<PAGE>
FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended February 28, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________________
Commission file number 1-12802
HARVEYS CASINO RESORTS
(Exact Name of Registrant as Specified in its Charter)
Nevada 88-0066882
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Highway 50 & Stateline Avenue
P.O. Box 128
Lake Tahoe, Nevada 89449
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (702) 588-2411
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
--- ---
On April 8, 1998 the registrant had outstanding 10,066,407 shares of its $.01
par value, common stock.
<PAGE>
HARVEYS CASINO RESORTS
INDEX
PART I. FINANCIAL INFORMATION Page No.
Item 1. Financial Statements
Condensed Consolidated Balance Sheets,
February 28, 1998 and November 30,1997 3
Condensed Consolidated Statements of
Income For the Three Months Ended
February 28, 1998 and 1997 4
Condensed Consolidated Statements of Cash
Flows For the Three Months Ended
February 28, 1998 and 1997 5
Notes to Condensed Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operation 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
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<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
HARVEYS CASINO RESORTS
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
February 28, November 30,
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 54,083 $ 55,035
Accounts and notes receivable, net 5,654 5,264
Prepaid expenses 6,911 3,447
Other current assets 4,349 4,310
------------ ------------
Total current assets 70,997 68,056
Property and equipment (net of accumulated
depreciation of $132,515 and $128,110) 316,678 318,270
Notes receivable 1,871 1,876
Other assets 15,484 15,263
------------ ------------
Total assets $ 405,030 $ 403,465
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt $ 284 $ 633
Accounts and contracts payable 5,945 5,991
Income taxes payable 617 7,056
Accrued expenses 23,713 20,945
------------ ------------
Total current liabilities 30,559 34,625
Long-term debt, net of current portion 150,220 150,220
Deferred income taxes 23,022 23,023
Other liabilities 16,801 16,240
------------ ------------
Total liabilities 220,602 224,108
------------ ------------
Stockholders' equity
Preferred stock, $.01 par value; 5,000,000 shares authorized;
none issued - -
Common stock, $.01 par value; 30,000,000 shares authorized;
shares issued 10,064,661 and 9,853,488 101 99
Additional paid-in capital and other 43,088 39,043
Retained earnings 141,450 140,415
Treasury stock, at cost; 12,981 shares and 12,516 shares (211) (200)
------------ ------------
Total stockholders' equity 184,428 179,357
------------ ------------
Total liabilities and stockholders' equity $ 405,030 $ 403,465
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these statements.
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<PAGE>
HARVEYS CASINO RESORTS
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended February 28,
-------------------------------
1998 1997
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<S> <C> <C>
Revenues
Casino $ 54,440 $ 43,998
Lodging 7,604 6,946
Food and beverage 10,694 9,108
Other 1,720 2,087
Management fees and joint venture - 993
Less: Casino promotional allowances (5,686) (4,578)
----------- --------------
Total net revenues 68,772 58,554
----------- --------------
Costs and expenses
Casino 27,150 22,368
Lodging 3,127 3,058
Food and beverage 6,991 6,540
Other operating 718 664
Selling, general and administrative 18,895 16,905
Depreciation and amortization 5,308 4,420
----------- --------------
Total costs and expenses 62,189 53,955
----------- --------------
Operating income 6,583 4,599
----------- --------------
Other income (expense)
Interest income 453 43
Interest expense (4,464) (4,950)
Other, net (21) 315
----------- --------------
Total other income (expense) (4,032) (4,592)
----------- --------------
Income before income taxes 2,551 7
Income tax provision (1,020) (3)
----------- --------------
Net income $ 1,531 $ 4
----------- --------------
----------- --------------
Net income per common share
Basic $ 0.15 $ 0.00
----------- --------------
----------- --------------
Diluted $ 0.15 $ 0.00
----------- --------------
----------- --------------
Dividends declared per common share $ 0.05 $ 0.05
----------- --------------
----------- --------------
Weighted average common shares used
in calculating net income per common share
Basic 9,892,930 9,813,442
----------- --------------
----------- --------------
Diluted 9,967,103 9,851,672
----------- --------------
----------- --------------
</TABLE>
The accompanying notes are an integral part of these statements.
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<PAGE>
HARVEYS CASINO RESORTS
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended February 28,
-------------------------------
1998 1997
---------- --------
<S> <C> <C>
Cash flows from operating activities
Net income $ 1,531 $ 4
Adjustments to reconcile net income to net cash
provided by (used in) operating activities
Depreciation and amortization 5,308 4,420
Reduction of income taxes payable (5,580) -
Other, net (1,685) 1,307
---------- --------
Net cash provided by (used in) operating activities (426) 5,731
---------- --------
Cash flows from investing activities
Capital expenditures (3,694) (7,610)
Proceeds from disposition of assets 27 3,510
Other, net 4 (129)
---------- --------
Net cash used in investing activities (3,663) (4,229)
---------- --------
Cash flows from financing activities
Principal payments on long-term debt (350) (4,815)
Dividends paid (496) (491)
Proceeds from long-term debt - 1,500
Exercise of options to purchase stock, including tax benefit 3,995 196
Other, net (12) (145)
---------- --------
Net cash provided by (used in) financing activities 3,137 (3,755)
---------- --------
Decrease in cash and cash equivalents (952) (2,253)
Cash and cash equivalents at beginning of period 55,035 21,121
---------- --------
Cash and cash equivalents at end of period $54,083 $18,868
---------- --------
---------- --------
</TABLE>
The accompanying notes are an integral part of these statements.
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<PAGE>
HARVEYS CASINO RESORTS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation and Consolidation - Harveys Casino Resorts, a Nevada
corporation (the 'Company'), is engaged in the casino entertainment
industry. In 1996, the Company formed a wholly-owned subsidiary, Harveys
Tahoe Management Company, Inc. ('HTMC') to own and operate the Company's
resort on the south shore of Lake Tahoe, Nevada. On May 22, 1997, HTMC was
licensed by the Nevada gaming authorities and on June 1, 1997 the Company
transferred the ownership of Harveys Resort Hotel/Casino to HTMC. The
Company, through its wholly-owned subsidiary, Harveys C. C. Management
Company, Inc. ('HCCMC'), owns and operates Harveys Wagon Wheel Hotel/Casino
in Central City, Colorado. Until April 30, 1996, HCCMC owned 70% of the
equity interest in Harveys Wagon Wheel Casino Limited Liability Company
('HWW') which owned Harveys Wagon Wheel Hotel/Casino. On April 30, 1996,
the Company acquired all of the 30% minority interest in HWW in exchange
for common stock of the Company. On June 1, 1997, the Company contributed
its 30% interest in HWW to HCCMC. Subsequently, HWW was liquidated and
HCCMC became the sole owner and operator of Harveys Wagon Wheel
Hotel/Casino. Until October 24, 1997, the Company, through its
wholly-owned subsidiary, Harveys L.V. Management Company, Inc. ('HLVMC'),
owned 40% of the equity interest in Hard Rock Hotel, Inc. ('HRHC'), which
owns the Hard Rock Hotel and Casino in Las Vegas, Nevada. HLVMC had a
contract to manage the Las Vegas hotel and casino. On October 24, 1997,
the Company sold its 40% equity interest and its interest in the management
contract to HRHC. Additionally, the Company's wholly-owned subsidiary,
Harveys Iowa Management Company, Inc. ('HIMC') is the owner and operator of
Harveys Casino Hotel, a riverboat casino, hotel and convention center
complex in Council Bluffs, Iowa.
