1
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, 1999
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. [X]
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
confirmed by a court. YES X NO
On March 24, 2000 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 24, 2000 was approximately $548,774. The market value was
computed by reference to the closing sales price of $1.94 per share reported on
the NASDAQ "Bulletin Board" as of March 24, 2000.
TABLE OF CONTENTS
PART I Page
Item 1. Business 4
Item 2. Properties 18
Item 3. Legal Proceedings 19
Item 4. Submission of Matters to a
Vote of Security Holders 19
Part II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters 20
Item 6. Selected Financial Data 21
Item 7. Management's Discussion and
Analysis of Financial Condition
and Results of Operations 23
Item 7A Quantitative and Qualitative Disclosures
About Market Risk 33
Item 8. Financial Statements and
Supplementary Data 33
Item 9. Changes in and Disagreements
with Accountants
on Accounting and Financial Disclosure 62
PART III
Item 10. Directors and Executive Officers
of the Registrant 63
Item 11. Executive Compensation 64
Item 12. Security Ownership of Certain
Beneficial Owners and Management 66
Item 13. Certain Relationships and
Related Transactions 71
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K 72
SIGNATURES 79
PART I
Item 1. BUSINESS.
General.
Elsinore Corporation, a Nevada 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. The
Company incorporated under the laws of the State of Nevada on
September 5, 1972 and its principal executive office is located
at 202 Fremont Street, Las Vegas, Nevada 89101 and its telephone
number is (702) 385-4011. Four Queens also holds 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 was renewed on May 11, 1998 and will expire on May
31, 2001. Four Queens must renew this license no later than 120
days prior to expiration. Gaming management activities conducted
by Elsinore's other subsidiaries prior to the bankruptcy
reorganization, discussed below, have terminated.
Recent Developments.
On March 6, 2000, the Company, entered into a non-binding letter
of intent with PDS Financial Corporation for the sale of the
capital stock of Four Queens, Inc., the Company's wholly-owned
subsidiary, for a purchase price of $30 million, subject to
adjustment. The Four Queens constitutes substantially all of the
operating assets of the Company. The Company holds certain
non-operating assets, which are not subject to the transaction
with PDS Financial. At December 31, 1999, the outstanding
long-term debt of the Company (not including debt at the Four
Queens level) was $12.0 million (including the current portion
thereof), and the Company had outstanding approximately
50,000,000 million shares of 6% cumulative convertible preferred
stock, with a liquidation preference of $19.4 million, including
accumulated dividends. See Item 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA.
Consummation of the acquisition is subject to a number of
conditions, including due diligence review, negotiation and
execution of a definitive purchase agreement, receipt of required
regulatory approvals, including approval of the Nevada Gaming
Commission, other gaming approvals, and, if necessary, approval
under the Hart-Scott-Rodino Antitrust Act, and receipt by PDS of
satisfactory purchase financing. There can be no assurance that a
definitive agreement can be reached, that the other conditions to
the acquisition will be satisfied or that the acquisition will be
consummated.
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 has 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 per share, of the
Company (the "Common Stock") were issued. Under the Plan an
additional 70,687 shares of Common Stock are to be issued to
certain classes of creditors of the Company and Four Queens,
whose claims had not been resolved as of the Plan Effective Date.
The Company is presently required to issue these additional
shares of new Common Stock to the following creditor groups:
Unsecured Creditors of Four Queens, Inc. 50,491
Unsecured Creditors of Elsinore Corporation 14,159
------
Total 64,650
======
The Company is currently in the process of arranging for the issuance
of these shares.
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 Plan Effective 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.
Recapitalization.
On September 29, 1998, MWV Accounts contributed $4,641,000, net
of $260,000 of expenses, to the capital of Elsinore, which
Elsinore used, together with other funds of Elsinore, to purchase
in full all of Elsinore's outstanding 11.5% First Mortgage Notes
due 2000 in the original aggregate principal amount of $3,856,000
and $896,000 of original principal amount 13.5% Second Mortgage
Notes of Elsinore due 2001.
Also on September 29, 1998, the Company issued to the MWV
Accounts 50,000,000 shares of Series A Convertible Preferred
Stock of the Company in exchange for the surrender to the Company
of $18,000,000 original principal amount of certain second
mortgage notes held by the MWV Accounts. The 50,000,000 shares of
Series A Convertible Preferred Stock have (i) the right to
receive cumulative dividends at the rate of 6% per year; (ii) the
right to receive the amount of $.36 per share, plus all accrued
or declared but unpaid dividends on any shares then held, upon
any liquidation, dissolution or winding up of the Company for an
aggregate liquidation preference of $18,000,000; (iii) voting
rights equal to the number of shares of the Company's Common
Stock into which the shares of Preferred Stock may be converted,
and (iv) the right to convert the shares of Preferred Stock into
93,000,000 shares of the Company's Common Stock.
In addition, Elsinore issued to the MWV Accounts new second
mortgage notes ("New Mortgage Notes") in the aggregate principal
amount of $11,104,000 in exchange for all remaining outstanding
second mortgage notes held by the MWV Accounts in the same
aggregate principal amount, pursuant to an amended indenture
governing the New Mortgage Notes that reduced the interest rate
payable thereon from the 13.5% payable under the old second
mortgage notes to the 12.83% payable under the New Mortgage
Notes. Following the recapitalization described in this section,
Elsinore has notes outstanding in the aggregate principal amount
of $11,104,000. The transactions, as described in this section,
are collectively referred to as the "Recapitalization."
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, 30,000 square feet of
casino space, two full-service restaurants, two fast-service
restaurants, three cocktail lounges, a gift shop, two retail
concessions, 14,600 square feet of function space and
approximately 565 parking spaces. The casino has 1,084 slot
machines, 27 gaming tables, a keno lounge, and a sports book.
Riviera Gaming Management Corp. - Elsinore ("RGME"), an indirect
subsidiary of Riviera Holdings Corp. ("Riviera"), managed the
Four Queens Casino since the Confirmation Date. RGME focused
primarily on slot play versus previous management's philosophy of
marketing to high limit table players. This plan changed the
customer base at the property and allowed the Four Queens Casino
to concentrate on what RGME considered to be Las Vegas' most
profitable revenue source, which is the slot player market. Also,
an aggressive marketing strategy was maintained by the Company
with the objective of attracting into the Four Queens Casino the
20,000-plus average daily visitors to the downtown area.
Management. The term of RGME's management arrangement for the
Four Queens Casino (the "Management Arrangement"), which went
into effect on April 1, 1997 in accordance with the terms of the
Plan, was approximately 40 months, subject to earlier termination
or extension. RGME was paid a minimum annual fee of $1 million in
equal monthly installments. The Management Arrangement terminated
on December 31, 1999. As a result of the termination of the
Management Arrangement between the Company and RGME on December
31, 1999, Mr. Waterfall, has assumed the positions of sole
director and officer of the Four Queens.
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, 1999, 1998, and
1997.
<TABLE>
<CAPTION>
1999 1998 1997
(Dollars in Thousands)
<S> <C> <C> <C>
Casino(1) $ 39,408 $ 39,372 $ 36,506
Hotel(2) 8,822 9,004 9,705
Food & beverage(2) 9,646 9,724 9,686
Other(3) 3,130 3,004 2,115
-------- -------- --------
61,006 61,104 58,012
Less: Promotional allowances (4,252) (5,204) (4,224)
-------- -------- --------
$ 56,754 $ 55,900 $ 53,788
======== ======== ========
</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
$85,000 in 1999, $103,000 in 1998, and $142,000 in 1997 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.
Casino:
Floor area (square feet) 30,000
Slot machines 1,084
Blackjack tables 18
Craps tables 3
Big six 0
Caribbean stud poker tables 1
Roulette wheels 3
Let-it-ride tables 2
Pai gow poker tables 0
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) 565
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, 1999, the Four Queens Casino employed
1,038 persons, approximately 50% of whom were covered by
collective bargaining agreements. New union contracts were
entered into during 1998 covering five collective bargaining
units.
Competition. The gaming industry is highly competitive. The Four
Queens competes with a multitude of casino hotels in the greater
Las Vegas Metropolitan area. Currently there are approximately 34
major gaming properties located on or near the Las Vegas Strip,
13 located in the downtown area and several located in other
areas of Las Vegas. Las Vegas gaming square footage and room
capacity are continuing to increase. Most of these facilities
attract or may attract primarily middle income patrons, who are
the focus of the Company's marketing strategy. Although the
Company believes that these additional facilities will draw more
visitors to Las Vegas, they may also divert potential gaming
activity from the Company. Future additions, expansions, and
enhancements to existing properties and constructions of new
properties by the Company's competitors could divert additional
gaming activity from the Company's facilities. The Company
believes that successful gaming facilities compete based on the
following: location, atmosphere, quality of gaming facilities,
entertainment, quality of food and beverage, and price. Although
the Company believes it competes favorably with respect to these
factors, some of its competitors have significantly greater
financial and other resources than the Company. There can be no
assurance that the Company will compete successfully in the Las
Vegas market in the future.
The number of Indian Gaming casinos continues to increase. On
March 7, 2000, voters in the State of California voted in favor
of Proposition 1A, an amendment to the California State
constitution that allows Las Vegas-style gambling on Indian lands
in the state. While new gaming jurisdictions have traditionally
not materially impacted Las Vegas, the potential expansion of
gaming into California poses a more serious threat to the
continued growth of Las Vegas.
The Las Vegas Market
Las Vegas is one of the fastest growing and largest entertainment
markets in the United States. For fiscal year 1999, gaming
revenues in Clark County reached a new 12 month record of $7.2
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 33.8 million in 1999, representing a
compound annual growth rate of 6.32%. Aggregate expenditures by
Las Vegas visitors increased at a compound annual growth rate of
8.01% from $14.3 billion in 1990 to $28.6 billion in 1999. The
number of hotel and motel rooms in Las Vegas increased by
approximately 94.2% from 61,934 in 1988 to 120,294 in 1999,
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 on average were approximately
91.5% for the five year period from 1995 through 1999. According
to the Las Vegas Convention and Visitors Authority ("LVCVA"), by
2002 it is expected that approximately 8,080 additional hotel
rooms will be opened in Las Vegas, including the new Aladdin
Resort, currently under construction, which is scheduled to open
in August, 2000.
The following table sets forth certain statistical information
for the Las Vegas market for the years 1995 through 1999,
as reported by the LVCVA.
<TABLE>
<CAPTION>
Las Vegas Market Statistics
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Visitor volume (in thousands) 33,809 30,605 30,465 29,637 29,002
Clark County gaming revenues $7,209 $6,347 $6,152 $5,784 $5,718
(in millions)
Hotel/motel rooms 120,294 109,365 105,347 99,072 90,046
Average hotel occupancy rate 92.1% 90.3% 90.3% 93.4% 91.4%
Airport passenger traffic 33,669 30,227 30,306 30,460 28,027
(in thousands)
Convention attendance 3,773 3,302 3,519 3,306 2,925
(in thousands)
</TABLE>
The Downtown Market.
General Information. Downtown Las Vegas, with its famous neon
lighting and its 13 major casinos all located within close
proximity of each other, attracts a significant number of loyal
customers comprised of both visitors to Las Vegas and local
residents.
Recent results of the downtown Las Vegas casinos have been
adversely affected by, among other things, the opening of themed
mega-casinos on the Las Vegas Strip. In the 1989-1991 period, the
opening of the Mirage and Excalibur casino/hotels depressed the
growth rate of downtown Las Vegas gaming revenues. Similarly, the
openings of the Bellagio, MGM Grand, Luxor, Treasure Island,
Monte Carlo, and New York New York casino/hotels had an adverse
effect on downtown gaming revenue. In addition, the recent
openings of Mandalay Bay, The Venetian, Paris, and the MGM Grand
expansion, all on the Las Vegas Strip, have had a further adverse
effect on downtown gaming revenue. The rooms at these new casinos
that have been recently completed or are 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.
With the proliferation of mega-casinos on the Las Vegas strip,
downtown Las Vegas has become increasingly appealing to the
price-conscious vacationer. Four Queens offers a competitive
package of rooms, restaurants, and the popular gaming devices
demanded by the value-oriented vacationer.
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. In November 1999, Race Rock International
opened a motorsports themed restaurant at the entrance of the
Fremont Street Experience. In addition, Neonopolis, an
entertainment and recreation themed complex, that will house an
11 theatre movie complex, 50 retail tenants, five restaurants,
and a food court, is scheduled to open in November, 2000.
The Company and several of the other downtown casino operators
collectively own the Fremont Street Experience through their
ownership of Fremont Street Experience LLC, 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, 1998 to the date immediately preceding the
date such acquisition is consummated. The Merger Agreement
provided 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 owned 94.3% of the outstanding
Common Stock prior to the Recapitalization. Under certain
conditions and circumstances, the Option Agreement provided 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.
