SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
X Annual Report Pursuant to Section 13 or 15(d)
- --- of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1997
Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Commission File Number 1-7831
ELSINORE CORPORATION
(Exact name of registrant as specified in its charter)
NEVADA 88-0117544
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
202 FREMONT STREET, LAS VEGAS, NEVADA 89101
(Address of principal executive offices) (Zip Code)
(702) 385-4011
(Registrant's telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act:
NONE
Securities Registered Pursuant to Section 12(g) of the Act:
COMMON STOCK
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confimed by a court. YES X NO
On March 26, 1998 there were 4,929,313 shares of common stock issued and
outstanding. The market value of the common stock held by non-affiliates of the
registrant as of March 26, 1998 was approximately $372,131.50. The market value
was computed by reference to the closing sales price of 1 5/8 ($1.625) per share
reported on the NASDAQ "Bulletin Board" as of March 26, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
Part I hereof incorporates by reference a portion of the information statement
for the registrant's special meeting held on February 4, 1998, filed with the
Securities and Exchange Commission on Schedule 14C on January 13, 1998.
<PAGE>
TABLE OF CONTENTS
PART 1 Page
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a
Vote of Security Holders
Part II
Item 5. Market for Registrant=s Common Equity
and Related Stockholder Matters
Item 6. Selected Financial Data
Item 7. Management=s Discussion and
Analysis of Financial Condition
and Results of Operations
Item 8. Financial Statements and
Supplementary Data
Item 9. Changes in and Disagreements
with Accountants
on Accounting and Financial Disclosure
PART III
Item 10. Directors and Executive Officers
of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain
Beneficial Owners and Management
Item 13. Certain Relationships and
Related Transactions
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K
SIGNATURES
<PAGE>
PART I
Item 1. BUSINESS.
General.
Elsinore Corporation ("Elsinore" or the "Company") is registered with
the Nevada Gaming Commission (the "Commission") as a publicly traded holding
company of 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. 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, but it
obtained transactional waivers from the State of New Jersey pending completion
of the license investigation associated with the change in control of Elsinore.
Four Queens is now pursuing extensions of those waivers, as discussed below.
Gaming management activities conducted by Elsinore's other subsidiaries prior to
the bankruptcy reorganization, discussed below, have terminated.
The Company's principal executive office is located at 202 Fremont
Street, Las Vegas, Nevada 89101 and its telephone number is (702) 385-4011.
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") was confirmed on August 12, 1996 (the "Confirmation Date") and
became effective following the 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 shares of new common
stock, par value $.001, of the Company (the "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 certain investment accounts (the "MWV Accounts") managed by
Morgens, Waterfall, Vintiadis and Company, Inc. ("MWV"). Of the shares which the
MWV Accounts acquired, 995,280 shares were purchased at $5.00 per share under a
Subscription Rights Agreement dated October 10, 1996 (the "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 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, 77,426
shares of 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 State Gaming Control Board (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, John C. "Bruce"
Waterfall is the only individual who exercises voting and investment authority
over the Common Stock on behalf of any of the MWV Accounts. Mr. Waterfall is
also the Company's Chairman of the Board.
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 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, two
fast-service restaurants, three cocktail lounges, a gift shop, four retail
concessions, 15,000 square feet of function space and approximately 560 parking
spaces. The casino has approximately 965 slot machines, 26 gaming tables, a keno
lounge and a sports book. Riviera Gaming Management Corp. - Elsinore ("RGME"),
an indirect subsidiary of Riviera Holdings Corp. ("Riviera"), has been managing
the Four Queens Casino since the Confirmation Date. RGME 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. The term of RGME's current management agreement for the
Four Queens Casino (the "Management Agreement"), which went into effect on April
1, 1997 in accordance with the terms of the Plan, 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 ("EBIDTA") for the first two fiscal years commencing April 1,
1997 are 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 would 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 would receive a $2
million termination bonus minus any amount realized or realizable upon the
exercise of the warrants. Prior to the Management Agreement, RGME had been
managing the Four Queens Casino under an Interim Management Agreement which took
effect on the Confirmation Date and provided for a monthly management fee of
$83,000.
Operations. The following table sets forth the contributions from major
activities to the Company's total revenues from the Four Queens Casino for the
years ended December 31, 1997, 1996 and 1995.
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Casino(1) $ 36,506 $ 42,300 $ 39,964
Hotel(2) 9,705 11,202 9,564
Food & beverage(2) 9,686 12,373 12,136
Other(3) 2,115 1,502 1,983
-------- -------- --------
58,012 67,377 63,647
Less: Promotional allowances (4,224) (6,178) (6,674)
--------- --------- ---------
$ 53,788 $ 61,199 $ 56,973
======== ======== =========
</TABLE>
(1) Consists of the net win from gaming activities (i.e., the
difference between gaming wins and losses).
(2) Includes revenues from services provided as promotional
allowances to casino customers and others on a complimentary
basis.
(3) Consists primarily of interest income, commissions from credit
card and automatic teller cash advances and miscellaneous
other income (including net royalties of $142,000 in 1997,
$198,000 in 1996, and $185,000 in 1995 from the licensing of
MULTIPLE ACTION "registered trademark" blackjack).
The following table summarizes the primary aspects of the Company's
operations at the Four Queens Casino.
<TABLE>
Casino:
<S> <C> <C>
Floor area (square feet) 32,296
Slot machines 965
Blackjack tables 17
Craps tables 3
Big six 1
Caribbean stud poker tables 1
Roulette wheels 2
Let-it-ride tables 1
Pai gow poker tables 1
Keno (seats) 46
Sports book 1
Hotel:
Rooms 690
Meeting areas (square feet) 14,600
Restaurants and entertainment and cocktail lounges:
Restaurants 4
Restaurant seats 454
Cocktail lounges 3
Other:
Gift shops 1
Parking facilities (cars) 560
</TABLE>
A marketing strategy is employed for the Four Queens Casino that
emphasizes a high level of customer service, targeted marketing, value-oriented
promotions, club memberships and special events.
Customer Service. The Company believes that the Four Queens Casino is
distinguished by its friendly atmosphere and the high level of personalized
service provided to its patrons. The Company strives to maintain the level of
service that has allowed the property to attain a high level of customer
loyalty, which has been the backbone of business for this established
hotel/casino.
Employees. At December 31, 1997, the Four Queens Casino employed 970
persons, approximately 50% of whom were covered by collective bargaining
agreements. New union contracts were entered into during 1997 covering five
collective bargaining units.
The Las Vegas Market.
Las Vegas is one of the fastest growing and largest entertainment
markets in the United States. For fiscal year 1997, gaming revenues in Clark
County reached a new 12 month record of $6.2 billion. The number of visitors
traveling to Las Vegas has increased at a steady and significant rate, from 16.2
million visitors in 1987 to a record 30.5 million in 1997, representing a
compound annual growth rate of 6.5%. Aggregate expenditures by Las Vegas
visitors increased at a compound annual growth rate of 11.3% from $8.6 billion
in 1987 to $22.5 billion in 1996. The number of hotel and motel rooms in Las
Vegas increased by approximately 70.1% from 61,934 in 1988 to 105,347 in 1997,
surpassing 100,000 rooms in January 1997, the first market to reach that level.
Despite this significant increase in the number of rooms, hotel occupancy rates
exceeded on average 92.0% for the five year period from 1993 through 1997.
According to the Las Vegas Convention and Visitors Authority ("LVCVA"), by the
end of the decade it is expected that approximately 20,000 additional hotel
rooms will be opened in Las Vegas, including the Bellagio, Venetian, Paris and
Mandalay Bay, which are currently under construction, the expansion at the MGM
Grand and the new developments planned at the current Aladdin site.
The following table sets forth certain statistical information for the
Las Vegas market for the years 1993 through 1997, as reported by the LVCVA.
<TABLE>
<CAPTION>
Las Vegas Market Statistics
1993 1994 1995 1996 1997
----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Visitor volume (in thousands) 23,523 28,214 29,002 29,637 30,465
Clark County gaming revenues $4,727 $5,431 $5,718 $5,784 $6,152
(in millions)
Hotel/motel rooms 86,053 88,560 90,046 99,072 105,347
Average hotel occupancy rate 92.6% 92.6% 91.4% 93.4% 90.3%
Airport passenger traffic 22,492 26,850 28,027 30,460 30,306
(in thousands)
Convention attendance 2,440 2,684 2,925 3,306 3,519
(in thousands)
</TABLE>
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 more recent openings of the MGM Grand, Luxor, Treasure Island,
Monte Carlo and New York New York casino/hotels have had an adverse effect on
downtown gaming revenue. In addition, the scheduled openings of the Bellagio,
Venetian, Paris and Mandalay Bay, the MGM Grand expansion and the planned
development at the Aladdin site, all on the Las Vegas Strip, may have a further
adverse effect on downtown gaming revenue when those projects are completed. The
new rooms recently completed or under construction are primarily designed to
attract the high-end gaming and convention customers, and based on construction
costs are or 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 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 project. The Company has a one-sixth ownership
share and is responsible for a proportionate share of the project's operating
costs.
Agreement and Plan of Merger.
In the first half of 1997, Elsinore and Mr. Allen E. Paulson
("Paulson") commenced discussions which culminated in an Agreement and Plan of
Merger (the "Merger Agreement"), dated as of September 15, 1997, between
Elsinore and entities controlled by Paulson, namely R&E Gaming Corp. ("R&E") and
Elsinore Acquisition Sub, Inc. ("EAS"), to acquire by merger (the "Merger") the
outstanding Common Stock for $3.16 per share in cash plus an amount of
additional consideration in cash 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. The Merger Agreement
provides for EAS to merge into Elsinore, and Elsinore to become a wholly owned
subsidiary of R&E.
Contemporaneously with the Merger Agreement, R&E executed an Option and
Voting Agreement (the "Option Agreement") with MWV, on behalf of the MWV
Accounts which own 94.3% of the outstanding Common Stock. Under certain
conditions and circumstances, the Option Agreement provides for, among other
things, (i) the grant by the MWV Accounts to R&E of an option to purchase all of
their Common Stock; (ii) an obligation by R&E to purchase all of the MWV
Accounts' Common Stock, and (iii) the MWV Accounts to vote their Common Stock in
favor of the Merger Agreement. Elsinore's shareholders approved the Merger
Agreement at a special meeting of shareholders held on February 4, 1998 (the
"Special Meeting").
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 and is the parent corporation of RGME. On
September 16, 1997, R&E and Riviera Acquisition Sub, Inc. ("RAS") (another
entity controlled by Paulson) entered into an Agreement and Plan of Merger (the
"Riviera Merger Agreement") with Riviera, which provides for the merger of RAS
into Riviera (the "Riviera Merger"), and for Riviera to become a wholly owned
subsidiary of R&E. R&E also entered into an Option and Voting Agreement with
certain Riviera shareholders, including MWV acting on behalf of the MWV
Accounts, containing terms similar to those described above with respect to the
Option Agreement.
The Merger Agreement contains conditions precedent to consummation of
the Merger, including (i) the Option Agreement being in full force and effect
and MWV having complied in all respects with the terms thereof, (ii) all
necessary approvals from gaming authorities and (iii) consummation of the
Riviera Merger.
A summary of the material terms of the Merger Agreement and a
description of the Option Agreement are set forth in "THE MERGER" section of the
Information Statement on Schedule 14C filed by Elsinore with the Securities and
Exchange Commission (the "SEC") on January 13, 1998 in connection with the
Special Meeting, and is incorporated herein by reference. Copies of the Merger
Agreement and Option Agreement are included as exhibits hereto.
Elsinore has received from R&E a notice, dated March 20, 1998, stating
that the Merger Agreement is void or, alternatively, R&E and EAS intend to
terminate the Merger Agreement. As the grounds for its position, R&E has
alleged, among other things, violations by Elsinore of the Merger Agreement,
violations of law and misrepresentations by MWV in connection with the Option
Agreement and the non-satisfaction of certain conditions precedent to completing
the Merger. Elsinore rejects the allegations against it by R&E and is of the
view that R&E is required to consummate the Merger, subject to approval by
gaming authorities. Elsinore is reserving all of its rights with respect to
R&E's legal obligations.
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. 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 (collectively, 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 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 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 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 on 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.
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 offerings 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.