The condensed consolidated financial statements include the accounts of
Harveys Casino Resorts and its majority and wholly-owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated.
The condensed consolidated balance sheet as of November 30, 1997 has been
prepared from the audited financial statements at that date. The
accompanying condensed consolidated financial statements have been prepared
by the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Accordingly, certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted.
In the opinion of management, all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of financial
condition, results of operations and cash flows have been included. The
results of operations for the interim periods should not be considered
indicative of results for a full fiscal year. These financial statements
should be read in conjunction with the financial statements, and notes
thereto, in the Company's Annual Report on Form 10-K for the year ended
November 30, 1997.
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<PAGE>
2. Proposed Merger - On February 1, 1998, the Company entered into an
Agreement and Plan of Merger (the 'Merger Agreement'). Pursuant to the
Merger Agreement, the Company has agreed to merge with Harveys Acquisition
Corporation, a Delaware corporation which is an affiliate of Colony
Investors III, L.P., a Delaware limited partnership and an affiliate of
Colony Capital, Inc. of Los Angeles, California ('Colony Capital'). Upon
closing of the transaction contemplated by the Merger Agreement ('the
Merger'), the Company will be an affiliate of Colony Capital. The
all-cash transaction values each of the outstanding common shares of
the Company at $28 per share and each of the outstanding options to
acquire common shares of the Company at $28 less the exercise price per
share. Closing of the Merger is subject to a number of conditions,
including approval by the stockholders of at least two-thirds of the
Company's common stock and receipt of all necessary regulatory approvals,
including the approvals of Nevada, Colorado and Iowa gaming authorities.
Stockholders owning approximately 41% of the Company's outstanding common
stock, including the Company's largest stockholder, have agreed to vote
in favor of the transaction. If the Merger has not closed by September 1,
1998, the Company's stockholders would receive additional consideration
under certain circumstances.
3. Net Income Per Common Share - As of December 1, 1997, the Company adopted
the provisions of Statement of Financial Accounting Standards ('SFAS') No.
128, Earnings Per Share. The Company has restated the prior period net
income per common share to conform with the provisions of SFAS No. 128.
Basic net income per common share is calculated by dividing net income by
the weighted average number of common shares outstanding during the period.
Diluted net income per common share is calculated by dividing net income by
the weighted average number of common and common equivalent shares
outstanding during the period. Common equivalent shares include restricted
stock and stock options outstanding and exercisable for the purpose of
calculating diluted net income per common share. The Company has no other
potentially dilutive securities.
4. The Financial Accounting Standards Board ('FASB') has issued SFAS No. 131,
Disclosures About Segments of an Enterprise and Related Information, which
establishes new standards for determining a reportable segment and for
disclosing information regarding each such segment. A reportable segment
is an operating segment: (a) that engages in business activities from
which it earns revenues and incurs expenses, (b) whose operating results
are regularly reviewed by the enterprise's chief operating decision maker
in deciding how to allocate resources and in assessing performance, (c) for
which discrete financial information is available, and (d) that exceeds
specific quantitative thresholds. SFAS No. 131 will be effective for the
Company beginning December 1, 1998. On adoption, and to the extent
practicable, segment information for earlier comparative periods will be
restated. The Company anticipates, with the adoption of SFAS No. 131, it
will expand its segment disclosures relative to its Nevada, Colorado and
Iowa operations. The Company believes the segment information required to
be disclosed under SFAS No. 131 will have no effect on the Company's
consolidated results of operations, financial position or cash flows, but
will be more comprehensive than previously provided, including expanded
disclosure of income statement and balance sheet items for each of its
reportable operating segments.
5. Subsidiary Guarantors - The 10 5/8% Senior Subordinated Notes due 2006 (the
'Senior Subordinated Notes'), issued by the Company are guaranteed by all
direct and indirect subsidiaries of the Company (the 'Subsidiary
Guarantors') except for subsidiaries which are inconsequential. The
guarantees are full
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<PAGE>
and unconditional and are joint and several. The aggregate assets,
liabilities, earnings and equity of the Subsidiary Guarantors
are substantially equivalent to the assets, liabilities, earnings
and equity of the Company on a consolidated basis. Separate
financial statements and other disclosures concerning the Subsidiary
Guarantors have not been included because management has determined they
are not material to investors. If the merger is consummated (See Note 2),
under the terms of the Indenture governing the Senior Subordinated Notes,
each holder of the Senior Subordinated Notes will have the right to require
the Company to repurchase such holder's Senior Subordinated Notes at 101%
of the principal amount plus accrued and unpaid interest to the repurchase
date.
-8-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
OVERVIEW
The Company currently owns and operates: (a) Harveys Resort Hotel/Casino on
the south shore of Lake Tahoe, Nevada, (b) Harveys Wagon Wheel Hotel/Casino in
Central City, Colorado, and (c) Harveys Casino Hotel in Council Bluffs, Iowa.
Until October 24, 1997, the Company, through its wholly-owned subsidiary HLVMC
owned 40% of the equity interest in HRHC, which owns the Hard Rock Hotel and
Casino in Las Vegas, Nevada. HLVMC had a contract to manage the Las Vegas hotel
and casino. On October 24, 1997, the Company sold its 40% equity interest and
its interest in the management contract to HRHC.
On February 1, 1998, the Company entered into the Merger Agreement.
Pursuant to the Merger Agreement, the Company has agreed to merge with
Harveys Acquisition Corporation, a Delaware corporation which is an affiliate
of Colony Investors III, L. P., a Delaware limited partnership and affiliate
of Colony Capital. Upon closing of the Merger, the Company will be an
affiliate of Colony Capital. Closing of the Merger is subject to a number of
conditions, including approval by the stockholders of at least two-thirds of
the Company's common stock and receipt of all necessary regulatory approvals,
including the approvals of Nevada, Colorado and Iowa gaming authorities.
Stockholders owning approximately 41% of the Company's outstanding common
stock, including the Company's largest stockholder, have agreed to vote in
favor of the transaction.
The following table presents certain operating results for the Company's
properties. The operating results for Harveys Resort Hotel/Casino, which, since
June 1, 1997, has been owned and operated by the Company's wholly-owned
subsidiary HTMC have been presented for all periods, excluding the effects of
corporate and future business development expenses. Those expenses have been
presented under the caption 'Corporate and Development.' The operating results
of HLVMC, for the three months ended February 28, 1997, include the fees earned
by such entity for managing the operations of the Hard Rock Hotel and Casino and
the 40% equity interest in the income of the Hard Rock Hotel and Casino. The
Company sold its interests in HRHC on October 24, 1997.
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<PAGE>
<TABLE>
<CAPTION>
Three Months Ended February 28,
-------------------------------
Results of Operations 1998 1997
-------- ---------
(dollars in thousands)
<S> <C> <C>
Net Revenues
Harveys Resort Hotel/Casino $ 27,674 $ 24,674
Harveys Wagon Wheel Hotel/Casino 14,515 10,283
Harveys Casino Hotel - Iowa 26,583 22,604
Harveys L. V. Management Company - 993
Operating Income (Loss)
Harveys Resort Hotel/Casino $ 2,046 $ 1,194
Harveys Wagon Wheel Hotel/Casino 3,220 1,571
Harveys Casino Hotel - Iowa 4,555 3,564
Harveys L. V. Management Company - 938
Corporate and Development (3,238) (2,668)
EBITDA (1)
Harveys Resort Hotel/Casino $ 4,555 $ 3,181
Harveys Wagon Wheel Hotel/Casino 4,126 2,321
Harveys Casino Hotel - Iowa 6,294 5,094
Harveys L. V. Management Company - 993
Corporate and Development (3,084) (2,571)
</TABLE>
(1) EBITDA (operating income plus depreciation and amortization) should not be
construed as an indicator of the Company's operating performance, or as an
alternative to cash flows from operating activities as a measure of
liquidity. The Company has presented EBITDA solely as supplemental
disclosure because the Company believes that it enhances the understanding
of the financial performance of companies with substantial depreciation and
amortization.