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, 1998, 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 provided 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 contained conditions precedent to the
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.
On March 20, 1998, Elsinore was notified by R&E, through Paulson,
that it was R&E's position that the Merger Agreement was void and
unenforceable against R&E and EAS, or alternatively, R&E and EAS
intended to terminate the Merger Agreement. R&E alleged, among
other things, violations by Elsinore of the Merger Agreement,
violations of law and misrepresentations by MWV in connection
with the Option and Voting Agreement and the non-satisfaction of
certain conditions precedent to completing the merger. The
Company denied the allegations and asked that R&E complete the
merger. Thereafter, in April 1998, Paulson, R&E, EAS and certain
other entities filed a lawsuit against eleven defendants,
including Elsinore and MWV (Paulson, et al. v Jeffries & Company
et al.). On January 25, 2000, the Court granted Plaintiffs'
motion for leave to file a Fourth Amended Complaint. Plaintiffs'
allegations in the Fourth Amended Complaint against the Company
include breach of the Merger Agreement by Elsinore, as well as
fraud and various violations of the federal securities laws in
connection with the proposed merger. Plaintiffs are seeking (i)
unspecified actual damages in excess of $20 million, (ii) $20
million in exemplary damages, and (iii) rescission of the Merger
Agreement and other relief. The lawsuit was filed in the United
States District Court for the Central District of California.
On March 1, 2000, the Company filed its Answer to the Fourth
Amended Complaint, denying the material allegations thereof. In
addition, the Company alleged various counterclaims against
plaintiffs for breach of the Merger Agreement, fraud and
violations of the federal securities laws. The counterclaims seek
specific performance of the Merger Agreement, compensatory
damages, punitive damages and other relief.
Discovery is only now beginning, and the Company is currently
unable to form an opinion as to the amount of its exposure, if
any. Although the Company intends to defend the lawsuit
vigorously, there can be no assurance that it will be successful
in such defense or that future operating results will not be
materially adversely affected by the final resolution of the
lawsuit.
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. Four Queens was granted a Casino Service Industry
License by the State of New Jersey on May 11, 1998. This license
is scheduled to expire on May 31, 2001.
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 new
1999 Mortgage Notes. See Note 8 of Notes to Consolidated
Financial Statements. On March 6, 2000, the Company entered into
a non-binding letter of intent with PDS Financial Corporation for
the sale of the capital stock of Four Queens, Inc. See Item 1.
BUSINESS - Recent Developments.
Item 3. LEGAL PROCEEDINGS.
The Company was 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 certain alleged retroactive
wage agreements. The New Jersey court issued a ruling denying
WARN Act liability, and the Third Circuit Court of Appeals
subsequently affirmed the New Jersey Court's decision following
plaintiffs' appeal. The Company was notified that the plaintiffs
would not file any further appeal of the decision. The claim for
retroactive wages has been determined by final court order to be
included in the Class 10 Unsecured Creditor's pool of the
bankruptcy proceedings, which is capped at $1.4 million. As such,
the retroactive wages claim was reserved for as part of the Class
10 notes payable and in September 1999, the Company made full
payments to the plaintiffs. As part of the resolution of the
proceedings, the plaintiffs waived their entitlement to 6,037
shares of Common Stock that were issuable to them as unsecured
creditor of the Company under the Plan, in return for the
Company's agreement to pay certain expenses related to the case.
The Company is a party to certain other claims and lawsuits,
however, 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. See Item 1. BUSINESS - Agreement and Plan of Merger.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On October 26, 1999, the Company held its Annual Meeting of
Stockholders. John C. "Bruce" Waterfall, Jeffrey T. Leeds, and S.
Barton Jacka were re-elected as Directors of the Company. Out of
the 4,929,313 shares of Common Stock and 50,000,000 of Preferred
Stock, entitled to vote at such meeting, there were present in
person or by proxy 54,646,440 shares. Each share of Common Stock
and Preferred Stock (on an as-converted basis except with respect
to election of directors) is entitled to one vote on all matters
submitted to a vote of stockholders. In connection with the
cumulative voting feature applicable to the election of
directors, each stockholder is entitled to as many votes as shall
equal the number of shares held by such person at the close of
business on the record date, multiplied by the number of
directors to be elected. The voting results were as follows:
<TABLE>
<CAPTION>
Name For % Against % Withheld %
<S> <C> <C> <C> <C> <C> <C>
John C. "Bruce" Waterfall 163,939,320 99.5% 0 0% 0 0%
Jeffrey T. Leeds 163,939,320 99.5% 0 0% 0 0%
S. Barton Jacka 163,939,320 99.5% 0 0% 0 0%
</TABLE>
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 Stock Market "Bulletin Board" under the symbol ELSO. The
following table sets forth, for the periods indicated, the high
and low bid prices as reported, which represnets inter dealer
prices without adjustment for retail markups, markdowns or
commissions, and may not reflect actual transactions.
<TABLE>
<CAPTION>
1999 1998
High Low High Low
<S> <C> <C> <C> <C>
First quarter $0.53 $0.28 $3.00 $1.56
Second quarter 0.63 0.31 2.00 1.50
Third quarter 0.75 0.31 1.63 0.75
Fourth quarter 0.63 0.31 0.75 0.01
</TABLE>
As of the close of business on March 24, 2000, there were
approximately 665 record owners of Common Stock.
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.
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, upon conversion of their
50,000,000 shares of Series A Convertible Preferred Stock into
shares of Common Stock, will own 99.7% of the Common Stock. (see
Item 1. Business - Recapitalization). In addition to the
Recapitalization and the Plan, the MWV Accounts have bought and
sold Common Stock only within the MWV Accounts. 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
99.7% of the outstanding Common Stock. The remaining .3% of the
outstanding shares is widely dispersed among numerous
shareholders.
On September 29, 1998, MWV Accounts contributed $4,641,000, net
of $260,000 of expenses, to the capital of Elsinore, which
Elsinore used, together with other funds of Elsinore, to purchase
in full all of Elsinore's outstanding 11.5% First Mortgage Notes
due 2000 in the original aggregate principal amount of $3,856,000
and $896,000 of original principal amount 13.5% Second Mortgage
Notes of Elsinore due 2001.
Also on September 29, 1998, the Company issued to the MWV
Accounts 50,000,000 shares of Series A Convertible Preferred
Stock of the Company in exchange for the surrender to the Company
of $18,000,000 original principal amount of certain second
mortgage notes held by the MWV Accounts.
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, 1999. The selected consolidated financial data as of
December 31, 1999 and 1998 and for the three years ended December
31, 1999, should be read in conjunction with the consolidated
financial statements and notes thereto set forth elsewhere
herein.
<TABLE>
<CAPTION>
Reorganized Predecessor
Company Company
-------------------------- --------------------------
March 1 January 1
To To
December 31, December 31, February 28, December 31,
1999 1998 1997 1997 1996 1995
(Dollars in thousands except per share amounts)
Balance sheet data:
<S> <C> <C> <C> <C> <C> <C>
Total assets $48,793 $49,748 $49,823 $42,627 $37,101
Current portion
of long-term debt 2,079 1,906 1,477 50 54
Long-term debt less
current maturities 14,264 15,548 38,141 62,912 62,858
6% Cumulative convertible
preferred stock 19,366 18,270 - - -
Shareholders' equity
(deficit) $25,339 $24,109 $3,086 $(40,710) $(43,441)
======= ======= ====== ========= =========
Operations data:
Revenues (net) $56,754 $55,900 $43,992 $9,796 $61,199 $56,973
======= ======= ======= ====== ========= =========
Income(loss) before
extraordinary items $960 $(1,272) $(1,914) $(190) $(1,556) $(45,749)
Extraordinary item - (77)(a)
Gain on extinguishment
of debt - - - 35,977(b) - -
------- ------- -------- ------ -------- ---------
Net income(loss) 960 (1,349) (1,914) 35,787 (1,556) (45,749)
Undeclared dividends on
cumulative preferred
stock 1,096 270 - - - -
------- ------- -------- ------ -------- ---------
Net income (loss)
applicable to
common shares $(136) $(1,619) $(1,914) $35,787 $(1,556) $(45,749)
======= ======== ======== ======= ======== =========
Basic and diluted per share
amounts:
Loss before
extraordinary items $(.03) $(.31) $(.39) $(.01) $(.10) $(2.95)
Extraordinary items - (.02) - 2.26 - -
Net income (loss)
per share $(.03) $(.33) $(.39) $2.25 $(.10) $(2.95)
======= ======== ======= ======= ======== ========
Capital costs:
Depreciation and
Amortization $3,332 $2,804 $1,774 $529 $3,816 $3,948
Interest expense 1,997 4,372 4,239 772 2,505 8,596
------- ------- -------- ------ -------- ---------
Capital costs $5,329 $7,176 $6,013 $1,301 $6,321 $12,544
======= ======== ======= ======= ======== ========
</TABLE>
(a) The Company incurred approximately $77,000 in extraordinary costs
associated with the buyout of the 11.5% First Mortgage Notes.
(b) Resulting from the discharge of prepetition obligations pursuant
to the Plan of Reorganization.
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 of approximately $3.5
million at December 31, 1999, as compared to approximately $5.6
million at December 31, 1998, a decrease of $2.1 million.
On September 29, 1998, the MWV Accounts contributed $4,641,070,
net of $260,000 of expenses, to the capital of the Company. The
Company used this capital, together with other funds of the
Company, to purchase in full all of the Company's outstanding
11.5% First Mortgage Notes due 2000 in the original aggregate
principal amount of $3,856,000, and $896,000 of original
principal amount of the 13.5% Second Mortgage Notes of the
Company due 2001.
Also on September 29, 1998, the Company issued to the MWV
Accounts 50,000,000 shares of Series A Convertible Preferred
Stock of the Company in exchange for the surrender to the Company
of $18,000,000 original principal amount of Second Mortgage Notes
held by the MWV Accounts. The 50,000,000 shares of Series A
Cumulative Convertible Preferred Stock have a current aggregate
liquidation preference of $19,366,000 and are convertible, at the
option of the holder at any time, into 93,000,000 shares of the
Company's Common Stock.
In addition, on September 29, 1998, the Company issued to MWV
12.83% New Second Mortgage Notes ("New Notes") in the aggregate
principal amount of $11,104,000 in exchange for all remaining
outstanding Second Mortgage Notes held by the MWV Accounts in the
same aggregate principal amount, pursuant to an amended indenture
governing the Second Mortgage Notes that reduced the interest
rate payable thereon from 13.5% to 12.83%. Following the
recapitalization, the Company has New Notes outstanding in the
aggregate principal amount of $11,104,000. Significant debt
service on the Company's New Notes is paid in August and
February, during each fiscal year, which significantly affects
the Company's cash and cash equivalents in the second and fourth
quarters and should be considered in evaluating cash increases or
decreases in the second and fourth quarters.
During 1999, the Company's net cash provided by operating
activities was $2,983,000 compared to $3,275,000 in 1998 and
$1,282,000 in 1997. Earnings before interest, taxes,
depreciation, amortization, rents, extraordinary item, merger and
litigation costs, and undeclared dividends ("EBITDA"), for 1999,
1998, and 1997 was $10.6 million, $10.2 million, and $9.7
million, respectively. While EBITDA should not be construed as a
substitute for operating income or a better indicator of
liquidity than cash flow from operating activities, which are
determined in accordance with generally accepted accounting
principles ("GAAP"), it is included herein to provide additional
information with respect to the ability of the Company to meet
its future debt service, capital expenditure and working capital
requirements. Although EBITDA is not necessarily a measure of the
Company's ability to fund its cash needs, management believes
that certain investors find EBITDA to be a useful tool for
measuring the ability of the Company to service its debt. EBITDA
margin is EBITDA as a percent of net revenues. The Company's
definition of EBITDA may not be comparable to other companies'
definitions. The repayment of the First Mortgage Notes and the
Second Mortgage Notes, the surrender of $18,000,000 of the
original principal amount of Second Mortgage Notes held by the
MWV Accounts, and the issuance of the New Notes in exchange for
the remaining Second Mortgage Notes held by the MWV Accounts has
significantly lowered the Company's debt service requirements.
Scheduled interest payments on the New Notes and other
indebtedness are $2.0 million in 1999, declining to $1.3 million
in 2001. Management believes that sufficient cash flow will be
available to cover the Company's debt service for the next twelve
months and enable investment in budgeted capital expenditures of
approximately $3.5 million for 2000, which includes an
arrangement to finance slot machine purchases of $500,000. The
Company's ability to service its debt will be dependent on future
performance, which will be affected by, among other things,
prevailing economic conditions and financial, business and other
factors, certain of which are beyond the Company's control.
