
Section 3.6 No Brokers. Except for Jefferies & Co., Inc.
(whose fee will be paid by Gaming), neither Gaming nor EAS has employed any
broker or finder, nor has it incurred any liability for any brokerage fees,
commissions or finders' fees in connection with the transactions contemplated by
this Agreement.
Section 3.7 Capitalization of Gaming. On the Closing Date and
at the Effective Time, Gaming will have cash or immediately available funds in
an amount not less than the sum of (i) the aggregate amount of Merger
Consideration to be paid hereunder, (ii) the aggregate amount to be paid at the
Effective Time pursuant to Section 1.9 hereof and (iii) an amount equal to $3.16
multiplied by the number of Dissenting Shares.
Section 3.8 Representations Complete. None of the
representations or warranties made by either Gaming or EAS herein or in any
Exhibit hereto contains or will contain at the Effective Time any untrue
statement of a material fact, or omits or will omit at the Effective Time any
material fact necessary in order to make the statements contained herein, in
light of the circumstances under which they are made, not misleading.
ARTICLE IV
COVENANTS
Section 4.1 Conduct of Business of the Company. Except as
otherwise expressly provided in this Agreement, during the period from the date
hereof to the Effective Time, the Company and its subsidiaries will each conduct
their respective operations according to its ordinary course of business, and
the Company and its subsidiaries will each use its reasonable best efforts to
preserve intact its business organization, to keep available the services of its
officers and employees and to maintain existing relationships with licensors,
licensees, suppliers, contractors, distributors, and others having business
relationships with it. Without limiting the generality of the foregoing, and
except as otherwise expressly provided in this Agreement, or as set forth in
Schedule 4.1 hereto, prior to the Effective Time, neither the Company nor any of
its subsidiaries will, without the prior written consent of Gaming:
(a) amend its Articles of Incorporation or Bylaws or other
comparable organizational documents;
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(b) authorize for issuance, issue, pledge, sell, deliver or
agree or commit to issue, sell or deliver (whether through the issuance or
granting of options, warrants, commitments, subscriptions, rights to purchase or
otherwise) or otherwise encumber, any capital stock of any class or any other
securities or equity equivalents (including, without limitation, stock
appreciation rights), except as required by the Company Plan, warrants or other
securities listed on Schedule 2.2, as such are in effect as of the date hereof,
or amend any of the terms of any such securities or agreements outstanding as of
the date hereof;
(c) split, combine or reclassify any shares of its capital
stock, declare, set aside or pay any dividend or other distribution (whether in
cash, stock, or property or any combination thereof) in respect of its capital
stock, or, redeem, repurchase or otherwise acquire any of its securities or any
securities of its subsidiaries;
(d) (i) except as set forth in Schedule 4.1(d)(i) hereto or in
the ordinary course of business, create or incur any indebtedness for borrowed
money or issue any debt securities or assume, guarantee or endorse the
obligations of any other person, (ii) make any loans, advances or capital
contributions to, or investments in, any other person, (iii) pledge or otherwise
encumber any shares of capital stock of the Company or any of its subsidiaries,
or (iv) mortgage or pledge any of its assets, tangible or intangible, or create
or suffer to exist any Lien thereupon;
(e) enter into any transaction, other than in the ordinary
course of business, or make any investment, except for expenditures and
transactions in an aggregate amount not to exceed by more than $350,000 the
aggregate amount of expenditures and transactions set forth in the capital
expenditures plan provided to Gaming by the Company on September 5, 1997.
(f) enter into, adopt or (except as may be required by law or
by the terms of any such arrangement) amend or terminate any bonus,
profit-sharing, compensation, severance, termination, stock option, pension,
retirement, deferred compensation, employment or other employee benefit
agreement, trust, plan, fund or other arrangement for the benefit or welfare of
any director, officer or employee, or increase in any manner the compensation or
benefits of any director, officer or employee, or grant any benefit or
termination or severance pay to any director, officer or employee not required
by any plan or arrangement as in effect as of the date hereof (including,
without limitation, the granting of stock options) or by law;
(g) acquire, sell, lease or dispose of, or encumber any assets
outside the ordinary course of business or any assets which in the aggregate are
material to the Company and its subsidiaries, taken as a whole, or enter into
any contract, agreement, commitment or transaction outside the ordinary course
of business;
(h) change any of the accounting principles or practices used
by the Company, except as may be required as a result of a change in law, SEC
guidelines or GAAP;
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(i) (i) acquire (including, without limitation, by merger,
consolidation, or acquisition of stock or assets) any corporation, partnership
or other business organization or division thereof; (ii) authorize any new
capital expenditure or expenditures, except for expenditures and transactions in
an aggregate amount not to exceed by more than $350,000 the aggregate amount of
expenditures and transactions set forth in the capital expenditures plan
provided to Gaming by the Company on September 5, 1997, (iii) settle any
litigation for amounts in excess of $100,000 individually or $500,000 in the
aggregate; or (iv) enter into or amend any contract, agreement, commitment or
arrangement with respect to any of the foregoing;
(j) make any Tax election or settle or compromise any Tax
liability, other than in the ordinary course of business;
(k) pay, discharge or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction in the ordinary
course of business consistent with past practice or in accordance with their
terms, of liabilities set forth in Schedule 2.8 hereto or reflected or reserved
against in the financial statements (or the notes thereto) of the Company and
its subsidiaries or incurred in the ordinary course of business consistent with
past practice;
(l) terminate, modify, amend or waive compliance with any
provision of any Material Contract or fail to take any action necessary to
preserve the benefits of any such Material Contract to the Company or any of its
subsidiaries;
(m) fail to comply with any laws, ordinances or other
governmental regulations applicable to the Company or any of its subsidiaries,
including, but not limited to, the Gaming Laws and any regulations promulgated
thereunder, that may have a Company Material Adverse Effect; or
(n) take, or agree in writing or otherwise to take, any of the
actions described in this Section 4.1.
Section 4.2 Proxy Statement. (a) The Company shall, as
promptly as practicable following the date hereof, prepare and file the Proxy
Statement with the SEC under the Exchange Act. Gaming and EAS shall use their
respective best efforts to cooperate with the Company in the preparation of the
Proxy Statement. As soon as practicable following completion of review of the
Proxy Statement by the SEC, the Company shall mail the Proxy Statement to its
stockholders who are entitled to vote at the Stockholders' Meeting. Subject to
the fiduciary obligations of the Board under applicable law, the Proxy Statement
shall contain the recommendation of the Board that the Company Stockholders
approve this Agreement and the transactions contemplated hereby.
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(b) The Company shall use its reasonable best efforts to
promptly obtain and furnish the information required to be included in the Proxy
Statement and to respond promptly to any comments from, or requests made by the
SEC with respect to the Proxy Statement. The Company shall promptly notify
Gaming of the receipt of comments from, or any requests by, the SEC with respect
to the Proxy Statement, and shall promptly supply Gaming with copies of all
correspondence between the Company (or its representatives) and the SEC (or its
staff) relating thereto. The Company agrees to correct any information provided
by it for use in the Proxy Statement which shall have become, or is, false or
misleading; provided, however, that the Company shall first use its reasonable
best efforts to consult with Gaming about the form and substance of each such
correction.
Section 4.3 Access to Information. (a) Subject to applicable
law and the agreements set forth in Section 4.3(b), between the date hereof and
the Effective Time, the Company will give Gaming and its counsel, financial
advisors, auditors and other authorized representatives reasonable access
(during regular business hours upon reasonable notice) to all employees, offices
and other facilities and to all books and records of the Company and its
subsidiaries, will permit Gaming and its counsel, financial advisors, auditors
and other authorized representatives to make such inspections Gaming may
reasonably require, and will cause the Company's officers and those of its
subsidiaries to furnish Gaming or its representatives with such financial and
operating data and other information with respect to the business and properties
of the Company and any of its subsidiaries as Gaming may from time to time
reasonably request. No investigation pursuant to this Section 4.3 shall affect
any representations or warranties of the Company herein or the conditions to the
obligations of Gaming or EAS hereunder.
(b) The parties hereto each agree that the provisions of the
Confidentiality Agreement, dated as of May 5, 1997 and attached hereto as
Exhibit C (the "Confidentiality Agreement"), between the Company and Mr. Allen
E. Paulson shall apply to and be binding on Gaming and EAS, and that the terms
of the Confidentiality Agreement are incorporated herein by reference.
Section 4.4 Reasonable Best Efforts. Subject to the terms and
conditions contained herein, each of the parties hereto agrees to use its
reasonable best efforts to take, or cause to be taken, all actions, and to do,
or cause to be done, all things reasonably necessary, proper or advisable under
all applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement. Without limiting the generality of
the foregoing, the parties hereto shall cooperate with one another (i) in the
preparation and filing of any required filings under the HSR Act, the Gaming
Laws and the other laws referred to in Sections 2.5 and 3.2 hereof, (ii) in
determining whether action by or in respect of, or filing with, any governmental
body, agency, official or authority is required, proper or advisable, or any
actions, consents, waivers or approvals are required to be obtained from parties
to any contracts in connection with the transactions contemplated by this
Agreement, (iii) in seeking to obtain any such actions, consents and waivers and
in making any such filings, and (iv) in seeking to lift any order, decree or
ruling restraining, enjoining or otherwise prohibiting the
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Elsinore Merger. If at any time after the Effective Time any further action is
necessary or desirable to carry out the purposes of this Agreement, the proper
officers and directors of each party hereto shall take all such necessary
action.
Section 4.5 Public Announcements. Each of the parties hereto
agrees that it will not issue any press release or otherwise make any public
statement with respect to this Agreement or the transactions contemplated hereby
without the prior consent of the other party, which consent shall not be
unreasonably withheld or delayed; provided, however, that such disclosure can be
made without obtaining such prior consent if (i) the disclosure is required by
law, and (ii) the party making such disclosure has first used its reasonable
best efforts to consult with the other party about the form and substance of
such disclosure.
Section 4.6 Indemnification; Insurance. (a) From and after the
Effective Time, the Surviving Corporation shall indemnify and hold harmless each
person who is, or has been at any time prior to the date hereof or who becomes
prior to the Effective Time, an officer, director or employee of the Company or
any of its subsidiaries (collectively, the "Indemnified Parties" and
individually, an "Indemnified Party") against all losses, liabilities, expenses
(including attorneys' fees), claims or damages in connection with any claim,
suit, action, proceeding or investigation based in whole or in part upon the
fact that such Indemnified Party is or was a director, officer or employee of
the Company or any of its subsidiaries and arising out of acts or omissions
occurring prior to and including the Effective Time (including but not limited
to the transactions contemplated by this Agreement) to the fullest extent
permitted by Nevada law, for a period of not less than six years following the
Effective Time; provided, that in the event any claim or claims are asserted or
made within such six-year period, all rights to indemnification in respect of
any such claim or claims shall continue until final disposition of any and all
such claims.
(b) The provisions of the Surviving Corporation Articles of
Incorporation with respect to indemnification and exculpation shall not be
amended, repealed or otherwise modified for a period of six years after the
Effective Time in any manner that would adversely affect the rights thereunder
of individuals who at the Effective Time are or were current or former directors
or officers of the Company in respect of actions or omissions occurring at or
prior to the Effective Time (including, without limitation, the transactions
contemplated by this Agreement), unless such modification is required by law.
(c) Prior to the Closing Date, the Company shall obtain a tail
insurance policy (the "Company D & O Liability Insurance Tail") covering the
directors and officers for acts or failures to act prior to the Effective Time,
and having substantially the same coverage and deductibles as the Company's
directors' and officers' liability insurance policy as in effect on July 1,
1997.
(d) From and after the Effective Time, no Indemnified Party
shall be liable to Gaming, EAS or the Surviving Corporation (or anyone claiming
rights through any of them, including Allen E. Paulson) for breach of any of the
representations, warranties, covenants or
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agreements contained in this Agreement. It is the express understanding of the
parties that the sole remedy of Gaming and EAS under this Agreement (or anyone
claiming rights under this Agreement through Gaming or EAS) in the event of a
breach or alleged breach by the Company of its representations, warranties,
covenants or agreements), shall be to refuse to consummate the Elsinore Merger,
subject, however, to Gaming's rights under Article VI hereof.
(e) This Section 4.6 is intended to benefit the Indemnified
Parties and their respective heirs, executors and personal representatives, and
shall be binding on the successors and assigns of the Company and the Surviving
Corporation.
Section 4.7 Notification of Certain Matters. The Company shall
give prompt notice to Gaming and EAS, and Gaming and EAS shall give prompt
notice to the Company, upon becoming aware of: (i) the occurrence or
non-occurrence, of any event the occurrence, or non-occurrence of which would
cause any representation or warranty contained in this Agreement to be untrue or
inaccurate, and (ii) any failure of the Company or Gaming and EAS, as the case
may be, to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder; provided, that the delivery of any
notice pursuant to this Section 4.7 shall not limit or otherwise affect the
remedies available hereunder to the party receiving such notice.
Section 4.8 No Solicitation. (a) The Company and its
subsidiaries and affiliates will not, and the Company and its subsidiaries and
affiliates will use their reasonable best efforts to ensure that their
respective officers, directors, employees, investment bankers, attorneys,
accountants and other agents do not, directly or indirectly: (i) initiate,
solicit or encourage, or take any action to facilitate the making of, any offer
or proposal which constitutes or is reasonably likely to lead to any Alternative
Transaction (as defined below) with respect to the Company or any of its
subsidiaries or an inquiry with respect thereto, or, (ii) in the event of an
unsolicited Alternative Transaction for the Company or any of its subsidiaries,
engage in negotiations or discussions with, or provide any information or data
to any person relating to any Alternative Transaction, subject to the Board's
good faith determination, after consulting with outside legal counsel to the
Company, that the failure to engage in such negotiations or discussions or
provide such information would likely result in a breach of the Board's
fiduciary duties under applicable law if such Alternative Transaction would
provide the Company Stockholders with a purchase price per Share that is higher
(the amount of such excess in the purchase price per Share is hereinafter
referred to as the "Spread") than the Merger Consideration to be received by the
Company Stockholders. The Company shall notify Gaming and EAS orally and in
writing of any such inquiries, offers or proposals (including, without
limitation, the terms and conditions thereof and the identity of the person
making such), within twenty four hours of the receipt thereof. The Company
shall, and shall cause its subsidiaries and affiliates, and their respective
officers, directors, employees, investment bankers, attorneys, accountants and
other agents to, immediately cease and cause to be terminated all existing
discussions and negotiations, if any, with any parties conducted heretofore with
respect to any Alternative Transaction relating to the Company or any of its
subsidiaries. Notwithstanding anything to the contrary, nothing contained in
this Section 4.8 shall prohibit the Company or the
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Board from communicating to the Company Stockholders a position as required by
Rules 14d-9 and 14a-2 promulgated under the Exchange Act.
(b) As used in this Agreement, "Alternative Transaction" shall
mean any tender or exchange offer for the Common Stock or for the equivalent
securities of any of the Company's subsidiaries, any proposal for a merger,
consolidation or other business combination involving any such person, any
proposal or offer to acquire in any manner a ten percent or more equity interest
in, or ten percent or more of the business or assets of, such person, any
proposal or offer with respect to any recapitalization or restructuring with
respect to such person or any proposal or offer with respect to any other
transaction similar to any of the foregoing with respect to such person or any
subsidiary of such person; provided, however, that, as used in this Agreement,
the term "Alternative Transaction" shall not apply to any transaction of the
type described in this subsection (b) involving Gaming, EAS or their affiliates.
Section 4.9 Compliance with Gaming Laws. None of Gaming, EAS
or their officers, directors or shareholder will attempt to influence, direct or
cause the direction of the management or policies of the Company pending receipt
of all required approvals of the Gaming Authorities, pursuant to the Gaming
Laws, for the transactions contemplated by this Agreement and the Elsinore
Option Agreement.
ARTICLE V
CONDITIONS TO CONSUMMATION OF THE MERGER
Section 5.1 Conditions to each Party's Obligation to Effect
the Elsinore Merger. The respective obligation of each party to effect the
Elsinore Merger is subject to the satisfaction or waiver on or prior to the
Effective Time of the following conditions:
(a) Any waiting period applicable to the consummation of the
Elsinore Merger under the HSR Act shall have expired or been terminated, and no
action shall have been instituted by the Department of Justice or Federal Trade
Commission challenging or seeking to enjoin the consummation of this
transaction, which action shall have not been withdrawn or terminated.
(b) At the Stockholders' Meeting, this Agreement shall have
been approved and adopted by the affirmative vote of the holders of not less
than a majority of the Shares, excluding the Paulson Shares.
(c) There shall not have been any statute, rule, regulation,
judgment, order or injunction promulgated, entered, enforced, enacted or issued
applicable to the Elsinore Merger by any governmental entity which, directly or
indirectly, (i) prohibits the consummation of the Elsinore Merger or the
transactions contemplated by the Elsinore Option Agreement, (ii) prohibits or
materially limits the ownership or operation by the Company, or any of its
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respective subsidiaries of a material portion of the business or assets of the
Company and its subsidiaries, taken as a whole, or seeks to compel the Company
or Gaming or EAS to dispose of or hold separate any material portion of the
business or assets of the Company or Gaming or EAS and its subsidiaries, taken
as a whole, as a result of the Elsinore Merger or any of the other transactions
contemplated by this Agreement, or (iii) prohibits Gaming or EAS from
effectively controlling in any material respect the business or operations of
the Company, taken as a whole; provided, that the parties hereto shall have used
their reasonable best efforts to cause any such statute, rule, regulation,
judgment, order or injunction to be repealed, vacated or lifted.
(d) The Riviera Merger shall have become effective.
(e) Other than the filing of the articles of merger in
accordance with the Nevada Merger Law, all licenses, permits, registrations,
authorizations, consents, waivers, orders or other approvals required to be
obtained, and all filings, notices or declarations required to be made, prior to
the Effective Time, by Gaming, EAS, Mr. Allen E. Paulson, the Company or any of
its subsidiaries in order to consummate the Riviera Merger and the transactions
contemplated by this Agreement, and in order to permit the Company and its
subsidiaries to conduct their respective businesses in the jurisdictions
regulated by the Gaming Authorities after the Effective Time in the same manner
as conducted by the Company and its subsidiaries immediately prior to the
Effective Time shall have been obtained or made.
Section 5.2 Conditions to Obligations of Gaming and EAS to
Effect the Elsinore Merger. The obligations of Gaming and EAS to effect the
Elsinore Merger shall be subject to the satisfaction at or prior to the
Effective Time of the following additional conditions:
(a) The Company shall have performed in all material respects
all of its obligations under this Agreement required to be performed by it at or
prior to the Closing Date and the representations and warranties of the Company
contained in this Agreement shall be true and correct in all respects as of the
date of this Agreement and at and as of the Closing Date as if made at and as of
such time, except (i) for changes specifically permitted by this Agreement and
(ii) that those representations and warranties which address matters as of a
particular date shall remain true and correct as of such particular date.