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<PAGE>
RESULTS OF OPERATIONS, QUARTER ENDED FEBRUARY 28, 1998 COMPARED TO QUARTER
ENDED FEBRUARY 28, 1997.
The Company's consolidated net revenues for the first quarter of fiscal 1998
amounted to approximately $68.8 million, a new record for the Company's first
quarter and an increase of $10.2 million, or 17.4%, over net revenues recorded
in the first quarter of fiscal 1997. The improvement was attributable to net
revenue increases at all of the Company's properties. Net revenues from the
Company's Lake Tahoe property increased by approximately $3.0 million, or
12.2%. During the first fiscal quarter of 1997, the Lake Tahoe operations were
unfavorably affected by adverse weather conditions and severe flooding in
northern Nevada and in many of the northern California communities that provide
many of the Lake Tahoe property's customers, and mud slides triggered by the
inclement weather which closed U. S. Highway 50, the major link between the
south shore of Lake Tahoe and northern California, for 42 days of the first
quarter. Net revenues at Harveys Casino Hotel in Iowa improved by $4.0 million
or 17.6%. Harveys Wagon Wheel Hotel/Casino experienced a 41.2% increase in net
revenues, up $4.2 million. The Colorado property reaped the benefit of the new
530 space parking garage which opened mid-1997. The revenue contribution from
the management fees and equity in earnings from the Hard Rock Hotel and Casino
declined by $1.0 million, as a result of the sale of the Company's interest in
the Hard Rock Hotel and Casino in October 1997.
Casino revenues for the first quarter of fiscal 1998 amounted to approximately
$54.4 million, an improvement of $10.4 million over the comparable quarter of
the prior year. The gaming activity on board the riverboat in Council Bluffs
produced an increase of approximately $3.9 million in casino revenues over the
comparable quarter of the prior year. The Company's Lake Tahoe casino revenues
improved by approximately $2.3 million, or 15.9%, in part as a result of the
improved weather and road conditions over the first quarter of 1997. Harveys
Wagon Wheel Hotel/Casino produced an increase of approximately $4.2 million in
casino revenue over the prior year comparable quarter. Casino costs and expenses
increased for the comparable periods, up $4.8 million to $27.2 million for the
current year period. The Council Bluffs casino accounted for $2.7 million of
the increase while the Colorado operations accounted for approximately $1.7
million of the increase and the Lake Tahoe operations recorded a $0.4 million
increase in casino costs. The increase in casino costs and expenses was
attributable to increases in gaming taxes and licenses and promotional expenses,
a consequence of increased casino revenues.
Lodging revenues for the fiscal 1998 first quarter improved by approximately
$0.7 million over the prior year first quarter and amounted to $7.6 million.
The hotel facility at Lake Tahoe contributed $0.4 million of the
quarter-over-quarter increase. The improvement in lodging revenues was due
to an increase in the occupancy rate at all properties. Lodging profits
improved by approximately $0.6 million.
Food and beverage revenues for the current fiscal year first quarter amounted to
$10.7 million, an improvement of nearly $1.6 million, or 17.1%, over the prior
year first quarter. Food and beverage revenues from the Lake Tahoe property
contributed an increase of approximately $1.1 million, while
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<PAGE>
Council Bluffs revenues increased approximately $0.5 million. Food and
beverage profits and margins increased for the quarter-to-quarter comparison
due to improvements at both the Lake Tahoe and Council Bluffs properties
resulting from increased revenues and the controlling of related costs.
Other revenues and the contribution from management fees and equity in the
earnings from the Hard Rock Hotel and Casino decreased approximately $0.9
million in the aggregate as a result of the sale of the Company's interest in
the Hard Rock Hotel and Casino.
Selling, general and administrative expenses increased by approximately $2.0
million, or 11.8%, to $18.9 million for the current fiscal year first quarter.
The Lake Tahoe operations recognized an increase in overall selling, general and
administrative expenses of approximately $0.6 million from the first quarter of
fiscal 1997 compared to the current fiscal year first quarter, while these
expenses increased by less than $0.1 million at the Council Bluffs property and
increased by $0.8 million at the Central City property. Corporate expenses
increased by approximately $0.5 million. The quarter-to-quarter increase in
selling, general and administrative expenses resulted from increased advertising
and promotional expenses, taxes and licenses, and employee programs.
Depreciation and amortization expenses increased by approximately $0.9 million.
The depreciation expense at the Lake Tahoe property for the first quarter of
fiscal 1998 included a charge of approximately $0.4 million related to the
disposal of assets necessary to facilitate the construction of a Hard Rock Cafe
on the casino floor. The balance of the increase was attributable to the
completion of the parking garage in Central City and replacements and
improvements at the operating properties.
Interest expense, net of interest income and interest capitalized, decreased by
approximately $0.9 million to $4.0 million for the first quarter of fiscal 1998.
The decrease was attributable to the use of the proceeds from the Company's
October 1997 sale of its interests in the Hard Rock Hotel and Casino. A portion
of the proceeds was used to pay the outstanding balance under the Company's
reducing revolving credit agreement with a consortium of banks (the 'Credit
Facility'), thereby reducing interest expenses. The balance of the proceeds was
invested in cash equivalents, resulting in an increase in interest income.
Approximately $0.1 million of interest expense was capitalized in the first
quarter of fiscal 1997 in connection with the construction of the parking
facility in Central City. No interest was capitalized in the first quarter of
fiscal 1998.
As a result of the above, net income for the first quarter of fiscal 1998
amounted to $1.5 million compared to break-even net results for the first
quarter of fiscal 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity and capital resources during the
first quarter of fiscal year 1998 have been cash flow from operations, before
the cash payment for income taxes, and the proceeds of approximately $3.1
million from the exercise of options to purchase shares of the Company's common
stock.
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<PAGE>
During the first quarter of fiscal 1998, the Company expended approximately $6.6
million in cash for income taxes. Additionally, the Company made cash payments
for dividends of approximately $0.5 million during the quarter and incurred
additional cash expenditures of approximately $3.7 million in connection with
capital improvements and replacements, approximately $2.2 million of which
related to casino expansion and remodeling in Council Bluffs, which is expected
to be completed in the second quarter of fiscal 1998.
At February 28, 1998, the Company had approximately $54.4 million of cash and
cash equivalents and a maximum of approximately $113.8 million available under
the Credit Facility, subject to compliance with certain financial covenants.
The Company expects that its primary capital needs for the remainder of fiscal
year 1998 will include approximately $13.4 million of capital expenditures at
the Company's current facilities, dividend payments and debt service.
The Company's debt at February 28, 1998, including the current portion of
approximately $0.3 million, amounted to $150.5 million and consisted of $150
million of Senior Subordinated Notes and approximately $504,000 of other debt.