The New Notes are due in full on August 20, 2001. The New 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 New
Notes at 101% of face value upon any "Change of Control" as
defined in the indenture governing the New Notes. The indenture
also provides for mandatory redemption of the New Notes by the
Company upon order of the Nevada Gaming Authorities. The New
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 a pledge of,
substantially all the assets of the Company and the guarantors.
Cash flow from operations is not expected to be sufficient to pay
the $11 million of principal of the New Notes at maturity on
August 20, 2001, in the event of a Change of Control, or upon a
mandatory redemption. Accordingly, the ability of the Company to
repay the New Notes at maturity, upon a Change of Control, or
upon a mandatory redemption will be dependent upon its ability to
refinance the New Notes. There can be no assurance that the
Company will be able to refinance the principal amount of the New
Notes on favorable terms or at all.
The note agreement executed in connection with the issuance of
the New Notes, 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 New Notes, transactions with affiliates and payment
of certain restricted payments. 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 $1.0 million in EBITDA.
The Company must also maintain a minimum amount of consolidated
net worth not less than an amount equal to its consolidated net
worth on the Effective Date of the Plan, less $5 million.
Pursuant to covenants applicable to the Company's 12.83% New
Second Mortgage Notes and Second Supplemental Indenture dated
September 29, 1998, 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. As of the reference period
ended December 31, 1999 the Ratio was 3.31 to 1.00 and as such,
the Company was in compliance.
Payment was due on the 13.5% Second Mortgage Notes due 2001 on
August 31, 1998. This payment was waived until December 31, 1999.
Payment was made on January 5, 1999 for $1.0 million, on February
26, 1999 for $250,000, on June 30, 1999 for $250,000 and on
September 30, 1999 for $250,000. A waiver has been obtained for
the remaining $214,000 until June 2000.
Management considers it important to the competitive position of
the Four Queens Casino that expenditures be made to upgrade the
property. Uses of cash during included capital expenditures were
$3.9 million, $4 million, and $4.6 million in 1999, 1998, and
1997, respectively. Management has budgeted $3.5 million in 2000.
The Company expects to finance such capital expenditures from
cash on hand, cash flow, and slot lease financing. 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 twelve months.
On March 6, 2000, the Company, entered into a non-binding letter
of intent with PDS Financial Corporation for the sale of the
capital stock of Four Queens, Inc., the Company's wholly-owned
subsidiary, for a purchase price of $30 million, subject to
adjustment. The Four Queens Hotel & Casino constitutes
substantially all of the operating assets of the Company. The
Company holds certain non-operating assets, which are not subject
to the transaction with PDS Financial. At December 31, 1999, the
outstanding long-term debt of the Company (not including debt at
the Four Queens level) was $12.0 million (including the current
portion thereof), and the Company had outstanding approximately
50,000,000 million shares of 6% cumulative convertible preferred
stock, with a liquidation preference of $19.4 million, including
accumulated dividends. See Item 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA.
Consummation of the acquisition is subject to a number of
conditions, including due diligence review, negotiation and
execution of a definitive purchase agreement, receipt of required
regulatory approvals, including approval of the Nevada Gaming
Commission, other gaming approvals, and, if necessary, approval
under the Hart-Scott-Rodino Antitrust Act, and receipt by PDS of
satisfactory purchase financing. There can be no assurance that a
definitive agreement can be reached, that the other conditions to
the acquisition will be satisfied or that the acquisition will be
consummated.
COMPUTERIZED OPERATIONS AND THE YEAR 2000
The Company conducted a review of its computer systems to
identify areas that could be affected by year 2000 issues and
completed updating many of its existing systems to improve
overall business performance and to accommodate business for the
2000. Management believes that the Company's critical systems
were remediated as of December 31, 1999.
The Company believes that no material adverse impact has occurred
on its operation or other processes reliant on computer systems
resulting from the year 2000 issues. The Company also believes
that there is no material impact from the Year 2000 issues on its
consolidated financial position, results of operations or cash
flows. However, certain ongoing risks exist relative to the
non-compliance of third parties with operational significance to
the Company. Although management believes the conversion process
has been completed, there can be no assurance that the Company
will not be adversely impacted in the future by Year 2000 issues.
At December 31, 1999, the Company had incurred approximately
$453,000 in costs directly related to the Year 2000 project,
substantially all of which were capitalized as they related to
replacement of systems that were not Year 2000 compliant.
Recently Issued Accounting Standards
The Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which is
effective for fiscal years beginning after June 15, 2000. This
Statement establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments
embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. The Statement requires
that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure
those instruments at fair value. Management of the Company has
not yet determined the impact that this Statement could have on
the consolidated financial statements.
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a
"safe harbor" for certain forward-looking statements. Certain
information included in this Form 10-K and other materials filed
with the Securities and Exchange Commission (as well as
information included in oral statements or other written
statements made or to be made by the Company) contains statements
that are forward looking, such as statements relating to business
strategies, plans for future development and upgrading, capital
spending, the anticipated cost and timing related to remediation
of the Year 2000 Problem, financing sources, existing and
expected competition and the effects of regulations. 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
the effects of competition; leverage and debt service; financing
needs or efforts; actions taken or omitted to be taken by third
parties, including the Company's customers, suppliers,
competitors, and stockholders, as well as legislative,
regulatory, judicial, and other governmental authorities; the
loss of any licenses or permits or the Company's failure to renew
gaming or liquor licenses on a timely basis; changes in business
strategy, capital improvements, or development plans; general
economic conditions; changes in gaming laws, regulations
(including the legalization of gaming in various jurisdictions),
or taxes; risks related to development and upgrading activities;
risks related to the Year 2000 Problem; and other factors
described from time to time in the Company's reports filed with
the Securities and Exchange Commission. Accordingly, actual
results may differ materially from those expressed in any
forward-looking statement made by or on behalf of the Company.
Any forward-looking statements are made pursuant to the Private
Securities Litigation Reform Act of 1995, and, as such, speak
only as of the date made. The Company undertakes no obligation to
revise publicly these forward-looking statements to reflect
subsequent events or circumstances.
RESULTS OF OPERATIONS
1999 COMPARED TO 1998
REVENUES
Net revenues increased by approximately $854,000, or 1.5%, from
$55,900,000 during the 1998 period, to $56,754,000 for the 1999
period. This increase was primarily due to management's
significant reduction of promotional allowances for casino and
slot marketing promotions pursuant to the revised policy on
complimentary benefits.
Casino revenues increased by approximately $36,000, or 0.1%, from
$39,372,000 during the 1998 period to $39,408,000 during the 1999
period. This increase was primarily due to a $924,000, or 3.2%,
increase in slot machine revenue and a $40,000, or 1.8%, increase
in slot promotion revenue, partially offset by a $688,000, or
9.8%, decrease in table games revenue and a $52,000, or 7.3%,
decrease in keno revenue. The increase in slot machine revenue is
primarily attributable to an increase in hold percentage of 0.2%
partially offset by a decrease in slot coin-in of $4,145,000, or
0.8%. Slot promotion revenue increased due to an increase in
participant headcounts of 35 per day, or 11.4%. Table games drop
decreased $3,324,000, or 6.6%, which was partially attributable
to a decrease in the win percentage of 0.5%. Management
eliminated certain unprofitable complimentary programs which led
to savings in promotional allowances.
Hotel revenues decreased by approximately $182,000, or 2.0%, from
$9,004,000 during the 1998 period to $8,822,000 during the 1999
period. This decrease was primarily due to a decrease in
complimentary revenue resulting from the reduction in casino and
slot marketing promotions, partially offset by an increase in
cash occupancy. Room occupancy, as a percentage of total rooms
available for sale, increased from 90.3%, for the 1998 period, to
94.5%, for the 1999 period, while the average daily room rate
decreased from $36.06 to $33.88, respectively. The number of
rooms that could not be used due to renovation and remodeling of
the South Tower, increased from 2,889 in the 1998 period to 6,273
in the 1999 period.
Food and beverage revenues decreased approximately $78,000, or
0.8%, from $9,724,000 during the 1998 period to $9,646,000 during
the 1999 period. This decrease was primarily due to a decrease in
complimentary revenues resulting from the reduction in casino and
slot marketing promotions, which was partially offset by an
increase in cash revenues as a result of a higher average check
and cash covers.
Other revenues increased by approximately $126,000, or 4.2%, from
$3,004,000 during the 1998 period to $3,130,000 during the 1999
period. This increase was primarily due to payments received
under a settlement agreement with the Twenty-Nine Palms Band of
Mission Indians (the "Band").
Promotional allowances decreased by approximately $952,000, or
18.3%, from $5,204,000 during the 1998 period to $4,252,000
during the 1999 period due to a decrease in complimentary rooms,
food, and beverage resulting from management's reduction of
promotional allowances for casino and slot marketing promotions.
DIRECT COSTS AND EXPENSES OF OPERATING DEPARTMENTS
Total direct costs and expenses of operating departments,
including taxes and licenses, increased by approximately
$436,000, or 1.3%, from $34,775,000 for the 1998 period to
$35,211,000 for the 1999 period.
Casino expenses decreased $231,000, or 1.6%, from $14,097,000
during the 1998 period to $13,866,000 during the 1999 period, and
expenses as a percentage of revenue decreased from 35.8% to
35.2%, due primarily to a decrease in payroll expense.
Hotel expenses increased by approximately $679,000, or 8.5% from
$8,011,000 during the 1998 period to $8,690,000 during the 1999
period, and expenses as a percentage of revenues increased from
89.0% to 98.5%, primarily due to an increase in payroll expense
and a reduction in the reclassification of cost of complimentary
rooms reflected as a casino expense, resulting from management's
reduction in promotional allowances for casino and slot marketing
promotions.
Food and beverage costs and expenses decreased by approximately
$80,000, or 1.2%, from $6,756,000 during the 1998 period to
$6,676,000 during the 1999 period, and expenses as a percentage
of revenues decreased from 69.5% to 69.2%, primarily due to an
increase in costs of sales, due to higher pricing, an increase in
payroll expense, due to a change in departmental allocations, and
an increase in the reclassification of cost of complimentary food
and beverage reflected as a casino expense, resulting from
management's reduction in promotional allowances for casino and
slot marketing promotions.
Taxes and licenses increased $68,000, or 1.2%, from $5,911,000 in
the 1998 period to $5,979,000 in the 1999 as a result of
corresponding increases in slot revenues.
The Company believes that citywide competition for experienced
employees may increase employee turnover and lead to increased
payroll costs.
OTHER OPERATING EXPENSES
Selling, general and administrative expenses increased $4,000,
from $10,963,000 during the 1998 period to $10,967,000 during the
1999 period, and as a percentage of total net revenues, expenses
decreased from 19.6% to 19.3%.
EBITDA
EBITDA, as defined, increased by approximately $414,000, or 4.1%,
from $10,162,000 during the 1998 period to $10,576,000 during the
1999 period. The increase was due to an increase in revenues and
decrease in costs associated with promotional allowances as
discussed above.
OTHER EXPENSES
Rent expense increased by approximately $74,000, from $3,895,000
during the 1998 period to $3,969,000 during the 1999 period, due
to corresponding annual CPI increases for land lease agreements.
Depreciation and amortization increased by approximately
$528,000, or 18.8% from $2,804,000 during the 1998 period to
$3,332,000 during the 1999 period, primarily due to the
acquisition of new slot and other equipment, and the completion
of a room remodel project.
Interest expense decreased by approximately $2,375,000, or 54.3%
from $4,372,000 during the 1998 period to $1,997,000 for the 1999
period, due to the recapitalization of the Company on September
29, 1998, as discussed above in Liquidity and Capital Resources.
See also Item 1. BUSINESS - Recapitalization.
During 1999, the Company incurred approximately $726,000 in
merger and acquisition costs related to the litigation of the
Merger Agreement. This cost was partially offset by a
reimbursement from the Company's D&O insurance carrier in the
amount of $408,000.
NET INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES AND UNDECLARED DIVIDENDS
ON CUMULATIVE PREFERRED STOCK
As a result of the factors discussed above, the Company
experienced net income in the 1999 period of $960,000 compared to
a net loss of $1,272,000 in the 1998 period, an improvement of
$2,232,000 or 175.5%.
1998 COMPARED TO 1997
REVENUES
Net revenues increased by approximately $2,112,000 or 3.9%, from
$53,788,000 for 1997 to $55,900,000 for 1998.
Casino revenues increased by approximately $2,866,000, or 7.9%,
from $36,506,000 during the 1997 period to $39,372,000 during the
1998 period. This increase was primarily due to a $4,608,000, or
18.7% increase in net slot revenue offset by a $643,000, or 8.4%
decrease in net table games revenues and $666,000 or 22.9%
decrease in slot promotion revenue. During 1998, table games drop
decreased $1,794,000 or 3.5%, and slot coin-in increased
$54,170,000, or 11.8%, attributable primarily to the opening of
the Nickel Palace in March 1998 and the acquisition of new
state-of-the-art slot equipment. The decrease in table game
revenue was also attributable to a 0.8% decrease in win percent.