(b) Neither the consummation nor the performance of any of the
transactions contemplated in this Agreement will, directly or indirectly (with
or without notice or lapse of time), materially contravene, or conflict with, or
result in a material violation of, or cause Gaming or EAS or any affiliate of
Gaming or EAS to suffer any material adverse consequence under, (a) any
applicable legal requirement or Order or (b) any legal requirement or Order that
has been published, introduced, or otherwise proposed by or before any
governmental entity.
(c) The Option Seller shall have entered into the Elsinore
Option Agreement concurrent with the execution of this Agreement, and the
Elsinore Option Agreement shall be in full force and effect and the Option
Seller shall have complied in all respects with the terms thereof;
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(d) Mr. Allen E. Paulson shall not have become deceased or
Disabled (as defined herein). As used herein, "Disabled" means Mr. Allen E.
Paulson's incapacity due to physical or mental illness, injury or disease, which
incapacity renders him unable to perform the requisite duties of the chief
executive officer of Gaming for a consecutive period of 90 days or more. Any
question as to the existence, extent or potentiality of Mr. Allen E. Paulson's
disability upon which Gaming and the Option Seller cannot agree shall be
determined by a qualified, independent physician selected by the Company and
approved by Gaming and the disputing Option Sellers (whose approval shall not be
unreasonably withheld or delayed). The determination of such physician shall be
final and conclusive for all purposes of this Agreement.
(e) Gaming shall have received such documents as Gaming or EAS
may reasonably request for the purpose of (i) evidencing the accuracy at any
time on or prior to the Closing Date of any of the Company's representations and
warranties, (ii) evidencing the performance by the Company of, or the compliance
by the Company with, any covenant or obligation required to be performed or
complied with by the Company, (iii) evidencing the satisfaction of any condition
referred to in Sections 5.1 and 5.2 hereof or (iv) otherwise facilitating the
consummation or performance of any of the transactions contemplated hereby.
(f) The cost to the Company (net of any amounts paid by third
parties) of the Company D&O Liability Insurance Tail obtained pursuant to
Section 4.6(c) hereof shall not exceed the aggregate of $150,000.
Section 5.3 Conditions to Obligations of the Company to Effect
the Elsinore Merger. The obligations of the Company to effect the Elsinore
Merger shall be subject to the satisfaction at or prior to the Effective Time of
the following additional conditions:
(a) Gaming and EAS shall have performed in all material
respects all of its obligations under this Agreement required to be performed by
it at or prior to the Effective Time and the representations and warranties of
Gaming and EAS contained in this Agreement shall be true and correct in all
respects as of the date of this Agreement and at and as of the Effective Time as
if made at and as of such time, except (i) for changes specifically permitted by
this Agreement and (ii) that those representations and warranties which address
matters as of a particular date shall remain true and correct as of such
particular date.
(b) At the Closing Date, Gaming shall have in cash or
immediately available funds, an amount equal to the sum of (i) the aggregate
amount of Merger Consideration to be paid hereunder, (ii) the aggregate amount
to be paid at the Effective Time pursuant to Section 1.9 hereof and (iii) an
amount equal to $3.16 multiplied by the number of Dissenting Shares.
(c) The Company shall have received such documents as the
Company may reasonably request for the purpose of (i) evidencing the accuracy of
any of Gaming's and EAS' representations and warranties, (ii) evidencing the
performance by Gaming and EAS of, or the compliance by Gaming and EAS with, any
covenant or obligation required to be performed or
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complied with by Gaming and EAS, (iv) evidencing the satisfaction of any
condition referred to in Sections 5.1 and 5.3 hereof or (v) otherwise
facilitating the consummation or performance of any of the transactions
contemplated hereby.
ARTICLE VI
TERMINATION; AMENDMENT; WAIVER
Section 6.1 Termination. This Agreement may be terminated and
the Elsinore Merger may be abandoned at any time prior to the Effective Time,
notwithstanding approval thereof by the Company Stockholders:
(a) by mutual written consent of Gaming and EAS, on the one
hand, and the Company, on the other hand;
(b) by Gaming and EAS, on the one hand, or the Company, on the
other hand, if any court or governmental authority of competent jurisdiction
shall have issued an order, decree or ruling or taken any other action
restraining, enjoining or otherwise prohibiting the Elsinore Merger and such
order, decree, ruling or other action shall have become final and nonappealable;
provided, that Gaming and the Company shall have used their reasonable best
efforts to have such injunction lifted;
(c) by Gaming and EAS, on the one hand, or the Company, on the
other hand, at any time after April 1, 1998, (the "Termination Date") if the
Elsinore Merger shall not have occurred by such date; provided, that if the
Elsinore Merger has not occurred solely by virtue of the fact that the required
approvals of one or more of the Gaming Authorities have not been obtained and
the Gaming Authorities have not informed Mr. Allen E. Paulson, Gaming or the
Company that a review of the applications for such approvals is scheduled by the
appropriate Gaming Authorities for a later date, then the Termination Date shall
be extended until such approvals have been granted or denied, except that under
no circumstances shall such extension continue after June 1, 1998; and,
provided, further, that the right to terminate this Agreement under this
subparagraph (c) shall not be available to any party whose failure to fulfill
any obligation under this Agreement has been the principal cause of the failure
of the Elsinore Merger to have occurred by such date;
(d) by Gaming and EAS if (i) there shall have been a breach of
any representation or warranty of the Company contained herein which would have
a Company Material Adverse Effect or prevent the consummation of the Elsinore
Merger or the transactions contemplated hereby, which shall not have been cured
on or prior to ten business days following notice from Gaming of such breach,
(ii) there shall have been a breach of any covenant or agreement of the Company
contained herein which would have a Company Material Adverse Effect or prevent
the consummation of the Elsinore Merger or the transactions contemplated hereby,
which shall not have been cured on or prior to ten business days following
notice of
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such breach, (iii) the Board shall have withdrawn or modified, in a manner
materially adverse to Gaming, its approval or recommendation of this Agreement,
the Elsinore Merger or the transactions contemplated hereby or shall have
recommended, or the Company shall have entered into an agreement providing for,
an Alternative Transaction, or the Board shall have resolved to do any of the
foregoing, (iv) the Stockholders Meeting shall have been held and the vote
described in Section 5.1(b) shall not have been obtained, (v) Mr. Allen E.
Paulson shall have become deceased or Disabled or (vi) the Riviera Merger
Agreement shall have been terminated; or
(e) by the Company if (i) there shall have been a breach of
any representation or warranty of Gaming contained herein which would have a
Gaming Material Adverse Effect or prevent the consummation of the Elsinore
Merger or the transactions contemplated hereby, which shall not have been cured
on or prior to ten business days following notice from the Company of such
breach, (ii) there shall have been a breach of any covenant or agreement of
Gaming contained herein which would have a Gaming Material Adverse Effect or
prevent the consummation of the Elsinore Merger or the transactions contemplated
hereby, which shall not have been cured on or prior to ten business days
following notice of such breach, (iii) the Board determines, in good faith after
consulting with outside legal counsel to the Company, that it is required, in
the exercise of its fiduciary duties under applicable law, to enter into a
definitive agreement with respect to an Alternative Transaction or (iv) the
Stockholders Meeting shall have been held and the vote described in Section
5.1(b) shall not have been obtained.
(f) by the Company if the Closing has not occurred within 30
days after receipt of required approvals of the Gaming Authorities; provided,
however, that all of the conditions to Gaming's obligation to effect the
Elsinore Merger contained in Sections 5.1 and 5.2 hereof shall have been
satisfied or waived by Gaming.
Section 6.2 Effect of Termination; Termination Fee. (a) In the
event of the termination and abandonment of this Agreement pursuant to Section
6.1, this Agreement shall forthwith become void and have no effect, without any
liability on the part of any party hereto, other than pursuant to the provisions
set forth in Section 6.2(b), Section 6.2(c) and Section 6.3 hereof.
(b) In the event this Agreement is terminated pursuant to
Sections 6.1(d)(iii), 6.1(d)(iv), 6.1(e)(iii) or 6.1(e)(iv) hereof, the Company
shall pay to Gaming immediately upon the closing of an Alternative Transaction
an aggregate amount equal to three percent of the consideration for the equity
of the Company which is received by the Company or its stockholders in the
Alternative Transaction valued at the higher of the value of the consideration
on the date of (i) the execution of the definitive agreement with respect to an
Alternative Transaction and (ii) the closing of the Alternative Transaction (the
"Termination Fee").
(c) In the event (A) this Agreement is terminated (except
pursuant to a NonPayment Termination Event (as defined herein)) or (B) the
Elsinore Merger does not occur in accordance with the terms of this Agreement on
or before April 2, 1998 (or if the Termination
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Date is extended as provided in Section 6.1(c) hereof, June 2, 1998) for any
reason other than the occurrence of a Non-Payment Termination Event, then the
Company shall be entitled to receive from Gaming and/or EAS, no later than five
business days from the date of such termination, on behalf of the Company
Stockholders other than the Option Seller (i) an amount equal to $178,776, plus
interest in an amount equal to 9.43% per annum on $893,878.68 from June 1, 1997,
through the date immediately preceding the execution date hereof, and (ii) an
amount equal to $230.94 multiplied by the number of days in the period beginning
on the execution date hereof and ending on the date immediately preceding the
earlier to occur of (x) the termination of this Agreement (except pursuant to a
Non-Payment Termination Event) or (y) the Termination Date, as extended pursuant
to Section 6.1(c) hereof, if applicable; provided, that the Company shall be
entitled to receive the payment described in this Section 6.2(c) if the Option
Seller is entitled to retain the payments made to it pursuant to Section 1.2(b)
of the Elsinore Option Agreement, and, further, provided, that the Company shall
not be entitled to such compensation if this Agreement is not consummated as a
result of a breach by the Company. For purposes of this Agreement, a
"Non-Payment Termination Event" shall mean the termination of this Agreement
pursuant to Sections 6.1(a), 6.1(b), 6.1(c) (because of the failure to satisfy
Sections 5.1(a), 5.1(c), 5.1(d), 5.2(c), or 5.2(f)), 6.1(d), 6.1(e)(iii) or
6.1(e)(iv) hereof. In addition, in the event that this Agreement is terminated
pursuant to Section 6.1(c) because of the failure of Gaming, RAS or Mr. Allen E.
Paulson to obtain the required approvals of the Gaming Authorities, then such
event shall constitute a Non-Payment Termination Event unless Mr. Allen E.
Paulson is in breach of his representation and covenant contained in Section
6.2(d) hereof.
(d) The ability of Gaming and EAS to terminate their
obligations without triggering the right of the Company to receive the
consideration described in Section 6.2(c) hereof is predicated upon the accuracy
of the following representation and performance by Mr. Allen E. Paulson of the
following agreement: (A) Mr. Allen E. Paulson has represented that prior to the
execution of this Agreement, he has discussed in detail with his Nevada counsel
his background and knows of no reason why he should not be able to obtain all
necessary Gaming Authorities approvals prior to April 1, 1998; and (B) Mr. Allen
E. Paulson has agreed that he will pursue vigorously and will give complete and
prompt attention requests of Gaming Authorities for information and will do
nothing which might delay receipt of all necessary Gaming Authorities approvals.
Section 6.3 Fees and Expenses. Except as set forth herein,
each party shall bear its own expenses and costs in connection with this
Agreement and the transactions contemplated hereby. In the event this Agreement
is terminated pursuant to Sections 6.1(d), 6.1(e)(iii) or 6.1(e)(iv) hereof, and
as a condition to such termination, the Company shall, immediately upon (i) the
execution of a definitive agreement with respect to an Alternative Transaction,
or (ii) the approval or recommendation by the Board, directly or indirectly, of
such an Alternative Transaction, reimburse Gaming, EAS and Mr. Allen E. Paulson
the documented out-of-pocket expenses (the "Expenses") of Gaming, EAS and Mr.
Allen E. Paulson, incurred from April 15, 1997, in connection with (i) the
transactions contemplated by this Agreement.
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ARTICLE VII
MISCELLANEOUS
Section 7.1 Survival. Subject to the following sentence, the
representations, warranties, covenants and agreements contained herein shall not
survive beyond the Effective Time. The covenants and agreements contained herein
which by their terms contemplate performance after the Effective Time (including
by the Surviving Corporation after the Elsinore Merger) shall survive the
Effective Time. In addition, Sections 6.2 and 6.3 hereof shall survive
termination of this Agreement. The representation and warranty made in Section
2.4 hereof shall survive indefinitely.
Section 7.2 Entire Agreement; Assignment. This Agreement
(including the Schedules and Exhibits hereto) (i) shall constitute the entire
agreement among the parties hereto with respect to the subject matter hereof,
and supersedes all other prior agreements and understandings, both written and
oral, among the parties with respect to the subject matter hereof and (ii) shall
not be assigned by operation of law or otherwise and any purported assignment
shall be null and void, except that Gaming and EAS may assign this Agreement to
any of their affiliates without the prior written consent of the Company;
provided, that (i) no such assignment shall relieve Gaming and EAS of their
obligations hereunder if such assignee does not perform such obligations, and
(ii) such assignment will not result in any delay in (x) the consummation of the
transactions contemplated hereby by more than one month as determined by the
Company's counsel or (y) the ability to satisfy the condition contained in
Section 5.1(e) hereof by more than one month as determined by the Company's
counsel.
Section 7.3 Amendment. This Agreement may be amended by action
taken by the Company, Gaming and EAS at any time before or after adoption of the
Elsinore Merger by the Company Stockholders but, after any such approval, no
amendment shall be made which decreases the Merger Consideration or changes the
form thereof or which adversely affects the rights of the Company Stockholders
hereunder without the approval of the Company Stockholders. This Agreement may
not be amended except by an instrument in writing signed on behalf of each of
the parties hereto.
Section 7.4 Extension or Waiver. At any time prior to the
Effective Time, the Company, on the one hand, and Gaming, on the other hand, may
(i) extend the time for the performance of any of the obligations or other acts
of the other party, (ii) waive any inaccuracies in the representations and
warranties of the other party contained herein or in any document, certificate
or writing delivered pursuant hereto, or (iii), subject to applicable law, waive
compliance by the other party with any of the agreements or conditions contained
herein. Any agreement on the part of any party hereto to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party. The failure of any party hereto to assert any of its
rights hereunder shall not constitute a waiver of such rights.
34
<PAGE>
Section 7.5 Notices. All notices, requests, claims, demands
and other communications hereunder shall be in writing and shall be given (and
shall be deemed to have been duly given upon receipt) by delivery in person, by
overnight courier with receipt requested, by facsimile transmission (with
receipt confirmed by automatic transmission report) or two business days after
being sent by registered or certified mail (postage prepaid, return receipt
requested), to the other party as follows:
if to Gaming:
P.O. Box 9660
Rancho Santa Fe, CA 92067
Fax: (619) 756-3194
Attention: Mr. Allen E. Paulson
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
300 South Grand Avenue
Los Angeles, California 90071
Fax: (213) 687-5600
Attention: Brian J. McCarthy, Esq.
if to the Company:
202 Fremont Street
Las Vegas, Nevada 89101
Fax: (702) 387-5120
Attention: Mr. Jeffrey T. Leeds
with a copy to:
Gordon & Silver, Ltd.
3800 Howard Hughes Parkway
14th Floor
Las Vegas, Nevada 89109
Fax: (702) 369-2666
Attention: Gerald M. Gordon, Esq.
35
<PAGE>
- and -
Kummer Kaempfer Bonner & Renshaw
3800 Howard Hughes Parkway
7th Floor
Las Vegas, NV 89109
Fax: (702) 796-7181
Attention: Martha J. Ashcraft, Esq.
or to such other address as the party to whom notice is given may have
previously furnished to the other party in writing in the manner set forth
above.
Section 7.6 Governing Law. This Agreement shall be
governed by and construed in accordance with the laws of the State of Nevada,
without regard to the principles of conflicts of law thereof. Each of the
parties hereto hereby irrevocably and unconditionally consents to submit to
jurisdiction of the courts of the State of Nevada and of the United States of
America located in the State of Nevada for any litigation arising out of or
relating to this Agreement and the transactions contemplated hereby.
Section 7.7 Parties in Interest. This Agreement
shall be binding upon and shall inure solely to the benefit of each party hereto
and its successors and permitted assigns, and, except as set forth in Section
4.6, nothing in this Agreement, express or implied, is intended to or shall
confer upon any other person any rights, benefits or remedies of any nature
whatsoever under or by reason of this Agreement, provided, that the Option
Seller is an intended beneficiary of the representation and warranty contained
in Section 2.4 hereof.
Section 7.8 Subsequent Actions. If, at any time
after the Effective Time, the Surviving Corporation shall consider or be advised
that any deeds, bills of sale, assignments, assurances or any other actions or
things are necessary or desirable to vest, perfect or confirm of record or
otherwise in the Surviving Corporation its right, title or interest in, to or
under any of the rights, properties or assets of the Company or EAS acquired or
to be acquired by the Surviving Corporation as a result of or in connection with
the Elsinore Merger, or otherwise to carry out this Agreement, the officers and
directors of the Surviving Corporation shall be authorized to execute and
deliver, in the name and on behalf of the Company or EAS, all such deeds, bills
of sale, assignments, assumption agreements and assurances, and to take and do,
in the name and on behalf of each of such corporations or otherwise, all such
other actions and things as may be necessary or desirable to vest, perfect or
confirm any and all right, title and interest in, to and under such rights,
properties or assets of the Surviving Corporation or otherwise to carry out this
Agreement.
Section 7.9 Remedies. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or in equity.
36
<PAGE>
Section 7.10 Severability. The provisions of this
Agreement shall be deemed severable, and the invalidity or unenforceability of
any provision shall not affect the validity and enforceability of the other
provisions hereof. If any provision of this Agreement, or the application
thereof to any person or entity or any circumstance, is invalid or unenforce-
able, (a) a suitable and equitable provision shall be substituted therefor in
order to carry out, so far as may be valid and enforceable, the intent and
purpose of such invalid and unenforceable provision and (b) the remainder of
this Agreement and the application of such provision to other persons, entities
or circumstances shall not be affected by such invalidity or unenforceability.
Section 7.11 Descriptive Headings. The descriptive
headings herein are inserted for convenience of reference only and are not
intended to be part of or to affect the meaning or interpretation of this
Agreement.