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
(collectively, "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 they knowingly violate any laws of the
foreign jurisdiction pertaining to the foreign gaming operation, fail to conduct
the foreign gaming operation in accordance with the standards of honesty and
integrity required of Nevada gaming operations, engage in activities that are
harmful to the State of Nevada or its ability to collect gaming taxes and fees,
or employ a person in the foreign operation who has been denied a license or
finding of suitability in Nevada on the basis of personal unsuitability.
The granting of any registrations, amendment of orders of registration,
findings of suitability, approvals or licenses are discretionary with the Nevada
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. The Four Queens, through its legal counsel, is pursuing
extensions of these transactional waivers which, if obtained, would be expected
to expire on October 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.
Item 2. PROPERTIES.
Except for certain small parcels of land owned in fee, the real
property underlying the Four Queens Casino is leased pursuant to several
long-term leases, none of which expire before October 31, 2024. The adjoining
garage is occupied under a lease that expires in 2034. Such leases generally
provide for annual minimum rental and adjustments relating to cost of living.
The Four Queens Casino is subject to security interests under the Company's
restated 1993 Mortgage Notes and restated 1994 Mortgage Notes. See Note 12 of
Notes to Consolidated Financial Statements.
Item 3. 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.
On October 22, 1997, the New Jersey court entered its Findings of Fact
and Conclusions of Law and Judgment Upon Liability Issues, which affirmed its
prior holding denying WARN Act liability. The plaintiffs have appealed that
decision to the Third Circuit Court of Appeals. The appeal is currently pending.
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 amount was subsequently
determined by stipulation to be $675,000, inclusive of interest. 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. The appeal is currently pending.
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. Management
believes that such matters are either covered by insurance or, if not insured,
will not have a material adverse effect on the financial position or results of
operations of the Company.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the Company's security
holders during the fourth quarter of fiscal 1997.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
There is no organized or established trading market for the Common
Stock. The Common Stock's prices are reported on the NASDAQ "Bulletin Board."
As of the close of business on March 26, 1998, there were approximately
637 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). On December 31, 1997, both the high and
low sale prices of the Common Stock reported on the NASDAQ "Bulletin Board" were
$2.25. In view of the lack of an organized or established trading market for the
Common Stock, the extreme thinness of whatever trading market exists, the
limited number of shares that are not held by the MWV Accounts, and the recent
notice from R&E stating that the Merger Agreement is void or, alternatively, R&E
and EAS intend to terminate the Merger Agreement (see Item 1. BUSINESS. -
Agreement and Plan of Merger), these reported prices may not be indicative of
the price at which any shareholder may be able to sell his or her shares.
Elsinore 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.
Item 6. SELECTED FINANCIAL DATA.
Set forth below is selected consolidated historical financial data with
respect to the Company for the five years ended December 31, 1997. This data
should be read in conjunction with the consolidated financial statements and
notes thereto set forth elsewhere herein.
<PAGE>
<TABLE>
<CAPTION>
December 31,
Reorganized Predecessor -----------------------------------------------
Company Company
March 1 January 1
to to
December 31 February 28
1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ----
(Dollars in thousands except per share amounts)
Balance sheet data:
<S> <C> <C> <C> <C> <C> <C>
Total assets $49,823 $42,627 $37,101 $67,315 $71,923
Current portion
of long-term debt 1,477 50 54 59 204
Long-term debt less
current maturities 38,141 62,912 62,858 60,330 54,368
Shareholders' equity
(deficit) $3,086 $(40,710) $(43,441) $(1,664) $4,567
====== ========= ========= ======== ======
Operations data:
Revenues (net) $43,992 $9,796 $61,199 $56,973 $62,706 $66,852
======= ====== ======= ======= ======= =======
(Loss) before
extraordinary items (1,914) (190) (1,556) (45,749) (10,716) (2,252)
Extraordinary items:
Gain (loss) on
extinguishment of
debt 0 35,977 0 0 735 (285)
--------- ------ -------- -------- ------- --------
Net loss $(1,914) 35,787 $(1,556) $(45,749) $(9,441) $(2,537)
======= ====== ========= ========= ======== ========
Basic per share
amounts:
Loss before
extraordinary items $(.38) $(.01) $(.10) $(2.95) $(.84) $(.19)
Extraordinary items 0 2.26 0 0 .06 (.02)
Net income (loss) per
share $(.38) $2.25 $(.10) $(2.95) $(.78) $(.21)
====== ===== ====== ======= ====== ======
Capital costs:
Depreciation and
amortization $1,774 $529 $3,816 $3,948 $3,990 $3,206
Interest related to
prior-period tax
obligation 0 0 0 590 885 4,256
Interest expense 4,239 772 2,505 8,006 9,086 1,385
Capital costs $6,013 $1,301 $6,321 $12,544 $13,961 $8,847
====== ====== ====== ======= ======= ======
</TABLE>
<PAGE>
Item 7. 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 set forth elsewhere herein.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash and cash equivalents (including restricted amounts of
$914,000)of approximately $6.8 million at December 31, 1997, as compared with
$11.7 million at December 31, 1996 (including restricted cash of $4.4 million),
a decrease of $4,831,000 from December 31, 1996. Significant debt service on the
Company's restated 1993 13 1/2% Mortgage Notes due 2001("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, an additional $5,000,000 in cash became available to
the Company following the close of business on February 28, 1997. Of that
amount, $4.4 million had been received prior to December 31, 1996 and was
considered restricted cash until the Plan Effective Date, and $600,000 was
received in 1997.
For the twelve months of 1997, the Company's net cash (used) by operating
activities was $(2,232,000) compared to $4,852,000 provided by operating
activities in 1996 due primarily to the payment of accrued interest on the New
Second Mortgage Notes which had accrued since August 12, 1996. EBITDA for 1997
and 1996 was $5.6 million and $7 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 budgeted capital expenditures of
approximately $3.9 million for 1998, including an arrangement to finance slot
machine purchases of $2.6 million in 1998.
Scheduled interest payments on the New Second Mortgage Notes and other
indebtedness were $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 the New Second
Mortgage Notes. 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 11 1/2% First Mortgage Notes due 2000 ("New First
Mortgage Notes"), the principal amount of which is approximately $3.9 million,
at 101% upon any "Change of Control," as defined in the agreement governing
those notes. (See the "Proposed Merger" discussion in Note 5 to the Company's
consolidated financial statements included herein and Item 1. BUSINESS -
Agreement and Plan of Merger.) 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 budgeted
approximately $7 million for capital expenditures in 1997 and $3.9 million in
1998. The Company expects to finance such capital expenditures from cash on
hand, cash flow and slot lease financing. Uses of cash during 1997 included
capital expenditures of $4.6 million. 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.
COMPUTERIZED OPERATIONS AND THE YEAR 2000
During recent years, there has been significant global awareness raised
regarding the potential disruption to business operations worldwide resulting
from the inability of current technology to process properly the change from the
year 1999 to 2000. Although, based on a review of its data processing, operating
and other computer-based systems, the Company does not currently believe that it
will experience any significant adverse effects or material unbudgeted costs
resulting therefrom, the Company cannot provide any assurance in this regard,
and any such costs or effect could materially and adversely affect the
operations of the Company.
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 filing
could be characterized as forward-looking statements such as statements relating
to business strategies, plans for future development and upgrading, as well as
other capital spending, financing and refinancing sources, existing and expected
competition and effects of regulation. Such forward-looking statements involve
important known and unknown risks and uncertainties that could cause actual
results and liquidity to differ materially from those expressed or anticipated
in any forward-looking statements. Such risks and uncertainties include, but are
not limited to, those related to effects of competition, leverage and debt
service, financing and refinancing needs or efforts, general economic
conditions, changes in gaming laws or regulations (including the legalization of
gaming in various jurisdictions), risks related to development and upgrading
activities, uncertainty of casino customer spending and vacationing in
hotel/casinos in Las Vegas, occupancy rates and average room rates in Las Vegas,
and the popularity of Las Vegas as a convention and trade show destination.
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.
RESULTS OF OPERATIONS
1997 COMPARED TO 1996
REVENUES
Net revenues decreased by approximately $7,411,000 or 12.1%, from $61,199,000
for 1996 to $53,788,000 for 1997.
Casino revenues decreased by approximately $5,794,000, or 13.7%, from
$42,300,000 during the 1996 period to $36,506,000 during the 1997 period due
primarily to a $2,520,000, or 24.8% decrease in net table games revenues and a
$2,789,000, or 9.2% decrease in net slot revenue. Management has eliminated
certain complimentary programs which generated significant volume in 1996.
During 1997, table games drop decreased $26,631,000 or 34%, and slot coin-in
decreased $106,422,000, or 18.9%. The decrease in table game volume was
partially offset by a 1% increase in win percent.
Hotel revenues decreased by approximately $1,497,000, or 13.4%, from $11,202,000
during the 1996 period to $9,705,000 during the 1997 period due primarily to a
decrease in complimentary room revenues of $1,094,000 resulting from the
elimination of certain 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 $2,687,000, or 21.7%, from
$12,373,000 during the 1996 period to $9,686,000 during the 1997 period due to a
decrease in complimentary revenues of $1,614,000 resulting from the elimination
of the table games marketing programs and the closure of two unprofitable food
outlets which were replaced by profitable leased fast-food franchises.
Other revenues increased by approximately $613,000, or 40.8%, from $1,502,000
during the 1996 period to $2,115,000 during the 1997 period, due primarily to
payments totaling $711,000 received under the settlement agreement reached with
the Twenty-Nine Palms Band of Mission Indians.
Promotional allowances decreased by approximately $1,954,000, or 31.6%, from
$6,178,000 during the 1996 period to $4,224,000 during the 1997 period due to a
decrease in complimentary rooms, food and beverage resulting from the
elimination of the 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 $5,956,000, or 11.0%, from $54,242,000 for
1996 to $48,286,000 for 1997.
Casino expense decreased by approximately $3,395,000, or 19.2%, from $17,694,000
during the 1996 period to $14,299,000 during the 1997 period due to a decrease
in payroll and complimentary expenses. Casino expenses as a percentage of
revenues decreased from 41.8% to 39.2% due to management's redirection of the
Company's marketing efforts from table games to slots.
Hotel expense increased by approximately $169,000, or 2%, from $8,482,000 during
the 1996 period to $8,651,000 during the 1997 period, and costs as a percentage
of revenues increased from 75.7% to 89.1%, due to the reduction in cost of comps
transferred to the Casino department.
Food and beverage costs and expenses decreased by approximately $911,000, or
12.9%, from $7,088,000 during the 1996 period to $6,177,000 during the 1997
period resulting from a corresponding decrease in revenues.
OTHER OPERATING EXPENSES
Selling, general and administrative expenses decreased by approximately
$830,000, or 8%, from $10,331,000 for 1996 to $9,501,000 for 1997 primarily due
to reduced energy, maintenance and complimentary costs. As a percentage of total
net revenues, selling, general and administrative expenses increased from 16.9%
during the 1996 period to 17.7% during the 1997 period due to lower revenues
over which fixed costs are incurred.
EBITDA AND MORTGAGE NOTE COVENANTS
EBITDA decreased by approximately $1,455,000, or 20.9%, from $6,957,000 during
1996 to $5,502,000 during 1997 due to lower revenues, as discussed above.
Pursuant to covenants applicable to the New First Mortgage Notes and New Second
Mortgage Notes, the Company is required to maintain a minimum consolidated fixed
charges coverage ratio (the "Ratio") of 1.25 to 1.00. The Ratio is defined as
the ratio of aggregate consolidated EBITDA to the aggregate consolidated fixed
charges for the 12-month reference period. For the reference periods ending
December 31, 1997 and March 31, 1998, the Company obtained waivers of those
covenants from the holders of the First Mortgage Notes and Second Mortgage Notes
due to the Ratio being lower than required as of the reference period ended
December 31, 1997 and the expectation that it will be lower than required as of
the reference period ended March 31, 1998. As of year-end 1997, the Ratio was
1.12 to 1.00. The waivers further provided that the noteholders will not take
action prior to January 2, 1999 in respect of a Ratio lower than 1.25 to 1.00
for the reference periods ending June 30 and September 30, 1998.
OTHER EXPENSES
Depreciation and amortization decreased by approximately $1,513,000, or 39.6%,
from $3,816,000 during the 1996 period to $2,303,000 during the 1997 period due
to revaluation of property and equipment as a result of fresh start accounting.