Hotel revenues decreased by approximately $701,000, or 7.2%, from
$9,705,000 during the 1997 period to $9,004,000 during the 1998
period. This decrease was primarily due to a decrease in cash
room revenue of $1,550,000 resulting from the decrease in the
average room rate as a result of competitive room pricing in the
Las Vegas market. In addition, some cash revenues were displaced
by complimentary revenues as a result of the implementation of
new casino and slot marketing promotions as a part of
management's effort to increase casino revenues.
Food and beverage revenues increased approximately $38,000, or
.4%, from $9,686,000 during the 1997 period to $9,724,000 during
the 1998 period due to an increase in complimentary revenues of
$595,000 resulting from the implementation of casino and slot
marketing promotions, which was offset by a decrease in cash
revenues as a result of lower average check.
Other revenues increased by approximately $889,000, or 42%, from
$2,115,000 during the 1997 period to $3,004,000 during the 1998
period, due primarily to payments received under the settlement
agreement reached with the Twenty-Nine Palms Band of Mission
Indians.
Promotional allowances increased by approximately $980,000, or
23.2%, from $4,224,000 during the 1997 period to $5,204,000
during the 1998 period due to an increase in complimentary rooms,
food and beverage resulting from the implementation of casino and
slot marketing promotions.
DIRECT COSTS AND EXPENSES OF OPERATING DEPARTMENTS
Total direct costs and expenses of operating departments,
including taxes and licenses, increased by approximately
$171,000, or 0.5%, from $34,604,000 for 1997 to $34,775,000 for
1998.
Casino expenses decreased by approximately $702,000, or 0.5%,
from $14,170,000 during the 1997 period to $14,097,000 during the
1998 period due to a decrease in payroll expenses offset with an
increase in complimentary rooms, food and beverages as a result
of the casino and slot marketing promotions. Casino expenses as a
percentage of revenues decreased from 38.8% to 35.8% due to the
decrease in expenses and increase in slot revenue.
Hotel expenses decreased by approximately $769,000, or 8.8%, from
$8,780,000 during the 1997 period to $8,011,000 during the 1998
period, and costs as a percentage of revenues decreased from
90.5% to 89.0%, due to a decrease in hotel cash revenue as a
result of aggressive casino and slot marketing promotions which
resulted in higher promotional allowances.
Food and beverage costs and expenses increased by approximately
$579,000, or 9.4%, from $6,177,000 during the 1997 period to
$6,756,000 during the 1998 period. Food and beverage expenses as
a percentage of revenue increased from 63.8% in 1997 to 69.5% in
1998 primarily as a result of an increase in costs associated
with the increase in marketing promotions, which resulted in an
increase in promotional allowances.
OTHER OPERATING EXPENSES
Selling, general and administrative expenses increased by
approximately $1,462,000, or 15.4%, from $9,501,000 for 1997 to
$10,963,000 for 1998 primarily due to an increase in
complimentary costs. As a percentage of total net revenues,
selling, general and administrative expenses increased from 17.7%
during the 1997 period to 19.6% during the 1998 period due to the
increase in promotional allowance as a result of an increase in
casino and slot promotions.
EBITDA
EBITDA, as defined, increased by approximately $479,000, or 4.9%,
from $9,683,000 during 1997 to $10,162,000 during 1998 due to
higher revenues, as discussed above.
OTHER EXPENSES
Depreciation and amortization increased by approximately
$501,000, or 21.8%, from $2,303,000 during the 1997 period to
$2,804,000 during the 1998 period due to an increase in property
and equipment for the 1998 period.
Interest expense decreased by approximately $639,000, or 12.8%,
from $5,011,000 during 1997 to $4,372,000 for 1998, due to the
recapitalization transaction as discussed above in Liquidity and
Capital Resources. See also Item 1. BUSINESS - Recapitalization.
During 1998, the Company incurred approximately $363,000 in
merger and acquisition costs related to a pending merger that was
not completed.
EXTRAORDINARY ITEM
The Company incurred approximately $77,000 in extraordinary costs
associated with the buyout of the First Mortgage Notes.
NET INCOME (LOSS)
As a result of the factors discussed above, net loss decreased by
approximately $565,000, from a loss of $1,914,000 during 1997 to
a loss of $1,349,000 during 1998.
Item 7A. Quantitative and Qualitative Disclosures about Market Risks.
The Company's financial instruments include cash and long-term
debt. At December 31, 1999, the carrying values of the Company's
financial instruments approximated their fair values based on
current market prices and rates. It is the Company's policy not
to enter into derivative financial instruments. The Company does
not currently have any significant foreign currency exposure
since it does not transact business in foreign currencies.
Therefore, the Company does not have significant overall currency
exposure at December 31, 1999.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
For the years ended December 31, 1999, 1998 and 1997
Page
Independent Auditors' Reports 35
Consolidated Balance Sheets as of December 31, 1999 and 1998 37
Consolidated Statements of Operations for the Years
Ended December 31, 1999 and 1998(Reorganized Company);
Ten Months Ended December 31, 1997(Reorganized Company) and
Two Months Ended February 28, 1997(Predecessor Company); and
Combined Reorganized and Predecessor Companies for the
Year Ended December 31, 1997 39
Consolidated Statements of Shareholders' Equity
(Deficiency) for the Years Ended December 31, 1999,
1998 and 1997 41
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1999 and 1998 (Reorganized Company);
Ten Months ended December 31,1997 (Reorganized Company)
and Two Months Ended February 28, 1997 (Predecessor Company);
and Combined Reorganized and Predecessor Companies for the
Year Ended December 31, 1997 42
Notes to Consolidated Financial Statements 46
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.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Elsinore Corporation
Las Vegas, Nevada
We have audited the accompanying consolidated balance sheet of
Elsinore Corporation and Subsidiaries (the "Company") as of
December 31, 1999, and the related consolidated statements of
operations, shareholders' equity, and cash flows for the year
then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards
generally accepted in the United States of America. Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audit provide a reasonable
basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of the
Company as of December 31, 1999, and the results of its
operations and its cash flows for the year then ended in
conformity with accounting principles generally accepted in the
United States of America.
DELOITTE & TOUCHE LLP
Las Vegas, Nevada
March 16, 2000
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Elsinore Corporation:
We have audited the accompanying consolidated balance sheet of
Elsinore Corporation and subsidiaries (Reorganized Company) as of
December 31, 1998, and the related consolidated statements of
operations, shareholders' equity, and cash flows for the year
ended and the ten-month period from March 1, 1997 (effective
date) through December 31, 1997 and of Elsinore Corporation and
subsidiaries (Predecessor Companby) for the period January 1,
1997 through February 28, 1997. These financial statements are
the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, 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, 1998, and the results of their operations and their cash
flows for the year then ended and the ten-month period from March
1, 1977 (effective date) through December 31, 1977 and of
Elsinore Corporation and subsidiaries (Predecessor Company) for
the period January 1, 1977 through February 28, 1977, in
conformity with the generally accepted accounting principles.
KPMG LLP
Las Vegas, Nevada
February 26, 1999
Elsinore Corporation and Subsidiaries
Consolidated Balance Sheets
December 31, 1999 and 1998
(Dollars in Thousands)
<TABLE>
<CAPTION>
1999 1998
--------------- ---------------
Assets
Current Assets:
<S> <C> <C>
Cash and cash equivalents $3,547 $5,604
Accounts receivable, less allowance for
Doubtful accounts of $249 and $219,
Respectively 694 473
Inventories 594 445
Prepaid expenses 1,187 1,153
---------------- ----------------
Total current assets 6,022 7,675
Property and equipment, net 40,815 40,218
Reorganization value in excess of amounts
Allocable to identifiable assets, net 313 350
Other assets 1,643 1,505
---------------- ----------------
Total assets $48,793 $49,748
================ ================
</TABLE>
See accompanying notes to consolidated financial statements.
Elsinore Corporation and Subsidiaries
Consolidated Balance Sheets (continued)
December 31, 1999 and 1998
(Dollars in Thousands)
<TABLE>
<CAPTION>
1999 1998
---------------- ----------------
Liabilities and Shareholders' Equity
Current liabilities:
<S> <C> <C>
Accounts payable $1,803 $792
Accrued interest 735 2,764
Accrued expenses 4,573 4,359
Current portion of long-term debt 2,079 1,906
---------------- ----------------
Total current liabilities 9,190 9,821
Long-term debt, less current portion 14,264 15,548
---------------- ----------------
Total liabilities 23,454 25,369
---------------- ----------------
Commitments and contingencies
Shareholders' Equity:
6% cumulative convertible preferred stock, no
par value. Authorized, issued and
outstanding 50,000,000 shares. Liquidation
preference and accrued dividends of $19,366
and $18,270 at December 31, 1999 and 1998,
respectively. 19,366 18,270
Common stock, $.001 par value per share.
Authorized 100,000,000 shares. Issued
and outstanding 4,929,313 shares. 5 5
Additional paid-in capital 8,271 9,367
Accumulated deficit (2,303) (3,263)
---------------- ----------------
Total shareholders' equity 25,339 24,379
---------------- ----------------
Total liabilities and shareholders'
equity $48,793 $49,748
================ =================
</TABLE>
See accompanying notes to consolidated financial statements.
Elsinore Corporation and Subsidiaries
Consolidated Statements of Operations
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Combined
Reorganized
And
Predecessor Predecessor
Reorganized Company Company Company
-------------------------------------- ------------ ------------
Period from Period from
Year Year March 1 January 1 Year
Ended Ended To To Ended
December 31, December 31, December 31, February 28, December 31,
1999 1998 1997 1997 1997
------------ ------------ ------------ ------------ ------------
Revenues, net:
<S> <C> <C> <C> <C> <C>
Casino $39,408 $39,372 $29,584 $6,922 $36,506
Hotel 8,822 9,004 7,969 1,736 9,705
Food and beverage 9,646 9,724 7,941 1,745 9,686
Other 3,130 3,004 1,962 153 2,115
------------ ------------ ------------ ------------ -----------
Total revenues 61,006 61,104 47,456 10,556 58,012
Promotional
allowances (4,252) (5,204) (3,464) (760) (4,224)
------------ ------------ ------------ ------------ ----------
Net revenues 56,754 55,900 43,992 9,796 53,788
------------ ------------ ------------ ------------ ----------
Costs and expenses:
Casino 13,866 14,097 11,427 2,743 14,170
Hotel 8,690 8,011 7,403 1,377 8,780
Food and beverage 6,676 6,756 5,072 1,105 6,177
Taxes and licenses 5,979 5,911 4,497 980 5,477
Selling, general and
administrative 10,967 10,963 7,694 1,807 9,501
Rents 3,969 3,895 3,508 673 4,181
Depreciation and
amortization 3,332 2,804 1,774 529 2,303
Interest 1,997 4,372 4,239 772 5,011
Merger and litigation
costs 318 363 - - -
------------ ------------ ------------ ------------ -----------
Total costs and
expenses 55,794 57,172 45,614 9,986 55,600
------------ ------------ ------------ ------------ -----------
Net income(loss)
before extraordinary
item and
provision for
income taxes 960 (1,272) (1,622) (190) (1,812)
Reorganization items - - (292) - (292)
Extraordinary item - (77) - 35,977 35,977
------------ ------------ ------------ ------------ -----------
</TABLE>
Elsinore Corporation and Subsidiaries
Consolidated Statements of Operations (continued)
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Combined
Reorganized
And
Predecessor Predecessor
Reorganized Company Company Company
-------------------------------------- ------------- ------------
Period from Period from
Year Year March 1 January 1 Year
Ended Ended To To Ended
December 31, December 31, December 31, February 28, December 31,
1999 1998 1997 1997 1997
------------ ------------ ----------- ------------- ------------
Net income (loss)
<S> <C> <C> <C> <C> <C>
before undeclared
dividends on
cumulative preferred
stock 960 (1,349) (1,914) 35,787 33,873
Undeclared dividends
on cumulative
preferred stock 1,096 270 - - -
------------ ------------ ----------- ------------- ------------
Net income (loss)
applicable to
common shares
$(136) $(1,619) $(1,914) $35,787 $33,873
============ ============ ============ ============= ============
Basic and diluted
loss per share:
Loss before
extraordinary
item ($.03) ($.31) ($.39) ($0.01)
Extraordinary
item - (.02) - 2.26
------------- ------------- ------------ --------------
Net income
(loss) ($.03) ($.33) ($.39) $2.25
============= ============= ============ ==============
Weighted average
number of
common shares
outstanding 4,929,313 4,929,313 4,929,313 15,891,793
============= ============ ============= ==============
</TABLE>
See accompanying notes to consolidated financial statements.