The maximum available principal balance under the Credit Facility at February
28, 1998 was $115 million, reduced by outstanding borrowings and letters of
credit exposure. At February 28, 1998, there were no outstanding borrowings
under the Credit Facility, the letters of credit exposure was $1.2 million and
the maximum amount available was approximately $113.8 million, subject to
compliance with financial covenants.
In 1998, required repayments of principal under the Credit Facility, assuming
maximum principal amounts are outstanding, total $11.5 million. The year-end
maximum principal balance outstanding under the Credit Facility reduces to
$103.5 million in 1998, $92 million in 1999, $74.75 million in 2000 and $57.5
million in 2001. The Company is required to make payments reducing the
principal balance outstanding under the Credit Facility to the applicable
maximum permitted principal balance on October 1 of each of 1998, 1999, 2000 and
2001. The Credit Facility is secured by all of the real and personal property
of: (a) HTMC, (b) HIMC, (c) HCCMC, and (d) HCR Services Company, Inc. ("HCRSC"),
a wholly-owned subsidiary of the Company, as well as all of the contracts the
Company has entered into in connection with its ownership and operation of: (i)
HTMC, (ii) HIMC, (iii) HCCMC, and (iv) HCRSC. Additionally security is provided
by a pledge of the stock of the following subsidiaries of the Company: HLVMC,
HCCMC, HIMC, HTMC, HCRSC and Reno Projects, Inc., a wholly-owned subsidiary of
the Company. Interest on borrowings outstanding under the Credit Facility is
payable, at the Company's option, at either the London Inter-Bank Offering Rate
("LIBOR") or the prime rate of Wells Fargo Bank, National Association ("Wells
Fargo"), in each case plus an applicable margin. The applicable margins as of
February 28, 1998 were 1.50% with respect to the LIBOR based interest rate, and
0.00%, with respect to the Wells Fargo prime rate based interest rate.
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<PAGE>
The Credit Facility contains certain financial and other covenants. The
financial covenants prevent the Company from making any investments in or
advances to affiliates without the prior written consent of the lenders under
the Credit Facility. The covenants allow the declaration and payment of
dividends without prior written consent of the lenders if certain fixed charge
coverage ratios are maintained. The covenants require the Company to maintain
certain set standards with respect to: (a) minimum tangible net worth, (b) fixed
charge coverage ratios, and (c) minimum annual capital expenditures. The
financial covenants also limit the Company's ability to incur additional
indebtedness. The Company was in compliance with these covenants at February
28, 1998.
The Senior Subordinated Notes are governed by an indenture ( the 'Indenture')
and are general unsecured obligations of the Company, subordinated in right of
payment to all existing and future Senior Debt of the Company (as defined in the
Indenture). The Senior Subordinated Notes are guaranteed by each of the
Restricted Subsidiaries of the Company (as defined in the Indenture). Each
guarantee is a general unsecured obligation of the guaranteeing Restricted
Subsidiary, subordinated in right of payment to all existing and future Senior
Debt of each guaranteeing Restricted Subsidiary. At February 28, 1998, the
guaranteeing Restricted Subsidiaries were HCCMC, HIMC, HLVMC and HTMC.
Interest on the Senior Subordinated Notes is payable semi-annually on June 1 and
December 1 of each year. The Senior Subordinated Notes will mature on June 1,
2006. The Senior Subordinated Notes are redeemable at the option of the
Company, in whole or in part, at any time on or after June 1, 2001 at prices
ranging from 105.313% of the principal amount plus accrued and unpaid interest,
to 100% of the principal amount plus accrued and unpaid interest beginning June
1, 2004 and thereafter. Upon a Change of Control (as defined in the Indenture)
each holder of the Senior Subordinated Notes will have the right to require the
Company to repurchase such holder's Senior Subordinated Notes at 101% of the
principal amount plus accrued and unpaid interest to the repurchase date. If
the Merger is consummated, a Change of Control will be deemed to have occurred
and the holders of the Senior Subordinated Notes will be able to require the
Company to effect such a repurchase.
The Indenture contains certain covenants that impose limitations on, among other
things, (a) the incurrence of additional indebtedness by the Company or any
Restricted Subsidiary, (b) the payment of dividends, (c) the repurchase of
capital stock and the making of certain other Restricted Payments and Restricted
Investments (as defined in the Indenture) by the Company or any Restricted
Subsidiary, (d) mergers, consolidations and sales of assets by the Company or
any Restricted Subsidiary, (e) the creation or incurrance of liens on the assets
of the Company or any Restricted Subsidiary, and (f) transactions by the Company
or any of its subsidiaries with Affiliates (as defined in the Indenture). These
limitations are subject to a number of qualifications and exceptions as
described in the Indenture. The Company was in compliance with these covenants
at February 28, 1998.
-14-
<PAGE>
The Company believes that its existing cash and cash equivalents, cash flows
from operations and its borrowing capacity under the Credit Facility are
sufficient to meet the cash requirements of its existing operations during
fiscal 1998, including capital improvements and replacements at the operating
properties, dividends and debt service requirements.
Unless a significant number of holders of the Senior Subordinated Notes
exercise their rights to effect a repurchase of the Senior Subordinated Notes
upon the consummation of the Merger, which the Company does not consider
likely, the existing sources of cash also provide the Company some
flexibility in potential expansion of current operations or in its pursuit of
new gaming opportunities in existing and emerging jurisdictions. The
realization of such expansion opportunities may require capital investments
in excess of current resources and additional financing may be required. The
Company believes that additional funds could be obtained through additional
debt or equity financing. However, any such financing would require the
consent of Harveys Acquisition Corporation under the terms of the Merger
Agreement and no assurance can be made that such consent would be granted or
that such financing would be available at terms acceptable to the Company, if
at all.
-15-
<PAGE>
CAUTIONARY STATEMENT FOR PURPOSES OF THE 'SAFE HARBOR' PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995.
This document includes various 'forward-looking statements' within the
meaning of Section 27A of the securities Act of 1933, as amended, and
Sections 21E of the Securities Exchange Act of 1934, as amended, which
represent the Company's expectations or beliefs concerning future events.
Statements containing expressions such as 'believes,' 'anticipates' or
'expects' used in the Company's press releases and periodic reports on Forms
10-K and 10-Q filed with the Securities and Exchange Commission are intended
to identify forward-looking statements. All forward-looking statements
involve risks and uncertainties. Although the Company believes its
expectations are based upon reasonable assumptions within the bounds of its
knowledge of its business and operations, there can be no assurances that
actual results will not materially differ from expected results. The Company
cautions that these and similar statements included in this report and in
previously filed periodic reports, including reports filed on Forms 10-K and
10-Q, are further qualified by important factors that could cause actual
results to differ materially from those in the forward-looking statements.
Such factors include, without limitation, the following; increased
competition in existing markets or the opening of new gaming jurisdictions; a
decline in the public acceptance of gaming; the limitation, conditioning or
suspension of any of the Company's gaming licenses; increases in or new taxes
imposed on gaming revenues or gaming devices; a finding of unsuitability by
regulatory authorities with respect to the Company's officers, directors or
key employees; loss or retirement of key executives; significant increases in
fuel or transportation prices; adverse economic conditions in the company's
key markets; severe and unusual weather in the Company's key markets; adverse
results of significant litigation matters. Readers are cautioned not to
place undue reliance on forward-looking statements, which speak only as of
the date thereof. The Company undertakes no obligation to publicly release
any revision to such forward-looking statements to reflect events or
circumstances after the date thereof.