Interest expense increased by approximately $2,506,000, or 100%, from $2,505,000
during 1996 to $5,011,000 for 1997, due to the restatement of the Company's
mortgage notes as a result of the Plan. These notes began accruing interest as
of August 12, 1996, the Confirmation Date.
Reorganization items totaling $2,192,000 were incurred by the Company during
1996. These consisted primarily of professional fees incurred as a result of the
reorganization under Chapter 11 of the Bankruptcy Code. During 1997, there was
$292,000 incurred for additional reorganization items.
NET INCOME (LOSS)
As a result of the factors discussed above, net loss increased by approximately
$358,000, from a loss of $1,556,000 during 1996 to a loss of $1,914,000 during
1997.
1996 COMPARED TO 1995
REVENUES
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 attraction 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%) where 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 - For additional information see ANative American Gaming
Projects@, elsewhere herein.
DIRECT COSTS AND EXPENSES OF OPERATING DEPARTMENTS
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.
Correspondingly, hotel expenses increased $585,000 (7.4%) because of lower
promotional costs allocation 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.
OTHER EXPENSES
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) 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. Interest expense of approximately $1,575,000 has been
accrued from the August 12, 1996 Confirmation Date on the face amount of the New
Second Mortgage Notes ($30 million at 13.5% per annum) which are to be issued
when the Plan becomes effective. In addition, interest of approximately $170,000
has been accrued from the Confirmation Date on the New First Mortgage Notes
(approximately $3.8 million face) which are to be issued when the Plan becomes
effective. Because of the Chapter 11 proceedings, there has been no accrual of
interest on the old $57,000,000 12.5% First Mortgage Notes since October 31,
1995. If accrued to the Confirmation Date, the interest expense on the old 12.5%
notes would have been approximately $4,394,000 in 1996. (In addition, the
remaining unaccreted discount balance related to the old 12.5% First Mortgage
Notes was charged to expense as a reorganization item at October 31, 1995).
There also has been no accrual of interest on the $1,425,000, 7.5% Convertible
Subordinated Notes since October 31, 1995. If accrued to the Confirmation Date,
the interest expense on the 7.5% notes would have been approximately $67,000 in
1996. In addition, there has been no accrual of interest on the $2,950,000 of
prior period tax obligations since October 31, 1995. If accrued, the interest
expense to the Confirmation Date on prior period tax obligations 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. At the Confirmation
Date, 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. Other administrative expenses
of $1,431,000 were included in reorganization expenses during 1996.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
For the years ended December 31, 1997, 1998 and 1995
Page
Independent Auditor's Report
Consolidated Balance Sheets as of December 31, 1997
(Reorganized Company) and December 31, 1996
(Predecessor Company)
Consolidated Statements of Operations for the Ten Months Ended
December 31, 1997 (Reorganized Company), Two Months Ended
February 28, 1997 and Years Ended December 31, 1996 and 1995
(Predecessor Company); Combined Reorganized and Predecessor
Company for the Year Ended December 31, 1997
Consolidated Statements of Shareholders' Equity (Deficiency)
for the Years Ended December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for the Ten Months Ended
December 31, 1997 (Reorganized Company), Two Months Ended
February 28, 1997 and Years Ended December 31, 1996 and 1995
(Predecessor Company); Combined Reorganized and Predecessor
Company for the Year Ended December 31, 1997
Notes to Consolidated Financial Statements
All Financial Statement Schedules are omitted because they are either
not required or not applicable, or the required information is presented in the
Notes to Consolidated Financial Statements.
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Directors and Shareholders
Elsinore Corporation:
We have audited the consolidated balance sheets of Elsinore Corporation and
subsidiaries as of December 31, 1997 and the related consolidated statements of
operations, shareholders' equity and cash flows for the period from March 1,
1997 (effective date) through December 31, 1997 and of Elsinore Corporation and
subsidiaries, Debtor-In-Possession as of December 31, 1996 and the related
consolidated statements of operations, shareholders' equity (deficiency) and
cash flows for the period from January 1, 1997 through February 28, 1997 and for
each of the years in the two-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 as of December 31, 1997 and the results of their operations and
cash flows for the period from March 1, 1997 (effective date) through December
31, 1997 and of Elsinore Corporation and subsidiaries, Debtor-In-Possession as
of December 31, 1996, and the results of their operations and their cash flows
for the period from January 1, 1997 through February 28, 1997 and for each of
the years in the two-year period ended December 31, 1996, in conformity with
generally accepted accounting principles.
/s/ KPMG Pear Marwick LLP
Las Vegas, Nevada
February 13, 1998
<PAGE>
<TABLE>
<CAPTION>
Elsinore Corporation and Subsidiaries
Consolidated Balance Sheets
December 31, 1997 and 1996
(Dollars in thousands)
Reorganized Predecessor
Company Company
December 31, 1997 December 31,
1996
-------------------- --------------------
Assets
Current Assets:
<S> <C> <C>
Cash and cash equivalents 5,908 7,208
Accounts receivable, less allowance for
doubtful accounts of $165 and $347,
respectively 623 815
Inventories 382 354
Prepaid expenses 1,846 1,177
-------------------- --------------------
Total current assets 8,759 9,554
Restricted cash 914 4,445
Property and equipment, net 39,042 25,485
Investment in Fremont Street Experience LLC - 2,400
Reorganization value in excess of amounts
allocable to indentifiable assets, net 367 -
Other assets 741 743
-------------------- --------------------
Total assets 49,823 42,627
==================== ====================
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
<TABLE>
<CAPTION>
Elsinore Corporation and Subsidiaries
Consolidated Balance Sheets (continued)
December 31, 1997 and 1996
(Dollars in thousands)
Reorganized Predecessor
Company Company
December 31, 1997 December 31,
1996
-------------------- --------------------
Liabilities and shareholders' equity (deficiency)
Current liabilities:
<S> <C> <C>
Accounts payable 1,174 1,065
Accrued interest 1,492 2,137
Accrued expenses 4,453 6,176
Current maturities of long-term debt 1,477 50
-------------------- --------------------
Total current liabilities 8,596 9,428
Estimated liabilities subject to Chapter 11
proceedings - 73,909
Long-term debt, less current maturities 38,141 -
-------------------- --------------------
Total liabilities 46,737 83,337
-------------------- --------------------
Commitments and contingencies
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
Accumulated deficit (1,914) (110,328)
-------------------- --------------------
Total shareholders' equity (deficiency) 3,086 (40,710)
-------------------- --------------------
Total liabilities and shareholders'
equity (deficiency) 49,823 42,627
==================== ====================
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
Elsinore Corporation and Subsidiaries
Consolidated Statements of Operations
(Dollars in thousands, except per share amounts)
Combined
Reorganized
and
Reorganized Predecessor
Company Predecessor Company Company
------------------ -------------------------------------------------------------- ------------------
Period from Period from Twelve
March 1 January 1 Year Year Months
to to Ended Ended Ended
December 31, 1997 February 28, December 31, December 31, December 31,
1997 1996 1995 1997
------------------ ------------------ ------------------ ------------------ ------------------
Revenues, net:
<S> <C> <C> <C> <C> <C>
Casino 29,584 6,922 42,300 39,964 36,506
Hotel 7,969 1,736 11,202 9,564 9,705
Food and beverage 7,941 1,745 12,373 12,136 9,686
Other 1,962 153 1,502 1,983 2,115
Promotional
allowances (3,464) (760) (6,178) (6,674) (4,224)
------------------ ------------------ ------------------ ------------------ ------------------
Total revenues,
net 43,992 9,796 61,199 56,973 53,788
Costs and expenses:
Casino 11,589 2,710 17,694 19,705 14,299
Hotel 7,241 1,410 8,482 7,897 8,651
Food and beverage 5,072 1,105 7,088 6,010 6,177
Taxes and licenses 4,497 980 6,592 6,627 5,477
Selling, general and
administrative 7,694 1,807 10,331 11,385 9,501
Rents 3,508 673 4,055 3,955 4,181
Provision for losses
on loans receivable
from Native American
Tribes 23,598
Casino development
costs 2,323
Depreciation and
amortization 1,774 529 3,816 3,948 2,303
Interest 4,239 772 2,505 8,006 5,011
Interest, prior
period income tax
obligation - - - 590 -
------------------ ------------------ ------------------ ------------------ ------------------
Total costs and
expenses 45,614 9,986 60,563 94,044 55,600
------------------ ------------------ ------------------ ------------------ ------------------
Income (loss) before
reorganization
items and
extraordinary
gain on
elimination of
debt (1,622) (190) 636 (37,071) (1,812)
=======
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
Elsinore Corporation and Subsidiaries
Consolidated Statements of Operations(continued)
(Dollars in thousands, except per share amounts)
Reorganized
Company Predecessor Company
------------------ ------------------------------------------------------------
Period from Period from
March 1 January 1 Year Year
to to Ended Ended
December 31, 1997 February 28, December 31, December 31,
1997 1996 1995
------------------ ------------------ ------------------ --------------------
<S> <C> <C> <C> <C>
Reorganization items 292 - 2,192 8,678
Extraordinary gain
on elimination of
debt - 35,977 - -
------------------ ------------------ ------------------ --------------------
Net income (loss) (1,914) 35,787 (1,556) (45,749)
================== ================== ================== ====================
<PAGE>
Basic and diluted
income (loss) per
share:
Income
(loss) before
extraordinary
gain on
elimination
of debt ($.39) ($0.01) ($0.10) ($2.95)
Extraordinary
gain on
elimination of
debt - $2.26 - -
------------------ ------------------ ------------------ --------------------
Net income (loss) ($.39) $2.25 ($0.10) ($2.95)
================== ================== ================== ===================
Weighted average
number of common
shares
outstanding 4,929,313 15,891,793 15,891,793 15,511,983
================== ================== ================== ===================
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
Elsinore Corporation and Subsidiaries
Consolidated Statements of Shareholders' Equity (Deficiency)
Years Ended December 31, 1997, 1996 and 1995
(Dollars in thousands)
Additional
Common Common Paid-in Accumulated Treasury
Shares Stock Capital Deficiency Stock Total
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 13,135,214 $13 $61,346 $(63,023) $- $(1,664)
Issuance of shares 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)
Proceeds from issuance of
common stock subscription
rights - - 713 - - 713
Net income predecessor company
Jan. 1, 1997-Feb. 28, 1997 - - - 35,787 - 35,787
Fresh Start Adjustments (10,962,480) (11) (65,320) 74,541 - 9,210
Net loss of reorganized company
Mar. 1, 1997-Dec. 31, 1997 - - - (1,914) - (1,914)
-------------------------------------------------------------------
Balance December 31, 1997 4,929,313 5 4,995 (1,914) - 3,086
==================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
<TABLE>
<CAPTION>
Elsinore Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(Dollars in thousands)
Combined
Reorganized and
Reorganized Predecessor
Company Predecessor Company Company
------------------- --------------------------------------------------------- -------------------
Period from Period from Year Year Twelve
March 1 to January 1 to Ended Ended Months Ended
December 31, 1997 February 28, December 31, 1996 December 31, December 31,
1997 1995 1997
------------------- --------------- ------------------- ------------------- -------------------
Cash flows from operating activities:
<S> <C> <C> <C> <C> <C>
Net income (loss) ($1,914) $35,787 ($1,556) ($45,749) $33,873
Adjustments to reconcile
net income (loss) to net
cash provided by (used
in) operating activities:
Extraordinary gain on
elimination of debt - (35,977) - - (35,977)
Depreciation
and amortization 1,774 529 3,816 3,948 2,303
Loss on sale of equipment 3 - - - 3
Accretion of discount on
long-term debt - - 98 1,170 -
Write-off loans
receivable, FSE operating
costs and casino
development costs - - - 26,446 -
Reorganizational items - - 2,192 8,678 -
(Increase) decrease in
accounts receivable (77) 269 (85) 13 192
(Increase) decrease in
inventories (34) 6 (106) 148 (28)
(Increase) decrease in
prepaid expenses (558) (111) (149) 630 (669)
(Increase) decrease in
restricted cash (561) 4,092 (4,445) 3,685 3,531
(Increase) decrease in
other assets - 2 80 (2,665) 2
Increase (decrease) in
accounts payable 72 (178) (116) 2,658 (106)
Increase (decrease) in
accrued expenses (2,314) 591 (1,368) (2,073) (1,723)
Increase (decrease) in
accrued interest (868) 749 2,037 2,455 (119)
------------------------------------------------------------------------------------------------
Net cash provided by (used
in) operating activities (4,477) 5,759 398 (656) 1,282
------------------------------------------------------------------------------------------------
</TABLE>
F-7
<PAGE>
<TABLE>
Elsinore Corporation and Subsidiaries
Consolidated Statements of Cash Flows (continued)
(Dollars in thousands)
Combined
Reorganized and
Reorganized Predecessor
Company Predecessor Company Company
------------------- ------------------------------------------------------- ---------------------
Period from Period from Twelve
March 1 January 1 Year Year Months