Elsinore Corporation and Subsidiaries
Consolidated Statements of Shareholders' Equity (Deficiency)
Years Ended December 31, 1999, 1998 and 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
Common Stock Preferred Stock
---------------------------------
Total
Out- Out- Additional Shareholders'
standing standing Paid-In- Accumulated Equity
Shares Amount Shares Amount Capital Deficit (Deficiency)
----------------------------------------------------------------
<S> <C> <C><C> <C> <C> <C> <C>
Balance, January 1,
1997 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
Capital contribution,
net - - - - 4,642 - 4,642
Issuance of
preferred stock - - 50,000,000 $18,000 - - 18,000
Net loss - - - - - (1,349) (1,349)
Undeclared preferred stock
dividends - - - 270 (270) - -
----------------------------------------------------------------
Balance, December 31,
1998 4,929,313 5 50,000,000 18,270 9,367 (3,263) 24,379
Net income 960 960
Undeclared preferred
stock dividends 1,096 (1,096) -
---------------------------------------------------------------
Balance, December 31,
1999 4,929,313 $5 50,000,000 $19,366 $8,271 ($2,303) $25,339
===============================================================
</TABLE>
See accompanying notes to consolidated financial statements.
Elsinore Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(Dollars in Thousands)
<TABLE>
<CAPTION>
Combined
Reorganized
and
Predecessor Predecessor
Reorganized Company Company Company
-----------------------------------------------------------------------
Period from Period from
Year Year March 1 January 1 Year
Ended Ended to to Ended
December 31, December 31, December 31, February 28, December 31,
1999 1998 1997 1997 1997
-----------------------------------------------------------------------
Cash flows from operating
activities:
<S> <C> <C> <C> <C> <C>
Net income (loss) $960 ($1,349) ($1,914) $35,787 $33,873
Adjustments to
reconcile net income
(loss) to net cash
provided by (used
in) operating
activities:
Extraordinary item - 77 - (35,977) (35,977)
Depreciation and
amortization 3,332 2,804 1,774 529 2,303
Loss on sale of
equipment - - 3 - 3
Changes in assets and
liabilities:
Accounts
receivable (221) 150 (77) 269 192
Inventories (149) (63) (34) 6 (28)
Restricted cash - 693 (558) (111) (669)
Prepaid expenses (34) 914 (561) 4,092 3,531
Other assets (101) (747) - 2 2
Accounts
payable 1,011 (382) 72 (178) (106)
Accrued
expenses 214 (94) (2,314) 591 (1,723)
Accrued
interest (2,029) 1,272 (868) 749 (119)
------------ ---------- ----------- ---------- ----------
Net cash provided by
(used in) operating
activities 2,983 3,275 (4,477) 5,759 1,282
------------ ---------- ----------- ---------- ----------
</TABLE>
Elsinore Corporation and Subsidiaries
Consolidated Statements of Cash Flows (continued)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Combined
Reorganized
and
Predecessor Predecessor
Reorganized Company Company Company
-----------------------------------------------------------------
Period from Period from
Year Year March 1 January 1 Year
Ended Ended to to Ended
December 31, December 31, December 31, February 28, December 31,
1999 1998 1997 1997 1997
------------------------------------------------------------------
Cash flows used in
investing activities:
<S> <C> <C> <C> <C> <C>
Net capital
expenditures ($3,046) ($2,117) ($2,593) ($141) ($2,734)
------------- ---------- --------- ----------- -----------
Net cash used in
investing
activities (3,046) (2,117) (2,593) (141) (2,734)
------------- ---------- -------- ----------- -----------
Cash flows from
financing activities:
Principal payments
on long-term debt (1,994) (6,104) (549) (12) (561)
Capital contribution - 4,642 - 713 713
-------------- ----------- --------- ----------- -----------
Net cash provided
by(used in)financing
activities (1,994) (1,462) (549) 701 152
-------------- ----------- --------- ----------- -----------
Net increase
(decrease)in cash
and cash
equivalents (2,057) (304) (7,619) 6,319 (1,300)
Cash and cash
equivalents at
beginning of
period 5,604 5,908 13,527 7,208 7,208
---------------- ---------- ---------- ----------- ----------
Cash and cash
equivalents at
end of period $3,547 $5,604 $5,908 $13,527 $5,908
================ ========== ========== =========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
Elsinore Corporation and Subsidiaries
Consolidated Statements of Cash Flows (continued)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Combined
Reorganized
and
Predecessor Predecessor
Reorganized Company Company Company
------------------------------------------------------------------
Year Year Period from Period from Year
Ended Ended March 1 to January 1 to Ended
December 31, December 31, December 31, February 28, December 31,
1999 1998 1997 1997 1997
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Supplemental
disclosure of
non-cash investing
and financing
activities:
Fresh start
adjustments which
result in an
increase (decrease)
to the following:
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
Undeclared preferred
stock dividends $1,096 $270 - - -
Conversion of debt to
preferred stock - $18,000 - - -
</TABLE>
Elsinore Corporation and Subsidiaries
Consolidated Statements of Cash Flows (continued)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Combined
Reorganized
and
Predecessor Predecessor
Reorganized Company Company Company
------------------------------------------------------------------
Year Year Period from Period from Year
Ended Ended March 1 to January 1 to Ended
December 31, December 31, December 31, February 28, December 31,
1999 1998 1997 1997 1997
------------------------------------------------------------------
Cash paid during the
year for:
<S> <C> <C> <C> <C> <C>
Interest $4,025 - $5,129 - $5,129
Equipment purchased
with capital leases $883 $1,863 $1,889 - $1,889
</TABLE>
See accompanying notes to consolidated financial statements.
Elsinore Corporation and Subsidiaries
Notes to Consolidated Financial Statements
On October 31, 1995, Elsinore Corporation, and certain wholly
owned subsidiaries, as debtors in possession, (the "Predecessor
Company") filed a voluntary petition to reorganize under Chapter
11 of the Federal Bankruptcy Code. On August 12, 1997, 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
Effective Date 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.
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:
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
==========
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:
12.5% First Mortgage noteholders 995,280
Old common stockholders 4,720
---------
Total 1,000,000
=========
Under the Plan, the Reorganized Company is required to issue the
following additional shares of New Common Stock to the following
creditor groups whose claims had not been resolved as of the
Effective Date:
Unsecured Creditors of Four Queens, Inc. 50,491
Unsecured Creditors of Elsinore Corporation 14,159
------
Total 64,650
======
After giving effect to this issuance of additional shares, the
Reorganized Company will have 4,993,963 issued and outstanding
shares of New Common Stock. An additional 6,037 shares of New
common Stock were issuable under the Plan to certain unsecured
creditors of the Reorganized Company. However, they waived their
entitlement to those shares in connection with the resolution of
certain litigation. See Item 3. LEGAL PROCEEDINGS.
The proceeds from the rights offering were held in a separate
bank account and use was restricted until the Effective Date.
Until December 31, 1999, Riviera Gaming Management-Elsinore
("RGME") held a warrant to purchase 1,125,000 shares of New
Common Stock for $1 per share. The arrangement under which RGME
managed the Four Queens Hotel terminated on December 31, 1999.
The effects of the Plan and fresh start reporting on the balance
sheet at February 28, 1997 are as follows:
<TABLE>
<CAPTION>
Predecessor (a) (b) (c) Reorganized
Company Debt Issue of Fresh Start Company
February 28, Discharge Stock Adjustments March 1,
1997 1997
------------- --------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Assets
Current assets:
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 (2,400)
Experience LLC 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 10,450 (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 $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.
On March 25, 1999, a Final Decree and Order was entered closing
the Chapter 11 cases for Elsinore Corporation, Elsub Management
Corporation, Palm Springs East, LP, and Four Queens, Inc.
2. Summary of Significant Accounting Policies
(a) 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.
(b) 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, 1999 and 1998 was
approximately $73,000 and $37,000, respectively.
(c) Reorganization Items
Reorganization expense is comprised of administrative and
severance expenses incurred by the Company as a result of
reorganization under Chapter 11 of the Federal Bankruptcy Code.
Such items for the years ended 1999, 1998, and 1997 were $0, $0,
and $292,000, respectively.
(d) 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,
-----------------------------
1999 1998 1997
(Dollars in thousands)
Hotel $903 $1,257 $703
Food & beverage 2,498 2,070 2,219
----- ----- -----
Total $3,401 $3,327 $2,922
===== ===== =====
(e) Cash Equivalents
Cash equivalents include highly liquid investments with a
maturity date of 90 days or less at the date they were purchased.
(f) Inventories
Inventories are stated at the lower of cost (first-in, first-out)
or market.
(g) 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 5 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.
(h) Other Assets
Other assets consists of the following:
December 31,
1999 1998
(Dollars in thousands)
--------------------
Secured letter of credit $655 $615
Promotional inventory 328 187
Parking garage deposit 391 413
Security deposits on leases 162 190
Other 107 100
----- -----
Total $1,643 $1,505
===== =====
(i) 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.
(j) Loss Per Share
Basic per share amounts are computed by dividing net income
(loss) by average shares outstanding during the period. Diluted
per share amounts are computed by dividing net income (loss) by
average shares outstanding plus the dilutive effect of common
shares equivalents. Since the Company incurred a net loss
available to common shareholders, the effect of common share
equivalents was anti-dilutive. The effect of the warrants
outstanding to purchase 1,125,000 shares of common stock was not
included in diluted per share calculations since the exercise
price of such warrants was greater than the average price of the
Company's common stock during these periods.
(k) Long-lived Assets
Long-lived assets used in operations are evaluated each reporting
period for impairment by comparing the undiscounted cash flows
estimated to be generated by those assets to the assets' carrying
amount. There was no write-down of assets for the years ended
December 31, 1999, 1998, and 1997, other than in connection with
the application of fresh start accounting.
(l) Reclassification
Certain 1998 and 1997 amounts have been reclassified to conform
with the 1999 presentation. These reclassifications had no effect
on the Company's net income (loss).
(m) Use of Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Significant
estimates used by the Company include the estimated useful lives
for depreciable and amortizable assets, the estimated allowance
for doubtful accounts receivable, the estimated valuation
allowance for deferred tax assets, and estimated cash flows used
in assessing the recoverability of long-lived assets. Actual
results may differ from those estimates.
(n) Recently Issued Accounting Standards
The Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which is
effective for fiscal years beginning after June 15, 2000. This
Statement establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments
embedded in other contracts, (collectively referred to as
"derivatives") and for hedging activities. This Statement
requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and
measure those instruments at fair value. Management of the
Company has not yet determined the impact that this Statement
could have on the consolidated financial statements.
3. Property and Equipment
Property and equipment consists of the following:
December 31,
1999 1998
-----------------------
(Dollars in thousands)
Land $2,800 $2,800
Buildings 29,952 27,305
Equipment 15,572 13,252
Construction in progress 2 1,110
------ ------
48,326 44,467
Less accumulated depreciation
and amortization 7,511 4,249
------ ------
$40,815 $40,218
====== ======
4. Accrued Expenses
Accrued expenses consist of the following:
December 31,
1999 1998
----------------------
(Dollars in thousands)
Payroll, benefits and related $2,231 $1,862
Gaming taxes 153 255
Slot club liability 706 671
Outstanding chip and token liability 446 695
Other 1,037 876
----- -----
$4,573 $4,359
===== =====
5. Native American Casino Operations
Spotlight 29 Casino
In November 1993, the Company's subsidiary, Palm Springs East
Limited Partnership ("PSELP"), and the Twenty-Nine Palms Band of
Mission Indians (the "Band") entered into a management contract
(the "Contract"), whereby PSELP had the exclusive right to manage
and operate the Spotlight 29 Casino (the "Spotlight 29"), located
near Palm Springs, California, and owned by the Band.
In March 1995, the Band and PSELP had a dispute regarding, among
other things, the terms of the Contract. As a result, PSELP lost
its management position, and subsequently wrote off casino
development costs of $1,037,000 and accrued interest and working
capital loans of $3,500,000.
On March 29, 1996, PSELP entered into a settlement with the Band
that was approved by the Bankruptcy Court and which received
final clearance by the Bureau of Indian Affairs. Pursuant to the
settlement agreement, PSELP received a promissory note from the
Band dated October 8, 1996, in the principal amount of
$9,000,000, which was fully reserved at February 28, 1997 (the
"Note"). While the Note has a 36-month amortization schedule,
monthly payments are limited to 20% of Spotlight 29's monthly net
income. The Note was due and payable on October 15, 1999. The
terms of the Note are as follows: (i) if Spotlight 29's net
income is insufficient to fully pay the Note at October 15, 1999,
the Note automatically extends for an additional two years, until
October 15, 2001; (ii) if Spotlight 29's net income is
insufficient to fully pay the Note at the end of the extension
period, October 15, 2001, it may be extended up to an additional
two years, until October 15, 2003, upon the approval of the
National Indian Gaming Commission ("NIGC"), however, if the NIGC
does not approve the additional extension, the Note will be
forgiven at October 15, 2001; and (iii) if NIGC does approve the
additional extension to October 15, 20003, but Spotlight 29's net
income is insufficient to pay the Note at the end of this final
extension period, the Note will be forgiven at October 15, 2003.