-16-
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Not Applicable
Item 2. Changes in Securities
Not Applicable
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
See attached Exhibit Index
(b) Report on Form 8-K
On February 3, 1998, the Company filed a Current Report on Form 8-K,
under Item 5, Other Events, in order to report the Company entering
into the Merger Agreement. Pursuant to the Merger Agreement, the
Company has agreed to merge with Harveys Acquisition Corporation, a
Delaware corporation which is an affiliate of Colony Investors III,
L.P., a Delaware limited partnership and affiliate of Colony Capital.
Upon closing of the Merger, the Company will be an affiliate of Colony
Capital. The all-cash transaction values each of the outstanding
common shares of the Company at $28 per share and each of the
outstanding options to acquire common shares of the Company at $28
less the exercise price per share. Closing of the Merger is subject
to a number of conditions, including approval by the stockholders
of at least two-thirds of the Company's common stock and receipt
of all necessary regulatory approvals, including the approvals of
Nevada, Colorado and Iowa gaming authorities. Stockholders owning
approximately 41% of the Company's outstanding common stock,
including the Company's largest stockholder, have agreed to vote
in favor of the transaction. If the Merger has not closed by
September 1, 1998, the Company's stockholders would receive
additional consideration under certain circumstances.
-17-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HARVEYS CASINO RESORTS
Registrant
Date: April 10, 1998 /s/ John J. McLaughlin
------------------------------------
John J. McLaughlin,
Senior Vice President,
Chief Financial Officer and Treasurer
(Authorized Officer and Principal
Financial Officer)
-18-
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
- ------- ---------------------------------------------------------------------
2.1 Agreement and Plan of Merger, dated February 1, 1998 (1)
3.1 Restated Articles of Incorporation of the Registrant (2)
3.2 Sixth Amended Bylaws of the Registrant (3)
4.1 Form of Stock Certificate of the Registrant (2)
4.2 Indenture, dated as of May 15, 1996 by and among the Registrant ( the
'Issuer') Harveys Wagon Wheel Casino Limited Liability Company,
Harveys C. C. Management Company, Inc., Harveys Iowa Management
Company, Inc. and Harveys L. V. Management Company, Inc. ( the
'Guarantors') and IBJ Schroder Bank & Trust Company as Trustee (
including form of Note) (4)
4.3 First Supplemental Indenture, dated as of June 5, 1996, supplementing
the Indenture as of May 15, 1996 among the Registrant (the 'Issuer'),
Harveys Wagon Wheel Casino Limited Liability Company, Harveys C. C.
Management Company, Inc., Harveys Iowa Management Company, Inc. and
Harveys L.V. Management Company, Inc. (the 'Guarantors'), and IBJ
Schroder Bank and Trust Company as Trustee (5)
4.4 Second Supplemental Indenture, dated as of May 22, 1997, supplementing
the Indenture as of May 15, 1996 among the Registrant (the 'Issuer'),
Harveys C. C. Management Company, Inc., Harveys Wagon Wheel Casino
Limited Liability Company, Harveys Iowa Management Company, Inc. and
Harveys L.V. Management Company, Inc. (the 'Guarantors'), and IBJ
Schroder Bank and Trust Company as Trustee (6)
10.1 1998 Deferred Compensation Plan Participants (7)
10.2 Real Estate Option Agreement dated January 8, 1998 by and between
Harveys Casino Resorts and Grand Plaza Limited Partnership (7)
10.3 Extension of Employment Agreement dated December 1, 1997 by and
between Harveys Casino Resorts and Charles W. Scharer (7)
27 Financial Data Schedule (7)
_______________________________________________
(1) Incorporated herein by reference to Registrant's Current Report
on Form 8-K filed
February 3, 1998.
(2) Incorporated herein by reference to Registration Statement No.
33-70670.
(3) Incorporated herein by reference to the Registrant's Quarterly
Report on Form 10-Q for the period
ended May 31, 1996.
(4) Incorporated herein by reference to Registration Statement No.
333-3576.
(5) Incorporated herein by reference to Registrant's Current Report
on Form 8-K filed
June 14, 1996.
(6) Incorporated herein by reference to Registrant's Quarterly
Report on Form 10-Q for
the period ended August 31, 1997.
(7) Filed herewith
-19-
<PAGE>
HARVEYS CASINO RESORTS
DEFERRED COMPENSATION PARTICIPANTS
CALENDER YEAR 1998
<TABLE>
<CAPTION>
PARTICIPANTS PERCENTAGE/DOLLAR
------------ -----------------
<S> <C>
Aiazzi, Gary 2%
Bellotti, John $100**
Cavallaro, Steve 2.5%
Evans, Thomas *
Goldberg, Arthur 13%
Hewitt, John 5%
Ledbetter, Jessica *
Ledbetter, William *
Scharer, Charles 5%
Yturbide, Tom *
Barraco, Ed 5%
Clerkin, Geri 5%
Fletcher, Debbie 5%
French, William 8%
Hill, Art 8%
Welch, Verne 15%
Blaume, Heinz *
Ewald, Sue 10%
Fletcher, William 12%
Herback, Philip 14%
Hurst, David 15%
Kelmanson, Lou *
Servatius, Kevin *
</TABLE>
* No current deduction
** Bi-Weekly
<PAGE>
OPTION AGREEMENT
THIS OPTION AGREEMENT (the "Agreement") is made and entered into this
8th day of January, 1998, by and between HARVEY'S CASINO RESORTS, a Nevada
corporation ("HARVEYS"), and GRAND PLAZA LIMITED PARTNERSHIP, a Nevada
limited partnership.
W I T N E S S E T H
1. GRANT OF OPTION:
In consideration of the sum of Five Hundred Thousand Dollars
($500,000.00) paid by HARVEYS to GRAND, receipt of which is hereby
acknowledged (the "Option Payment"), GRAND hereby grants, bargains and sells
to HARVEYS the right and option (the "Option") to purchase 33.3 acres
located on the northeast corner of Harmon and Koval in Las Vegas, Nevada,
commonly known as Grand Plaza Site (the "Property"), as such is shown on the
map attached hereto as Exhibit "A." The Option Payment shall be
nonrefundable, except as expressly provided herein. In the event HARVEYS
exercises its right to purchase the Property, the Option Payment shall be
credited to the purchase price.
2. OPTION PERIOD; EXTENSION OF OPTION PERIOD:
The rights and privileges granted hereunder shall commence on the date
first set forth above, and shall run through and including May 15, 1998.
<PAGE>
Subject to the provisions of paragraph 4, HARVEYS shall have the right
to extend the Option on a month to month basis upon payment to GRAND of
Thirty Seven Thousand Five Hundred Dollars ($37,500.00) per month, which
payment shall be due prior to the expiration of the then current option
period; provided, however, that if HARVEYS extends the Option beyond August
15, 1998, the fee to extend the Option shall increase to Seventy-five
Thousand Dollars ($75,000.00) per month. In no event may HARVEYS extend the
Option beyond October 15, 1998. In the event HARVEYS fails to timely make a
required payment to extend the option in accordance with the terms of this
paragraph 2, this Agreement, and all rights hereunder, shall terminate and
GRAND shall retain all funds received prior to the date of termination.
In the event HARVEYS exercises its right to purchase the Property the
Option Payment, as well as all payments to extend the Option, shall be
credited to the purchase price.