to to Ended Ended Ended
December 31, February 28, December 31, December 31, December 31,
1997 1997 1996 1995 1997
------------------- --------------- -------------------- ---------------- ---------------------
Cash flows from investing activities:
Notes and loans receivable,
casino development costs
and investment in
<S> <C> <C> <C> <C> <C>
FSE, LLC - - - (8,244) -
Capital expenditures (2,688) (141) (1,001) (148) (2,829)
Proceeds from sale of
equipment 95 - - - 95
---------------------------------------------------------------------------------------------------
Net cash used in investing
activities (2,593) (141) (1,001) (8,392) (2,734)
---------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Principal payments on
long-term debt (549) (12) (48) (62) (561)
Proceeds from issuance
of long-term debt - - - 1,983 -
Proceeds from issuance of
Common stock, net - - - 3,747 -
Proceeds from issuance of
common stock and
subscription rights - 713 4,287 - 713
Debt issuance costs - - - (140) -
---------------------------------------------------------------------------------------------------
Net cash provided by (used
in) financing activities (549) 701 4,239 5,528 152
---------------------------------------------------------------------------------------------------
</TABLE>
F-8
<PAGE>
<TABLE>
Elsinore Corporation and Subsidiaries
Consolidated Statements of Cash Flows (continued)
(Dollars in thousands)
Combined
Reorganized and
Reorganized Predecessor
Company Predecessor Company Company
------------------ --------------------------------------------------------- --------------------
Period from Period from Twelve
March 1 January 1 Year Year Months
to to Ended Ended Ended
December 31, February 28, December 31, December 31, December 31,
1997 1997 1996 1995 1997
------------------ ------------------- ---------------- ------------------ -------------------
Net increase (decrease) in
<S> <C> <C> <C> <C> <C>
cash and cash equivalents (7,619) 6,319 3,636 (3,520) (1,300)
Cash and cash equivalents at
beginning of period 13,527 7,208 3,572 7,092 7,208
------ ----- ----- ----- -----
Cash and cash equivalents at
end of period $5,908 $13,527 $7,208 $3,572 $5,908
====== ======= ====== ====== ======
</TABLE>
F-9
<PAGE>
<TABLE>
Elsinore Corporation and Subsidiaries
Consolidated Statements of Cash Flows (continued)
(Dollars in thousands)
Combined
Reorganized and
Reorganized Predecessor
Company Predecessor Company Company
----------------- ----------------------------------------------------------- -------------------
Period from Period from Twelve
March 1 January 1 Year Year Months
to to Ended Ended Ended
December 31, February 28, December 31, December 31, December 31,
1997 1997 1996 1995 1997
----------------- ------------------ ------------------ ------------------- -------------------
Supplemental disclosure of
non-cash investing and financing
activities:
Fresh start adjustments
which result in increase (decrease)
to the following:
<S> <C> <C> <C> <C> <C>
Property and
equipment,net - (13,130) - - (13,130)
Leasehold acquisitions
costs, net - 1,907 - - 1,907
Reorganization value
in excess of amounts
allocable
to identifiable
assets - (387) - - (387)
Investment in Fremont
Street Experience LLC - 2,400 - - 2,400
Accounts payable - 344 - - 344
Accrued interest - (525) - - (525)
Estimated liabilities
subject to Chapter 11
proceedings - (72,552) - - (72,552)
Long-term debt, less
current maturities - 36,756 - - 36,756
Common stock, predecessor
company - (16) - - (16)
Common stock, reorganized
company - 5 - - 5
Additional paid
in capital - (65,320) - - (65,320)
Accumulated deficit - 110,518 - - 110,518
</TABLE>
F-10
<PAGE>
<TABLE>
<CAPTION>
Elsinore Corporation and Subsidiaries
Consolidated Statements of Cash Flows (continued)
(Dollars in thousands)
Combined
Reorganized and
Reorganized Predecessor
Company Predecessor Company Company
------------------ --------------------------------------------------------------- -------------
Period from Period from Twelve
March 1 January 1 Year Year Months
to to Ended Ended Ended
December 31, February 28, December 31, December 31, December 31,
1997 1997 1996 1995 1997
------------------ -------------------- ---------------------- ----------------- -------------
Cash paid during the year for:
<S> <C> <C> <C> <C> <C>
Interest 5,129 - 367 3,998 5,129
Income taxes - - - 3,475 -
Equipment purchased with
capital leases 1,889 - - - 1,889
Conversion of convertible
notes to common stock - - - 225 -
</TABLE>
See accompanying notes to consolidated financial statements.
F-11
<PAGE>
Elsinore Corporation and Subsidiaries
Notes to Consolidated Financial Statements
On October 31, 1995, Elsinore Corporation, D. I. P. (the "Predecessor Company")
filed a voluntary petition to reorganize under Chapter 11 of the Federal
Bankruptcy Code. 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 the
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. 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. A vertical black
line is shown in the financial statements to separate the Reorganized Company
from the Predecessor Company since they have not been prepared on a consistent
basis of accounting.
1. Chapter 11 Reorganization
On August 12, 1996 (the "Confirmation Date"), the United States Bankruptcy Court
for the District of Nevada (the "Bankruptcy Court") confirmed the Plan. The Plan
became effective on the Effective Date.
Pursuant to the Plan, the following occurred upon the Effective Date:
The old common stock interests in the Predecessor Company were canceled and the
Reorganized Company issued 4,929,313 shares of new common stock (the "New Common
Stock"). The New Common Stock was distributed to the following classes of
creditors and equity holders:
<TABLE>
<S> <C> <C>
12.5% First Mortgage noteholders 3,750,000
7.5% Convertible Subordinated noteholders 68,234
Internal Revenue Service 38,373
Old common stockholders 72,706
---------
Total 3,929,313
=========
</TABLE>
The Reorganized Company issued the remaining 1 million shares through a rights
offering which raised $5 million to assist in funding the Plan. These shares
were subscribed for by members of the following classes of creditors and equity
holders:
<TABLE>
<S> <C> <C>
12.5% First Mortgage noteholders 995,280
Old common stockholders 4,720
---------
Total 1,000,000
=========
</TABLE>
The Plan also calls for the Reorganized Company to issue the following
additional shares of New Common Stock to the following creditor groups as soon
as disputed claims within those groups are resolved:
<TABLE>
<S> <C>
Unsecured Creditors of Four Queens, Inc. 50,491
Unsecured Creditors of Elsinore Corporation 20,196
------
Total 70,687
======
</TABLE>
After giving effect to this issuance of additional shares, the Reorganized
Company will have 5 million issued and outstanding shares of New Common Stock.
The proceeds from the rights offering were held in a separate bank account and
use was restricted until the Effective Date.
Riviera Gaming Management Corp. - Elsinore ("RGME") holds a warrant to purchase
1,125,000 shares of New Common Stock for $1 per share.
The old 1994 Mortgage Notes were amended and restated to include the original
principal amount of $3,000,000, accrued interest at 20% through the Confirmation
Date in the amount of $726,000, and attorney's fees and disbursements through
the Effective Date of $130,000 resulting in a new principal amount of
$3,856,000. On the Effective Date, each 1994 Mortgage Note holder received its
prorata share of restated first mortgage notes (the "New First Mortgage Notes").
The New First Mortgage Notes bear interest at 11.5%, payable quarterly
commencing on the fourth month following the Confirmation Date and are due four
years from the Confirmation Date. These noteholders retained their lien
interests as collateral for repayment.
The old 1993 First Mortgage Notes were amended and restated to reduce the
principal amount of $57,000,000 to $30,000,000 which represented the secured
portion of the claim. On the Effective Date, each 1993 First Mortgage Note
holder received its prorata share of restated second mortgage notes (the "New
Second Mortgage Notes"). The New Second Mortgage Notes bear interest at 13.5%,
payable semi-annually and are due five years from the Confirmation Date. The
unsecured portion of their claim, approximately $4,000,000 (representing accrued
interest through the date of filing the Chapter 11 petition at 12.5%), was
exchanged for shares of New Common Stock as described above.
The Convertible Notes with the principal amount of $1,425,000 were exchanged for
63,234 shares of New Common Stock on a prorata basis.
The general unsecured creditors with claims in the amount of approximately
$3,510,000 received a prorata share of $1,400,000 and are entitled to 70,687
shares of New Common Stock. The stock distribution will take place once certain
litigation has been settled which will determine the number of shares to which
each individual unsecured creditor is entitled.
The Internal Revenue Service ("IRS") has agreed to a note payable in the amount
of $629,000 in settlement of an unsecured claim to be fixed in the amount of
$1,893,000 which was calculated based on the percentage of the allowed claim
compared to the total general unsecured claims. The note is non-interest bearing
and payable in semi-annual payments beginning August 1997. Additionally, the IRS
received a note payable in the amount of $1,087,000 and 38,373 shares of New
Common Stock in settlement of its secured claim. The note will accrue interest
at 8% per annum and is due four years from the Effective Date. Finally, the IRS
had an unsecured priority claim in the amount of $5,000 which was paid.
The Company's Board of Directors was reconstituted to include five members, of
which four were designated by the Bondholders Committee and one was appointed by
the Equity Committee in the bankruptcy proceedings.
2. Fresh Start Reporting
In connection with its emergence from bankruptcy on the Effective Date, the
Company adopted fresh start reporting in accordance with SOP 90-7. The fresh
start reporting common equity value of $5.0 million was determined by the
Company. The significant factors used in the determination of this value were
analyses of industry, economic and overall market conditions, historical and
estimated performance of the Company as well as of the gaming industry,
discussions with various potential investors and certain financial analyses.
Under fresh start reporting, the reorganization value of the entity has been
allocated to the Reorganized Company's assets and liabilities on a basis
substantially consistent with purchase accounting. The portion of reorganization
value not attributable to specific tangible assets has been reflected as
"Reorganization Value in Excess of Amounts Allocable to Identifiable Assets" in
the accompanying balance sheet as of March 1, 1997. The fresh start reporting
adjustments, primarily related to the adjustment of the Company's assets and
liabilities to estimated fair market value, will have a significant effect on
the Company's future statements of operations. The more significant of these
adjustments relates to reduced depreciation expense on property and equipment,
increased amortization expense relating to reorganization value in excess of
amounts allocable to identifiable assets and increased interest expense.
The effects of the Plan and fresh start reporting on the balance sheet at
February 28, 1997 are as follows:
<PAGE>
<TABLE>
<CAPTION>
Predecessor (a) (b) (c) Reorganized
Company Debt Issue of Fresh Start Company
February 28, Discharge Stock Adjustments March 1,
1997 1997
------------------- --------------- -------------- ------------------- -----------------------
Assets
Current assets:
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents 13,527 13,527
Accounts receivable, net 546 546
Inventories 348 348
Prepaid expenses 1,288 1,288
------------------- --------------- -------------- ------------------- --------------------
Total current assets 15,709 15,709
Property and equipment, net 23,191 13,130 36,321
Leasehold acquisition costs, net 1,907 (1,907)
Reorganization value in excess of amounts
allocable to identifiable assets 387 387
Investment in Fremont Street
Experience LLC 2,400 (2,400)
Restricted cash available
for payment on long-term debt 353 353
Other assets 740 740
------------------- --------------- -------------- ------------------- --------------------
Total assets $44,300 $ - $ - $9,210 $53,510
=================== =============== ============== =================== ====================
Liabilities and Shareholders' Equity
(Deficiency)
Current liabilities:
Current maturities of
long-term debt 41 873 914
Accounts payable 757 344 1,102
Accrued expenses 6,766 6,766
Accrued interest 2,886 (525) 2,361
------------------- --------------- -------------- ------------------- --------------------
Total current liabilities 10,451 (181) 873 11,143
Estimated liabilities subject to
Chapter 11 proceedings 72,552 (72,552)
Long-term debt, less
current maturities 1,484 36,756 (873) 37,367
------------------- --------------- -------------- ------------------- --------------------
Total Liabilities 84,487 (35,977) 48,510
------------------- --------------- -------------- ------------------- --------------------
Shareholders' equity (deficiency)
Common stock,
Predecessor company 16 (16)
Common stock,
Reorganized company 4 1 5
Additional paid in capital 70,315 (4) (65,316) 4,995
Accumulated deficiency (110,518) 35,977 74,541
------------------- --------------- -------------- ------------------- --------------------
Total Shareholders'
equity (deficiency) (40,187) 35,977 9,210 5,000
------------------- --------------- -------------- ------------------- --------------------
Total liabilities and shareholders'
equity (deficiency) $44,300 $ - $ - $9,210 $53,510
=================== =============== ============== =================== ====================
</TABLE>
(a) To record the discharge of prepetition obligations pursuant to the
Plan of Reorganization. (b) To record the issuance of 3,929,313 shares of
New Common Stock. (c) To record adjustments to reflect assets and
liabilities at fair market values and to record reorganization value in
excess of amounts allocable to identifiable assets.