Section 7.12 Certain Definitions. For purposes of
this Agreement, the term:
(a) "affiliate" of a person means a person that
directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with, the first mentioned person;
(b) "control" (including the terms "controlled by"
and "under common control with") means the possession, directly or indirectly or
as trustee or executor, of the power to direct or cause the direction of the
management policies of a person, whether through the ownership of stock, as
trustee or executor, by contract or credit arrangement or otherwise;
(c) "GAAP" means United States generally accepted
accounting principles set forth in the opinions and pronouncements of the
Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting
Standards Board or in such other statements by such other entity as approved by
a significant segment of the accounting profession in the United States as in
effect on the date hereof.
(d) "person" means an individual, corporation,
partnership, association, trust, unincorporated organization, other entity or
group (as defined in Section 13(d)(3) of the Exchange Act); and
(e) "subsidiary" or "subsidiaries" of any person
means any corporation, partnership, joint venture or other legal entity of which
such person (either alone or through or together with any other subsidiary),
owns, directly or indirectly, fifty percent or more of the stock or other equity
interests, the holder of which is generally entitled to vote for the election of
the board of directors or other governing body of such corporation, partnership,
joint venture or other legal entity.
37
<PAGE>
Section 7.13 Counterparts. This Agreement may be
executed in two or more counterparts, each of which shall be deemed to be an
original, but all of which shall constitute one and the same Agreement.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has
caused this Agreement to be executed by its duly authorized officers as of the
date first above written.
R&E GAMING CORP.
By:
Name:
Title:
ELSINORE ACQUISITION SUB, INC.
By:
Name:
Title:
ELSINORE CORPORATION
By:
Name:
Title:
39
<PAGE>
Exhibit A
CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION
OF
ELSINORE ACQUISITION SUB, INC.
Pursuant to ss. 78.385 of the Neveda Revised Statutes (the
"NRS"), the undersigned, being at least two-thirds of the Board of Directors of
Elsinore Acquisition Sub, Inc., a Nevada corporation (the "Corporation"), does
hereby declare and state as follows:
1. That the Articles of Incorporation of the Corporation
were duly filed with the Nevada Secretary of State on
July 1, 1997.
2. That this amendment was approved by unanimous written
consent of the holders of all of the outstanding
shares of capital stock of the Corporation.
3. That the Articles of Incorporation of the Corporation
are hereby amended in their entirety, as follows:
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
ELSINORE ACQUISITION SUB, INC.
ARTICLE 1
NAME
The name of the Corporation is Elsinore Acquisition Sub, Inc.
<PAGE>
ARTICLE 2
INITIAL RESIDENT AGENT AND REGISTERED OFFICE
The name of the initial resident agent of the Corporation is
The Corporation Trust Company of Nevada, a corporate resident of the State of
Nevada, whose business address is One East First Street, Reno, Nevada 89501.
ARTICLE 3
CAPITAL STOCK
Section 3.1. Authorized Shares. The aggregate number of shares
of capital stock that the Corporation shall have the authority to issue is 1,000
shares of common stock with a par value of $.001 per share (the "Common Stock").
Section 3.2. Assessment of Shares. The capital stock of the
Corporation, after the amount of the subscription price has been paid, shall not
be subject to pay the debts of the Corporation, and no capital stock issued as
fully paid up shall ever be assessable or assessed.
Section 3.3. Denial of Preemptive Rights. No stockholder of
the Corporation shall have any preemptive or other right, by reason of his
status as a stockholder, to acquire any unissued shares, treasury shares, or
securities convertible into shares of the capital stock of the Corporation. This
denial of preemptive rights shall, and is intended to, negate any rights which
would otherwise be given to stockholders pursuant to NRS ss.ss. 78.265, 78.267
or any successor statute.
ARTICLE 4
DIRECTORS
Section 4.1. Style of Governing Board. The
members of the governing board of the Corporation shall be styled Directors.
Section 4.2. Initial Board of Directors.
The initial Board of Directors shall consist of one member.
2
<PAGE>
Section 4.3. Names and Addresses. The name and address of the
person who is to serve as Director until the first annual meeting of the
stockholders, or until his successor shall have been elected and qualified, is
as follows:
Name Address
Allen E. Paulson c/o Skadden, Arps, Slate,
Meagher & Flom LLP
300 S. Grand Avenue
Los Angeles, CA 90071
Attention: Brian J. McCarthy
Section 4.4. Increase or Decrease of Directors.
The number of Directors of the Corporation may be increased or decreased from
time to time as shall be provided in the bylaws of the Corporation.
ARTICLE 5
LIABILITY OF DIRECTORS AND OFFICERS
Section 5.1 Limitation of Person Liability. No director of
officer of the Corporation shall be liable to the Corporation or its
stockholders for damages for breach of fiduciary duty as a director or officer.
This provision shall not eliminate or limit the liability of a director or
officer of the Corporation for acts or omissions which involve intentional
misconduct, fraud or a knowing violation of law or the payment of distributions
in violation of NRS ss. 78.300. If the NRS are hereafter amended or interpreted
to eliminate or limit further the personal liability of directors or officers,
then the liability of directors or officers shall be eliminated or limited to
the full extent then so permitted.
Section 5.2 Payment of Expenses. In addition to any other
rights of indemnification permitted by the law of the State of Nevada as may be
provided for by the Corporation, in its bylaws or by agreement, the reasonable
expenses of officers and directors incurred in defending a civil or criminal
action, suit or proceeding, involving alleged acts or omissions of such officer
or director in his or her capacity as an officer or director of the Corporation,
must be paid, by the Corporation or through insurance purchased and maintained
by the Corporation or through other financial arrangements made by the
Corporation, as they are incurred and in advance of the final disposition of the
action, suit or proceeding, upon receipt of an undertaking by or on behalf of
the director or officer to repay the amount if
3
<PAGE>
it is ultimately determined by a court of competent jurisdiction that he or she
is not entitled to be indemnified by the Corporation.
Section 5.3 Repeal And Conflicts. Any repeal or modification
of this Section 5 approved by the stockholders of the Corporation shall be
prospective only. In the event of any conflict between this Article 5 and any
other Article of the Corporation's Articles of Incorporation, the terms and
provisions of this Article 5 shall control.
ARTICLE 6
COMPLIANCE WITH GAMING CONTROL ACT
All of the directors of the Corporation shall be subject to,
and the composition of the Board of Directors of the Corporation shall be in
compliance with, the requirements and qualifications imposed by the Nevada
Gaming Control Act (Nevada Revised Statutes ss. 463.010 et seq., as amended from
time to time), or any successor provision of Nevada law, and the regulations
promulgated thereunder, and the rules and regulations of any governmental agency
responsible for the licensing and regulation of gaming operations, including
without limitation, the Nevada State Gaming Control Board, the Nevada State
Gaming commission and the Clark County Liquor and Gaming Licensing Board.
4
<PAGE>
ARTICLE 7
MISCELLANEOUS
The corporation shall not be governed by the provisions of
Nevada Revised Statutes Sections 78.378 to 78.3793, inclusive, or Sections
78.411 to 78.444, inclusive.
The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
5
<PAGE>
IN WITNESS WHEREOF, I have executed these Amended and Restated Articles
of Incorporation of the Corporation as of September , 1997.
-------------------------
Allen E. Paulson
President, Secretary & Treasurer
<PAGE>
[insert jurat]
<PAGE>
Exhibit B
BYLAWS
OF
ELSINORE ACQUISITION SUB, INC.
ARTICLE I
IDENTIFICATION
Section 1.1 Name. The name of the corporation is Elsinore
Acquisition Sub, Inc.
Section 1.2 Registered Office and Resident Agent. The address
of the registered office of the corporation is One East First Street, Reno
Nevada 89501; and the name of the resident agent at this address is The
Corporation Trust Company of Nevada.
Section 1.3 Fiscal Year. The fiscal year of the corporation
shall begin on the 1st day of January in each year and end on the 31st day of
December next following.
ARTICLE II
STOCK
Section 2.1 Issuance of Shares. Shares of stock may be issued
for labor, services, personal property, real estate or leases thereof or for
money from time to time by the Board of Directors. Treasury shares may be
disposed of by the corporation for such consideration as aforesaid from time to
time by the Board of Directors.
Section 2.2 Payment of Shares. The consideration for the
issuance of shares may be paid, in whole or in part, in money, in other
property, as aforesaid, or in labor or services actually performed for the
corporation. When payment of the consideration for which shares are to be issued
shall have been received by the corporation such shares shall be deemed to be
fully paid and non-assessable. Future services shall not constitute payment or
part payment for shares of the corporation. In the absence of fraud in the
transaction, the judgment of the
<PAGE>
Board of Directors as to the value of the consideration received for shares
shall be conclusive. No certificate shall be issued for any share until the
share is fully paid.
Section 2.3 Certificates Representing Shares. Each holder of
the shares of stock of the corporation shall be entitled to a certificate signed
by the President or a Vice President and the Secretary or an Assistant Secretary
of the corporation, certifying the number of shares owned by him in the
corporation.
Section 2.4 Transfer of Stock. The corporation shall register a
transfer of a stock certificate presented to it for transfer if;
(a) Endorsement. The certificate is properly endorsed by the
registered holder or by his duly authorized attorney;
(b) Witnessing. The endorsement or endorsements are
witnessed by one witness unless this requirement is waived by the Secretary of
the corporation;
(c) Adverse Claims. The corporation has no notice of any
adverse claims or has discharged any duty to inquire into any such claims;
(d) Collection of Taxes. There has been compliance
with any
applicable law relating to the collection of taxes.
ARTICLE III
THE STOCKHOLDERS
Section 3.1 Place of Meetings. Meetings of the stockholders of
the corporation may be held at its registered office in the State of Nevada or
at any other place within or without the State of Nevada as may be designated in
the notice thereof.
Section 3.2 Annual Meetings. Unless the stockholders shall
have executed and delivered a written consent electing at least one-fourth of
the directors annually, the annual meeting of the stockholders shall be held
each year at the principal office of the corporation at the hour of 10:00
o'clock A.M. on the anniversary date of the incorporation of this corporation,
if this day shall fall on a
2
<PAGE>
normal business day, and if not, then on the first following normal business
day. Failure to hold the annual meeting at the designated time shall not work a
forfeiture or dissolution of the corporation.
Section 3.3 Special Meetings. Special meetings of the
stockholders may be called by the President, the Board of Directors, or by the
Secretary at the written request (stating the purpose or purposes for which the
meeting is called) of the holders of not less than one-tenth of all the shares
entitled to vote at the meeting.
Section 3.4 Notice of Meetings; Waiver. Written notice stating
the place, day, and hour of the meeting and, in case of a special meeting the
purpose or purposes for which the meeting is called, shall be delivered not less
than ten (10) nor more than sixty (60) days before the date of the meeting,
either personally or by mail, by or at the direction of the President, the
Secretary, or the officer or persons calling the meeting, to each registered
holder entitled to vote at such meeting. If mailed, such notice shall be deemed
to be delivered when deposited in the United States mail addressed to the
registered holder at his address as it appears on the stock transfer books of
the corporation, with postage on it prepaid. Waiver by a stockholder in writing
of notice of a stockholders' meeting shall constitute a waiver of notice of the
meeting, whether executed and/or delivered before or after such meeting.
Section 3.5 Quorum. A majority of the shares entitled to vote,
represented in person or by proxy, shall constitute a quorum at a meeting of the
stockholders. The stockholders present at a duly organized meeting may continue
to do business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum. The act of a majority of the shares
entitled to vote at a meeting at which a quorum is present shall be the act of
the stockholders, unless a greater number is required by applicable law.
Section 3.6 Proxies. A stockholder may vote either in person
or by proxy executed in writing by the stockholder or by his duly authorized
attorney-in-fact. No proxy shall be valid after six months from the date of its
creation, unless otherwise provided in the proxy.
Section 3.7 Action Without A Meeting. Any action that may be
taken at a meeting of the stockholders, or of a committee, may be taken without
a meeting if a consent in writing, setting forth the actions taken, shall be
signed by the stockholders, or the members of the committee, holding at least a
majority of the
3
<PAGE>
voting power, unless a greater proportion of voting power is required for such
an action at a meeting, as the case may be.
ARTICLE IV
THE BOARD OF DIRECTORS
Section 4.1 Number and Qualifications. The business and
affairs of the corporation shall be managed by a Board of one (1) or more
Directors. The number of directors may be increased or decreased from time to
time and at any time by the stockholders, or Board of Directors.
Section 4.2 Election. Members of the initial Board of
Directors shall hold office until the first annual meeting of stockholders and
until their successors shall have been elected and qualified. At the first
annual meeting of stockholders and at each annual meeting thereafter, the
stockholders shall elect directors to hold office until the next succeeding
annual meeting. Each director shall hold office for the term for which he is
elected and until his successor shall be elected and qualified. Notwithstanding
anything herein to the contrary, any director may be removed from office at any
time by the vote or written consent of stockholders representing not less than
two-thirds of the issued and outstanding stock entitled to vote.
Section 4.3 Vacancies. Any vacancy occurring in the Board of
Directors may be filled by the affirmative vote of the majority of the remaining
directors, though less than a quorum of the Board of Directors, and by the
affirmative vote of the majority of the stockholders entitled to vote for the
election of directors. A director elected to fill a vacancy shall be elected for
the unexpired term of his predecessor in office, subject to removal as
aforesaid.
Section 4.4 Place of Meeting. The Board of Directors, annual,
regular or special, may be held either within or without the State of Nevada.
Section 4.5 Annual Meetings. Immediately after the annual
meeting of the stockholders, the Board of Directors may meet each year for the
purpose of organization, election of officers, and consideration of any other
business that may properly be brought before the meeting. No notice of any kind
to either old or new members of the Board of Directors for this annual meeting
shall be necessary.
4
<PAGE>
Section 4.6 Other Meetings. Other meetings of the Board of
Directors may he held upon notice by letter, telegram, facsimile, cable, or
radiogram, delivered for transmission not later than during the third day
immediately preceding the day for the meeting, or by telephone, or radiophone
received not later than during the second day preceding the day for the meeting,
upon the call of the President or Secretary of the corporation at any place
within or without the State of Nevada. Notice of any meeting of the Board of
Directors may be waived in writing signed by the person or persons entitled to
the notice, whether before or after the time of the meeting. Neither the
business to be transacted at, nor the purpose of, any meeting of the Board of
Directors need be specified in the notice or waiver of notice of the meeting.
Section 4.7 Quorum. A majority of the number of directors
holding office shall constitute a quorum for the transaction of business. The
act of the majority of the directors present at a meeting at which a quorum has
been achieved shall be the act of the Board of Directors unless the act of a
greater number is required by applicable law.
Section 4.8 Action Without A Meeting. Any action that may be
taken at a meeting of the directors, or of a committee, may be taken without a
meeting if a consent in writing, setting forth the actions taken, shall be
signed by all of the directors, or all of the members of the committee, as the
case may be.
ARTICLE V
THE OFFICERS
Section 5.1 Officers. The officers of the corporation shall
consist of a President, Secretary and Treasurer, and may also include a Chairman
of the Board, one or more Vice Presidents, Assistant Secretaries, Assistant
Treasurers, or such other officers or assistant officers or agents as may be
provided herein, or otherwise deemed necessary, from time to time by the Board
of Directors. Officers need not be directors of the corporation. Each officer so
elected shall hold office until his successor is elected and qualified, but
shall be subject to removal at any time by the vote or written consent of a
majority of the directors. No person shall be prohibited from concurrently
holding more than one office or from being the sole officer of the corporation.
5
<PAGE>
Section 5.2 Vacancies. Whenever any vacancies shall occur in
any office by death, resignation, increase in the number of offices of the
corporation, or otherwise; the same shall be filled by the Board of Directors,
and the officer so elected shall hold office until his successor is elected and
qualified, subject to removal as aforesaid.
Section 5.3 The Chairman of the Board of Directors. The
Chairman of the Board of Directors shall preside at all meetings of the
directors, discharge all duties incumbent upon the presiding officer, and
perform such other duties as the Board of Directors may prescribe.
Section 5.4 The President. The President shall have active
executive management of the operations of the corporation, subject, however, to
the control of the Board of Directors. He shall preside at all meetings of
stockholders, discharge all the duties incumbent upon a presiding officer, and
perform such other duties as these Bylaws provide or the Board of Directors may
prescribe. The President shall have full authority to execute powers in behalf
of the corporation, to vote stock owned by it in any other corporation, and to
execute powers of attorney appointing other corporations, partnerships, or
individuals the agent of the corporation.
Section 5.5 The Vice President. The Vice President shall
perform all duties incumbent upon the President during the absence or disability
of the President, and shall perform such other duties as these Bylaws provide or
the Board of Directors may prescribe.
Section 5.6 The Secretary. The Secretary shall attend all
meetings of the stockholders and of the Board of Directors, and shall keep a
true and complete record of the proceedings of these meetings. He shall be
custodian of the records of the corporation. He shall attend to the giving of
all notices and shall perform such other duties as these Bylaws may provide or
the Board of Directors may prescribe.
Section 5.7 The Treasurer. The Treasurer shall keep correct
and complete records of account, showing accurately at all times the financial
condition of the corporation. He shall be the legal custodian of all moneys,
notes, securities, and other valuables that may from time to time come into the
possession of the corporation. He shall immediately deposit all funds of the
corporation coming into his hands in some reliable bank or other depositary to
be designated by the Board of Directors, and shall keep this bank account in the
name of the corporation. He shall furnish at meetings of the Board of Directors,
or whenever requested, a
6
<PAGE>
statement of the financial condition of the corporation, and shall perform such
other duties as these Bylaws may provide or the Board of Directors may
prescribe. The Treasurer may be required to furnish bond in such amount as shall
be determined by the Board of Directors.
Section 5.8 Transfer of Authority. In case of the absence of
any officer of the corporation, or for any other reason that the Board of
Directors may deem sufficient, the Board of Directors may transfer the powers or
duties of that officer to any other officer or to any director or employee of
the corporation, provided a majority of the full Board of Directors concurs.
ARTICLE VI
NEGOTIABLE INSTRUMENTS, DEEDS, AND CONTRACTS
Section 6.1 Negotiable Instruments, Deeds, and Contracts. All
checks, drafts, notes bonds, bills of exchange, and orders for the payment of
money of the corporation; all deeds, mortgages, and other written contracts and
agreements to which the corporation shall be a party; and all assignments or
endorsements of stock certificates, registered bonds, or other securities owed
by the corporation shall, unless otherwise required by law, or otherwise
authorized by the Board of Directors as hereinafter set forth, be signed by the
President or by anyone of the following officers: Vice President, Secretary, or
Treasurer. The Board of Directors may designate one or more persons, officers or
employees of the corporation, who may, in the name of the corporation and in
lieu of, or in addition to, those persons hereinabove named, sign such
instruments; and may authorize the use of facsimile signatures of any of such
persons. Any shares of stock issued by any other corporation and owned or
controlled by the corporation may be voted at any stockholders' meeting of the
other corporation by the President of the corporation, if he be present; or, in
his absence, by the Secretary of the corporation and, in the event both the
President and Secretary shall be absent, then by such person as the President of
the corporation shall, by duly executed proxy, designate to represent the
corporation at such stockholders meeting.