As Spotlight 29's net income was insufficient to fully pay the
Note at October 15, 1999, the Note, pursuant to its terms, was
automatically extended until October 15, 2001.
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%. PSELP has received $3,639,000 in total payments,
under the terms of the note as of December 31, 1999. Of these
total payments, the amounts of $1,172,000, $1,431,000 and
$711,000 have been recorded in other income for the years ended
December 31, 1999, 1998 and 1997, respectively. The principal
balance at December 31, 1999 was $8,172,000. There can be no
assurance that the Company will be able to make collections on
this Note in the future.
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. At February 28, 1997, the
Company wrote off the note receivable and related reserve.
6. Long-Term Debt
Long-term debt consists of the following:
December 31,
1999 1998
-----------------------
12.83% New Mortgage Notes("New Notes") $11,104 $11,104
Notes payable - IRS 448 719
Notes payable - Other 767 1,100
Capital leases (see Note 8) 4,024 4,531
------ ------
16,343 17,454
Less current maturities (2,079) (1,906)
------ ------
$14,264 $15,548
====== ======
Interest on the New Notes is payable on February 28 and August 31
of each year. Principal is due on August 20, 2001. The New 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
New Notes at 101% upon any "Change of Control" as defined in the
indenture governing the New Notes. The New 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 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 New 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 not less than an amount equal to
its consolidated net worth on the Effective Date of the Plan,
which was $5 million, less $5 million. At certain times during
1999 the Company was not in compliance with these requirements,
however waivers were obtained from the lender. The Company was in
compliance with the covenants applicable to the New Notes as of
December 31, 1999.
The Company has one unsecured note payable to the IRS as a result
of the bankruptcy. The note bears interest at 8% and is payable
in semiannual installments of $161,450 through February 2001.
The Company has two unsecured notes payable to certain vendors as
a result of the bankruptcy. These notes are non-interest bearing
and are payable in quarterly installments of $2,800 through
February 2002. The Company also has a note, which is non-interest
bearing, for the purchase of guest room furniture, and several
other notes for the purchase of slot machines from various slot
manufactures.
Maturities of the Company's long-term debt are as follows:
Year Ending December 31,
2000 2,079
2001 12,275
2002 424
2003 96
2004 3
Thereafter 1,466
------
$ 16,343
======
7. Leases
All non-cancelable leases have been classified as capital or
operating leases. At December 31, 1999, 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,
1999 1998
-----------------------
(Dollars in thousands)
Building $1,364 $1,364
Equipment 4,480 3,735
----- -----
5,844 5,099
Less accumulated amortization (1,407) (919)
----- -----
$4,437 $4,180
===== =====
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, 1999:
Capital Operating
Leases Leases
------- --------
(Dollars in thousands)
Years Ending December 31,
2000 $1,462 $4,031
2001 1,293 4,031
2002 671 4,026
2003 321 3,932
2004 223 3,870
Thereafter 6,463 106,969
------ -------
Total minimum lease payments $10,433 $126,859
====== =======
Less: amount representing
interest(at imputed rates
ranging from 5.9%
to 15.0%) 6,409
-----
Present value of net
minimum capital lease
payments 4,024
Less: current maturities (1,061)
-----
Capital lease obligations,
excluding current maturities $2,963
=====
Rent expense recorded under operating leases for the years ended
December 31, 1999, 1998 and 1997 was $3,404,000, $3,642,000 and
$3,178,000, respectively.
8. Income Taxes
No income tax benefit related to the 1999 income and 1998 and
1997 losses have 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,
1999 1998
-------------------
(Dollars in thousands)
Deferred tax assets:
Accounts receivable, principally
due to allowance for doubtful accounts $ 85 $92
Accrued compensation, principally
due to accrual for financial
reporting purposes 503 502
Progressive slot and slot club accruals 325 467
Merger costs, principally due to amounts
not currently deductible for tax purposes - 57
Net operating loss carryforwards 9,139 9,400
General business credit carryforward,
principally due to investment
tax credit generated in prior years 1,086 137
Income recognized for tax purposes
on investment in partnership 1,106 1,027
Contribution deduction carryforward,
principally due to amounts
not deductible in prior periods 66 66
Loan receivable principal due to
allowance for uncollectibility 4,508 4,508
Reorganization items, principally due
to amounts not currently
deductible for tax purposes 31 23
------ ------
Total gross deferred tax assets 16,849 16,279
Less valuation allowance (11,661) (10,892)
------ ------
Net deferred tax assets 5,188 5,387
------ ------
Deferred tax liabilities:
Plant and equipment, principally due to
differences in depreciation (3,744) (3,898)
Prepaid expenses, principally due to
deduction for tax purposes (314) (321)
Losses recognized for tax purposes on
partnership investments (1,130) (1,168)
----- -----
Total gross deferred tax liabilities (5,188) (5,387)
----- -----
Net deferred tax asset(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 $85,000,000. 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 began
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 $766,000 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 $320,000 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.
9. 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 1999, 1998 and 1997 totaled $426,000, $317,000, and
$149,000, 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 $87,000, $66,000, and $120,000 for
1999, 1998 and 1997, respectively. There were 152, 179, and 438
participants in the savings plan as of December 31, 1999, 1998
and 1997, respectively.
10. Recapitalization
On September 29, 1998, certain investment accounts controlled by
Morgens, Waterfall, Vintiadis & Company, Inc. ("MWV" and the
accounts controlled by MWV, the "MWV Accounts") contributed
$4,641,000, net of $260,000 of expenses, to the capital of the
Company. The Company used this capital, together with other funds
of the Company, to purchase in full all of the Company's
outstanding 11.5% First Mortgage Notes due 2000 in the original
aggregate principal amount of $3,856,000 and $896,000 of original
principal amount 13.5% Second Mortgage Notes of the Company due
2001.
Also on September 29, 1998, the Company issued to the MWV
Accounts 50,000,000 shares of Series A Convertible Preferred
Stock of the Company in exchange for the surrender to the Company
of $18,000,000 original principal amount of second mortgage notes
held by the MWV Accounts. The 50,000,000 shares of Series A
Convertible Preferred Stock have an aggregate liquidation
preference, including all accrued or declared but unpaid
dividends, of $19,366,000 and are convertible into 93,000,000
shares of the Company's common stock.
In addition, on September 29, 1998, the Company issued to the MWV
Accounts New Mortgage Notes in the aggregate principal amount of
$11,104,000 in exchange for all remaining outstanding second
mortgage notes held by the MWV Accounts in the same aggregate
principal amount, pursuant to an amended indenture governing the
second mortgage notes that reduced the interest rate payable
thereon from 13.5% to 12.83%.
11. Commitments and Contingencies
RGME managed the Four Queens Casino in accordance with the
Management Arrangement among the Company, Four Queens, Inc. and
RGME effective April 1, 1997. RGME received an annual fee of $1
million in equal monthly installments. The arrangement under
which RGME managed the Four Queens Hotel and Casino terminated on
December 31, 1999.
The Company and seven other downtown Las Vegas property owners,
who together operate ten casinos, have formed the Fremont Street
Experience LLC, a limited liability company of which the Company
is a one-sixth owner, to develop the Fremont Street Experience.
The Company is liable for a proportionate share of the project's
operating expenses. The Company's allocated share of the
operating costs of the Fremont Street Experience ($600,000 in
1999, 1998, and 1997, respectively) are expensed as incurred.
The Company is also a party to litigation involving a proposed
merger with R&E Gaming Corp. as discussed in Note 12 below.
On March 25, 1999, a Final Decree and Order was entered closing
the Chapter 11 cases for Elsinore Corporation, Elsub Management
Corporation, Palm Springs East, LP, and Four Queens, Inc.
Under the Plan of Reorganization that became effective following
the close of business on February 28, 1997, the Company is
presently required to issue additional shares of New Common Stock
to the following creditor groups or to a disbursing agent on
behalf of such creditor groups:
Unsecured Creditors of Four Queens, Inc. 50,491
Unsecured Creditors of Elsinore Corporation 14,159
------
Total 64,650
======
The Company is currently arranging for the issuance of these shares.
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 statements of the Company taken as a whole.
12. Proposed Merger
In the first half of 1998, 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, 1998, 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, 1998 to the date immediately preceding the
date such acquisition is consummated. The Merger Agreement
provided 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 owned 94.3% of the outstanding
Common Stock prior to the Recapitalization. Under certain
conditions and circumstances, the Option Agreement provided 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, 1999.
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, 1998, 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 provided 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 contained 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.
On March 20, 1998, Elsinore was notified by R&E, through Paulson,
that it was R&E's position that the Merger Agreement was void and
unenforceable against R&E and EAS, or alternatively, R&E and EAS
intended to terminate the Merger Agreement. R&E alleged, among
other things, violations by Elsinore of the Merger Agreement,
violations of law and misrepresentations by MWV in connection
with the Option and Voting Agreement and the non-satisfaction of
certain conditions precedent to completing the merger. The
Company denied the allegations and asked that R&E complete the
merger. Thereafter, in April 1998, Paulson, R&E, EAS and certain
other entities filed a lawsuit against eleven defendants,
including Elsinore and MWV (Paulson, et al. v Jeffries & Company
et al.). On January 25, 2000, the Court granted Plaintiffs'
motion for leave to file a Fourth Amended Complaint. Plaintiffs'
allegations in the Fourth Amended Complaint against the Company
include breach of the Merger Agreement by Elsinore, as well as
fraud and various violations of the federal securities laws in
connection with the proposed merger. Plaintiffs are seeking (i)
unspecified actual damages in excess of $20 million, (ii) $20
million in exemplary damages, and (iii) rescission of the Merger
Agreement and other relief. The lawsuit was filed in the United
States District Court for the Central District of California.
On March 1, 2000, the Company filed its Answer to the Fourth
Amended Complaint, denying the material allegations thereof. In
addition, the Company alleged various counterclaims against
plaintiffs for breach of the Merger Agreement, fraud and
violations of the federal securities laws. The counterclaims seek
specific performance of the Merger Agreement, compensatory
damages, punitive damages and other relief.
Discovery is only now beginning, and the Company is currently
unable to form an opinion as to the amount of its exposure, if
any. Although the Company intends to defend the lawsuit
vigorously, there can be no assurance that it will be successful
in such defense or that future operating results will not be
materially adversely affected by the final resolution of the
lawsuit.
13. 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
------ ----- -------- ----- -----
1999 $3,956 $ 456 $ 431 $1,136 $5,979
1998 $3,955 $ 411 $ 438 $1,107 $5,911
1997 $3,513 $ 477 $ 413 $1,074 $5,477
14. Supplemental Financial Information
A summary of additions and deductions to the allowance for
doubtful accounts receivable for the years ended December 31,
1999, 1998 and 1997 follows:
(Dollars in thousands)
Balance at Balance
Beginning of At End of
Year Additions Deductions Year
------------ --------- ---------- ---------
Years Ended
- -----------
1999 $219 $ 50 $ 20 $249
1998 $165 $132 $ 78 $219
1997 $347 $ 64 $246 $165
15. Subsequent Events
On March 6, 2000, the Company, entered into a non-binding letter
of intent with PDS Financial Corporation for the sale of the
capital stock of Four Queens, Inc., for a purchase price of $30
million, subject to adjustment. The Four Queens Hotel & Casino
constitutes substantially all of the operating assets of Elsinore
Corporation. The Company holds certain non-operating assets,
which are not subject to the transaction with PDS Financial.
Consummation of the acquisition is subject to a number of
conditions, including due diligence review, negotiation and
execution of a definitive purchase agreement, receipt of required
regulatory approvals, including approval of the Nevada Gaming
Commission, other gaming approvals, and, if necessary, approval
under the Hart-Scott-Rodino Antitrust Act, and receipt by PDS of
satisfactory purchase financing. There can be no assurance that a
definitive agreement can be reached, that the other conditions to
the acquisition will be satisfied or that the acquisition will be
consummated.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
Effective June 17, 1999 the Company dismissed its certifying
accountants, KPMG LLP. The decision to change accountants was
approved by the Audit Committee and the Board of Directors of the
Company.
The reports of KPMG on the Company's financial statements as of
and for the two years ended December 31, 1998, did not contain an
adverse opinion or disclaimer of opinion, and were not qualified
or modified as to uncertainty, audit scope, or accounting
principles.