3. OPTION ALTERNATIVES; PRICE:
In the event HARVEYS elects to exercise the Option, HARVEYS shall have the
right to elect to purchase the Property in accordance with one of the following
two alternatives:
a. OPTION I:
2
<PAGE>
i. HARVEYS shall purchase the approximately fourteen (14) acres
of the south side of the Property, as shown on the map
attached hereto as Exhibit "B" (the "Initial Property"), for
Two Million Three Hundred Sixty Thousand Dollars
($2,360,000.00) per acre. The actual acreage purchased by
HARVEYS shall be subject to adjustment as provided hereinbelow.
ii. Simultaneous with close of escrow on the purchase of the
Initial Property, HARVEYS shall loan to GRAND the sum of Ten
Million Dollars ($10,000,000.00), which loan shall bear
interest at the rate of nine percent (9%) per annum and shall
be secured by a first deed of trust on the remainder of the
Property. The loan shall be all due and payable in five (5)
years; provided, however, that in no event shall the loan be
payable sooner than the termination or final expiration of the
Remainder Option. In the event HARVEYS exercises its option
to purchase the remainder of the Property in accordance with
paragraph 4, hereinbelow, the outstanding principal balance of
the loan, and all accrued and unpaid interest, shall be
credited toward the purchase price. In the event HARVEYS
elects not to exercise its option to purchase the remainder of
the Property Three Million Three Hundred Sixty Thousand
Dollars ($3,360,000.00) of the principal balance of the loan
shall be forgiven; the remaining outstanding principal balance
of the loan, and all accrued and unpaid interest, shall be all
due and payable within One Hundred Eighty (180) days of
delivery by HARVEYS to GRAND of written notice of HARVEYS
intent NOT to exercise the Remainder Option.
iii. HARVEYS shall retain the right and option to purchase the
remainder of the Property (the "Remainder Property") in
accordance with paragraph 4, herein below.
3
<PAGE>
b. OPTION II:
i. HARVEYS shall purchase approximately eighteen (18) acres on
the south side of the Property, as shown on the map attached
hereto as Exhibit "C" (also referred to herein as the "Initial
Property"), for Two Million Three Hundred Sixty Thousand
Dollars ($2,360,000.00) per acre. The actual acreage
purchased by HARVEYS shall be subject to adjustment as
provided hereinbelow.
ii. HARVEYS shall retain the right and option to purchase the
remainder of the Property (also referred to herein as the
"Remainder Property") in accordance with paragraph 4, herein
below.
The parties acknowledge and agree that, in the event HARVEYS exercises
its option rights under either Option I or Option II there may be a need to
adjust the actual acreage of the Property initially purchased in order the
accommodate existing buildings, roads and other improvements so as to
maintain the utility of the remainder of the Property for use as apartment
rental units. Accordingly, it is agreed that, upon the exercise by HARVEYS of
either Option I or Option II, the parties will negotiate, in good faith, and
identify a mutually agreeable boundary line between the actual acreage to be
initially purchased by HARVEYS and the remainder of the Property. The
parties will use their best efforts to reach an agreement as to the boundary
line such that the acreage purchase by HARVEYS will, as nearly as possible,
equal the acreage
4
<PAGE>
identified under the option exercised by HARVEYS. In no event will the
actual acreage purchased deviate by more than one-half acre (plus or minus)
from the acreage identified under the option exercised by HARVEYS. The total
purchase price paid by HARVEYS shall be calculated based on the actual
acreage purchased, with a prorata portion of the per-acre price to be paid
for fractional acres purchased.
4. OPTION ON REMAINDER OF PROPERTY; OPTION PRICE; PURCHASE PRICE:
Under either Option I or Option II HARVEYS shall retain the option to
purchase the Remainder Property (the "Remainder Option") for a period
commencing as of the close of escrow for the Initial Property and ending on
August 15, 2003. As consideration for the grant of the Remainder Option,
HARVEYS shall make annual option payments to GRAND over the term of the
Remainder Option in accordance with the following schedule:
a. Year 1: No payment due;
b. Year 2: Two Hundred Fifty Thousand Dollars ($250,000.00), due on or
before August 15, 1999;
c. Year 3: Five Hundred Thousand Dollars ($500,000.00), due on or before
August 15, 2000;
5
<PAGE>
d. Year 4: Five Hundred Thousand Dollars ($500,000.00), due on or before
August 15, 2001; and
e. Year 5: Five Hundred Thousand Dollars ($500,000.00), due on or before
August 15, 2002.
In the event HARVEYS exercises the Remainder Option, all option payments
made pursuant to this paragraph 4 shall be credited to the purchase price for
the Remainder Property. In the event HARVEYS fails to timely make a required
option payment, in accordance with the terms of this paragraph 4, this
Agreement, and all rights hereunder, shall terminate and GRAND shall retain
all funds received prior to the date of termination.
In the event HARVEYS exercises the Remainder Option under either Option
I or Option II, the purchase price to be paid shall be determined in
accordance with the following schedule:
f. Two Million Five Hundred Fifty Thousand Dollars ($2,550,000.00) per
acre if the purchase is closed on or before August 15, 1999;
g. Two Million Seven Hundred Fifty Thousand Dollars ($2,750,000.00) per
acre if the purchase is closed or before August 15, 2000;
h. Two Million Nine Hundred Seventy Thousand Dollars ($2,970,000.00) per
acre if the purchase is closed on or before August 15, 2001;
6
<PAGE>
i. Three Million Two Hundred Ten Thousand Dollars ($3,210,000.00) per
acre if the purchase is closed on or before August 15, 2002;
j. Three Million Four Hundred Seventy Thousand Dollars ($3,470,000.00)
per acre if the purchase is closed on or before August 15, 2003.
5. EXERCISE OF OPTION:
The option is to be exercise by HARVEYS by written notice to GRAND
delivered in accordance with the terms of this Agreement (the "Exercise
Notice"). The Exercise Notice shall specify whether HARVEYS is proceeding in
accordance with Option I or Option II.
6. REPRESENTATIONS BY GRAND OF TITLE AND AUTHORITY:
It is acknowledged and understood that GRAND does not presently control
.60 acres of the Property. GRAND warrants and represents that it is using
and shall use its best efforts to acquire said .60 acres. In the event GRAND
has neither acquired nor secured the contractual right or option to acquire
said .60 acres on or before March 31, 1998, HARVEYS shall have the right to
terminate this Agreement and, in that event, HARVEYS shall be entitled to
immediate repayment of all sums paid to GRAND.
Other than as set forth herein, GRAND warrants and represents that it
holds legal, marketable and insurable fee simple title to
7
<PAGE>
the Property and has the authority to enter into and grant the option granted
herein. In the event that HARVEYS exercises the Option, GRAND warrants and
represents that it has the right, title and authority to convey the Property
to HARVEYS by grant bargain and sale deed; provided, however, that the
approximately two (2) acre portion of the Property at the corner of Harmon
Street and Koval Lane, defined as the "Drink Land" in the "Drink Agreement"
(as hereinafter defined), shall be conveyed to HARVEYS as soon as possible
after GRAND obtains title thereto in accordance with the Drink Agreement.
GRAND convenants that during the term of the Option and the Remainder Option,
GRAND will not encumber the Property in any way nor grant any property or
contract right relating to the Property which would impair HARVEYS rights
under this Agreement without the prior written consent of HARVEYS.