7
<PAGE>
ARTICLE VII
INDEMNIFICATION
Section 7.1 Indemnification of Agents of the Corporation: Purchase
of Liability Insurance.
(a) The corporation shall indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending, or
completed action, suit, or proceeding, whether civil, criminal, administrative,
or investigative, expect an action by or in the right of the corporation, by
reason of the fact that he or she is or was a director, officer, employee, or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee, or agent of another corporation, partnership,
joint venture, limited liability company, trust, or other enterprise, against
expenses, including attorney fees, judgments, fines, and amounts paid in
settlement, actually and reasonably incurred by him or her in connection with
the action, suit, or proceeding, if he or she acted in good faith and in a
manner which he or she reasonably believed to be in or not opposed to the best
interests of the corporation, and with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
The termination of any action, suit, or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent does
not, of itself, create a presumption that the person did not act in good faith
and in a manner which he or she reasonably believed to be in or not opposed to
the best interests of the corporation, and that, with respect to any criminal
action or proceeding, he or she had reasonable cause to believe that his or her
conduct was unlawful.
(b) The corporation shall indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending, or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he or she is or was a director,
officer, employee, or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee, or agent of another
corporation, partnership, joint venture, limited liability company, trust, or
other enterprise, against expenses, including amounts paid in settlement and
attorney fees, actually and reasonably incurred by him or her in connection with
the defense or settlement of the action or suit, if he or she acted in good
faith and in a manner which he or she reasonably believed to be in or not
opposed to the best interests of the corporation. However, indemnification shall
not be made for any claim, issue, or matter
8
<PAGE>
as to which such a person has been adjudged by a court of competent
jurisdiction, after exhaustion of all appeals therefrom, to be liable to the
corporation or for amounts paid in settlement to the corporation, unless and
only to the extent that the court in which the action or suit was brought or
other court of competent jurisdiction determines upon application that in view
of all the circumstances of the case, the person is fairly and reasonably
entitled to indemnity for such expenses as the court deems proper.
(c) To the extent that a director, officer, employee,
or agent
of the corporation has been successful on the merits or otherwise in defense of
any action, suit, or proceeding referred to in subsection (a) or (b), or in
defense of any claim, issue, or matter therein, he or she shall be indemnified
by the corporation against expenses, including attorney fees, actually and
reasonably incurred by him or her in connection with the defense.
(d) Any indemnification under subsection (a) or (b),
unless
ordered by a court or advanced pursuant to subsection (e), shall be made by the
corporation only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee, or agent is proper in the
circumstances. The determination shall be made: (i) by the stockholders; (ii) by
the Board of Directors by a majority vote of a quorum consisting of directors
who were not parties to the action, suit, or proceeding; or (iii) if a majority
vote of a quorum consisting of directors who were not parties to the action,
suit or proceeding cannot be obtained, by independent legal counsel in a written
opinion.
(e) The expenses of officers and directors incurred in
defending a civil or criminal action, suit, or proceeding shall be paid by the
corporation as they are incurred and in advance of the final disposition of the
action, suit, or proceeding, upon receipt of an undertaking by or on behalf of
the director or officer to repay the amount if it is ultimately determined by a
court of competent jurisdiction that he or she is not entitled to be indemnified
by the corporation. The provisions of this subsection (e) do not affect any
rights to advancement of expenses to which corporate personnel other than
directors or officers may be entitled under any contract or otherwise by law.
(f) The indemnification and advancement of expenses
authorized in or ordered by a court pursuant to this ARTICLE VII (i) does not
exclude any other rights to which a person seeking indemnification or
advancement of expenses may be entitled under the Articles of Incorporation, the
Bylaws, or any agreement, vote of stockholders or disinterested directors or
otherwise, for either an
9
<PAGE>
action in his or her official capacity or an action in another capacity while
holding his or her office, except that indemnification, unless ordered by a
court pursuant to subsection (b) or for the advancement of expenses made
pursuant to subsection (e), shall not be made to or on behalf of any director or
officer if a final adjudication establishes that his or her acts or omissions
involved intentional misconduct, fraud, or a knowing violation of the law and
were material to the cause of action and (ii) continues for a person who has
ceased to be a director, officer, employee, or agent and inures to the benefit
of the heirs, executors, and administrators of such a person.
(g) The corporation may purchase and maintain insurance or
make other financial arrangements on behalf of any person who is or was a
director, officer, employee, or agent of the corporation, or is or was serving
at the request of the corporation as a director, officer, employee, or agent of
another corporation, partnership, joint venture, limited liability company,
trust, or other enterprise, for any liability asserted against him or her and
liability and expenses incurred by him or her in his or her capacity as a
director, officer, employee, or agent, or arising out of his or her status as
such, whether or not the corporation has the authority to indemnify him or her
against such liability and expenses. The other financial arrangements made by
the corporation may include any now or hereafter permitted by applicable law.
(h) In the event that the laws of the State of Nevada
shall
hereafter permit or authorize indemnification by the corporation of the
directors, officers, employees, or agents of the corporation for any reason or
purpose or in any manner not otherwise provided for in this ARTICLE VII, then
such directors, officers, employees, and agents shall be entitled to such
indemnification by making written demand therefor upon the corporation, it being
the intention of this ARTICLE VII at all times to provide the must comprehensive
indemnification coverage to the corporation's directors, officers, employees,
and agents as may now or hereafter be permitted by the laws of the State of
Nevada.
(i) The foregoing indemnification provisions shall
inure to the
benefit of all present and future directors, officers, employees, and agents of
the corporation and all persons now or hereafter serving at the request of the
corporation as directors, officers, employees, or agents of another corporation,
partnership, joint venture, limited liability company, trust, or other
enterprise and their heirs, executors, and administrators, and shall be
applicable to all acts or omissions to act of any such persons, whether such
acts or omissions to act are alleged to have or actually occurred prior to or
subsequent to the adoption of this ARTICLE VII.
10
<PAGE>
(j) Any insurance or other financial arrangement made
on
behalf of a person pursuant to this Section may be provided by the corporation
or any other person approved by the Board of Directors, even if all or part of
the other person's stock or other securities is owned by the corporation. In the
absence of fraud:
(1) the decision of the Board of Directors as to the propriety of the terms and
conditions of any insurance or other financial arrangement made pursuant to this
Section and the choice of the person to provide the insurance or other financial
arrangement is conclusive; and
(2) the insurance or other financial arrangement:
(i) is not void or voidable; and
(ii) does not subject any director approving it
to personal liability for his action,
even if a director approving the insurance or other financial
arrangement is a beneficiary of the insurance or other financial arrangement.
Section 7.2 Vested Rights. Neither the amendment nor repeal of
this ARTICLE VII, nor the adoption of any provision of the Articles of
Incorporation or the Bylaws or of any statute inconsistent with this ARTICLE
VII, shall adversely affect any right or protection of a director, officer,
employee, or agent of the corporation existing at the time of such amendment,
repeal, or adoption of such inconsistent provision.
11
<PAGE>
ARTICLE VIII
AMENDMENTS
Section 8.1 The power to alter, amend or repeal these Bylaws,
or adopt new Bylaws, is vested in the Board of Directors, but the affirmative
vote of a majority of the Board of Directors holding office shall be necessary
to effect any such action.
12
<PAGE>
I hereby certify that the foregoing Bylaws are a true and correct copy
of the Bylaws of the corporation as adopted as of September , 1997.
Allen E. Paulson, Secretary
<PAGE>
Exhibit C
CONFIDENTIALITY AGREEMENT
May 5, 1997
Mr. Allen Paulson
c/o Jefferies & Company, Inc.
Attention: M. Brent Stevens
Managing Director, Corporate Finance
11100 Santa Monica Boulevard, Tenth Floor
Los Angeles, CA 90025
Re: Elsinore Corporation
Gentlemen:
We understand that you are considering a possible negotiated
acquisition transaction (the "Transaction") with Elsinore Corporation. In
connection with the foregoing, Elsinore Corporation or its subsidiaries (the
"Company") may furnish to you, either orally, in writing, or by inspection,
certain information, material and documents (collectively, "Proprietary
Information") regarding the Company and its business, assets, financial
condition, operations and prospects, which may be helpful in evaluating the
Transaction. As a condition to our furnishing you with Proprietary Information,
you hereby agree as follows:
1. All Proprietary Information heretofore or hereafter
furnished to you by the Company shall be deemed confidential and shall be kept
in strict confidence under appropriate safeguards. The term Proprietary
Information, as used herein, does not include any information which (i) as shown
by written records, was lawfully in your possession prior to any disclosure by
the Company, provided that the source of such information was, to the best of
your knowledge, not bound by confidentiality obligations in respect thereof, or
(ii) is generally available to the public other than as a result of disclosure
by your employees, you agents, your representatives or others acting on your
behalf.
2. Except as otherwise provided herein or without the
Company's prior written consent, you will not, directly or indirectly: (i)
disclose or reveal any
<PAGE>
Mr. Allen Paulson
May 5, 1997
Page 2
Proprietary Information to any persons, firms or entities except to a limited
group of your attorneys or professional advisors, including Jefferies & Company,
Inc., who are actively and directly participating in the evaluation of the
Transaction (collectively, the "Representatives"), each of whom shall be
informed by you of the confidential nature of the Proprietary Information and
provided with a copy of this letter agreement and agree in writing to observe
the same terms and conditions set forth herein as if specifically named a party
hereto; (ii) use the Proprietary Information for any purpose other than in
connection with the Transaction; and (iii) except as may be required by law or
judicial process or as requested by any governmental, regulatory or
self-regulatory organization, disclose to any person or entity the terms,
conditions or other facts with respect to the Transaction (including the
existence and status thereof) or that Proprietary Information has been made
available to you. In any event, you shall be responsible for any disclosure of
the Proprietary Information by your Representatives other than pursuant to the
terms and subject to the conditions of this letter agreement.
3. Upon written notice from the Company, you will deliver
promptly to the Company all written or tangible material containing or
reflecting any Information contained in the Proprietary Information (whether
prepared by the Company or otherwise), without retaining any copies, summaries,
analyses or extracts thereof. All documents, memoranda, notes and other writings
whatsoever prepared by you or your representatives based on the information
contained in the Proprietary Information shall be destroyed, and such
destruction shall be certified in writing to the Company by you or your
representatives supervising such destruction.
4. Notwithstanding any provisions of this letter agreement to
the contrary, in the event that you are requested or required in a judicial,
administrative or governmental proceeding to disclose any Proprietary
Information, you will provide the Company with prompt notice of such request so
that the Company may, at its sole cost and expense, seek an appropriate
protective order or waive your compliance with the confidentiality provisions of
this letter agreement. If as a result of any such request or requirement, you
are, in the opinion of your counsel, compelled to disclose Proprietary
Information to any tribunal or else stand liable for contempt or other censure
or penalty, you may disclose such Proprietary Information to such tribunal
without liability hereunder provided that you comply with the notice provisions
of this Section 4.
<PAGE>
Mr. Allen Paulson
May 5, 1997
Page 3
5. Except as may be specifically provided hereafter in a
definitive written agreement providing for the Transaction (a "Transaction
Agreement"), the Company shall not be deemed to make or have made any
representation or warranty, express or implied, as to the accuracy or
completeness of any Proprietary Information which the Company furnishes to you,
and the Company shall have no liability to you or any of your Representatives
resulting from the use of any Proprietary Information by you or your
representatives.
6. Until the earliest of (i) the execution by you of a
Transaction Agreement or (ii) two years from the date of this letter agreement,
you agree not to initiate or maintain contact (except for those contacts made in
the ordinary course of business) with any officer, director or employee or agent
of the Company or its subsidiaries regarding its business, operations, prospects
or finances, except with the express written permission of the Company. You
further agree that for a period of one year from the date hereof you will not
hire any of the employees of the Company or its subsidiaries with whom you had
contact during the period of your investigation of the Company unless such
employee is terminated by the Company.
7. You hereby acknowledge that you are aware (and that your
Representatives who are apprised of this matter have been advised) that the
United States securities laws prohibit you, the Representatives and any person
or entity who has received material non-public information about the Company
from purchasing or selling securities of the Company.
8. Without prejudice to any rights and remedies otherwise
available to the Company, the Company shall be entitled to equitable relief by
way of injunction if you breach any provision of this letter agreement. No
failure or delay by the Company or the representatives in exercising any right,
power or privilege hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege hereunder. If any
party employs legal counsel to enforce any of the provisions of this letter
agreement or if any action at law or equity is instituted in connection with or
arising from this letter agreement, by any party against the other(s), the
prevailing party(ies) shall be entitled to receive its/their costs, expenses and
attorneys' fees.
<PAGE>
Mr. Allen Paulson
May 5, 1997
Page 4
9. You also understand and agree that no contract or agreement
providing for a transaction with the Company shall be deemed to exist between
you and the Company unless and until a Transaction Agreement has been executed
and delivered, and you hereby waive, in advance, any claims (including, without
limitation, breach of contract) in connection with a possible transaction with
the Company unless and until you shall have entered into a Transaction
Agreement. You also agree that unless and until a Transaction Agreement between
the Company and you has been executed and delivered, the Company has no legal
obligation of any kind whatsoever with respect to any such transaction by virtue
of this letter agreement or any other written or oral expression with respect to
such transaction except, in the case of this letter agreement, for the matters
specifically agreed to herein. For purposes of this paragraph, the term
"Transaction Agreement" does not include an executed letter of intent or any
other preliminary written agreement, nor does it include any written or verbal
acceptance of an offer or bid on your part.
10. This letter agreement shall be binding upon your
successors and assigns and shall inure to the benefit of, and be enforceable by,
the Company's successors and assigns.
11. The provisions of this letter agreement shall be severable
in the event that any of the provisions hereof are held by a court of competent
jurisdiction to be invalid, void or otherwise unenforceable, and the remaining
provisions shall remain enforceable to the fullest extent permitted by law.
12. This letter agreement shall be construed (both as to
validity and performance) and enforced in accordance with, and governed by, the
laws of the State of Nevada applying to agreements made and to be performed
wholly within such jurisdiction.
13. This letter agreement contains the entire agreement
between you and the Company concerning the confidentiality of the Proprietary
Information. This letter agreement may be waived, amended or modified only by an
instrument in writing signed by the party against which such waiver, amendment
or modification is sought to be enforced, and such written instrument shall set
forth specifically the provisions of this letter agreement that are to be so
waived, amended or modified.
<PAGE>
Mr. Allen Paulson
May 5, 1997
Page 5
14. This letter agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed an
original, and all such counterparts shall together constitute but one and the
same instrument.
Please indicate your agreement with the foregoing by executing
the accompanying copy of this letter agreement and returning it, whereupon it
shall constitute a binding agreement between us as of the date first above
written.
Very truly yours,
ELSINORE CORPORATION
Jeffrey T. Leeds
President
Agreed to and accepted:
- ------------------------
Allen E. Paulson
<PAGE>
SCHEDULE 2.2
Capitalization of the Company and its Subsidiaries
1. The Riviera Warrants.
2. Pursuant to the First Amended Plan of Reorganization of the Company
filed May 28, 1996 in the United States Bankruptcy Court for the
District of Nevada ("Plan"), certain creditors of the Company shall be
issued 70,687 shares of common stock.
3. The Company presently has outstanding 4,929,313 shares of common
stock.
2
<PAGE>
SCHEDULE 2.5(a)
Compliance
1. The New Jersey Casino Service Industry License held by Four Queens,
Inc. is currently in effect, however, it will expire on September 30,
1997.
2. Olympia Gaming Corporation has not renewed its gaming license
issued by the State of Washington.
<PAGE>
SCHEDULE 2.5(b)
Intellectual Property;
Licenses
1. The New Jersey Casino Service Industry License held by Four Queens,
Inc. is currently in effect, however, it will expire on September 30, 1997.
2. Olympia Gaming Corporation has not renewed its gaming license
issued by the State of Washington.
3. See Schedule 2.14 for list of patent and trademark filings.
4
<PAGE>
SCHEDULE 2.5(d)
Compliance with Orders
None
<PAGE>
Schedule 2.6
Non-contravention; Required Filings and Consents
1. The Amended and Restated Note Agreement dated as of
March 3, 1997 for $3,855,739.39 First Mortgage Notes Due 2000 of Elsinore
Corporation Guaranteed by Eagle Gaming, Inc.; Elsub Management Corporation; Four
Queens, Inc.; Elsinore Tahoe, Inc.; Four Queens Experience Corporation; Olympia
Gaming Corporation; Palm Springs East Limited Partnership; and Pinnacle Gaming
Corporation (formerly ELSUB II, Inc.) contains a provision allowing the Holder
of Notes to accelerate the indebtedness due in the event of a change in control
and conditions mergers, sales or consolidations of the Company and its
subsidiaries.
2. The Amended and Restated Indenture dated as of March 3,
1997 between the Company, the Guarantors (as set forth therein) and First Trust
National Association contains a provision whereby in the event of a change in
control, the Holders of the Securities shall have the right to require the
Company to repurchase the notes and which conditions mergers, sales or
consolidations of the Company and its subsidiaries.
3. In the event of a merger or consolidation, the holder of
the Riviera Warrants is entitled to payment of the amount by which the price per
share to be paid for the Company's common stock in the merger or consolidation
exceeds the exercise price of the Warrants.
6
<PAGE>
Schedule 2.7(b)
SEC Reports; Liabilities
None.
<PAGE>
Schedule 2.8
Changes
Indebtedness Incurred by the Company
The Company guaranteed a lease by and between PDS Financial Corporation - Nevada
and Four Queens, Inc. pursuant to that certain $505,206.30 Security Equipment
Lease Financing dated May 1, 1997, as amended, for certain equipment described
therein. (See Schedule 2.15).
Indebtedness Extended by the Company
The Company loaned approximately $40,000 to the Company's employees during the
interim period when the Company changed 401(k) plans so that the employees would
not be penalized during the interim period. The loans were issued to five
employees to assist the employees with the purchase of their primary residences.
Additionally, two employees took service distributions in 1997 as permitted
under the 401(k) plans. The Company was reimbursed by Merrill Lynch, the Plan
Administrator and Trustee in August,
1997.