During the two most recent fiscal years and the interim periods
subsequent to December 31, 1998 through March 31, 1999, the
Company was unaware of any disputes between the Company and KPMG
as to matters of accounting principles or practices, financial
statement disclosure, or audit scope or procedure, which
disagreements, if not resolved to the satisfaction of KPMG, would
have caused it to make a reference to the subject matter of the
disagreement in connection with its reports. The Company has
requested KPMG to furnish it a letter addressed to the Commission
stating whether it agrees with the above statements.
The Company selected the firm of Deloitte & Touche LLP as
independent accountants for the Company's fiscal year ending
December 31, 1999 to replace KPMG LLP. The Company's Board of
Directors approved the selection of Deloitte & Touche LLP as
independent accountants upon recommendation of the Company's
Audit Committee.
The Company filed a Form 8-K, dated June 30, 1999, reporting a
change in accountants. There has been no Form 8-K filed within 24
months prior to the date of the most recent financial statements
reporting disagreements on any matter of accounting principle,
practice, financial statement disclousure or auditing scope or
procedure.
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 and was re-elected at the Company's 1999
Annual Shareholders' Meeting held on October 26, 1999 to serve
until the next Annual Shareholders' Meeting. In 1999, each
executive officer of the Company was also a Director of the
Company.
Name Age Position
- ---- --- ---------
Directors and Officers
- ----------------------
John C. "Bruce" Waterfall 62 Chairman of the Board
Jeffrey T. Leeds 44 President, Chief
Executive Officer
and Director
S. Barton Jacka 63 Treasurer, Secretary
and Director
Significant Employee
- --------------------
Dual B. Cooper, Jr. 56 General Manager
John C. "Bruce" Waterfall. Mr. Waterfall has been a professional
money manager and analyst for the past 30 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 Real Page, Inc. and Edison
Schools, Inc., publicly reporting companies under the Exchange
Act.
S. Barton Jacka. Since 1996, Mr. Jacka has been a gaming
consultant and serves as the chairman for gaming compliance
committees of one other publicly held company and two private
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. Prior positions
were with Bally Manufacturing Corporation and Bally's Casino
Resort Las Vegas from 1987 to 1992. 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.
Dual B. Cooper, Jr. Mr. Cooper assumed the position of General
Manager of the Four Queens effective September 3, 1999. Mr.
Cooper has over 30 years of experience in the Gaming Industry. He
has worked with Harrah's, Bally's, the Desert Inn and most
recently at Casino Magic Corp.
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, 1999. No person who held any other executive
officer position during any part of 1999 received a total annual
salary and bonus in excess of $100,000 in such year.
Long Term
Compensation
Annual Compensation Awards
------------------- ----------
Securities All Other
Name and Principal Position Underlying Compensation
Year Salary($) Bonus($) Options(#) ($)
---- -------- ------- -------- ---------
Jeffrey T. Leeds 1999 39,000 -0- -0- -0-
President and Chief Executive 1998 37,000 -0- -0- -0-
Officer 1997 35,000 -0- -0- -0-
Mr. Leeds assumed his positions on the Plan Effective Date.
Stock Options and Similar Rights.
The Company did not grant any stock options or stock appreciation
rights (collectively, "Stock Rights") during 1999 nor were any
Stock Rights exercised in 1999. As of the Plan Effective Date,
all previously outstanding Stock Rights were canceled.
Compensation 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.
Compensation Committee Interlocks and Insider Participation.
The Company did not have a compensation committee in 1999. 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.
On September 29, 1998, MWV Accounts contributed $14,641,000, net
of $260,000 of expenses, to the capital of Elsinore, which
Elsinore used, together with other funds of Elsinore, to purchase
in full all of Elsinore's outstanding 11.5% First Mortgage Notes
due 2000 in the original principal amount of $3,856,000 and
$896,000 of original principal amount 13.5% Second Mortgage Notes
of Elsinore due 2001.
Also on September 29, 1998, the Company issued to the MWV
Accounts 50,000,000 shares of Series A Convertible Preferred
Stock of the Company in exchange for the surrender to the Company
of $18,000,000 original principal amount of certain second
mortgage notes held by the MWV Accounts. The 50,000,000 shares of
Series A Convertible Preferred Stock have (i) the right to
receive cumulative dividends at the rate of 6% per year; (ii) the
right to receive the amount of $.36 per share, plus all accrued
or declared but unpaid dividends on any shares then held, upon
any liquidation, dissolution or winding up of the Company for an
aggregate liquidation preference of $18,000,000; (iii) voting
rights equal to the number of shares of the Company's Common
Stock into which the shares of Preferred Stock may be converted,
and (iv) the right to convert the shares of Preferred Stock into
93,000,000 shares of the Company's Common Stock.
In addition, Elsinore issued to the MWV Accounts New Mortgage
Notes in the aggregate principal amount of $11,104,000 in
exchange for all remaining outstanding second mortgage notes held
by the MWV Accounts in the same aggregate principal amount,
pursuant to an amended indenture governing the New Mortgage Notes
that reduced the interest rate payable thereon from the 13.5%
payable under the old second mortgage notes to the 12.83% payable
under the New Mortgage Notes. The Company's Chairman of the
Board, Mr. Waterfall, is the President and a principal
shareholder of MWV, which manages the MWV Accounts.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Security Ownership of Certain Beneficial Owners
As of December 31, 1999, the Company had two classes of voting
securities, Common Stock and Series A Convertible Preferred
Stock. Series A Convertible Preferred Stock votes on an
as-converted basis except with respect to the election of
directors for which each share is entitled to one vote. As of
December 31, 1999, the beneficial ownership of Common Stock by
each person who is known by the Company to be the beneficial
owner of more than 5% of the outstanding Common Stock and Series
A Convertible Preferred Stock, is as follows:
Common Stock
------------
Name and Address of Beneficial Owner Amount and Nature of Percent
- ------------------------------------ -------------------- -------
Beneficial Ownership(1) of Class
----------------------- --------
John C. "Bruce" Waterfall, who
exercises voting and investment
authority over the Common Stock
owned by the MWV Accounts, as follows
(2)(3):
Betje Partners 4,278,690.06 46.5%
Endowment Prime, L.L.C. (f/k/a)
The Common Fund for Non-Profit Organizations 14,836,328.84 77.8
Morgens Waterfall Income Partners, L.P. 2,604,280.86 34.6
MWV Employee Retirement Plan Group Trust 879,022.60 15.2
MWV International, Ltd. 3,898,515.00 79.1
Phoenix Partners, L.P. 12,276,868.62 71.4
Restart Partners, L.P. 10,273,330.56 67.6
Restart Partners II, L.P. 19,677,499.86 80.0
Restart Partners III, L.P. 16,089,026.04 76.5
Restart Partners IV, L.P. 10,135,926.78 67.3
Restart Partners V, L.P. 2,696,949.78 35.4
------------- ----
Total 97,646,439.00 99.7%
============= ====
Preferred Stock
---------------
Name and Address of Beneficial Owner Amount and Nature of Percent
- ------------------------------------ -------------------- -------
Beneficial Ownership(1) of Class
---------------------- --------
John C. "Bruce" Waterfall, who
exercises voting and investment
authority over the Common Stock
owned by the MWV Accounts, as follows
(2)(3):
Betje Partners 2,300,371.00 4.6%
Endowment Prime, L.L.C. (f/k/a)
The Common Fund for Non-Profit Organizations 7,596,894.00 15.2
Morgens Waterfall Income Partners, L.P. 1,400,151.00 2.8
MWV Employee Retirement Plan Group Trust 450,110.00 .9
MWV International, Ltd. - *
Phoenix Partners, L.P. 6,600,467.00 13.2
Restart Partners, L.P. 5,523,296.00 11.0
Restart Partners II, L.P. 10,579,301.00 21.2
Restart Partners III, L.P. 8,650,014.00 17.3
Restart Partners IV, L.P. 5,449,423.00 10.9
Restart Partners V, L.P. 1,449,973.00 2.9
------------- ----
Total 50,000,000.00 100.0%
============= =====
*Less than 1% of the outstanding shares
(1) The number of shares beneficially owned and the percentage of
shares beneficially owned are determined in accordance with the
rules of the Securities and Exchange Commission and are based on
4,929,313 shares of Common Stock and 50,000,000 shares of
Preferred Stock, which are convertible into 93,000,000 shares of
Common Stock outstanding as of February 6, 2000.
(2) The address for Mr. Waterfall and each of the MWV Accounts is
10 East 50th Street, New York, New York 10022.
(3) The Common Stock table represents shares on an as-converted
basis and the Preferred Stock table only represents preferred
shares. 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, on an as-converted basis, and percent of the class, to
MWV and those affiliates is as follows: MWV- 9,056,227.66
(90.2%); Endowment Prime, L.L.C. - 14,836,328.84(77.8%); MW
Capital, L.L.C. - 2,604,280.86 (34.6%); MW Management, L.L.C. -
12,276,868.62(71.4%); Prime Group, L.P. -10,273,330.56(67.6%);
Prime Group II, L.P. - 19,677,499.86 (80.0%); Prime Group III,
L.P. - 16,089,026.04 (76.5%); Prime Group IV, L.P. -
10,135,926.78 (67.3%); and Prime Group V, L.P. - 2,696,949.78
(35.4%). The possible attribution of ownership of Preferred
Stock, expressed in number of shares and percent of the class, to
MWV and those affiliates is as follows: MWV- 2,750,481.00 (5.5%);
Endowment Prime, L.L.C. - 7,596,894.00(15.2%); MW Capital, L.L.C.
1,400,151.00 (2.8%); MW Management, L.L.C. - 6,600,467.00(13.2%);
Prime Group, L.P. -5,523,296.00 (11.0%); Prime Group II, L.P. -
10,579,301.00 (21.2%); Prime Group III, L.P. - 8,650,014.00
(17.3%); Prime Group IV, L.P. - 5,449,423.00 (10.9%); and Prime
Group V, L.P. - 1,449,973.00 (2.9%). In view of Mr. Waterfall's
possession of sole voting and investment power over the Common
Stock and Preferred Stock on behalf of the MWV Accounts, these
entities disclaim beneficial ownership of Common Stock and
Preferred Stock.
Security Ownership of Management
As of February 6, 2000, the beneficial ownership of Common Stock
and Preferred 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:
Amount and Nature
of Beneficial
Title of Class Name of Beneficial Owner Ownership Percent of Class
- -------------- ------------------------ --------- ----------------
Common Stock John C. "Bruce" Waterfall,
Chairman of the Board (1) 97,646,440 (2) 99.7%
Common Stock Directors and executive
officers as a
group (3 persons) 97,646,440 (2) 99.7
Series A
Convertible John C. "Bruce" Waterfall,
Preferred Chairman of the Board (1) 50,000,000 100.0
Series A Directors and executive
Convertible officers as a
Preferred group (3 persons) 50,000,000 100.0
(1) See note (3) to the table on page 68.
(2) See note (1) to the table on page 68 discussing beneficial
owners of more than 5% of the outstanding Common Stock for
information regarding Mr. Waterfall's beneficial ownership.
Changes in Control
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, 1998 to the date immediately preceding the
date such acquisition is consummated. The Merger Agreement
provided 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 owned 94.3% of the outstanding
Common Stock prior to the Recapitalization. Under certain
conditions and circumstances, the Option Agreement provided 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.
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, 1998, 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 provided 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 contained conditions precedent to the
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.
On March 20, 1998, Elsinore was notified by R&E, through Paulson,
that it was R&E's position that the Merger Agreement was void and
unenforceable against R&E and EAS, or alternatively, R&E and EAS
intended to terminate the Merger Agreement. R&E alleged, among
other things, violations by Elsinore of the Merger Agreement,
violations of law and misrepresentations by MWV in connection
with the Option and Voting Agreement and the non-satisfaction of
certain conditions precedent to completing the merger. The
Company denied the allegations and asked that R&E complete the
merger. Thereafter, in April 1998, Paulson, R&E, EAS and certain
other entities filed a lawsuit against eleven defendants,
including Elsinore and MWV (Paulson, et al. v Jeffries & Company
et al.). On January 25, 2000, the Court granted Plaintiffs'
motion for leave to file a Fourth Amended Complaint. Plaintiffs'
allegations in the Fourth Amended Complaint against the Company
include breach of the Merger Agreement by Elsinore, as well as
fraud and various violations of the federal securities laws in
connection with the proposed merger. Plaintiffs are seeking (i)
unspecified actual damages in excess of $20 million, (ii) $20
million in exemplary damages, and (iii) rescission of the Merger
Agreement and other relief. The lawsuit was filed in the United
States District Court for the Central District of California.