Notwithstanding the foregoing, it is acknowledged and agreed that GRAND may
(i) continue to rent the apartments on the Property during the term of the
Option and, as to the Remainder Property, during the term of the Remainder
Option, and GRAND shall be entitled to retain the rents and profits
therefrom, and (ii) encumber the Property as GRAND deems appropriate so long
as such encumbrance(s) do not secure debt which exceeds GRAND'S equity in
8
<PAGE>
the Property and such encumbrance(s) shall be fully released upon HARVEYS
purchase of the Property.
After the close of escrow for the Initial Property, the rental
agreements with respect to the apartment units on the Initial Property shall
remain in effect, with the rents and profits therefrom to be payable to
HARVEYS. GRAND, by and through its affiliate Realty Management, Inc., shall
continue to manage the units on the Initial Property in accordance with the
current management agreement between GRAND and Realty Management, Inc. At
the time HARVEYS determines that it shall no longer lease the apartment units
on the Initial Property, HARVEYS shall instruct GRAND to terminate the then
existing rental agreements affecting the Initial Property (and evict any
tenants if necessary). After HARVEYS acquires the Remainder Property, it may
instruct GRAND to terminate the then existing rental agreements affecting the
Remainder Property (and evict any tenants if necessary).
7. CLOSE OF ESCROW; PRELIMINARY TITLE REPORT:
Upon the execution of this Agreement, the parties shall open an escrow
with Nevada Title Company, with Nikki Wilcox as escrow agent ("Escrow
Agent"). Upon the exercise of any option hereunder (whether Option I, Option
II or the Remainder Option) HARVEYS shall
9
<PAGE>
close escrow on the purchase no later than thirty (30) days following
delivery of the Exercise Notice.
g. PRELIMINARY TITLE REPORT:
A Preliminary Title Report for the Property is attached hereto as
Exhibit "D." HARVEYS has had the opportunity to review said report and
hereby approves said report, including the exceptions to title shown on
Schedule B thereto. Prior to the close of escrow, GRAND shall have the duty
and obligation, at GRAND'S sole cost and expense, to remove any monetary
liens, charge or other encumbrance on the Property should HARVEYS so request.
Close of escrow shall be extended for a period equal to any delay resulting
from GRAND's efforts to remove such monetary lien, charge or other
encumbrance.
h. TITLE INSURANCE, PRO-RATIONS, TAXES, COSTS AND FEE:
Current taxes, insurance, utilities, improvement bonds,
assessments, if any, and any obligations under service contracts benefitting
the Property, shall be pro-rated as of the date of recordation of the deed.
All other costs associated with this transaction, including escrow fees, real
property transfer fees, and the like, shall be paid as is customary in Clark
County, Nevada.
10
<PAGE>
i. NO COMMISSIONS:
The parties acknowledge and agree that neither party is represented
in this transaction by a licensed real estate broker or agent and no real
estate commissions are due in connection with this transaction. GRAND and
Purchaser each hereby agree to indemnify and hold the other harmless from and
against all liability, loss, cost, damage or expense (including, but not
limited to, attorneys' fees and costs of litigation) which the other party
may suffer or incur because of any claim by a broker, agent, or finder
claiming by, through or under such indemnifying party, whether or not such
claim is meritorious, for any compensation with respect to the entering into
of this Agreement, the option, sale and purchase of the Property, or the
consummation of the transactions contemplated herein.
8. ACCESS AND PARKING EASEMENT:
In the event HARVEYS exercises its option rights hereunder HARVEYS
agrees to grant an access and parking easement over the southeastern corner
of the Property in favor of and for the beneficial use by the "The Drink"
night club which occupies, or shall occupy, an approximate two acre parcel
contiguous to the
11
<PAGE>
Property (the "Drink Parcel"). The Drink Parcel and the area of the access
and parking easement are shown on the map attached hereto as Exhibit "E."
The rights and obligations of GRAND with respect to the Drink Parcel and the
owners thereof, the parking and access easement and the restrictive covenant
to be recorded against a portion of the Property benefitting the owners of
the Drink Parcel are set forth in the Agreement between GRAND and the owners
of the Drink Parcel, a copy of which is attached hereto as Exhibit "F" (the
"Drink Agreement"). HARVEYS has reviewed and is familiar with the terms and
conditions of the Drink Agreement. HARVEYS shall be bound by the terms and
conditions of the Drink Agreement, as they relate to the parking and access
easement and the restrictive covenant set forth therein. HARVEYS
acknowledges and agrees that it shall take title to the Property subject to
said restrictive covenant and the obligations thereunder. If GRAND fails or
refuses to timely acquire the Drink Land (as such is defined in the Drink
Agreement) in accordance with the Drink Agreement, HARVEYS shall have the
right to terminate this Agreement and, in that event, HARVEYS shall be
entitled to immediate repayment of all sums previously paid to GRAND.
9. HARVEYS' RIGHT TO ENTER LAND FOR SPECIFIED PURPOSES:
12
<PAGE>
On the execution of this Agreement, HARVEYS will have the right to enter
the land above described and carry out any inspections or preliminary work
that may be necessary, in a manner that will cause the least possible
disturbance to the possession of GRAND. HARVEYS hereby agrees to pay or
otherwise satisfy, and to indemnify GRAND and hold GRAND and the Property
harmless from and against, any claims, liens, judgments, liabilities, costs,
expenses, losses and damages incurred or suffered by GRAND and/or to which
the Property becomes subject and which are caused by any such activities and
shall maintain sufficient liability insurance covering its activities on the
Property and the indemnity provided herein, and name GRAND as an additional
insured thereunder. If requested by GRAND, HARVEYS shall provide to GRAND
evidence of such insurance. HARVEYS' indemnity hereunder shall survive the
close of escrow or the termination or expiration of this Agreement. HARVEYS
agrees to immediately restore the Property and otherwise compensate GRAND for
any damage that may arise out of, or be incidental to, any inspections or
work.
13
<PAGE>
10. GRAND NOT TO LEASE OR ENCUMBER PROPERTY:
GRAND warrants that the Initial Property is not subject to any leasehold
interest which extends beyond any option period, and further agrees that
GRAND will not enter into any written or oral lease of the Initial Property
or any part thereof which extends beyond any option period, without first
securing the written approval of HARVEYS.
11. REPRESENTATIONS BY GRAND ON CONDITION OF PROPERTY:
GRAND warrants and represents that to the best of its knowledge the
Property subject to this Agreement has not been used for the storage or
disposal of hazardous or toxic waste and materials and to the best of its
knowledge the Property is free and clear of such waste, debris or material.
GRAND agrees to indemnify HARVEYS should HARVEYS incur any costs, including
but not limited to clean-up costs or applicable fines, that result from a
breach of the warranty given by GRAND in the previous sentence. This
paragraph and representations contained herein shall not merge in the deed
and shall survive the transfer of title.
12. MEMORANDUM OF OPTION; ASSIGNMENT:
HARVEYS shall have the right to record a memorandum of option in the
Official Records of Clark County. Concurrently herewith,
14
<PAGE>
HARVEYS shall also execute and deposit into escrow a quitclaim deed to the
Property, which deed shall be recorded by Escrow Agent without further
instruction by the parties in the event HARVEYS has not duly exercised the
Option on or before the aforesaid expiration date hereof and/or timely closed
escrow with respect to the Initial Property or the Remainder Property as
required hereby, or upon GRAND'S instructions if the Option or the Remainder
Option is terminated due to HARVEYS failure to timely make any required
option payment.