Employment/Severance/Termination Agreements
1. Termination Fee Agreement dated as of May 5, 1997 by
and between the Company and Cynthia A. Fremont.
2. Termination Fee Agreement dated as of May 5, 1997 by
and between Four Queens, Inc., a Nevada corporation and Gina L. Contner.
3. Termination Fee Agreement dated as of May 5, 1997 by
and between the Four Queens, Inc., a Nevada corporation and Raquel Rodriguez.
4. Termination Fee Agreement dated as of May 5, 1997 by
and between the Four Queens, Inc., a Nevada corporation and Philip W. Madow.
5. Loan-Out of Services Agreement dated as of August 12,
1996, by and between Four Queens, Inc. and Riviera Gaming Management Elsinore,
Inc., as Manager, pursuant to which the Manager agreed to lend the services
three of the Manager's employees (Martin Gross, Gina Contner and Racquel
Rodriguez) to assist with the management of the Four Queens Hotel & Casino and
Four Queens agreed to reimburse the Manager for the services provided.
Changed Accounting Methods
The Company changed its accounting method after the Plan of Reorganization was
confirmed to reflect "fresh start" reporting, whereby the reorganization value
is allocated to the Company's assets following the methodology prescribed in
APBO No. 16.
Corporate Status
The Company filed Articles of Dissolution with the Nevada Secretary of State in
order to dissolve two of the Company's subsidiaries: Elsinore-Missouri Gaming,
Inc., a Nevada corporation and Mojave Gaming, Inc., a Nevada corporation.
Issuance of Securities
The Riviera Warrants.
Leases
First Amendment to Lease, made effective as of May 14, 1997, between the
Company, Finley Company, and Four Queens, Inc.
<PAGE>
SCHEDULE 2.11
Litigation
Case No. A338909 - Raymond Corona v. Elsinore Corporation and Four Queens, Inc.
This matter was stayed by the bankruptcy proceeding. No proof of claim was
filed.
Case No. C119073 - In the Matter of Proceedings to Compel Custodian of Records
to appear as witnesses in the State of Arizona. A subpoena was served on Ed
Fasulo in June, 1992 on behalf of Four Queens requesting all documents relating
to Stephen P. Mirretti for a grand jury investigation.
Case No. A370692 - Maliki S. Elshaied v. Four Queens, Inc. A former employee
filed a petition for judicial review. Four Queens' labor counsel filed a notice
of intent to participate on June 17, 1997.
Case No. A366865 - Celia Amaya v. Four Queens, Inc. The complaint, which was
filed on November 22, 1996, alleges plaintiff was hit by a vehicle and pieces
of a falling wall when a valet hit a wall and rail. Damages in excess of
$10,000 were requested in the complaint. The Company has asserted that the
claim arose post-petition but pre-effective date and that the plaintiff should
have filed an administrative claim.
Case No. A348749 - William Williams III v. Four Queens, Inc. This matter was
stayed by the bankruptcy proceeding. The amount of the claim (which is
classified as a Class 10 claim) will be liquidated in the state court.
Case No. A348176 - Kozloski v. Four Queens, Inc. This matter was stayed by the
bankruptcy proceeding. The amount of the claim (which is classified as a Class
10 claim) will be liquidated in the state court.
Case No. CV-S-92-00662 - Hansen-Moor v. Elsinore. The complaint alleges
RICO violations.
Case Nos. CV-S-94-01126 and CV-S-94-01137 - Poulos v. Ceasar's World, Inc., et
al., and Ahern v. Ceasar's World, Inc., et al. filed against various casino and
gaming companies alleging RICO violations. This matter was stayed by the
bankruptcy. No proof of claim was filed.
Case Nos. 89-2413 and 89-2143 Finkler v. Elsinore Share Associates and Hotel
Employees and Restaurant Employees International Union Local 54 v. Elsinore
Share Associates. These complaints allege WARN Act violations as well as other
claims for damages.
<PAGE>
SCHEDULE 2.12
Taxes
1. The Company and its subsidiaries have received an extension to
September 15, 1997 on the filing of its Elsinore Corporation and Subsidiaries
Federal Income Tax Return.
2. The Company is in receipt of a letter dated May 29, 1997, from
George W. Stevens, Director, Department of Finance and Business Services, City
of Las Vegas, Nevada addressed to Four Queens Hotel & Casino claiming an
underpayment of room taxes to the City for the period of January 1, 1995 through
March 31, 1997 in the amount of $60,160.59. The Company is contending that this
claim is barred by the Company's bankruptcy filing on October 31, 1995.
10
<PAGE>
Schedule 2.13(a)
Employee Benefits
Employee Benefit Programs
1. Four Queens
Medical Insurance (with Dental and Vision), Group No. 190100;
Account No. 190101; H.P.N. Co. No. 10300; Group No. 62531
Prescriptions - P.C.I. No. 19019
Administered by Silver State Medical Administrators
2. Four Queens
Life/Accidental Death and Dismemberment, Policy No. GLUC-11G7
Administered by Mutual of Omaha
3. Four Queens Employees' 401(k) Retirement/Savings Plan and Trust
Administered by Merrill Lynch
4. Four Queens, Inc. Premium Only Plan
Administered by Four Queens, Inc.
Union Contract Trusts
The Company contributes to the following Union Contract Trusts:
1. Construction Industry and Carpenters Joint Pension Trust for Southern
Nevada
2. Carpenters' Joint Apprenticeship Committee Fund
3. Southern Nevada Operating Engineers Apprenticeship and Training Trust
Fund (not due until 9/98)
4. International Brotherhood of Painters and Allied Trades Union and
Industry Pension Fund No. 159, AFL-CIO
The Four Queens contributes to the following Union Contract Trust:
1. Central Pension Fund of the International Union of Operating Engineers
and Participating Employees
2. Hotel Employees and Restaurant Employees International Union Welfare
Fund
Termination/Severance Agreements
See Schedule 2.8.
<PAGE>
Schedule 2.13(h)
Payments Non-Deductible
None
12
<PAGE>
Schedule 2.13(i)
Benefits Beyond Termination
Name Pay Period Ending 7/29/97 Payments to be Made Severance Ends
R. Howe $4,139.42 6 9/19/97
B. McGinty $2,000.00 7 10/7/97
G. Lee $1,383.80 6 9/22/97
S. Barnes $2,030.29 12 12/11/97
W. English $1,195.28 6 9/18/97
L. Tanner $1,096.00 4 8/22/97
Y. Robles $918.40 7 11/4/97
H. Robles $918.40 7 11/4/97
D. Hewitt $1,038.46 1 8/12/97
In some cases, the last payment is not for the full amount; the payment will be
for the amount owing (i.e., a former-employee could be owed for 40 hours or for
20 hours).
<PAGE>
Schedule 2.13(j)
Severance or Unemployment Compensation;
Acceleration of Vesting
None
14
<PAGE>
Schedule 2.14
Intellectual Property
1. Patent file - Multiple Action Blackjack Patent, No. 5,154,429
2. Patent file - Multiple Action Blackjack Patent, No. 5,257,789
3. Trademark file - Reel Winners Club Reg. No. 1,305,392
4. Trademark file - Two Reeler & Design Reg. No. 1,465,030
5. Trademark file - For the Games People Play Reg. No. 1,705,535
6. Trademark file - For the Games People Play Reg. No. 1,705,662
7. Trademark file - Club 55 Reg. No. 1,710,860
8. Trademark file - Multiple Action Reg. No. 1,738,726
9. Trademark file - Triple Play Reg. No. 1,908,004
10. Trademark file - Trifecta Serial No. 74/322,375
11. Trademark file - Multiple Action Logo Reg. No. 1,842,109
12. Trademark file - Four Queens Reg. No. 1,851,742
13. Trademark file - Four Queens Logo Reg. No. 1,875,617
14. Trademark file - 4 Queens Reg. No. 1,851,743
15. Trademark file - 4 Queens Logo Reg. No. 1,854,918
16. Trademark file - Doubleheader Logo Serial No. 74/527,959
17. Nevada State Trademark file - For the Games People Play Hotel Services
18. Nevada State Trademark file - For the Games People Play Casino Services
19. Canadian Patent File - Gaming Table Reg. No. 73408
20. Canadian Trademark File - Four Queens No. 847,726
21. Canadian Trademark File - Multiple Action Serial No. 725,077
22. Australian Patent File - Multiple Action Serial No. 649,368
23.Australian Patent File - Multiple Action Blackjack Logo Serial No. 649,369
<PAGE>
Schedule 2.15
Material Contracts
1. Master Lease Agreement (the "Lease Agreement") dated May 1, 1997
as amended August 1, 1997 by and between PDS Financial Corporation - Nevada, a
Nevada corporation ("PDS") and Four Queens, Inc., a Nevada corporation ("Four
Queens") provides that Four Queens shall not assign the agreement without the
prior written consent of PDS; provided, however, that PDS shall consent to an
assignment to Allen Paulson or an entity controlled by Allen Paulson. Lease
Agreement P. 14.2. The Lease Agreement wa guaranteed by the Company.
2. Agreement dated April 28, 1992 by and between Four Queens, Inc., a
Nevada corporation ("Four Queens"), Jeanne Hood, Edward M. Fasulo and Richard A.
LeVasseur whereby Four Queens agreed to pay monthly to Hood, Fasulo and
LeVasseur 20% of the royalties, fees, money and revenue collected from the
licensing of Multiple Action Blackjack.
3. License Agreement dated March 27, 1992 by and between Four Queens,
Inc., a Nevada corporation as assignee of Richard A. LeVasseur and C.A.R.D.,
Inc., a Nevada corporation.
4. License Agreement dated March 27, 1997 by and between Four Queens
Hotel & Casino as assignee of Richard A. LeVasseur and C.A.R.D., Inc., a Nevada
corporation.
5. Both the Amended and Restated Articles of Organization of Fremont
Street Experience Limited Liability Company, a Nevada limited liability company
filed with the Secretary of State on November 27, 1995 and the Amended and
Restated Operating Agreement of the Fremont Street Experience Limited Liability
Company, a Nevada limited liability company dated June 6, 1995 provides that a
person may be a substituted member if two-thirds of the then outstanding
Members' Voting Units approve of the transfer of title of the entire hotel or
casino business.
6. The Riviera Warrants.
7. The Plan provided for the Company to enter into a management
agreement, substantially in the form of Exhibit "10" to the supplement to the
Plan (the "Management Agreement"), with the management group designated by the
Bondholders Committee (as defined in the Plan). Since the effective date of the
Plan, Riviera Gaming Management Corp.-Elsinore has been managing the FourQueens
Hotel and Casino substantially in accordance with the terms and conditions set
forth in the Management Agreement. No written management agreement has been
executed by the parties.
8. First Amendment to Lease, made effective as of May 14, 1997,
between the Company, Finley Company, and Four Queens, Inc.
16
<PAGE>
Schedule 2.16
Insurance Policies
Insurance Coverage January 19, 1997 to January 19, 1998:
Agent: Layne & Associates
4045 South Spencer Street
4th Floor
Las Vegas, Nevada 89119
1. Property Coverage
Fireman's Fund Insurance Company
Policy No. 68 DKF 80352563
INSURED: Elsinore Corporation, a Nevada corporation; Four Queens, Inc.,
a Nevada corporation d/b/a Four Queens Hotel and Casino.
BLANKET LIMIT: $97,920,000 (Including all Real and Personal Property,
Business Interruption, Data Processing, Equipment and
Media, Extra Expense)
SUBLIMITS: $50,000,000 Flood
$50,000,000 Earthquake
$10,700,000 Business Interruption
$1,000,000 Extra Expense
$100,000 EDP Media
$100,000 Accounts Receivable
$1,000,000 Off Premises Power
$500,000 Valuable Papers
DEDUCTIBLES: $25,000 All Perils, Except
$50,000 Flood
$50,000 Earthquake
24 Hours - Business Interruption
$25,000 Extra Expense
$25,000 EDP; Accounts Receivable; Valuable Papers
FORM OF COVERAGE: All Risk of Direct Physical Loss
VALUATION: Replacement Cost & Agreed Amount
LOCATIONS INSURED: Hotel/Casino, Parking Garage, Main Street Storage
2. Boiler & Machinery
(Included within Property Policy)
INSURED: Elsinore Corporation, a Nevada corporation; Four Queens, Inc.,
a Nevada corporation d/b/a Four Queens Hotel and Casino.
CATASTROPHIC LIMIT: $97,920,000
SUBLIMITS: $250,000 Expediting Expense
$250,000 Water Damage Limit
$250,000 Consequential Damage
$250,000 Ammonia Contamination
$250,000 Spoilage
DEDUCTIBLE: $25,000 Per Loss, with 24 Hour Indirect Loss
and Business Interruption
VALUATION: Agreed Amount for Direct Damage Loss Actual Loss Sustained
for Business Interruption Losses/Extra Expense
3. General Liability Coverage
Lexington Insurance Company
Policy No. 2810057
INSURED: Elsinore Corporation, a Nevada corporation; Four Queens, Inc.,
a Nevada corporation d/b/a Four Queens Hotel and Casino.
PER OCCURRENCE: $1,000,000
GENERAL AGGREGATE: $2,000,000
MEDICAL PAYMENTS: Excluded
EMPLOYEE BENEFITS: $1,000,000 Each Claim and Aggregate
for all Claims, subject to a $1,000 Deductible Each Claim
LIQUOR LIABILITY: $1,000,000 Each Occurrence and Aggregate
EMPLOYER'S STOP-GAP
LIABILITY: $1,000,000 Aggregate
INNKEEPER'S LIABILITY: $20,000 Per Guest
$50,000 Aggregate
SAFETY DEPOSIT BOX
LEGAL LIABILITY: $50,000 Per Guest
$500,000 Aggregate
SELF-INSURED
RETENTION LIMIT: $25,000 Per Occurrence
$250,000 Annual Aggregate
(Defense & Expenses within SIR)
4. Automobile Coverage
Northland Insurance Company
Policy No. NG 000 180
INSURED: Elsinore Corporation, a Nevada corporation; Four Queens, Inc.,
a Nevada corporation d/b/a Four Queens Hotel and Casino.
COMBINED BODILY INJURY &
PROPERTY DAMAGE; INCLUDE
NON-OWNED & HIRED: $1,000,000 Each Occurrence
UNINSURED/UNDERINSURED
MOTORISTS: $1,000,000
MEDICAL PAYMENTS: $5,000
COLLISION COVERAGE: Included, w/ $500 deductible on all autos except 1967 Chevy.
COMPREHENSIVE
COVERAGE: Included, w/ $500 deductible on all autos except 1967 Chevy.
HIRED & NON-OWNED
AUTOMOBILE PHYSICAL
DAMAGE: $50,000 Limit any one vehicle, subject to a $500 Deductible
GARAGEKEEPERS
LEGAL LIABILITY: $1,000,000 subject to:
$2,500 Comprehensive Deductible
$2,500 Collision Deductible
5. Crime Coverage
Fidelity & Deposit Company of Maryland
Policy No. CCP 002 67 08
INSURED: Elsinore Corporation, a Nevada corporation; Four Queens, Inc.,
a Nevada corporation d/b/a Four Queens Hotel and Casino.
EMPLOYEE DISHONESTY: $1,000,000
MONEY & SECURITIES
INSIDE & OUTSIDE: $1,000,000
FORGERY & ALTERATIONS: $1,000,000
DEDUCTIBLES: $10,000 Each Occurrence
COVERAGE INCLUDES: Investment Committee Members of the Welfare and Pension Plan
6. Umbrella Liability
Royal Indemnity Company, TIG Insurance, Fireman's Fund
INSURED: Elsinore Corporation, a Nevada corporation; Four Queens, Inc.,
a Nevada corporation d/b/a Four Queens Hotel and Casino.
LIMIT: $50,000,000
RETENTION: $10,000
FIRST LAYER: $10,000,000 in excess of the primary insurance
Royal Insurance Company
Policy No. P HN 202080
SECOND LAYER: $10 Million to $20 Million
TIG Insurance Company
Policy No. XLX 926 2624
THIRD LAYER: $20 Million in excess to $30 Million
Fireman's Fund Insurance Company
Policy No. XXK 000 6793 4802
7. Erisa Compliance Liability
Fidelity Deposit Insurance Company
Policy No. CCP 0033751
EMPLOYEE DISHONESTY: $250,000; no deductible
8. Excess Worker's Compensation Coverage
Frontier Insurance Company
Policy No. FSO 1155
WORKERS COMP: Statutory
EMPLOYER'S LIABILITY: $1,000,000
RETENTION: $275,000 per claim
ESTIMATED PAYROLL: $24,670,979
<PAGE>
Schedule 2.17(a)
Labor Matters
Contracts in Effect
Labor Agreement between United Brotherhood of Carpenters and Joiners of America,
Local Union No. 1780, Southern California/Nevada Regional Council of Carpenters
and Four Queens Hotel and Casino for the period January 15, 1997 through January
14, 2000.
Labor Agreement between Four Queens, Inc. d/b/a Four Queens Hotel and Casino and
International Union of Operating Engineers Local No. 501, AFL-CIO for the period
April 1, 1997 through March 31, 2002.
A Collective Bargaining Agreement between the Four Queens Hotel & Casino and the
Local Joint Executive Board of Las Vegas for and on behalf of Culinary Workers
Union, Local No. 226 and Bartenders Union, Local No. 165 for the period
September 1, 1997 through May 31, 1997, at which time the parties agreed to
negotiate wages and health and welfare contributions to conform with other
entity/union contracts.
Contracts Under Negotiation
The Four Queens Hotel and Casino is negotiating a labor agreement with the
International Brotherhood of Painters & Allied Trades, Local Union No. 159,
AFL-CIO for the period September 1, 1997 through August 31, 2002.
Negotiations are being conducted for a new contract with the Professional,
Clerical and Miscellaneous Employees, Teamsters Local Union No. 995. The term
of the present contract extended from April 2, 1983 through April 1, 1987, and
continues thereafter unless either party notifies the other on the anniversary
of the effective date.
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Schedule 2.17(b)
Payment of Benefits
None
<PAGE>
SCHEDULE 2.18
Real Property
Real Property Owned
See attached Fourth Amendment to Preliminary Title Report dated as of
July 6, 1997, prepared by Nevada Title Company.
Real Property Leased
1. See attached Fourth Amendment to Preliminary Title Report dated
as of July 6, 1997, prepared by Nevada Title Company.