<PAGE>
3. Reorganization Items
Reorganization expense is comprised of items incurred by the Company as a result
of reorganization under Chapter 11 of the Federal Bankruptcy Code. Such items
for 1997, 1996 and 1995 consisted of the following (in thousands):
1997 1996 1995
---- ---- ----
Administrative expenses $ 192 $1,431 $ 293
Severance expenses 100 761 -
Write-off of debt issuance costs - - 2,695
Write-off of original issue discount on debt - - 5,690
----- ----- -----
$ 292 $2,192 $8,678
===== ===== =====
4. Summary of Significant Accounting Policies
(a) Reorganization Value in Excess of Amounts Allocable to Identifiable Assets
Reorganization value in excess of amounts allocable to identifiable assets is
amortized on a straight line basis over 15 years. Accumulated amortization at
December 31, 1997 is approximately $20,000. The Company will continue to assess
the recoverability of this asset based upon expected future undiscounted cash
flows and other relevant information.
(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,
1997 1996 1995
---- ---- ----
(Dollars in thousands)
Hotel $ 703 $1,215 $1,608
Food & beverage 2,219 3,908 4,869
----- ----- ------
Total $2,922 $5,123 $6,477
======= ====== ======
(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 7 to 40 years. Equipment held under capital leases is recorded
at the net present value of minimum lease payments at the inception of the lease
and amortized over the shorter of the terms of the leases or estimated useful
lives of the related assets.
(g) 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 Company's $3,000,000 capital contribution for
its one-sixth ownership of FSELLC was paid in full by January 1994. 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 a result of
fresh start reporting, the Company deemed that the capital contribution had no
future value and the remaining $2,400,000 was expensed. The Company=s allocated
share of the operating costs of the Fremont Street Experience ($1,000,000 in
1996 and $600,000 in 1997) are expensed as incurred.
(h) Income Taxes
Under the asset and liability method of accounting for income taxes, deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. 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. 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.
(i) Loss Per Share
Basic loss per share is computed by dividing net loss by the number of weighted
average common shares outstanding during the year. Diluted loss per share is
computed by dividing net loss by the number of weighted average common shares
outstanding during the year, including common stock equivalents. There were no
common stock equivalents, therefore basic and diluted loss per share are equal.
(j) 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 Statement of Financial
Accounting Standards ("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.
The Company has no stock-based plans outstanding at December 31, 1997.
(k) Long-lived Assets
In March, 1995, the Financial Accounting Standards Board ("FASB") issued SFAS
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. SFAS No. 121 also addresses the
accounting for long-lived assets that are expected to be disposed of. The
Company adopted SFAS No. 121 in the first quarter of 1996 and there was no
write-down of assets for the years ended December 31, 1997 and 1996 other than
in connection with the application of fresh start accounting.
(l) Reclassification
Certain prior period reclassifications have been made in the Predecessor
Company's financial statements to conform to the Reorganized Company's
presentation.
(m) 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 at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period to prepare these financial
statements in conformity with generally accepted accounting principles. Actual
results could differ from those estimates.
(n) 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.
The carrying amount of the long-term debt approximates fair value because it is
deemed to be fully secured and bears interest at an appropriate rate.
(o) Recently Issued Accounting Standards
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income."
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 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.
In June 1997, the FASB issued SFAS No. 131, "Disclosure About Segments of an
Enterprise and Related Information." SFAS No. 131 established additional
standards for segment reporting in the financial statements and is effective for
fiscal years beginning after December 15, 1997.
The Company believes there is no material impact of these pronouncements on the
Company's financial statements.
5. Long-Term Debt
Long-term debt consists of the following:
December 31,
1997 1996
---------------
11.5% New First Mortgage Notes
("11.5% Notes") $ 3,856 $ -
13.5% New Second Mortgage Notes
("13.5% Notes") 30,000 -
Notes payable - IRS 1,404 -
Notes payable - Other 1,104 -
Capital leases 3,254 -
Prepetition liabilities:
Subject to compromise - 4,487
Not subject to compromise - 69,422
-------- --------
39,618 73,909
Less current maturities (1,477) -
-------- --------
$38,141 $73,909
======== ========
The 11.5% Notes bear interest at 11.5% payable on March 1, June 1, September 1,
and December 1 of each year. Principal is due on August 20, 2000. The 11.5%
Notes are redeemable at any time at 102% of par. The Company is required to make
an offer to purchase all 11.5% Notes at 101% upon any "Change of Control" as
defined in the Amended and Restated Note Agreement governing the 11.5% Notes
("Note Agreement"). The Company is also required to offer to purchase a portion
of the 11.5% Notes in the amount of any proceeds received on the Palm Springs
East Limited Partnership Note. The 11.5% Notes are collateralized by a first
priority deed of trust on and pledge of substantially all assets of Elsinore
Corporation, Elsub Management Corporation, Four Queens, Inc., and Palm Springs
East Limited Partnership. The 11.5% Notes are guaranteed by certain wholly owned
subsidiaries of the Company.
The Note Agreement, among other things, places significant restrictions on the
incurrence of additional indebtedness by the Company, the creation of additional
liens on the collateral securing the 11.5% Notes, transactions with affiliates
and payment of certain restricted payments (as defined). In order for the
Company to incur additional indebtedness or make a restricted payment, the
Company must, among other things, meet a specified consolidated fixed charges
coverage ratio and have earned $1 million in EBITDA. The Company must also
maintain a minimum amount of consolidated net worth (as defined).
The 13.5% Notes bear interest at 13.5%, payable on February 28 and August 31 of
each year. Principal is due on August 20, 2001. The 13.5% Notes are redeemable
by the Company at any time at 100% of par, without premium. The Company is
required to make an offer to purchase all 13.5% Notes at 101% upon any "Change
of Control" as defined in the Indenture governing the 13.5% Notes. The 13.5%
Notes are guaranteed by Elsub Management Corporation, Four Queens, Inc. and Palm
Springs East Limited Partnership and are collateralized by a second deed of
trust on and pledge of substantially all the assets of the Company and the
guarantors. The 13.5% Notes have substantially the same restrictions and
covenants as the 11.5% Notes.
At December 31, 1997, the Company was not in compliance with consolidated fixed
charges coverage ratio covenants applicable to the 11.5% Notes and 13.5% Notes.
Waivers of compliance were received from holders of the 11.5% Notes and 13.5%
Notes.
The Company has various unsecured notes payable with certain vendors as a result
of the bankruptcy. These notes are non-interest-bearing and are payable in
either quarterly installments of $31,000 or semiannual installments of $240,000
through October 2001.
The Company has two unsecured notes payable with the IRS as a result of the
bankruptcy. One note bears interest at 8% and the other is non-interest-bearing.
The notes are payable in semiannual installments of $266,000 through February
2000.
Maturities of the Company's long-term debt are as follows:
Year Ending December 31,
1998 $ 1,477
1999 1,268
2000 4,956
2001 30,440
2002 4
Thereafter 1,473
--------
$ 39,618
========
6. 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 for purposes of this section of this Note,
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.
During 1995, the Company was ousted as manager. As a result, casino development
costs of $1,037,000 were written off, accrued interest and working capital loans
of $3,500,000 were written off and a reserve of $9,000,000 was recorded against
the principal balance of the note receivable.
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. 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 $711,000 and
$353,000 of interest which was recorded in the years ended 1997 and 1996
respectively. 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 section of this Note, the
"Company"), had 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 loaned $9,000,000 to the Tribe for the construction of 7 Cedars.
During 1995, the contract was terminated by 7 Cedars. As a result, the Company
recorded a reserve on the $9,000,000 note and wrote off unamortized casino
development costs in the amount of $242,000 and all accrued interest. During
1997, the Company wrote off the note receivable and related reserve.
Mojave Valley Resort Project
During 1995, management wrote off approximately $807,000 of casino development
costs related to this unsuccessful project.
7. Property and Equipment, Net
Property and equipment, net, consists of the following:
December 31,
1997 1996
(Dollars in thousands)
Land $ 2,800 $ 1,275
Buildings 27,088 39,240
Equipment 10,265 24,488
Leasehold acquisition costs - 6,839
Construction in progress 399 53
------- -------
40,552 71,895
Less accumulated depreciation
and amortization 1,510 46,410
------- -------
$39,042 $25,485
======= =======
8. Accrued Expenses
Accrued expenses consist of the following:
December 31,
1997 1996
(Dollars in thousands)
Salaries and wages $1,471 $1,584
Payroll taxes and employee benefits 931 883
Gaming taxes 143 107
Slot club liability 616 546
Outstanding chip & token liability 515 692
Other 777 2,364
------ ------
$4,453 $6,176
====== ======
9. Income Taxes
No income tax benefit related to the 1997, 1996 and 1995 losses has been
recorded due to the uncertain ability of the Company to utilize its net
operating loss carryforwards.
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities are presented below:
December 31,
1997 1996
(Dollars in thousands)
Deferred tax assets:
Accounts receivable, principally
due to allowance for doubtful
accounts $ 56 $135
Accrued compensation, principally
due to accrual for financial
reporting purposes 635 738
Progressive slot and slot club accruals 414 143
Merger costs, principally due to amounts
not currently deductible for tax
purposes 103 -
Tax asset from predecessor company 6,721 -
Net operating loss carryforwards - 34,887
General business credit carryforward,
principally due to investment
tax credit generated in prior years - 640
Alternative minimum tax (AMT)
credit carry-forward from AMT
paid in prior years - 312
Contribution deduction carryforward,
principally due to amounts
not deductible in prior periods 63 63
Tax loss due to sale of New Jersey
subsidiaries in prior periods 726 714
Loan receivable principal due to
allowance for uncollectibility - 8,023
Reorganization items, principally due
to amounts not currently
deductible for tax purposes - 3,723
-------- --------
Total gross deferred tax assets 8,718 49,378
Less valuation allowance (4,337) (45,099)
----------- ---------
Net deferred tax assets 4,381 4,279
----------- --------
Deferred tax liabilities:
Plant and equipment, principally due to
differences in depreciation (4,018) (3,966)
Prepaid expenses, principally due to
deduction for tax purposes (363) (313)
---------- ---------
Total gross deferred tax
liabilities (4,381) (4,279)
---------- ---------
Net deferred tax liability $ - $ -
========== ========
Prior to emergence from bankruptcy following the close of business on
February 28, 1997, the Company had 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")
limited the amount of loss carryforward currently available to offset federal
taxable income. As a result of the bankruptcy and the resulting change in
ownership, the existing net operating loss is limited under Section 382. The
loss carryforwards begin to expire in the year 1999 and will completely expire
by 2007.
The Company had 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 had alternative
minimum tax credit carryforwards of approximately $312,000 which are available
to reduce future federal income taxes, if any, over an indefinite period. Both
of these amounts are limited by Section 382 and may not be available for use in
future periods.
Prior Period Tax Obligation
Due to IRS examinations of the Company's consolidated income tax returns for the
fiscal years ended January 31, 1980, 1981, 1982 and the eleven months ended
December 31, 1983, the Company was assessed additional tax and interest of $5.7
million. The Company and the IRS entered into an installment payment agreement
to satisfy this obligation. Upon filing for protection under Chapter 11 of the
bankruptcy code, the Company had a remaining obligation to the IRS in the amount
of approximately $2,985,000. The settlement of this obligation is fully
described in Note 1.