On March 1, 2000, the Company filed its Answer to the Fourth
Amended Complaint, denying the material allegations thereof. In
addition, the Company alleged various counterclaims against
plaintiffs for breach of the Merger Agreement, fraud and
violations of the federal securities laws. The
counterclaims seek specific performance of the Merger Agreement,
compensatory damages, punitive damages and other relief.
Discovery is only now beginning, and the Company is currently
unable to form an opinion as to the amount of its exposure, if
any. Although the Company intends to defend the lawsuit
vigorously, there can be no assurance that it will be successful
in such defense or that future operating results will not be
materially adversely affected by the final resolution of the
lawsuit.
A change in control of the Company would 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.
Mr. Waterfall, our Chairman of the Board, is the President and a
principal shareholder of MWV, which manages the MWV Accounts.
Pursuant to the Recapitalization, the MWV Accounts have
beneficially owned 99.7% of the Common Stock and $11,104,000
principal amount of the New Mortgage Notes. See Item 11.
EXECUTIVE COMPENSATION - Compensation Committee Interlocks and
Insider Participation.
As discussed in Item 1. BUSINESS - The Four Queens Casino, RGME,
a subsidiary of Riviera, managed the Four Queens Casino under a
Management Arrangement. In connection with RGME's management,
RGME's principal officer also served, at the request of Elsinore,
as the sole director and officer of Four Queens on a non-salaried
basis and was excluded from performing policy-making functions
for Elsinore. As a result of the termination of the Management
Arrangement between the Company and RGME on December 31, 1999,
Mr. Waterfall, has assumed the positions of sole director and
officer of the Four Queens. In addition, as discussed in Item 1.
BUSINESS - Agreement and Plan of Merger, the Riviera was also a
party to an agreement with R&E providing for the Riviera Merger.
Effectiveness of the Riviera Merger was a condition precedent to
consummation of the Merger. Upon consummation of the Merger, RGME
would have been entitled to certain payments under the Management
Arrangement as discussed in Item 1. BUSINESS - The Four Queens
Casino.
The Management Arrangement 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 had 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, 1998. The Merger Agreement provided that the
cost to Elsinore (net of any amounts paid by third parties) of
the tail insurance policy would not exceed $150,000.
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 Statements under
Item 8.
3. List of exhibits
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)
4.1* Certificate of Designations, Preferences and Rights of
Elsinore Corporation Series A Preferred Stock [3.3] (14)
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 to Lease, 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 and 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 Lease, dated January 26, 1973, between President
and Board of Trustees of Santa Clara College and
Four Queens, Inc. [10.13](1)
10.14* Agreement, dated April 29, 1992, by and among
Four Queens, Inc., Jeanne Hood, Edward M. Fasulo
and Richard A. LeVasseur [10.28](1)
10.15* 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)
10.16* Loan Agreement, dated November 12, 1993, by and among
The Jamestown S'Klallam Tribe and JKT Gaming, Inc. [10.31](3)
10.17* First Amendment to Loan Agreement, dated January 28, 1994,
by and among The Jamestown S'Klallam Tribe and
JKT Gaming, Inc. [10.32](3)
10.18* Form of 13 1/2% Second Mortgage Note Due 2001 [10.22](7)
10.19* 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)
10.20* Waiver of Compliance, dated February 27 and March 3, 1998,
under the Restated Indenture [10.24] (15)
10.21* Pledge Agreement, dated as of October 8, 1993, from Elsinore
Corporation and Elsub Management Corporation to First Trust
National Association [10.7](2)
10.22* Amendment of 1993 Pledge Agreement, dated March 3, 1997
[10.25](7)
10.23* 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)
10.24* Modification of Subordinated Deed of Trust, dated
March 3, 1997, by and between Four Queens, Inc. and
First Trust National Association [10.27](7)
10.25* 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)
10.26* Waiver of Compliance, dated March 17, 1998, under the 11.5%
First Mortgage Notes Due 2000 [10.30] (15)
10.27* Assignment of Operating Agreements, dated as of
October 8, 1993, by Palm Springs East Limited
Partnership to First Trust National Association [10.9](2)
10.28* Assignment of Operating Agreement, dated as of October 8,
1993, by Olympia Gaming Corporation to First Trust National
Association [10.10](2)
10.29* 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) [10.33] (15)
10.30* 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)
10.31* First Amendment to Lease by and among Finley Company,
Elsinore Corporation and Four Queens, Inc. effective
May 14, 1997 [10.33] (9)
10.32* 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)
10.33* 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
[10.37] (15)
10.34* 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)
10.35* Master Lease Agreement by and between PDS Financial
Corporation-Nevada and Four Queens, Inc. dated May 1, 1997
[10.36] (9)
10.36* Amendment to Master Lease Agreement by and between PDS
Financial Corporation-Nevada and Four Queens, Inc. dated
August 1, 1997 [10.37](9)
10.37* Warrants to Purchase 1,125,000 Shares of Common Stock of
Elsinore Corporation Issued to Riviera Gaming Management
Corp.-Elsinore [10.38](9)
10.38* Assignment by Richard A. LeVasseur to Four Queens, Inc.
dated July 14, 1992 [10.39](9)
10.39* 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)
10.40* 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)
10.41* Waiver of Compliance and Letter Dated August 14, 1997
[10.45] (11)
10.42* Capital Contribution Agreement by and between Elsinore
Corporation and certain investment accounts named therein,
dated as of September 29, 1998 [10.46] (13)
10.43* First Mortgage Note Purchase Agreement by and between
Elsinore Corporation and the holders (Putnam Diversified
Income Trust, Putnam High Income Convertible and Bond Fund,
Putnam Master Intermediate Income Trust, Putnam Managed High
Yield Trust, and Putnam Manager Trust - PCM Diversified Income
Fund), dated as of September 29, 1998 [10.46] (13)
10.44* Second Mortgage Note Purchase Agreement by and between
Elsinore Corporation and the holders (Paul Voigt, BEA Income
Fund, and BEA Strategic Global Income Fund), dated as of
September 29, 1997. [10.48] (13)
10.45* Exchange Agreement by and between Elsinore Corporation and
certain investment accounts named therein, dated as of
September 29, 1998 [10.49] (14)
10.46* Second Supplemental Indenture among Elsinore Corporation,
the guarantors (Elsub Management Corporation, Four Queens,
Inc., and Palm Springs East Limited Partnership), and U.S.
Bank Trust National Association, dated as of September 29,
1998 [10.50] (14)
10.47* Series A Preferred Stock Purchase Agreement by and between
Elsinore Corporation and certain investment accounts named
therein, dated as of September 29, 1998 [10.51] (14)
10.48* Registration Rights Agreement by and between Elsinore
Corporation and certain investment accounts named therein,
dated as of September 29, 1998 [10.52] (14)
10.49* Acknowledgment and Confirmation of Pledge Agreement among
Elsinore Corporation, Elsub Management Corporation,
Palm Springs East Limited Partnership, and U.S. Bank Trust
National Association, dated as of September 29, 1998
[10.53] (14)
10.50* Acknowledgment and Confirmation of Guaranty among Elsub
Management Corporation, Four Queens, Inc., Palm Springs East
Limited Partnership, and U.S. Bank Trust National Association,
dated as of September 29, 1998 [10.54] (14)
10.51* Second Modification of Subordinated Deed of Trust by and
between Four Queens, Inc. and U.S. Bank Trust National
Association, dated as of September 29, 1998 [10.55] (14)
10.52* Waiver of Compliance and letters dated November 12 and 13,
1998 [10.56] (12)
10.53* Waiver of Compliance, dated November 6, 1998 under the
Second Supplemental Indenture dated September 29, 1998 and
letter dated November 12, 1998 [10.57] (12)
10.54* Waiver of Compliance dated December 1, 1998 under Amended
and Restated Indenture dated as of March 3, 1997 [10.54](16)
10.55* Waiver of Compliance dated November 12, 1998 under the Amended
and Restated Indenture dated as of March 3, 1997 [10.55](16)
10.56 Waiver of Compliance dated February 22, 2000 under Amended and
Restated Indendture dated as of March 3, 1997 [10.56]
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)
*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
(11)Quarterly Report on Form 10-Q for the six months ended June 30, 1998
(12)Quarterly Report on Form 10-Q for the nine months ended September 30, 1998
(13)Current Report on Form 8-K dated October 13, 1998.
(14)Current Report on Form 8-K dated October 13, 1998.
(15)Annual Report on Form 10-K for year end December 31, 1997.
(16)Annual Report on Form 10-K for year end December 31, 1998.
(a)Exhibits, other than those incorporated by reference as listed in Item
14(a)(3), appear after the signature page of this report.
(b)Current Report on Form 8-K
There we no reports on Form 8-K filed during the period.
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 29, 2000
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 29, 2000.
/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. Barton Jacka
Secretary, Treasurer, Principal
Accounting Officer and Director
EXHIBIT 21.1
SUBSIDIARIES OF ELSINORE CORPORATION
AS OF 12/31/99
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
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
10-K
EXHIBIT 27
12/31/99 FINANCIALS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 3,547,000
<SECURITIES> 0
<RECEIVABLES> 943,000
<ALLOWANCES> (249,000)
<INVENTORY> 594,000
<CURRENT-ASSETS> 6,022,000
<PP&E> 48,326,000
<DEPRECIATION> (7,511,000)
<TOTAL-ASSETS> 48,793,000
<CURRENT-LIABILITIES> 9,190,000
<BONDS> 11,104,000
0
19,366,000
<COMMON> 5,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 48,793,000
<SALES> 61,006,000
<TOTAL-REVENUES> 56,754,000
<CGS> 0
<TOTAL-COSTS> 55,794,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,997,000
<INCOME-PRETAX> 960,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 960,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 1,096,000
<NET-INCOME> (136,000)
<EPS-BASIC> (0.03)
<EPS-DILUTED> 0
</TABLE>
EXHIBIT 10.56
Morgens, Waterfall, Vintiadis & Company, Inc.
JOANN McNIFF, ESQ. 10 EAST 50TH STREET
(212) 705-0534 NEW YORK, NEW YORK 1022
[email protected] (212) 705-0500
FAX: (212) 838-5540
Waiver of Compliance
February 22, 2000
To: Elsinore Corporation
202 Fremont Street
Las Vegas, Nevada 89101
Re: 12.83% Notes due 2001 of Elsinore Corporation
CUSIP No. 290308AD7
In the Principal Amount of $11,104,000
Reference is made to that certain Amended and Restated Indenture
dated as of March 3, 1997, as amended by that certain First
Supplemental Amended and Restated Indenture dated as of September
18, 1997 (as so amended, the "Indenture"), by and among Elsinore
Corporation (the "Company"), the guarantors named therein, and
U.S. Bank Trust National Association, as trustee (the "Trustee"),
regarding the 12.83% Notes due 2001 of the Company, in aggregate
principal amount of $11,104,000 (the "Notes").
The undersigned, pursuant to Section 10.2 of the Indenture, hereby:
(1) certifies that it is the beneficial holder of the above
referenced Notes, in the aggregate principal amount of
$11,104,000 (the "Principal Amount"), which Principal Amount is,
on the date hereof, on deposit in the Depository Trust Company
("DTC") account of Morgan Stanley & Co., Inc. ("Morgan Stanley"),
in the record name of Cede & Co. as nominee; and
(2) waives, and instructs the Trustee to waive, the remaining
deferred payment of interest ($214,520) due on the Principal
Amount of the Securities on December 30, 1999 for one hundred
eighty (180) days.
The waiver set forth above shall be limited precisely as written
and relates solely to the semi-annual payment of interest due on
the Principal Amount of the Notes due on August 31, 1998, in the
manner and to the extent described above, and nothing in this
waiver shall be deemed to
(a) constitute a waiver of compliance by Company with respect to
(i) Company's compliance with Section 5.1 of the Indenture in any
other instance, including (x) payments of principal or interest
required to be made to the undersigned on any date other than on
August 31, 1998, and (y) payments of principal or interest
required to be made at any time to Trustee, or to any holders of
Securities other than the undersigned; or (ii) any other term,
provision or condition of the Indenture, the Securities, or any
other instrument or agreement referred to therein or ancillary
thereto, or
(b) prejudice any right or remedy that Trustee, the undersigned,
or any other holder of Notes may now have or may have in the
future under or in connection with the Indenture, the Notes, or
any other instrument or agreement referred to therein or
ancillary thereto.
Except as expressly set forth herein, the terms, provisions, and
conditions of the Indenture, the Securities, and the other
instruments and agreements referenced therein or ancillary
thereto shall remain in full force and effect and in all other
respects are hereby ratified and confirmed.
This Waiver shall be effective upon delivery to the Company. All
capitalized words not defined herein are used as defined in the
Indenture.
Sincerely,
/s/ Joann McNiff
Joann McNiff