2. Standard Industrial/Commercial Single-Tenant Lease (the "Warehouse
Lease") dated May 1, 1993 by and between The Berg Family Partnership and Four
Queens Hotel/Casino for real property to be used as a warehouse having APN
020-080-003-025 and located at 809 N. Main Street, Las Vegas, Nevada for a five
(5) year term with three options to renew commencing May 1, 1993 and ending
April 30, 1998. The Warehouse Lease requires the Landlord's consent for an
assignment of the Warehouse Lease, including a change in the control of the
Tenant.
<PAGE>
SCHEDULE 2.20
Environmental Matters
None.
<PAGE>
SCHEDULE 3.2(a)
Non-Contravention; Required Filings and Consents
Mr. Allen E. Paulson ("Mr. Paulson") is the owner of all of the issued
and outstanding capital stock of Gaming. Mr. Paulson is also the beneficial
owner of approximately 25% of all of the issued and outstanding capital stock of
Full House Resorts, Inc., a Delaware corporation ("FHR") and is the Chairman
of the Board of FHR. Prior to the execution of this Agreement, Mr. Paulson had
proposed that FHR participate in the transactions contemplated by this Agree-
ment. However, Mr. Paulson has been advised by FHR that it does not plan to
do so.
FHR has entered into a joint venture Master Agreement, dated December
29, 1995 (the "JV Agreement"), with GTECH/Dreamport Company ("GTECH"), to, among
other things, present certain business opportunities to each other. This
obligation was terminated pursuant to a letter, dated January 27, 1997, from
GTECH to FHR, amending the JV Agreement, a copy of which was provided to the
Company.
<PAGE>
Annex II
OPTION AND VOTING AGREEMENT
by
and
between
R&E GAMING CORP.,
as Purchaser,
and
MORGENS, WATERFALL, VINTIADIS & COMPANY, INC.,
on behalf of certain investment accounts,
as Seller
Dated as of September 15, 1997
<PAGE>
OPTION AND VOTING AGREEMENT
OPTION AND VOTING AGREEMENT (this "Agreement"), dated as of
September 15, 1997, by and between R & E Gaming Corp., a Delaware corporation
(together with its assignees or designees, the "Purchaser"), and Morgens,
Waterfall, Vintiadis & Company, Inc., on behalf of certain investment accounts
identified on the signature pages hereto (the "Seller").
WHEREAS, concurrently with the execution and delivery of this
Agreement, the Purchaser is entering into an Agreement and Plan of Merger (the
"Elsinore Merger Agreement") with Elsinore Acquisition Sub, Inc., a Nevada
corporation and a wholly owned subsidiary of the Purchaser ("Acquisition Sub"),
and Elsinore Corporation, a Nevada corporation ("EC"), pursuant to which the
Acquisition Sub shall merge with and into EC (the "Elsinore Merger"), upon the
terms and conditions set forth therein;
WHEREAS, the Seller desires that the Purchaser, Acquisition
Sub and EC enter into the Elsinore Merger Agreement;
WHEREAS, as partial consideration for the grant by the Seller
of the option hereunder, the Purchaser agrees to pay the Seller an amount equal
to $2,936,550.08, if the transactions contemplated by the Elsinore Merger
Agreement are not consummated, other than as a result of certain circumstances
specified herein;
WHEREAS, in order to ensure payment of the obligation
described in the immediately preceding paragraph, concurrently with the
execution and delivery of this Agreement and the Elsinore Merger Agreement, the
Purchaser has delivered a letter of credit in the face amount of $2,936,550.08
to the Seller, which is substantially in the form of Exhibit A hereto (the
"Letter of Credit"), which shall provide that it may be drawn on in the event
the transactions contemplated by the Elsinore Merger Agreement are not
consummated, other than as a result of certain circumstances specified herein;
WHEREAS, the Seller beneficially owns 4,646,440 shares of EC
common stock, par value $.001 per share (all shares of EC common stock being the
"Common Stock" and all shares of Common Stock owned by the Seller, being the
"Shares"), which Shares represent approximately 94.3% of the issued and
outstanding shares of Common Stock; and
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<PAGE>
WHEREAS, in consideration for entering into the Elsinore
Merger Agreement, the Seller desires to (i) grant to the Purchaser an option to
purchase from the Seller all (but not less than all) of the Shares upon the
terms and subject to the conditions set forth herein and (ii) vote the Shares in
the manner set forth herein;
NOW, THEREFORE, in consideration of the foregoing premises and
the agreements contained herein, and for other good and valuable consideration,
the receipt and adequacy of which are hereby acknowledged, the parties hereto,
intending to be legally bound, agree as follows:
ARTICLE I
GRANT OF OPTION
SECTION 1.1 Grant of Option. Upon the terms and subject to the
conditions set forth herein, the Seller hereby grants to the Purchaser an
irrevocable option (the "Purchase Option") to purchase the Shares.
The Purchase Option shall be exercisable, in whole and not in
part, by written notice (the "Exercise Notice") by the Purchaser delivered to
the Seller, at any time after the date hereof, but not later than the date on
which the Elsinore Merger Agreement is terminated pursuant to Section 6.1(c)
thereof or if the Elsinore Merger Agreement has otherwise been terminated, then
June 1, 1998 (such period being hereinafter referred to as the "Exercise
Period"); provided, however, that the Purchase Option shall not be exercisable
at any time when such exercise would violate any applicable law, including,
without limitation, any statute or regulation related to the ownership or
control of a publicly traded company registered with the Nevada Gaming
Commission (the "Gaming Commission"). In addition, in the event the Elsinore
Merger is consummated, the Purchase Option shall terminate automatically, the
Shares shall be converted into the right to receive the Merger Consideration set
forth in the Elsinore Merger Agreement; it being understood that the Elsinore
Merger Agreement provides for a reduction of the consideration payable, upon
consummation of the Elsinore Merger, to the Seller on account of any interest
previously paid to the Seller pursuant to Section 1.2(b) hereof. The Seller
hereby consents to the reduction of the consideration payable to it under the
terms of the Elsinore Merger Agreement by the amount of interest paid to it
pursuant to Section 1.2(b) hereof.
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<PAGE>
Upon exercise of the Purchase Option or the exercise of the
Put Option (as defined in Section 4.7 hereof), subject to the conditions
contained in Article V hereof, the Seller shall sell, assign, transfer, convey
and deliver to the Purchaser, and the Purchaser shall purchase and accept from
the Seller at the closing (the "Closing") to be held as soon as possible after
the satisfaction or waiver of the conditions set forth in this Agreement (the
date on which the Closing occurs shall be referred to herein as the "Closing
Date"), the Seller's rights, title and interest in and to the Shares in exchange
for the Purchase Price (as defined below).
SECTION 1.2 Purchase Price.
(a) Upon exercise of the Purchase Option or the Put Option,
the Purchaser agrees to pay to the Seller on the Closing Date, in consideration
for the purchase of the Shares, an aggregate amount equal to $3.16 per Share
(the "Initial Purchase Price" and, when adjusted as provided in this Section
1.2, the "Purchase Price"), for an aggregate of $14,682,750.40 in addition to
any accrued but unpaid interest payments required by Section 1.2(b).
(b) During the period commencing on June 1, 1997 and
ending on the date immediately preceding the earlier of the Closing Date or the
date this Agreement is terminated in accordance with its terms, the Purchaser
agrees to pay to the Seller $3,793.38 per day, which represents interest
calculated at 9.43% per annum on the Initial Purchase Price, payable monthly in
arrears on each monthly anniversary of such execution and not later than the
fifth day following such monthly anniversary of such period, unless otherwise
provided in this Section 1.2(b). The first payment to be made by the Purchaser
shall be made on the date of execution of this Agreement and shall consist of
all amounts due and payable to such date under this Section 1.2(b). All payments
required to be made in accordance with this Section 1.2(b) shall be made by wire
transfer or immediately available funds to such account as the Seller shall have
designated on Exhibit B hereto.
(c) If, between the date of this Agreement and the Closing
Date, the number of issued and outstanding shares of Common Stock shall have
been changed (or EC shall have declared a record date with respect to a
prospective change of the Common Stock) into a different number of shares or a
different class of shares by reason of any stock dividend, subdivision,
reclassification, recapitalization, split, combination or exchange of shares,
this Agreement (including the terms "Share" and "Common Stock") will be deemed
to relate to all securities issued with respect to the Common Stock, and the
Purchase Price shall be correspondingly
3
<PAGE>
adjusted to reflect such stock dividend, subdivision, reclassification,
recapitalization, split, combination or exchange of shares.
(d) If, between the date of this Agreement and the Closing
Date, EC issues or commits to issue any shares of Common Stock (other than (i)
the issuance of 70,687 shares of Common Stock to the holders of unsecured claims
against EC or Four Queens, Inc., (ii) the issuance of 1,125,000 shares of Common
Stock to Riviera pursuant to warrants held by Riviera (the "Riviera Warrants"),
and (iii) any other options, convertible securities and other rights to acquire
shares of Common Stock referred to in Section 2.2 or Schedule 2.2 of the
Elsinore Merger Agreement or issued in accordance with Section 4.1 thereof,
without consideration or for a consideration per share less than the Purchase
Price in effect immediately prior to such issuance (in the case of non-cash
consideration, deemed to be the fair market value thereof), the Purchase Price
shall immediately be reduced to the price determined by dividing (1) the sum of
(A) the number of shares of Common Stock outstanding immediately prior to such
issuance multiplied by the Purchase Price in effect immediately prior to such
issuance and (B) the consideration, if any, received by EC upon such issuance,
by (2) the total number of shares of Common Stock outstanding immediately after
such issuance.
(e) If, between the date of this Agreement and the Closing
Date, any dividend or other distribution (other than a stock dividend, which
shall require the adjustment set forth in clause (c) above) is declared or paid
upon the Common Stock (whether in cash, property or securities), the Purchase
Price shall be reduced by the per share amount of such dividend or distribution
(in the case of non-cash dividends or distributions, by an amount equal to the
fair market value thereof).
(f) If, between the date of this Agreement and the Closing
Date, EC or any of its subsidiaries shall repurchase or otherwise acquire any
shares of Common Stock (other than shares issued pursuant to warrants, options,
convertible securities and other rights to acquire shares of Common Stock
referred to in Section 2.2 or Schedule 2.2 of the Elsinore Merger Agreement or
issued in accordance with Section 4.1 thereof), and the per share consideration
paid by EC or its subsidiaries (in the case of non-cash consideration, valued of
the fair market value thereof) exceeds the Purchase Price per share, the total
Purchase Price shall be reduced to the price determined by dividing (i) the
difference between (A) the number of shares of Common Stock outstanding
immediately prior to such repurchase or redemption multiplied by the Purchase
Price in effect immediately prior to such purchase or redemption minus (B) the
consideration, if any, paid by
4
<PAGE>
EC for such repurchase or redemption, by (ii) the total number of shares of
Common Stock outstanding immediately after such repurchase or redemption.
SECTION 1.3 Termination of Elsinore Merger Agreement.
(a) The Seller shall be entitled to receive, as partial
consideration for the grant by the Seller of the Purchase Option to the
Purchaser hereunder, an amount equal to $2,936,550.08 if (A) the Elsinore Merger
Agreement is terminated (except pursuant to a Non-Payment Termination Event (as
defined herein) or (B) the Elsinore Merger does not occur in accordance with the
terms thereof on or before April 1, 1998 (or, if the termination date of the
Elsinore Merger Agreement is extended in accordance with Section 6.1(c) thereof,
June 1, 1998) for any reason other than the occurrence of a Non-Payment
Termination Event; provided, that the Seller shall be entitled to receive the
consideration described above in the event that the Seller shall be entitled to
receive the consideration described in Section 1.3 of the Riviera Option and
Voting Agreement (as defined in Section 4.7 hereof) in accordance with the terms
thereof; and, provided further that the Seller shall be entitled to the
consideration described above if the Elsinore Merger is not consummated as a
result of the breach by Purchaser, Acquisition Sub, or Allen E. Paulson of any
covenants or warranties made by or about them in the Elsinore Merger
Agreement;and, provided further, that the Seller shall not be entitled to the
consideration described above if the Elsinore Merger is not consummated as a
result of the breach of this Agreement by the Seller. A "NonPayment Termination
Event" shall mean the termination of the Elsinore Merger Agreement pursuant to
Sections 6.1(a), 6.1(b), 6.1(c) (because of the failure to satisfy Sections
5.1(a), 5.1(c), 5.1(d), 5.2(c), or 5.2(f)), 6.1(d), 6.1(e)(iii) or 6.1(e)(iv)
thereof. In addition, in the event that the Elsinore Merger Agreement is
terminated pursuant to Section 6.1(c) because of the failure of Purchaser,
Acquisition Sub or Mr. Allen E. Paulson to obtain the required approvals of the
Gaming Authorities, then such event shall constitute a Non-Payment Termination
Event unless Mr. Allen E. Paulson is in breach of his representation and
covenant contained in Section 6.2(d) of the Elsinore Merger Agreement.
(b) In order to ensure payment of the obligation described in
Section 1.3(a) hereof, concurrently with the execution and delivery of this
Agreement, the Purchaser shall deliver a Letter of Credit in the face amount of
$2,936,550.08 to the Seller. In the event that the Seller shall be entitled to
receive compensation pursuant to Section 1.3(a) hereof, the Seller shall be
entitled to demand payment under the Letter of Credit issued to the Seller.
5
<PAGE>
(c) In the event the Elsinore Merger Agreement is terminated
pursuant to Sections 6.1(b), 6.1(d)(i), 6.1(d)(ii), 6.1(d)(iii), 6.1(d)(iv),
6.1(d)(v), 6.1(e)(iii) or 6.1(e)(iv) thereof, the Seller shall immediately pay
to the Purchaser an amount equal to all payments received by the Seller pursuant
to this Agreement; provided that the Seller shall be entitled to retain such
payments if either (i) the Shares shall be purchased pursuant to this Agreement
or (ii) the Elsinore Merger is not consummated as a result of the breach by the
Purchaser, Acquisition Sub or Allen E. Paulson of any covenants or warranties
made by or about them in the Elsinore Merger Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
SECTION 2.1 Representations and Warranties of the Seller. The
Seller represents and warrants to the Purchaser as follows:
(a) Organization and Standing. The Seller is duly organized,
validly existing and in good standing under the laws of its state of
organization, and has all requisite power and authority to enter into and
perform its obligations under this Agreement.
(b) Authority. The execution and delivery of this Agreement,
and the performance by the Seller of its obligations hereunder, have been duly
authorized by all necessary action on the part of the Seller and the owners of
the investment accounts as to which it is acting. This Agreement has been duly
executed and delivered by the Seller and, assuming the due execution and
delivery hereof by the Purchaser, this Agreement constitutes a valid and binding
obligation of the Seller, enforceable against the Seller in accordance with its
terms.
(c) The Stock. The Seller is the record and beneficial owner
of, and has good and valid title to, the number of Shares recited to be owned in
the recitals hereof, free and clear of all liens, encumbrances, claims, charges,
security interests, pledges, restrictions, assessments and limitations
(including voting limitations) of every kind whatsoever (collectively, "Liens").
The Seller shall deliver to the Purchaser, and the Purchaser will acquire, good
and valid title in the Shares, with full voting rights, free and clear of any
Liens. Except for this Agreement, there are no outstanding warrants,
subscriptions, rights (including preemptive rights), options, calls, commitments
or other agreements or Liens to encumber, purchase or acquire any of the Shares
of the Seller or securities convertible into the Shares of the
6
<PAGE>
Seller. Neither the Seller nor any of its affiliates or associates (as such
terms are defined in Rule 12b-2 promulgated under the Securities Exchange Act of
1934, as amended) holds either of record or beneficially any securities or
capital stock of EC or any of EC's direct or indirect subsidiaries other than
the Seller's Shares.
(d) No Conflict. The execution of this Agreement and the
consummation of the transactions contemplated hereby will not require notice to,
or the consent of, any party to any contract, lease, agreement, mortgage or
indenture (each a "Contract") to which the Seller is a party or by which it is
bound, or the consent, approval, order or authorization of, or the registration,
declaration or filing with, any governmental authority, except for those (i)
required under the Hart-Scott- Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), if any, (ii) required by the Nevada Gaming Commission
(the "Gaming Commission"), the Nevada State Gaming Control Board (the "Control
Board"), the City of Las Vegas ("Las Vegas") and the Clark County Liquor and
Gaming Licensing Board (the "CCB") (the Gaming Commission, the Control Board,
Las Vegas and the CCB are collectively referred to as the "Gaming Authorities"),
including, without limitation, approvals under the Nevada Gaming Control Act, as
amended, and the rules and regulations promulgated thereunder (the "Nevada Act")
or (iii) set forth on Schedule 2.1(d) hereto. Assuming that the notices,
consents and approvals referred to in the preceding sentence have been given,
made or obtained, the execution, delivery and performance by the Seller of this
Agreement and the consummation of the transactions contemplated hereby will not
(i) violate any law, statute, ordinance, regulation, rule or order of any
Federal or Nevada authority (collectively, "Laws"), (ii) result in a breach or
violation of any provision of, constitute a default under, or result in the
termination of, or an acceleration of indebtedness or creation of any Lien
under, any material contract to which the Seller is a party or by which it is
bound or (iii) conflict with or violate any provision of the organizational
documents of the Seller.
(e) Brokers, Finders, etc. The Seller is not a party to any
agreement or understanding that would make it subject to any valid claim of any
broker, investment banker, finder or other intermediary in connection with the
transactions contemplated by this Agreement.
SECTION 2.2 Representations and Warranties of the Purchaser.
The Purchaser hereby represents and warrants to the Seller as follows:
(a) Organization and Standing. The Purchaser is duly organized,
validly existing and in good standing under the laws of its state of incorpo-
7
<PAGE>
ration, and has all requisite power and authority to enter into and perform its
obligations under this Agreement.
(b) Authority. The execution and delivery of this Agreement,
and the performance by the Purchaser of its obligations hereunder, have been
duly authorized by all necessary action on the part of the Purchaser. This
Agreement has been duly executed and delivered on behalf of the Purchaser and,
assuming the due execution and delivery hereof by the Seller, this Agreement
constitutes a valid and binding obligation of the Purchaser, enforceable against
the Purchaser in accordance with its terms.
(c) No Conflict. The execution of this Agreement and the
consummation of the transactions contemplated hereby will not require notice to,
or the consent of, any party to any Contract to which the Purchaser or any of
its affiliates is a party or by which any of them is bound, or the consent,
approval, order or authorization of, or the registration, declaration or filing
with, any governmental authority, except for (i) those required under the HSR
Act, if any, (ii) approvals, as necessary, by the Gaming Authorities, including,
without limitation, approvals under the Nevada Act, and (iii) approval by the EC
Board of Directors (which Seller represents has been granted). Except as set
forth in the preceding sentence, the execution, delivery and performance by the
Purchaser of this Agreement and the consummation of the transactions
contemplated hereby will not (i) violate any Laws, (ii) result in a breach or
violation of any provision of, or constitute a default under, any contract to
which the Purchaser is a party or by which it is bound or (iii) conflict with
any provision of the certificate of incorporation or bylaws of the Purchaser.