10. Common Stock Offering
On January 25, 1995, the Company completed a public offering of 2,500,000 shares
of 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
were approximately $3,747,000.
11. Commitments and Contingencies
RGME manages the Four Queens Hotel & Casino in accordance with the management
agreement effective April 1, 1997. RGME receives a minimum annual fee of $1
million in equal installments plus 25% of the excess of earnings before
interest, taxes, depreciation and amortization ("EBITDA") over $8 million. RGME
also received warrants to purchase 1,125,000 shares of common stock at $1 per
share. The agreement is for approximately 40 months and can be extended for an
additional 24 months at RGME's option if certain performance standards are met.
The Company is liable for one-sixth of the operating expenses incurred by
Fremont Street Experience, LLC.
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 and breach of contract.
The Company believes that this claim is 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. Management believes that
such matters are either covered by insurance or, if not insured, will not have a
material adverse effect on the financial position or results of operations of
the Company.
12. Leases
All non-cancelable leases have been classified as capital or operating leases.
At December 31, 1997, the Company had leases for real and personal property
which expire in various years through 2075. Under most leasing arrangements, the
Company pays the taxes, insurance, and the operating expenses related to the
leased property. Certain leases on real property provide for adjustments of
rents based on the cost-of-living index. Buildings and equipment leased under
capital leases, included in property and equipment, are as follows:
December 31,
1997 1996
---- ----
(Dollars in thousands)
Building $1,364 $2,062
Equipment 1,477 324
------ ------
2,841 2,386
Less accumulated amortization (110) (817)
------ ------
$2,731 $1,569
====== ======
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, 1997:
Capital Operating
Leases Leases
(Dollars in thousands)
Years Ending December 31,
1998 $ 971 $ 2,979
1999 680 2,967
2000 680 2,945
2001 511 2,945
2002 223 2,946
Thereafter 7,022 91,761
------ --------
Total minimum lease payments 10,087 $106,543
========
Less: amount representing
interest(at imputed rates
ranging from 11.5%
to 15.0% 6,833
------
Present value of net
minimum capital lease
payments 3,254
Less: current maturities 676
------
Capital lease obligations,
excluding current maturities $2,578
======
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 1997, 1996 and 1995 totaled $149,000, $87,000, and
$97,000, respectively. While the Company is liable for its share of unfunded
vested benefits, the Company believes the amount, if any, would not be material
to the consolidated financial statements.
On October 1, 1990, the Company instituted a savings plan qualified under
Section 401(k) of the Internal Revenue Code of 1986, as amended. The savings
plan covers substantially all employees who are not covered by a collective
bargaining 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 $120,000, $130,488, and $138,000 for 1997, 1996 and
1995, respectively. There were 438, 469, and 496 participants in the savings
plan as of December 31, 1997, 1996 and 1995, respectively.
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
1997 $3,513 $ 477 $ 413 $1,074 $5,477
1996 $4,496 $ 468 $ 497 $1,132 $6,592
1995 $4,377 $ 454 $ 483 $1,313 $6,627
====== ======= ===== ====== ======
15. Supplemental Financial Information
A summary of additions and deductions to the allowance for doubtful accounts
receivable for the years ended December 31, 1997, 1996 and 1995 follows:
Balance at Balance
Allowance for Beginning of At End of
Doubtful Accounts Year Additions Deductions Year
Years Ended
1997 $347 $ 64 $246 $165
1996 $201 $321 $175 $347
1995 $214 $ 68 $ 81 $201
==== ==== ==== ====
16. Event After Date of Auditor's Report
The Company entered into an Agreement and Plan of Merger ("Merger
Agreement")with R&E Gaming Corp. ("R&E") and Elsinore Acquisition Sub, Inc.
("EAS"), entities controlled by Mr. Allen Paulson. Pursuant to the Merger
Agreement, the Company would merge with EAS and, as a result, would become a
wholly-owned subsidiary of R&E and the Company's shareholders (other than those
who exercise dissenter's rights under Nevada law) would receive, for each share
of the Company's common stock owned by them, cash in the amount of $3.16 plus an
amount equal to the daily accrual on $3.16 at 9.43% compounded annually,
accruing from June 1, 1997 to the date immediately preceding consummation of the
merger.
The Company has received from R&E a notice, dated March 20, 1998, stating that
the Merger Agreement is void or, alternatively, R&E and EAS intend to terminate
the Merger Agreement. As the grounds for its position, R&E has alleged, among
other things, violations by the Company of the Merger Agreement, violations of
law and misrepresentations by the Company's controlling shareholder in
connection with the Option and Voting Agreement relating to the Company's stock
which that shareholder entered into with R&E, and the non-satisfaction of
certain conditions precedent to completing the merger. The Company rejects the
allegations against it by R&E and is of the view that R&E is required to
consummate the merger, subject to approval by gaming authorities. The Company is
reserving all of its rights with respect to R&E's legal obligations.
<PAGE>
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Directors and Executive Officers.
The following sets forth the names, ages and positions of each person
who is a director or executive officer of the Company. Each person listed below
assumed his position with the Company on the Plan Effective Date.
<TABLE>
Name Age Position
<S> <C> <C>
John C. "Bruce" Waterfall 60 Chairman of the Board
Jeffrey T. Leeds 42 President, Chief Executive Officer and Director
S. Barton Jacka 61 Treasurer, Secretary and Director
Edward M. Nigro 55 Director
Harry C. Hagerty, III 37 Director
</TABLE>
Each director assumed his position pursuant to the Plan, which further
provided that (i) the Company's board of directors shall consist of at least
five members, one of whom is selected by the holders of the Company's old common
stock that was canceled on the Plan Effective Date (the "Equity Nominee") and
(ii) the Equity Nominee is to serve as a director for two years. Mr. Hagerty was
selected as the Equity Nominee.
John C. "Bruce" Waterfall. Mr. Waterfall has been a professional money manager
and analyst for the past 29 years with MWV, of which he is President and a
co-founder. Certain investment accounts managed by MWV own 94.3% of the
outstanding Common Stock, and Mr. Waterfall exercises sole voting and investment
authority over that Common Stock. Mr. Waterfall also serves as a director of
Darling International, Inc., a publicly reporting company under the Securities
Exchange Act of 1934, as amended (the "Exchange Act").
Jeffrey T. Leeds. Since 1993, Mr. Leeds has been President of Leeds Group, Inc.,
a private investment banking firm which he co-founded. Mr. Leeds is also a
Principal of Advance Capital Management, LLC, a private equity firm which he
formed in 1995. Mr. Leeds also serves as a director of Alarmguard Holdings,
Inc., a publicly reporting company under the Exchange Act.
S. Barton Jacka. Mr. Jacka is a gaming consultant and serves as chairman of the
gaming compliance committees of two other publicly held companies licensed by
the Nevada Gaming Authorities. From 1993 to 1996, Mr. Jacka was with Bally
Gaming, Inc. and Bally Gaming International, Inc., first as Director of
Government Affairs and Gaming Compliance and later as Vice President. Mr. Jacka
retired from the position of Chairman of the Nevada State Gaming Control Board,
a position he held from 1985 to 1987, prior to entering the private sector.
Edward M. Nigro. Since 1980, Mr. Nigro has been President of Nigro, Inc. and
Nigro Associates, both of which he founded. The companies' activities include
business consulting, casino/hotel management, construction, residential and
commercial real estate development and capital formation.
Harry C. Hagerty, III. Mr. Hagerty is Managing Director - Investment Banking
Department of Deutsche Morgan Grenfell, which he joined in 1994. Previously, he
was a Senior Vice President in the investment banking group of Dillon Reed &
Co., Inc.
Section 16(a) Beneficial Ownership Reporting Compliance.
Based solely upon a review of Forms 3 and 4 furnished to the Company
pursuant to SEC Rule 16a-3(e) during fiscal year 1997, Form 3 was filed later
than the due date by the Company's directors other than Mr. Waterfall. The Form
3 filed by Mr. Hagerty reports his acquisition of Common Stock on the Plan
Effective Date. Each Form 3 filed by Directors Leeds, Jacka and Nigro reports no
ownership of Common Stock.
Item 11. EXECUTIVE COMPENSATION.
The following table provides certain summary information concerning
compensation paid by the Company to each person who served as Chief Executive
Officer during any part of the year ended December 31, 1997. No person who held
any other executive officer position during any part of 1997 received a total
annual salary and bonus in excess of $100,000 in such year.
<PAGE>
<TABLE>
<CAPTION>
Long Term
Compensation
Annual Compensation Awards
------------------
Securities All Other
Name and Principal Position Underlying Compensation
Year Salary ($) Bonus($) Options (#) ($)
---- ---------- -------- ----------- ---
<S> <C> <C> <C> <C> <C>
Jeffrey T. Leeds 1997 35,000 -0- -0- -0-
President and Chief 1996 -0- -0- -0- -0-
Executive Officer (1) 1995 -0- -0- -0- -0-
Thomas E. Martin 1997 7,583 -0- -0- 60,000(3)
President and Chief 1996 540,683 (3) -0- -0- 672(4)
Executive Officer (2) 1995 343,344 -0- -0- 2,310(4)
</TABLE>
(1) Mr. Leeds assumed his positions on the Plan Effective Date.
(2) Mr. Martin resigned from his positions, effective as of the Plan Effective
Date.
(3) In 1996 Mr. Martin was given a severance of one year's annual salary of
$360,000. (See "Employment Contracts and Termination of Employment and Change-in
Control Arrangements" below.) In 1997 Mr. Martin received the last $60,000
installment of that severance payment.
(4) These amounts represent matching contributions under the Company's
401(k) Plan.
Stock Options and Similar Rights.
The Company granted no stock options or stock appreciation rights
(collectively, "Stock Rights") during 1997 nor were any Stock Rights exercised
in 1997. As of the Plan Effective Date, all previously outstanding Stock Rights
were canceled.
Employment Contracts and Termination of Employment and Change-in-Control
Arrangements.
In March 1993, the Company under its former management adopted an
Amended and Restated Senior Executive Severance Plan (the "Severance Plan"). At
the time of, and pursuant to, adoption of the Severance Plan, the Company
entered into severance agreements with then Chairman of the Board Frank L.
Burrell, Jr. and then President and Chief Executive Officer Thomas E. Martin.
Under such agreements, these two officers were to receive an amount equal to two
times their respective annual salaries, in each case, 30 days after termination
(subject to certain limitations) if such termination occurred within two years
after a change in control of the Company. The Severance Plan also provided that
a covered officer may "put" to the Company any stock options theretofore granted
to him under the Company's option plans in return for cash payments equal to the
difference (if greater than zero) between the "fair market value" (as defined in
the relevant option plan) and the exercise price per share of such options.
Pursuant to the Plan, Mr. Burrell's and Mr. Martin's severance agreements, as
modified by the U.S. Bankruptcy Court, were assumed by the Company. Those
agreements provided for severance payments of $240,000 and $360,000 to Messrs.
Burrell and Martin, respectively, to be paid over six months commencing on the
Confirmation Date.
Compensation Committee Interlocks.
During 1997 prior to the Plan Effective Date, the Company had a
Compensation Committee whose duties were to establish the salaries of the
Company's executive officers; to exercise the authority of the Board of
Directors concerning the Company's benefit plan; to administer the Company's
stock option plans; to make recommendations to the Board of Directors concerning
salary increases and bonus awards for he Company's executives, including the
Chairman of the Board and the President/Chief Executive Officer; and to advise
the Board of Directors on other compensation and benefit matters. The members of
the Compensation Committee were Chairman of the Board Burrell (who received
compensation as an executive officer), Director Howard Carlson and Director
Robert McKerroll.
Since the current directors and executive officers assumed their
positions on the Plan Effective Date, the full Board of Directors has made all
decisions regarding executive officer compensation. Messrs. Leeds and Jacka
receive compensation as executive officers and are members of the Board of
Directors.
Compensation of Directors.
Current Board of Directors. Mr. Waterfall receives no compensation from
the Company for serving as Chairman of the Board and attending Board of
Directors meetings. Each of the other directors receives an annual fee of
$25,000 in consideration of his attendance at each quarterly Board of Directors
meeting plus $1,000 for each additional meeting (other than meetings by
telephone conference) at which his attendance is required. All directors receive
reimbursement for reasonable expenses incurred in attending each meeting of the
Board of Directors. Jeffrey T. Leeds and S. Barton Jacka also receive $10,000
per year in consideration of serving as executive officers of the Company.