(d) Purchase For Investment. Upon exercising the Purchase
Option or in connection with the Put Option, the Purchaser represents and
warrants that it intends to acquire the Shares for its own account, not as a
nominee or agent, and not with a view to, or for offer or resale in connection
with, any distribution thereof in violation of the Securities Act of 1933, as
amended, and the rules and regulations thereunder (the "Securities Act"),
without prejudice, however, to the Purchaser's right at all times to sell or
otherwise dispose of all or any part of said Shares pursuant to a effective
registration statement under the Securities Act and any applicable state
securities laws, or under an exemption from registration available under the
Securities Act and such other applicable state securities laws. The Purchaser
represents and warrants that it (i) is knowledgeable, sophisticated and
experienced in business and financial matters, and fully understands the
limitations
8
<PAGE>
on transfer described above, and (ii) is an "accredited investor" as such term
is defined in Rule 501(a) of Regulation D under the Securities Act.
(e) No Brokers. Except for Jefferies & Co., Inc., neither the
Purchaser nor Acquisition Sub has employed any broker or finder, nor has it
incurred any liability for any brokerage fees, commissions or finders' fees in
connection with the transactions contemplated by this Agreement or the Elsinore
Merger Agreement.
ARTICLE III
VOTING AGREEMENTS
SECTION 3.1 Merger. The Seller agrees and covenants to the
Purchaser that at any meeting of stockholders of EC called to vote upon the
Elsinore Merger and the Elsinore Merger Agreement or at any adjournment thereof
or in any other circumstances upon which a vote, consent or other approval with
respect to the Elsinore Merger and the Elsinore Merger Agreement is sought, the
Seller shall cause its Shares to be present for quorum purposes and to vote (or
caused to be voted) its Shares in favor of the terms thereof and each of the
other transactions contemplated by the Elsinore Merger Agreement.
SECTION 3.2 Competing Transaction. The Seller agrees and
covenants to the Purchaser that at any meeting of stockholders of EC or at any
adjournment thereof or in any other circumstances upon which their vote, consent
or other approval is sought, the Seller shall vote (or cause to be voted) its
Shares against (i) any merger agreement or merger (other than the Elsinore
Merger Agreement and the Elsinore Merger), consolidation, combination, sale of
substantial assets, sale or issuance of securities of EC or its subsidiaries,
reorganization, joint venture, recapitalization, dissolution, liquidation or
winding up of or by EC or its subsidiaries and (ii) any amendment of EC's
Restated Articles of Incorporation (the "Articles of Incorporation") or Restated
and Amended Bylaws or other proposal or transaction involving EC or any of its
subsidiaries which amendment or other proposal or transaction would in any
manner impede, frustrate, prevent, nullify or result in a breach of any
covenant, representation or warranty or any other obligation or agreement of EC
under or with respect to, the Elsinore Merger, the Elsinore Merger Agreement or
any of the other transactions contemplated by the Elsinore Merger Agreement or
by this Agreement (each of the foregoing in clause (i) or (ii) above, a
"Competing Transaction").
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ARTICLE IV
COVENANTS
SECTION 4.1 Exclusive Dealing. The Seller agrees that it will
not, directly or indirectly, through any director, officer, agent, partner,
shareholder, affiliate, representative or otherwise:
(a) solicit, initiate, encourage submission of offers or
proposals from, or participate in any discussions, negotiations, agreements,
arrangements or understandings with, any person in respect of a Competing
Transaction; or
(b) participate in any discussions or negotiations with, or
furnish or afford access to any information to, any other person regarding a
Competing Transaction, or otherwise cooperate in any manner with, or assist or
participate in, facilitate or encourage, any effort or attempt by any other
person to engage in any Competing Transaction.
SECTION 4.2 No Sale. Without limiting the foregoing, the
Seller agrees that it will not, directly or indirectly, (i) sell, transfer,
assign, pledge, hypothecate or otherwise encumber or dispose of, (ii) give a
proxy with respect to, or (iii) limit the right to vote in any manner, any of
the Shares owned by it, except pursuant to the express terms of this Agreement.
SECTION 4.3 Further Assurances. From time to time, whether
before, at, or after the Closing, each party hereto agrees to execute and
deliver, or cause to be executed and delivered, such additional instruments,
certificates and other documents, and to take such other action, as the other
party hereto may reasonably require in order to carry out the terms and
provisions of this Agreement and the transactions contemplated hereby
(including, without limitation, voting the Shares in favor of any such
transaction).
SECTION 4.4 Expenses. All reasonable actual out of pocket
costs and expenses, including reasonable legal fees, incurred solely and
directly in connection with the negotiation, execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby shall be
paid by the Purchaser upon receipt of reasonably detailed statements or invoices
therefor.
SECTION 4.5 Publicity. The Seller and the Purchaser agree that,
prior to the Closing, no public release or announcement concerning this
Agreement
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shall be issued by any such party without the prior written consent (which
consent shall not be unreasonably withheld) of the other parties hereto, except
as such release or announcement may be required by Law (in which event the other
parties hereto shall have reasonable opportunity to comment on the form and
content of the disclosure).
SECTION 4.6 Notice of Certain Events. The Seller and the
Purchaser each agrees to notify the other party hereto promptly of (a) any event
or condition that, with or without notice or lapse of time, would cause any of
the representations and warranties made by such party herein to be no longer
complete and accurate as of any date on or before the Closing Date, (b) any
failure, with or without notice or lapse of time, on the part of such party to
comply with any of the covenants or agreements on its part contained herein at
any time on or before the Closing Date or (c) the occurrence of any event, with
or without notice or lapse of time, that may make the satisfaction of any of the
conditions set forth in Section 5.1 hereof impossible or unlikely.
SECTION 4.7 Seller's Put. If any time prior to the Closing
Date the transactions contemplated by (i) the Agreement and Plan of Merger,
dated as of September 15, 1997 (the "Riviera Merger Agreement"), by and among
the Purchaser, Riviera Acquisition Sub Inc., a Nevada corporation and a wholly
owned subsidiary of the Purchaser ("RAS"), and Riviera Holdings Corporation, a
Nevada corporation ("Riviera"), which provides for, among other things, the
merger of RAS with and into Riviera (the "Riviera Merger") or (ii) the Option
and Voting Agreement, dated as of September 15, 1997 (the "Riviera Option and
Voting Agreement"), by and among the Purchaser, the Seller, Keyport Life
Insurance Company, on behalf of a certain investment account, and SunAmerica
Life Insurance Company, are consummated and a closing has occurred thereunder,
then, upon written notice to the Purchaser by the Seller, the Purchaser shall
purchase all of the Shares at the aggregate Purchase Price in accordance with
and subject to the terms and conditions of this Agreement (the "Put Option").
Notwithstanding the foregoing, the obligations of the Purchaser to purchase the
Shares pursuant to the Put Option shall be suspended for up to ten business days
if the Purchaser gives notice to the Seller that it intends to consummate the
Elsinore Merger within such time period.
SECTION 4.8 Action with Respect to 13.5% Second Mortgage
Notes. Seller represents that it is the owner of $29,104,000 principal amount of
13.5% Second Mortgage Notes due 2001, of EC (the "13.5% Notes") issued under the
Indenture dated as of March 3, 1997, by and among EC, the Guarantors named
therein and First Trust National Association (the "Indenture"). Seller hereby
agrees
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that, if the Elsinore Merger is consummated, it hereby waives any rights it may
have to require EC to repurchase all or a part of the 13.5% Notes pursuant to
Article XII of the Indenture.
ARTICLE V
CONDITIONS PRECEDENT
SECTION 5.1 Conditions Precedent to Exercise of Purchase
Option and Put Option. The Purchaser shall have no obligation to exercise the
Purchase Option; provided, however, that the Purchaser shall use its best
efforts to take, or cause to be taken, all actions, and to do, or cause to be
done, all things reasonably necessary and proper under all applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement, including cooperation (i) in the preparation and filing of any
required filings under the HSR Act and the laws referred to in Sections 2.1(d)
and 2.2(c) hereof, (ii) in determining whether action by or in respect of, or
filing with, any governmental body, agency, official or authority is required,
proper or advisable, or any actions, consents, waivers or approvals are required
to be obtained from parties to any contracts in connection with the transactions
contemplated by this Agreement, (iii) in seeking to obtain any such actions,
consents and waivers and in making any such filings, and (iv) in seeking to lift
any order, decree or ruling restraining, enjoining, or otherwise prohibiting the
exercise of the Purchase Option or the Put Option. Upon exercise of the Purchase
Option or the Put Option, the obligation of the Purchaser to purchase the Shares
shall be subject to the satisfaction or (except in the case of Section
5.1(c)(i), which may not be waived) waiver by the Purchaser on the Closing Date
of each of the following conditions precedent:
(a) HSR Act. The waiting period under the HSR Act, if
applicable, shall have expired or been terminated.
(b) No Injunctions or Restraints. No temporary restraining
order or preliminary or permanent injunction of any court or administrative
agency of competent jurisdiction prohibiting the transactions contemplated by
this Agreement, the Elsinore Merger Agreement, the Riviera Option and Voting
Agreement or the Riviera Merger Agreement shall be in effect or shall be
threatened.
(c) Consents. All consents, approvals, authorizations and
waivers from the Board of Directors and governmental and regulatory authorities
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required to consummate the transactions contemplated hereby (the "Approvals")
shall have been obtained before the Closing Date and, in the case of clauses
(ii) and (iii) below, before the execution of this Agreement and shall not have
expired or been rescinded, including the following:
(i) All necessary gaming approvals,
including, without limitation, licensing or finding of
suitability of the Purchaser and approval of a change of
control of EC by the Gaming Authorities;
(ii) Waiver by the Board of Directors of EC
of any voting restrictions under the Articles of Incorporation
that are applicable to a purchaser of greater than ten percent
of the issued and outstanding shares of Common Stock; and
(iii) All approvals and waivers necessary to
exempt the Purchaser for purposes of the transactions
contemplated hereby from applicable merger moratorium statutes
and control share acquisition statutes, including, without
limitation, Nevada Revised Statutes Sections 78.411-.444 and
78.378-.3793;
(d) Representations and Warranties. The representations and
warranties of the Seller set forth in this Agreement shall be true and correct
in all material respects on and as of the Closing Date, as though made on and as
of the Closing Date (and by delivery of the Shares the Seller shall be deemed to
affirm the satisfaction of this condition).
(e) Performance of Obligations of Seller. The Seller shall
have delivered the Shares to the Purchaser.
(f) Consummation of Riviera Transactions. Either the Riviera
Merger shall have been consummated or the shares of Riviera common stock, $.001
par value, which are the subject of the Riviera Option and Voting Agreement,
shall have been purchased by the Purchaser.
(g) No Violation of Law. The consummation of the Purchase
Option or the Put Option shall not constitute a violation of any Laws.
SECTION 5.2 Conditions Precedent to the Seller's Obligation.
The obligation of the Seller to sell, assign, transfer, convey and deliver the
Shares owned by it or the investment accounts it manages, as applicable, upon
exercise of
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the Purchase Option by the Purchaser or the Put Option by Seller shall be
subject to the satisfaction or (except in the case of Sections 5.2(a) and
5.2(c), which may not be waived), waiver on the Closing Date of each of the
following conditions precedent:
(a) HSR Act. The waiting period under the HSR Act, if
applicable to the Purchaser, shall have expired or been terminated.
(b) No Injunctions or Restraints. No temporary restraining
order or preliminary or permanent injunction of any court or administrative
agency of competent jurisdiction prohibiting the transactions contemplated by
this Agreement shall be in effect.
(c) Consents. All Approvals shall have been obtained and shall
not have expired or been rescinded, including those set forth in Section 5.1(c).
(d) No Violation of Law. The consummation of the Purchase
Option or the Put Option shall not constitute a violation of any Laws.
(e) Representations and Warranties. The representations and
warranties of the Purchaser set forth in this Agreement shall be true and
correct in all material respects on and as of the Closing Date, as though made
on and as of the Closing Date, except as otherwise contemplated by this
Agreement (and by its acceptance of the Shares, the Purchaser shall be deemed to
reaffirm the accuracy of such representations and warranties).
(f) Performance of Obligations of the Purchaser. The
Purchaser shall have performed all obligations required to be performed by it
under this Agreement on or prior to the Closing Date (and by its acceptance of
the Shares, the Purchaser shall be deemed to affirm the satisfaction of this
condition), including the payment of the Purchase Price and all unpaid amounts,
if any payable under Section 1.2(b).
(g) Occurrence of Riviera Merger or Exercise of Riviera
Option. The Riviera Merger (as defined in Section 4.7) or the Closing of the
Riviera Option and Voting Agreement (as defined in Section 4.7) shall have
occurred.
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ARTICLE VI
TERMINATION AND AMENDMENT
SECTION 6.1 Termination. This Agreement shall terminate
without any further action on the part of the Purchaser or the Seller if (i) the
Purchase Option or the Put Option has been exercised and the Closing has
occurred or (ii) the Purchase Option or the Put Option has not been exercised
and either (x) the Elsinore Merger has been consummated or (y) the Elsinore
Merger Agreement has been terminated pursuant to Sections 6.1(a), 6.1(b),
6.1(c), 6.1(d), 6.1(e)(i), 6.1(e)(ii) or 6.1(f) thereof or (iii) June 1, 1998
shall have occurred.
SECTION 6.2 Effect of Termination. In the event this Agreement
shall have been terminated in accordance with Section 6.1 of this Agreement,
this Agreement shall forthwith become void and have no effect, except (i) to the
extent such termination results from a breach by any of the parties hereto of
any of its obligations hereunder (in which case such breaching party shall be
liable for all damages allowable at law and any relief available in equity), and
(ii) as otherwise set forth in any written termination agreement, if any, and
(iii) that Sections 1.2(b), 1.3 and 6.2 shall survive the termination of this
Agreement.
SECTION 6.3 Amendment. This Agreement and the Schedules and
Exhibits hereto may not be amended except by an instrument or instruments in
writing signed and delivered on behalf of each of the parties hereto. At any
time prior to the Closing Date, any party hereto which is entitled to the
benefits hereof may (a) extend the time for the performance of any of the
obligations or other acts of any other party, (b) waive any inaccuracy in the
representations and warranties of any other party contained herein, in any
Schedule and Exhibit hereto, or in any document delivered pursuant hereto, and
(c), subject to applicable law, waive compliance with any of the agreements of
any other party hereto or any conditions contained herein. Any agreement on the
part of any of the parties hereto to any such extension or waiver (i) shall be
valid only if set forth in an instrument in writing signed and delivered on
behalf of each such party, and (ii) shall not be construed as a waiver or
extension of any subsequent breach or time for performance hereunder.
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ARTICLE VII
MISCELLANEOUS
SECTION 7.1 Notices. All notices, requests, claims, demands
and other communications hereunder shall be in writing and shall be given (and
shall be deemed to have been duly given upon receipt) by delivery in person, by
overnight courier with receipt requested, by facsimile transmission (with
receipt confirmed by automatic transmission report), or two business days after
being sent by registered or certified mail (postage prepaid, return receipt
requested), to the other party as follows:
(a) if to the Purchaser, to:
P.O. Box 9660
Rancho Santa Fe, CA 92067
Attention: Mr. Allen E. Paulson
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP 300 South Grand Avenue, Suite 3400 Los
Angeles, California 90071 Attention: Brian J. McCarthy, Esq.
(b) if to Seller, to:
Swiss Bank Tower
10 East 50th Street
New York, New York 10022
Attention: Mr. Bruce Waterfall
with a copy to:
O'Melveny & Myers, LLP
400 South Hope Street
Los Angeles, CA 90071-2899
Attention: C. James Levin, Esq.
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SECTION 7.2 Release. Upon the purchase by the Purchaser of the
Shares, the Purchaser shall hereby release on behalf of itself and EC all
claims, causes of actions, rights and liabilities held by the Purchaser or EC
against the Seller based on or arising from the Seller's ownership of the Shares
or actions as a Stockholder of EC at all times to and including the Closing
Date, and the sale of the Shares to the Purchaser, except for the
representations and warranties of the Seller set forth in Sections 2.1(b) and
2.1(c) hereof which shall survive indefinitely.
SECTION 7.3 Interpretation. When a reference is made in this
Agreement to a Section, Schedule or Exhibit, such reference shall be to the
applicable Section, Schedule or Exhibit of this Agreement unless otherwise
indicated. The headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. When the words "includes" or "including" are used in this Agreement,
they shall be deemed to be followed by the words "without limitation." All
accounting terms not defined in this Agreement shall have the meanings
determined by generally accepted accounting principles as of the date hereof.
All capitalized terms defined herein are equally applicable to both the singular
and plural forms of such terms.
SECTION 7.4 Severability. If any provision of this Agreement
or the application of any such provision shall be held invalid, illegal or
unenforceable in any respect by a court of competent jurisdiction, such
invalidity, illegality or unenforceability shall not affect any other provision
hereof. In lieu of any such invalid, illegal or unenforceable provision, the
parties hereto intend that there shall be added as part of this Agreement a
valid, legal and enforceable provision as similar in terms to such invalid,
illegal or unenforceable provision as may be possible or practicable under the
circumstances.
SECTION 7.5 Counterparts. This Agreement may be executed in
one or more counterparts, each of which shall be deemed an original, and all of
which, when taken together, shall be deemed to constitute but one and the same
instrument.
SECTION 7.6 Entire Agreement. This Agreement and the Schedules
and Exhibits hereto constitute the entire agreement, and supersede all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof.
SECTION 7.7 Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of Nevada, regardless of
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the laws that otherwise might govern under any applicable principles of
conflicts of law, except that gaming approval requirements shall be governed by
and construed in accordance with the laws of the State of Nevada.
SECTION 7.8 Assignment. This Agreement shall be binding upon
and shall inure to the benefit of the parties hereto and their respective
successors and assigns. Neither this Agreement nor any of the rights, interests
or obligations hereunder shall be assigned or delegated by any of the parties
hereto without the prior written consent of the other parties; provided, that
the Purchaser may assign the Purchase Option and the obligations under this
Agreement to any other person who is designated by the Purchaser and; further
provided, that the Purchaser shall remain responsible for the performance of
such designee's obligations.
SECTION 7.9 No Third-Party Beneficiaries. Nothing herein
expressed or implied shall be construed to give any person other than the
parties hereto (and their respective successors and assigns) any legal or
equitable rights hereunder.
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IN WITNESS WHEREOF, each of the parties hereto has caused its
duly authorized officers to execute this Agreement as of the date first above
written.
R&E GAMING CORP.
By: ____________________________
Name:
Title:
MORGENS, WATERFALL,
VINTIADIS & COMPANY,
INC.
By: ____________________________
Name:
Title:
on behalf of the investment accounts
for the entities listed below
BETJE PARTNERS
THE COMMON FUND
MORGENS WATERFALL INCOME
PARTNERS
PHOENIX PARTNERS, L.P.
MWV EMPLOYEE RETIREMENT
PLAN GROUP TRUST
RESTART PARTNERS, L.P.
RESTART PARTNERS II, L.P.
<PAGE>
RESTART PARTNERS III, L.P.
RESTART PARTNERS IV, L.P.
RESTART PARTNERS V, L.P.
<PAGE>
EXHIBIT A
CERTIFICATE FOR DRAWING WITH RESPECT TO
IRREVOCABLE LETTER OF CREDIT NO. ____
DATED ______________, 1997
The undersigned, a duly authorized officer of Morgens,
Waterfall, Vintiadis & Company, Inc. ("Morgens, Waterfall") hereby certifies to
City National Bank (the "Bank"), with reference to irrevocable letter of credit
No. ____ (the "Letter of Credit"; any capitalized term used herein and not
defined shall have its respective meaning as set forth in the Letter of Credit)
issued by the Bank in favor of Morgens, Waterfall, that all of the following has
occurred:
(1) Either (x) the Agreement and Plan of Merger,
dated as of September 15, 1997 (the "Elsinore Merger Agreement"), by
and among R&E Gaming Corp., a Delaware corporation ("Gaming"), Elsinore
Acquisition Sub, Inc., a Nevada corporation, and Elsinore Corporation,
a Nevada corporation, has terminated or (y) the Elsinore Merger (as
defined in the Elsinore Merger Agreement) has not occurred in
accordance with the terms thereof on or before April 1, 1998 (or, if
the termination date of the Elsinore Merger Agreement is extended in
accordance with Section 6.1(c) thereof, June 1, 1998); and
(2) Morgens, Waterfall is entitled to payment in the
amount of $_______ in accordance with the terms of Section 1.3(a) of
the Option and Voting Agreement, dated as of September 15, 1997, by and
between Gaming and Morgens, Waterfall.
Demand is hereby made under the Letter of Credit for $_______.
Please remit payment to Morgens, Waterfall, Vintiadis & Company, Inc., account
number ___________ at ___________, ABA No. ____________, REF. : ___________.
A-1
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EXHIBIT B
Seller Account
Morgens, Waterfall
Citibank N.Y.
ABA #: 021000089
For: Morgan Stanley & Co.
Account #: 38890774
Credit To: Edwin Morgens and
Bruce Waterfall as
Agents
Sub-Account #: 038-30008
Ref: Elsinore/Riviera Option
Agreement Interest
B-1
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Annex III
NEVADA REVISED STATUTES 92A.300-92A.500
92A.300 -- Definitions.
As used in NRS 92A.300 to 92A.500, inclusive, unless the context otherwise
requires, the words and terms defined in NRS 92A.305 to 92A.335, inclusive, have
the meanings ascribed to them in those sections.
92A.305 -- "Beneficial stockholder" defined.
"Beneficial stockholder" means a person who is a beneficial owner of shares
held in a voting trust or by a nominee as the stockholder of record.
92A.310 -- "Corporate action" defined.
"Corporate action" means the action of a domestic corporation.
92A.315 -- "Dissenter" defined.
"Dissenter" means a stockholder who is entitled to dissent from a domestic
corporation's action under NRS 92A.380 and who exercises that right when and in
the manner required by NRS 92A.410 to 92A.480, inclusive.
92A.320 -- "Fair value" defined.
"Fair value," with respect to a dissenter's shares, means the value of the
shares immediately before the effectuation of the corporate action to which he
objects, excluding any appreciation or depreciation in anticipation of the
corporate action unless exclusion would be inequitable.
92A.325 -- "Stockholder" defined.
"Stockholder" means a stockholder of record or a beneficial stockholder of a
domestic corporation.
92A.330 -- "Stockholder of record" defined.
"Stockholder of record" means the person in whose name shares are registered
in the records of a domestic corporation or the beneficial owner of shares to
the extent of the rights granted by a nominee's certificate on file with the
domestic corporation.
92A.335 -- "Subject corporation" defined.
"Subject corporation" means the domestic corporation which is the issuer of
the shares held by a dissenter before the corporate action creating the
dissenter's rights becomes effective or the surviving or acquiring entity of
that issuer after the corporate action becomes effective.
92A.340 -- Computation of interest.
Interest payable pursuant to NRS 92A.300 to 92A.500, inclusive, must be
computed from the effective date of the action until the date of payment, at the
average rate currently paid by the entity on its principal bank loans or, if it
has no bank loans, at a rate that is fair and equitable under all of the
circumstances.
92A.350 -- Rights of dissenting partner of domestic
limited partnership.
A partnership agreement of a domestic limited partnership or, unless otherwise
provided in the partnership agreement, an agreement of merger or exchange, may
provide that contractual rights with respect to the partnership interest of a
dissenting general or limited partner of a domestic limited partnership are
available for any class or group of partnership interests in connection with any
merger or exchange in which the domestic limited partnership is a constituent
entity.
92A.360 -- Rights of dissenting member of domestic
limited-liability company.
The articles of organization or operating agreement of a domestic
limited-liability company or, unless otherwise provided in the articles of
organization or operating agreement, an agreement of merger or exchange, may
provide that contractual rights with respect to the interest of a dissenting
member are available in connection with any merger or exchange in which the
domestic limited-liability company is a constituent entity.
92A.370 -- Rights of dissenting member of domestic
nonprofit corporation.
1. Except as otherwise provided in subsection 2, and unless otherwise provided
in the articles or bylaws, any member of any constituent domestic nonprofit
corporation who voted against the merger may, without prior notice, but within
30 days after the effective date of the merger, resign from membership and is
thereby excused from all contractual obligations to the constituent or surviving
corporations which did not occur before his resignation and is thereby entitled
to those rights, if any, which would have existed if there had been no merger
and the membership had been terminated or the member had been expelled.
2. Unless otherwise provided in its articles of incorporation or bylaws, no
member of a domestic nonprofit corporation, including, but not limited to, a
cooperative corporation, which supplies services described in chapter 704 of NRS
to its members only, and no person who is a member of a domestic nonprofit
corporation as a condition of or by reason of the ownership of an interest in
real property, may resign and dissent pursuant to subsection 1.
92A.380 -- Right of stockholder to dissent from
certain corporate actions and to obtain payment for shares.
1. Except as otherwise provided in NRS 92A.370 and 92A.390, a stockholder is
entitled to dissent from, and obtain payment of the fair value of his shares in
the event of any of the following corporate actions:
(a) Consummation of a plan of merger to which the domestic corporation
is a party:
(1) If approval by the stockholders is required for the merger by NRS
92A.120 to 92A.160, inclusive, or the articles of incorporation and he is
entitled to vote on the merger; or
(2) If the domestic corporation is a subsidiary and is merged with its
parent under NRS 92A.180.
(b) Consummation of a plan of exchange to which the domestic
corporation is a party as the corporation whose subject owner's interests will
be acquired, if he is entitled to vote on the plan.
(c) Any corporate action taken pursuant to a vote of the stockholders
to the event that the articles of incorporation, bylaws or a resolution of the
board of directors provides that voting or nonvoting stockholders are entitled
to dissent and obtain payment for their shares.
2. A stockholder who is entitled to dissent and obtain payment under NRS 92A.300
to 92A.500, inclusive, may not challenge the corporate action creating his
entitlement unless the action is unlawful or fraudulent with respect to him or
the domestic corporation.
92A.390 -- Limitations on right of dissent:
Stockholders of certain classes or series; action of stockholders not required
for plan of merger.
1. There is no right of dissent with respect to a plan of merger or exchange in
favor of stockholders of any class or series which, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting at which the plan of merger or exchange is to be acted on, were either
listed on a national securities exchange, included in the national market system
by the National Association of Securities Dealers, Inc., or held by at least
2,000 stockholders of record, unless:
(a) The articles of incorporation of the corporation issuing the shares
provide otherwise; or
(b) The holders of the class or series are required under the plan of
merger or exchange to accept for the shares anything except:
(1) Cash, owner's interests or owner's interests and cash in lieu of
fractional owner's interests of:
(I) The surviving or acquiring entity; or
(II) Any other entity which, at the effective date of the plan of
merger or exchange, were either listed on a national securities exchange,
included in the national market system by the National Association of Securities
Dealers, Inc., or held of record by a least 2,000 holders of owner's interests
of record; or
(2) A combination of cash and owner's interests of the kind described
in sub-subparagraphs (I) and (II) of subparagraph (1) of paragraph (b).
2. There is no right of dissent for any holders of stock of the surviving
domestic corporation if the plan of merger does not require action of the
stockholders of the surviving domestic corporation under NRS 92A.130.
92A.400 -- Limitations on right of dissent: Assertion
as to portions only to shares registered to stockholder; assertion by beneficial
stockholder.
1. A stockholder of record may assert dissenter's rights as to fewer than all of
the shares registered in his name only if he dissents with respect to all shares
beneficially owned by any one person and notifies the subject corporation in
writing of the name and address of each person on whose behalf he asserts
dissenter's rights. The rights of a partial dissenter under this subsection are
determined as if the shares as to which he dissents and his other shares were
registered in the names of different stockholders.
2. A beneficial stockholder may assert dissenter's rights as to shares held on
his behalf only if:
(a) He submits to the subject corporation the written consent of the
stockholder of record to the dissent not later than the time the beneficial
stockholder asserts dissenter's rights; and
(b) He does so with respect to all shares of which he is the beneficial
stockholder or over which he has power to direct the vote.
92A.410 -- Notification of stockholders regarding right
of dissent.
1. If a proposed corporate action creating dissenters' rights is submitted to a
vote at a stockholders' meeting, the notice of the meeting must state that
stockholders are or may be entitled to assert dissenters' rights under NRS
92A.300 to 92A.500, inclusive, and be accompanied by a copy of those sections.
2. If the corporate action creating dissenters' rights is taken by written
consent of the stockholders without a vote of the stockholders, the domestic
corporation shall notify in writing all stockholders entitled to assert
dissenters' rights that the action was taken and send them the dissenter's
notice described in NRS 92A.430.
92A.420 -- Prerequisite to demand for payment for shares.
1. If a proposed corporate action creating dissenters' rights is submitted to a
vote at a stockholders' meeting, a stockholder who wishes to assert dissenter's
rights:
(a) Must deliver to the subject corporation, before the vote is taken,
written notice of his intent to demand payment for his shares if the proposed
action is effectuated; and
(b) Must not vote his shares in favor of the proposed action.
2. A stockholder who does not satisfy the requirements of subsection 1 is not
entitled to payment for his shares under this chapter.
92A.430 -- Dissenter's notice: Delivery to
stockholders entitled to assert rights; contents.
1. If a proposed corporate action creating dissenters' rights is authorized at a
stockholders' meeting, the subject corporation shall deliver a written
dissenter's notice to all stockholders who satisfied the requirements to assert
those rights.
2. The dissenter's notice must be sent no later than 10 days after the
effectuation of the corporate action, and must:
(a) State where the demand for payment must be sent and where and when
certificates, if any, for shares must be deposited;
(b) Inform the holders of shares not represented by certificates to
what extent the transfer of the shares will be restricted after the demand for
payment is received;
(c) Supply a form for demanding payment that includes the date of the
first announcement to the news media or to the stockholders of the terms of the
proposed action and requires that the person asserting dissenter's rights
certify whether or not he acquired beneficial ownership of the shares before
that date;
(d) Set a date by which the subject corporation must receive the demand
for payment, which may not be less than 30 nor more than 60 days after the date
the notice is delivered; and
(e) Be accompanied by a copy of NRS 92A.300 to 92A.500, inclusive.
92A.440 -- Demand for payment and deposit of
certificates; retention of rights of stockholder.
1. A stockholder to whom a dissenter's notice is sent must:
(a) Demand payment;
(b) Certify whether he acquired beneficial ownership of the shares
before the date required to be set forth in the dissenter's notice for this
certification; and
(c) Deposit his certificates, if any, in accordance with the terms of
the notice.
2. The stockholder who demands payment and deposits his certificates, if any,
before the proposed corporate action is taken retains all other rights of a
stockholder until those rights are canceled or modified by the taking of the
proposed corporate action.
3. The stockholder who does not demand payment or deposit his certificates where
required, each by the date set forth in the dissenter's notice, is not entitled
to payment for his shares under this chapter.
92A.450 -- Uncertificated shares: Authority to
restrict transfer after demand for payment; retention of rights of stockholder.
1. The subject corporation may restrict the transfer of shares not represented
by a certificate from the date the demand for their payment is received.
2. The person for whom dissenter's rights are asserted as to shares not
represented by a certificate retains all other rights of a stockholder until
those rights are canceled or modified by the taking of the proposed corporate
action.
92A.460 -- Payment for shares: General requirements.
1. Except as otherwise provided in NRS 92A.470, within 30 days after receipt of
a demand for payment, the subject corporation shall pay each dissenter who
complied with NRS 92A.440 the amount the subject corporation estimates to be the
fair value of his shares, plus accrued interest. The obligation of the subject
corporation under this subsection may be enforced by the district court:
(a) Of the county where the corporation's registered office is located; or
(b) At the election of any dissenter residing or having its registered
office in this state, of the county where the dissenter resides or has its
registered office. The court shall dispose of the complaint promptly.
2. The payment must be accompanied by:
(a) The subject corporation's balance sheet as of the end of a fiscal
year ending not more than 16 months before the date of payment, a statement of
income for that year, a statement of changes in the stockholders' equity for
that year and the latest available interim financial statements, if any;
(b) A statement of the subject corporation's estimate of the fair value
of the shares;
(c) An explanation of how the interest was calculated;
(d) A statement of the dissenter's rights to demand payment under NRS
92A.480; and
(e) A copy of NRS 92A.300 to 92A.500, inclusive.
92A.470 -- Payment for shares: Shares acquired on or
after date of dissenter's notice.
1. A subject corporation may elect to withhold payment from a dissenter unless
he was the beneficial owner of the shares before the date set forth in the
dissenter's notice as the date of the first announcement to the news media or to
the stockholders of the terms of the proposed action.
2. To the extent the subject corporation elects to withhold payment, after
taking the proposed action, it shall estimate the fair value of the shares, plus
accrued interest, and shall offer to pay this amount to each dissenter who
agrees to accept it in full satisfaction of his demand. The subject corporation
shall send with its offer a statement of its estimate of the fair value of the
shares, an explanation of how the interest was calculated, and a statement of
the dissenters' right to demand payment pursuant to NRS 92A.480.
92A.480 -- Dissenter's estimate of fair
value: Notification of subject corporation; demand for payment of estimate.
1. A dissenter may notify the subject corporation in writing of his own estimate
of the fair value of his shares and the amount of interest due, and demand
payment of his estimate, less any payment pursuant to NRS 92A.460, or reject the
offer pursuant to NRS 92A.470 and demand payment of the fair value of his shares
and interest due, if he believes that the amount paid pursuant to NRS 92A.460 or
offered pursuant to NRS 92A.470 is less than the fair value of his shares or
that the interest due is incorrectly calculated.
2. A dissenter waives his right to demand payment pursuant to this section
unless he notifies the subject corporation of his demand in writing within 30
days after the subject corporation made or offered payment for his shares.
92A.490 -- Legal proceeding to determine fair
value: Duties of subject corporation; powers of court; rights of dissenter.
1. If a demand for payment remains unsettled, the subject corporation shall
commence a proceeding within 60 days after receiving the demand and petition the
court to determine the fair value of the shares and accrued interest. If the
subject corporation does not commence the proceeding within the 60-day period,
it shall pay each dissenter whose demand remains unsettled the amount demanded.
2. A subject corporation shall commence the proceeding in the district court of
the county where its registered office is located. If the subject corporation is
a foreign entity without a resident agent in the state, it shall commence the
proceeding in the county where the registered office of the domestic corporation
merged with or whose shares were acquired by the foreign entity was located.
3. The subject corporation shall make all dissenters, whether or not residents
of Nevada, whose demands remain unsettled, parties to the proceeding as in an
action against their shares. All parties must be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
4. The jurisdiction of the court in which the proceeding is commenced under
subsection 2 is plenary and exclusive. The court may appoint one or more persons
as appraisers to receive evidence and recommend a decision on the question of
fair value. The appraisers have the powers described in the order appointing
them, or any amendment thereto. The dissenters are entitled to the same
discovery rights as parties in other civil proceedings.
5. Each dissenter who is made a party to the proceeding is entitled to a
judgment:
(a) For the amount, if any, by which the court finds the fair value of
his shares, plus interest, exceeds the amount paid by the subject corporation;
or
(b) For the fair value, plus accrued interest, of his after-acquired
shares for which the subject corporation elected to withhold payment pursuant to
NRS 92A.470.
92A.500 -- Legal proceeding to determine fair
value: Assessment of costs and fees.
1. The court in a proceeding to determine fair value shall determine all of the
costs of the proceeding, including the reasonable compensation and expenses of
any appraisers appointed by the court. The court shall assess the costs against
the subject corporation, except that the court may assess costs against all or
some of the dissenters, in amounts the court finds equitable, to the extent the
court finds the dissenters acted arbitrarily, vexatiously or not in good faith
in demanding payment.
2. The court may also assess the fees and expenses of the counsel and experts
for the respective parties, in amounts the court finds equitable:
(a) Against the subject corporation and in favor of all dissenters if
the court finds the subject corporation did not substantially comply with the
requirements of NRS 92A.300 to 92A.500, inclusive; or
(b) Against either the subject corporation or a dissenter in favor of
any other party, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously or not in good faith with
respect to the rights provided by NRS 92A.300 to 92A.500, inclusive.
3. If the court finds that the services of counsel for any dissenter were of
substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the subject corporation, the
court may award to those counsel reasonable fees to be paid out of the amounts
awarded to the dissenters who were benefited.
4. In a proceeding commenced pursuant to NRS 92A.460, the court may assess the
costs against the subject corporation, except that the court may assess costs
against all or some of the dissenters who are parties to the proceeding, in
amounts the court finds equitable, to the extent the court finds that such
parties did not act in good faith in instituting the proceeding.
5. This section does not preclude any party in a proceeding commenced pursuant
to NRS 92A.460 or 92A.490 from applying the provisions of N.R.C.P. 68 or NRS
17.115.