The Company has approved in principle the payment of an additional fee
to Directors Leeds and Nigro for serving on the Special Committee which the
Board of Directors appointed to consider, and to make recommendations to the
Board of Directors concerning, the Merger Agreement. The amount of such
compensation has not yet been fixed. The Company approved in principle the fee
payment and the two directors agreed to serve on the Special Committee based on
the mutual understanding that the compensation would not be based on the
conclusions reached by the Special Committee or by the full Board of Directors
or on whether the Merger is ultimately consummated.
Board of Directors Prior to the Effective Date. An annual fee of
$25,000, prorated on a monthly basis, was payable to each former non-employee
director of the Company. In 1997 prior to the Plan Effective Date, they each
received two monthly fee payments. Annual fees, prorated on a monthly basis,
were also paid to former directors for service on Board of Directors committees,
as follows: Executive - $12,000; Nominating - $2,500; Compensation - $2,500
($5,000 for Chairman); Audit - $2,500; and Finance - $6,000. In 1997 prior to
the Plan Effective Date, each committee member received two monthly payments of
these respective annual fees. In addition, the directors were reimbursed for
out-of-pocket expenses incurred in connection with attendance at board and
committee meetings.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Security Ownership of Certain Beneficial Owners.
As of March 26, 1998, the beneficial ownership of Common Stock, which
is the only outstanding class of Elsinore equity or voting securities, by each
person who is known by Elsinore to be the beneficial owner of more than 5% of
the outstanding Common Stock, is as follows (1):
<TABLE>
<CAPTION>
Name and Address of Beneficial Owner Amount and Nature of Percent of
- ------------------------------------ -------------------- ----------
Beneficial Ownership Class
-------------------- -----
John C. "Bruce" Waterfall, who exercises voting and investment
authority over the Common Stock owned by the MWV Accounts,
as follows (2)(3):
<S> <C> <C>
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
Betje Partners 134,747 2.7
Restart Partners V, L.P. 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.
</TABLE>
(1) In addition to the persons reported in the table, RGME holds
warrants to purchase 1,125,000 shares of Common Stock. (See Item 1. BUSINESS -
The Four Queens Casino.) If RGME were to exercise the warrants, it would become
the owner of approximately 18.5% 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 the 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 Nevada Gaming
Authorities' decisions on any such applications 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 exercises voting and investment power
(including dispositive power) with respect to Common Stock owned by the MWV
Accounts. MWV and its affiliates other than Mr. 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.
Security Ownership of Management.
As of March 26, 1998, the beneficial ownership of Common Stock by each
of Elsinore's directors and by its directors and executive officers as a group,
as such ownership is known by Elsinore, is as follows:
<TABLE>
Name of Beneficial Owner Amount and Nature of Beneficial Percent of Class
Ownership
<S> <C> <C> <C>
John C. "Bruce" Waterfall, Chairman of 4,646,440 (1) 94.3
the Board
Harry C. Hagerty, III, 53,869 (2) 1.1
Director
Directors and executive 4,700,309 (1)(2) 95.4
officers as a group
</TABLE>
(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.
Changes in Control.
A change in control of the Company will result if the Merger is
consummated or if the Common Stock held by the MWV Accounts is acquired by R&E
pursuant to the Option Agreement. Upon the occurrence of either event, the
Company would be controlled by R&E which, in turn, is controlled by Allen E.
Paulson. See Item 1. BUSINESS Agreement and Plan of Merger.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Chairman of the Board Waterfall is President and a principal
shareholder of MWV, which manages the MWV Accounts. Since the Plan Effective
Date, the MWV Accounts have beneficially owned 94.3% of the Common Stock and
$29,104,000 principal amount of the New Second Mortgage Notes.
As discussed in Item 1. BUSINESS - The Four Queens Casino, RGME, a
subsidiary of Riviera, manages the Four Queens Casino under the Management
Agreement. In connection with RGME's management, RGME's principal officer also
serves, at the request of Elsinore, as the sole director and officer of Four
Queens on a non-salaried basis and is excluded from performing policy-making
functions for Elsinore. Also as discussed in Item 1. BUSINESS - Agreement and
Plan of Merger, Riviera is also a party to an agreement with R&E providing for
the Riviera Merger. Effectiveness of the Riviera Merger is a condition precedent
to consummation of the Merger. Upon consummation of the Merger, RGME would be
entitled to certain payments under the Management Agreement as discussed in Item
1. BUSINESS - The Four Queens Casino.
The Management Agreement was negotiated and went into effect before R&E
or any of its affiliates entered into negotiations with Riviera or Elsinore
concerning the Merger, the Riviera Merger, the Option Agreement or the Riviera
Option Agreement.
Under the Merger Agreement Elsinore has agreed to obtain a tail
insurance policy covering Elsinore's directors and officers for acts or failures
to act prior to the effectiveness of the Merger, and having substantially the
same coverage and deductibles as Elsinore's directors' and officers' liability
insurance policy as in effect on July 1, 1997. The Merger Agreement provides
that the cost to Elsinore (net of any amounts paid by third parties) of the tail
insurance policy shall not exceed $150,000. Based on discussions which Elsinore
has had with a nationally recognized insurance provider, Elsinore expects to
obtain that policy for a six-year term for a premium of approximately $95,000.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K.
(a) 1. and 2. Financial Statements and Schedules
The financial statements and schedules filed as part of this report
are listed in the Index to Consolidated Financial Statements under
Item 8.
<TABLE>
3. List of exhibits
<S> <C> <C>
2.1* First Amended Plan of Reorganization [2.1](5)
2.2* Order Confirming First Amended Plan of Reorganization [2.2](5)
2.3* Bankruptcy Court Order Approving Plan Documentation [2.3](6)
3.1* Amended and Restated Articles of Incorporation of Elsinore Corporation [3.1](7)
3.2* Amended and Restated Bylaws of Elsinore Corporation [3.2](7)
10.1* Sublease, dated May 26, 1964, by and between A.W. Ham, Jr. and Four Queens, Inc. [10.1](1)
10.2* Amendment of Sublease, dated June 15, 1964, by and between A.W. Ham, Jr. and Four Queens, Inc.
[10.2](1)
10.3* Amendment of Sublease, dated February 25, 1965, by and between A.W. Ham, Jr. and Four Queens,
Inc. [10.3](1)
10.4* Amendment of Sublease, dated January 29, 1973, by and between A.W. Ham, Jr. and Four Queens,
Inc. [10.4](1)
10.5* Supplemental Lease, dated January 29, 1973, by and between A.W. Ham, Jr. and Four Queens, Inc.
[10.5](1)
10.6* Lease Agreement, dated April 25, 1972, by and between Bank of Nevada and Leon H. Rockwell, Jr.,
as Trustees of Four Queens, Inc. [10.6](1)
10.7* Lease, dated January 1, 1978, between Finley Company and Elsinore
Corporation [10.7](1)
10.8* Ground Lease, dated October 25, 1983, between Julia E. Albers, Otto J. Westlake, Guardian, and
Four Queens, Inc. [10.8](1)
10.9* Ground Lease, dated October 25, 1983, between Katherine M. Purkiss and Four Queens, Inc.
[10.9](1)
10.10* Ground Lease, dated October 25, 1983, between Otto J. Westlake and Four Queens, Inc. [10.10](2)
10.11* Indenture of Lease, dated March 28, 1984, by and between the City of Las Vegas and Four Queens,
Inc. [10.11](1)
10.12* Lease Indenture, dated May 1, 1970, by and between Thomas L. Carroll, et al. and Four Queens,
Inc. [10.12](1)
10.13* Memorandum of Lease, dated January 26, 1973, between President and Board of Trustees of Santa
Clara College and Four Queens, Inc. [10.13](1)
10.14* Indemnification Agreement, dated August 8, 1996, by and between Elsinore Corporation and Frank
L. Burrell, Jr. [10.14](7)
10.15* Indemnification Agreement, dated August 8, 1996, by and
between Elsinore Corporation and Howard Carlson [10.15](7)
10.16* Indemnification Agreement, dated August 8, 1996, by and
between Elsinore Corporation and Robert A. McKerroll
[10.16](7)
10.17* Indemnification Agreement, dated August 8, 1996, by and
between Elsinore Corporation and Thomas E. Martin [10.17](7)
10.18* Agreement, dated April 29, 1992, by and among Four Queens,
Inc., Jeanne Hood, Edward M. Fasulo and Richard A. LeVasseur
[10.28](1)
10.19* Settlement Agreement, dated March 29, 1996, by and between
Palm Springs East Limited Partnership and the 29 Palms Band of
Mission Indians [10.19](7)
10.20* Loan Agreement, dated November 12, 1993, by and between The
Jamestown S'Klallam Tribe and JKT Gaming, Inc. [10.31](3)
10.21* First Amendment to Loan Agreement, dated January 28, 1994, by
and between The Jamestown S'Klallam Tribe and JKT Gaming, Inc.
[10.32](3)
10.22* Form of 13 1/2% Second Mortgage Note Due 2001 [10.22](7)
10.23* Amended and Restated Indenture, dated as of March 3, 1997, by
and among Elsinore Corporation, the Guarantors named therein
and First Trust National Association, as Trustee (the
"Restated Indenture") [10.23](7)
10.24 Waiver of Compliance, dated February 27 and March 3, 1998, under the Restated Indenture
10.25* Pledge Agreement, dated as of October 8, 1993, from Elsinore
Corporation and ELSUB Management Corporation to First Trust
National Association [10.7](2)
10.26* Amendment of 1993 Pledge Agreement, dated March 3, 1997 [10.25](7)
10.27* Deed of Trust, Assignment of Rents and Security Agreement, dated as of October 8, 1993, by and
among Four Queens, Inc., Land Title of Nevada, Inc. and First Trust National Association
[10.8](2)
10.28* Modification of Subordinated Deed of Trust, dated March 3, 1997, by and between Four Queens,
Inc. and First Trust National Association [10.27](7)
10.29* Agreement, dated May 14, 1997, by Elsinore Corporation to file
with the Securities and Exchange Commission copies of
instruments defining the rights of holders of 11.5% First
Mortgage Notes Due 2000 [10.28](7)
10.30 Waiver of Compliance, dated March 17, 1998, under the 11.5% First Mortgage Notes Due 2000
10.31* Assignment of Operating Agreements, dated as of October 8, 1993, by Palm Springs East Limited
Partnership to First Trust National Association [10.9](2)
10.32* Assignment of Operating Agreement, dated as of October 8, 1993, by Olympia Gaming Corporation
to First Trust National Association [10.10](2)
10.33 Common Stock Registration Rights Agreement, dated as of
February 28, 1997, among Elsinore Corporation and the Holders
of Registrable Shares referred to therein (incorporated by
reference herein and filed as (i) Exhibit 10.31 to Elsinore
Corporation's Quarterly Report on Form 10-Q for the three
months ended March 31, 1997 and (ii) Exhibit B to Schedule
13D, dated March 10, 1997, by Morgens Waterfall Income
Partners, L.P.; Restart Partners, L.P.; Restart Partners II,
L.P.; Restart Partners III, L.P.; Restart Partners IV, L.P.;
Restart Partners V, L.P.; The Common Fund for Non-Profit
Organizations; MWV Employee Retirement Plan Group Trust; Betje
Partners; Phoenix Partners, L.P.; Morgens, Waterfall,
Vintiadis & Company, Inc.; MW Capital, L.L.C.; Prime Group,
L.P.; Prime Group II, L.P.; Prime Group III, L.P.; Prime Group
IV, L.P.; Prime Group V, L.P.; Prime, Inc.; MW Management,
L.L.C.; John C. "Bruce" Waterfall; and Edwin H. Morgens, with
respect to the Common Stock)
10.34* Description of Compensation Plan or Arrangement for Elsinore Corporation Directors and
Executive Officers (filed pursuant to Item 14(c) of this report) [10.32](8)
10.35* First Amendment to Lease by and among Finley Company, Elsinore Corporation and Four Queens,
Inc. effective May 14, 1997 [10.33] (9)
10.36* Agreement and Plan of Merger by and among R & E Gaming Corp.,
Elsinore Acquisition Sub, Inc. and Elsinore Corporation dated
September 15, 1997 [10.34] (9)
10.37 Option and Voting Agreement by and between R&E Gaming Corp. and Morgens, Waterfall,
Vintiadis & Company, Inc. on behalf of certain investment accounts, dated September 15, 1997
10.38* Amended Lease Schedule No. 1 to Master Lease Agreement by and between IGT North America, Inc.
and Four Queens, Inc., and PDS Financial Corporation-Nevada, as assignee of Lessor's interest,
dated November 28, 1994 [10.35](9)
10.39* Master Lease Agreement by and between PDS Financial Corporation-Nevada and Four Queens, Inc.
dated May 1, 1997 [10.36] (9)
10.40* Amendment to Master Lease Agreement by and between PDS Financial Corporation-Nevada and Four
Queens, Inc. dated August 1, 1997 [10.37](9)
10.41* Warrants to Purchase 1,125,000 Shares of Common Stock of Elsinore Corporation Issued to Riviera
Gaming Management Corp.-Elsinore [10.38](9)
10.42* Assignment by Richard A. LeVasseur to Four Queens, Inc. dated July 14, 1992 [10.39](9)
10.43* First Supplemental Amended and Restated Indenture by and among
Elsinore Corporation, the guarantors named therein and First
Trust National Association, as trustee, dated as of September
18, 1997 [10.40](9)
10.44* Form of Management Agreement among the Company, Four Queens, Inc. and Riviera Gaming Management
Corp.-Elsinore, as approved by the Bankruptcy Court [10.41](9)
21.1 Subsidiaries of Elsinore Corporation
27.1 Financial Data Schedule
99.1* Voluntary Petition for Bankruptcy Pursuant to Chapter 11 of the Bankruptcy Code dated October
31, 1995 [99.2](4)
99.2* Olympia Gaming Corporation Voluntary Petition for Bankruptcy Pursuant to Chapter 11 of the
Bankruptcy Code dated October 31, 1995 [99](4)
99.3 "THE MERGER" Section of Information Statement, incorporated by
reference herein and filed by Elsinore Corporation on Schedule
14C with the Securities and Exchange Commission on January 13,
1998.
99.4* Press release of Elsinore Corporation dated March 23, 1998 [99](10)
*Previously filed with the Securities and Exchange Commission as an exhibit to
the document shown below under the Exhibit Number indicated in brackets and
incorporated herein by reference and made a part hereof:
(1) Annual Report on Form 10-K for the year ended December 31, 1992 (Securities and Exchange
Commission File Number 1-7831)
(2) Current Report on Form 8-K dated October 19, 1993
(3) Annual Report on Form 10-K for the year ended December 31, 1993
(4) Current Report on Form 8-K dated November 7, 1995
(5) Current Report on Form 8-K dated August 8, 1996
(6) Current Report on Form 8-K dated March 14, 1997
(7) Quarterly Report on Form 10-Q for the three months ended March 31, 1997
(8) Quarterly Report on Form 10-Q for the six months ended June 30, 1997
(9) Quarterly Report on Form 10-Q for the nine months ended September 30, 1997
(10) Current Report on Form 8-K dated March 24, 1998
</TABLE>
(b) No reports on Form 8-K were filed during the last quarter of 1997.
(c) Exhibits required by Item 601 of Regulation S-K.
Exhibits, other than those incorporated by reference as listed in
Item 14(a) (3), appear after the signature page of this report.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
ELSINORE CORPORATION
(Registrant)
By: /s/ Jeffrey T. Leeds
JEFFREY T. LEEDS, President
And Chief Executive Officer
By: /s/ S. Barton Jacka
S. BARTON JACKA, Secretary,
Treasurer and Principal
Accounting Officer
Dated: March 31, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities as indicated on March 31, 1998.
/s/ John C. "Bruce Waterfall /s/ Jeffrey T. Leeds
John C. "Bruce" Waterfall Jeffrey T. Leeds
Chairman of the Board of Directors President and Director
(Chief Executive Officer)
/s/ S. Barton Jacka /s/ Edward M. Nigro
S. Barton Jacka Edward M. Nigro
Secretary, Treasurer, Director
Principal Accounting
Officer and Director
/s/ Harry C. Hagerty, III
Harry C. Hagerty, III
Director
<PAGE>
EXHIBIT 10.24
MORGAN STANLEY
MORGAN STANLEY & CO.
INCORPORATED
ONE PIERREPONT PLAZA
BROOKLYN, NEW YORK 11201
(718) 754-1000
WAIVER OF COMPLIANCE
February 27, 1998
To: Elsinore Corporation
First Trust National Association, as trustee ("Trustee") under that certain
Amended and Restated Indentures dated as of March 3, 1997 ("the Indenture"), by
and among Elsinore Corporation (the "Company"), the guarantors named therein,
and Trustee.
Re: $30,000,000 13 1/2% Second Mortgage Notes due 2001 of Elsinore Corporation.
---------------------------------------------------------------------------
Cede & Co., the nominee of the Depository Trust Company ("DTC") pursuant to
Section 7.12 and 10.2 of the Indenture hereby.
1. Certifies that it is the holder of record of $29,104.00 principal amount
(the "Principal Amount") of the Securities, which Principal amount is on
the date hereof, on deposit in the DTC account of Morgan Stanley
2. At the request of Morgan Stanley & Co. Incorporated and as holder of record
of the Principal amount waives compliance by the Company, as of December
31, 1997 and March 31, 1998, with Section 5.15 of the Indenture pertaining
to maintenance of certain Consolidated Fixed Charges Coverage Rule
("Ratio"); and
3. In connection with such waiver, agrees that it will not take any action
with respect to the principal amount, including providing or requesting the
Trustee to provide a notice of any Default based upon the Ratio under
Section 7.1 (4) of the Indenture, prior to January 2, 1999.
This Waiver shall be effective upon delivery to the company and the Trustee. All
capitalized words not defined herein are used as defined in the Indenture.
Cede & Co.
2/27/98
By: /s/ John L. Shuermann
PRINCIPAL
JOHN L. SHUERMANN, Partner
<PAGE>
MORGAN STANLEY
MORGAN STANLEY & CO.
INCORPORATED
ONE PIERREPONT PLAZA
BROOKLYN, NEW YORK 11201
(718) 754-1000
WAIVER OF COMPLIANCE
March 3, 1998
To: Elsinore Corporation
First Trust National Association, as trustee ("Trustee") under that certain
Amended and Restated Indentures dated as of March 3, 1997 ("the Indenture"), by
and among Elsinore Corporation (the "Company"), the guarantors named therein,
and Trustee.
Re: $30,000,000.13 1/2% Second Mortgage Notes due 2001 of Elsinore Corporation.
---------------------------------------------------------------------------
Cede & Co., the nominee of the Depository Trust Company ("DTC") pursuant to
Section 7.12 and 10.2 of the Indenture hereby.
1. Certifies that it is the holder of record of $29,104.00 principal amount
(the "Principal Amount") of the Securities, which Principal amount is on
the date hereof, on deposit in the DTC account of Morgan Stanley
2. At the request of Morgan Stanley & Co. Incorporated and as holder of record
of the Principal amount waives compliance by the Company, as of December
31, 1997 and March 31, 1998, with Section 5.15 of the Indenture pertaining
to maintenance of certain Consolidated Fixed Charges Coverage Rule
("Ratio"); and
3. In connection with such waiver, agrees that it will not take any action
with respect to the principal amount, including providing or requesting the
Trustee to provide a notice of any Default based upon the Ratio under
Section 7.1 (4) of the Indenture, prior to January 2, 1999.
This Waiver shall be effective upon delivery to the company and the Trustee. All
capitalized words not defined herein are used as defined in the Indenture.
Cede & Co.
3/3/98
By: /s/ John L. Shuermann
PRINCIPAL
JOHN L. SHUERMANN, Partner
<PAGE>
EXHIBIT 10.30
WAIVER OF COMPLIANCE
To: Elsinore Corporation (the "Company")
Re: $3,855,739.39 11.5% Mortgage Notes due 2000 of Elsinore Corporation.
--------------------------------------------------------------------
The undersigned, pursuant to Sections 7.2 and 10.3 of that certain
Amended and Restated Note Agreement ("Agreement") dated as of March 3, 1997, by
and among the Company and the undersigned, hereby:
1. Certify that they are the Holders of a majority in aggregate
principal amount of the outstanding Notes;
2. Waive compliance by the Company, as of December 31, 1997 and March
31, 1998, with Section 5.17 of the Agreement pertaining to maintenance of a
certain Consolidated Fixed Charges Coverage Ratio ("Ratio"); and
3. In connection with such waiver, agree that they and each of them
will not take any action prior to January 2, 1999 in respect of any
non-compliance by the Company with Section 5.17 of the Agreement in the fiscal
quarter ending June 30, 1998 and September 30, 1998, including providing notice
of any Default based upon the Ratio under Section 7.1(d) of the Agreement.
This Waiver shall be effective upon delivery to the Company. All
capitalized words not defined herein are used as defined in the Agreement.
PUTNAM DIVIERSIFIED INCOME TRUST
By: /s/ John Verani
JOHN VERANI, Vice President
PUTNAM HIGH INCOME CONVERTIBLE
AND BOND FUND
By: /s/ John Verani
JOHN VERANI, Vice President
<PAGE>
PUTNAM MASTER INTERMEDIATE
INCOME TRUST
By: /s/ John Verani
JOHN VERANI, Vice President
PUTNAM MANAGED HIGH YIELD TRUST
By: /s/ John Verani
JOHN VERANI, Vice President
PUTNAM VARIABLE TRUST
PUTNAM VT DIVERSIFIED INCOME FUND
By: /s/ John Verani
JOHN VERANI, Vice President
<PAGE>
Exhibit 10.37
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
1
<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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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
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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
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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.
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(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
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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-
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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
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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.
15
<PAGE>
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.
16
<PAGE>
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
17
<PAGE>
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.
18
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused its
duly authorized officers to execute this Agreement as of the date first above
written.
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
<PAGE>
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
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF ELSINORE CORPORATION
AS OF 12/31/97
STATE OF
CORPORATION OR
NAME ORGANIZATION D.B.A.
- ---- ------------ ------
ELSINORE CORP. NEVADA ELSINORE CORP.
FOUR QUEENS, INC. NEVADA FOUR QUEENS HOTEL & CASINO
PINNACLE GAMING CORP. NEVADA ELSINORE MANUFACTURING CORP.
ELSUB MANAGEMENT CORP. NEVADA ELSUB MANAGEMENT CORP.
PALM SPRINGS EAST L.P. NEVADA PALM SPRINGS EAST L.P.
OLYMPIA GAMING CORP. NEVADA OLYMPIA GAMING CORP.
FOUR QUEENS EXPERIENCE CORP. NEVADA FOUR QUEENS EXPERIENCE CORP.
EAGLE GAMING, INC. NEVADA EAGLE GAMING, INC.
ELSINORE TAHOE, INC. NEVADA ELSINORE TAHOE, INC.
ELSUB CORPORATION NEW JERSEY ELSUB CORPORATION
ELSINORE OF NEW JERSEY, INC. NEW JERSEY ELSINORE OF NEW JERSEY, INC.
ELSINORE OF ATLANTIC CITY, NEW JERSEY ELSINORE OF ATLANTIC CITY,
L.P. L.P.
ELSINORE SHORE ASSOCIATES NEW JERSEY ELSINORE SHORE ASSOCIATES
ELSINORE FINANCE COMPANY NEW JERSEY ELSINORE FINANCE COMPANY
<PAGE>
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<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 5,908,000
<SECURITIES> 0
<RECEIVABLES> 788,000
<ALLOWANCES> (165,000)
<INVENTORY> 382,000
<CURRENT-ASSETS> 8,759,000
<PP&E> 40,816,000
<DEPRECIATION> (1,774,000)
<TOTAL-ASSETS> 49,823,000
<CURRENT-LIABILITIES> 8,596,000
<BONDS> 33,855,739
0
0
<COMMON> 5,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 49,823,000
<SALES> 53,788,000
<TOTAL-REVENUES> 58,012,000
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<TOTAL-COSTS> 55,600,000
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<INCOME-PRETAX> (1,812,000)
<INCOME-TAX> 0
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<EXTRAORDINARY> 0
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<NET-INCOME> (1,812,000)
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