HARVEYS shall not assign this option without GRAND'S prior written
consent. GRAND'S consent shall not be withheld or delayed if the assignment
is to an entity in which HARVEYS retains control. Any assignment without
GRAND'S prior written consent shall be null and void, and shall constitute a
material default by HARVEYS of its obligations hereunder and shall cause the
immediate and automatic termination of all rights of HARVEYS hereunder,
including without limitation, all option rights granted hereunder.
13. PARTIES TO COOPERATE:
The parties hereto agree to execute such other and further documents as
may be necessary to effect this Agreement and to
15
<PAGE>
cooperate with each other in order to effectuate the terms of this Agreement.
14. INDEMNIFICATION:
The parties will mutually indemnify and save each other harmless from
and against any and all claims, actions, damages, liability and expense in
connection with tort claims, personal injury and/or property damage arising
from the performance of this Agreement.
15. RELATIONSHIP OF PARTIES:
The parties hereto agree and understand that their relationship under
this Agreement is that of optionor and optionee, only; nothing contained in
this Agreement shall be construed or interpreted to create the relationship
of principal and agent, employer and employee, joint ventures or partners, or
any other form of relationship other than optionor and optionee.
16. NOTICES:
All notices required or permitted under this Agreement shall be either
delivered by hand delivery, commercial overnight delivery courier or
facsimile transmittal with confirming overnight courier delivery, and
addressed as follows:
If to HARVEYS:
16
<PAGE>
HARVEYS CASINO RESORTS
Attn: CHARLES W. SCHARER, CEO
Highway 50 and Stateline Avenue
Post Office Box 128
Stateline, NV 89449
FAX No. (702) 588-0601
With a copy to:
SCARPELLO & ALLING, LTD.
Attn: Ronald D. Alling, Esq.
276 Kingsbury Grade, Suite 2000
Post Office Box 3390
Lake Tahoe, NV 89449
FAX No. (702) 588-4970
17
<PAGE>
If to GRAND:
GRAND PLAZA LIMITED PARTNERSHIP
c/o TPF Trading, Inc.
Attn: Martin Egbert
4435 South Eastern Avenue
Las Vegas, NV 89119
FAX No. (702) 737-1490
With a copy to:
GOOLD, PATTERSON, DEVORE & RONDEAU
Attn: Barry S. Goold, Esq.
4496 South Pecos Road
Las Vegas, NV 89121
FAX No. (702) 436-2650
If to Escrow Agent:
NEVADA TITLE COMPANY
Attn: Nikki Wilcox
3320 West Sahara Avenue, Suite 200
Las Vegas, NV 89102
FAX No. (702) 253-1682
The foregoing addresses may be changed by written notice to the other party
as provided herein. Notices shall be deemed delivered upon actual receipt or
refusal to accept delivery.
17. ATTORNEYS FEES:
In the event of any dispute or controversy between the parties
concerning the enforcement or interpretation of this Agreement, the rights,
duties or obligations of the parties under this Agreement, or otherwise
relating to or arising out of this Agreement the
18
<PAGE>
prevailing party in such dispute or controversy shall be entitled to recover
reasonable costs and expenses incurred, including attorneys fees, in addition
to any other remedies which they may be entitled to at law or in equity.
18. GOVERNING LAW:
This Agreement shall be governed by and construed in accordance with the
laws of the State of Nevada. Jurisdiction and venue for any dispute relating
to or arising out of this Agreement shall be in the Eighth Judicial Court, in
and for the County of Clark.
19. ENTIRE AGREEMENT:
This document comprises the entire understanding and agreement among the
parties hereto and may not be changed, modified, altered or amended except by
a writing signed by the parties.
20. WARRANTY AS TO AUTHORITY TO EXECUTE:
Each party hereto warrants to the other parties hereto that such party
has full authority to execute this Agreement, and that, in the event any
party is a non-natural person, all approvals necessary or advisable on the
part of each contracting party have been obtained. Each party hereto further
warrants that, upon
19
<PAGE>
execution, this Agreement shall be fully binding and enforceable against such
party in accordance with its terms.
20
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
the date first written above with the intent to be legally bound thereby.
"HARVEYS"
HARVEYS CASINO RESORTS
By: /s/ Charles W. Scharer
------------------------------------
Its: Chairman, Pres. & CEO
----------------------------------
"GRAND"
GRAND PLAZA LIMITED PARTNERSHIP
By: TPF Trading, Inc., its general
Partner
By: /s/ Martin Egbert, President
------------------------------------
Martin Egbert, President
21
<PAGE>
EXHIBIT "A"
Map Showing Entire Property
INCLUDING DRINK PARCEL
<PAGE>
EXHIBIT "B"
MAP SHOWING 14 ACRE PARCEL
<PAGE>
EXHIBIT "C"
MAP SHOWING 18 ACRE PARCEL
<PAGE>
EXHIBIT "D"
TITLE REPORT
<PAGE>
EXHIBIT "E"
MAP SHOWING THE DRINK PARCEL
AND THE AREA OF THE ACCESS AND PARKING EASEMENT
<PAGE>
EXHIBIT "F"
DRINK AGREEMENT
<PAGE>
EXTENSION OF EMPLOYMENT AGREEMENT
THIS EXTENSION AGREEMENT is effective the 1st day of December, 1997,
notwithstanding a later execution hereof, by and between HARVEYS CASINO RESORTS,
a Nevada corporation, hereinafter referred to as "Harveys", and CHARLES W.
SCHARER, hereinafter referred to as "Employee", as follows:
W I T N E S S E T H:
WHEREAS, Harveys and Employee did, on the 22nd day of October, 1995, enter
into an Employment Agreement effective the 1st day of December, 1995 (the
"Agreement"); and
WHEREAS, Harveys has offered to modify the Agreement, and Employee has
consented to said modifications as set forth hereinbelow;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and other good and valuable consideration, receipt whereof is
hereby acknowledged, the parties hereto agree as follows:
A. Section 2.01 shall be modified by the inclusion of the following
sentence appearing at the end thereof:
Immediately following the 1997 Annual Shareholders Meeting,
Employee was elected by the Board of Directors to serve as Chairman
thereof; Employee further agrees that he shall, during the term
hereof, allow his name to remain in nomination for the position of
Chairman of the Board of Directors and, if elected, will serve in
said capacity.
B. Section 3.01 shall be modified by extending the term of employment to
the 30th day of November, 2002.
C. Section 7.01 shall be modified to reflect that as of December 1, 1997,
Employee's salary shall be increased to Four Hundred Sixty Seven Thousand Five
Hundred Dollars ($467,500,00).
<PAGE>
D. A Section 7.04 shall be added, which states:
Commencing with the 1997-98 fiscal year, i.e., December 1, 1997,
Employee's incentive payments as provided for in paragraph 5 of
Harveys Casino Resorts Management Incentive Plan dated August 8,
1995, shall be increased by 10%, and thus the threshold incentive
shall increase from 30% to 35% of base salary. The target
incentive shall increase from 60% to 70% of base salary, and the
maximum incentive shall increase from 90% to 100% of base salary,
and Employee's participation in the long-term incentive plan,
revised as of December 18, 1995, shall also increase by 10%.
Employee's threshold incentive shall increase from 22.5% to 32.5%.
Target incentive shall also increase from 45% to 55%, and the
maximum incentive shall increase from 67.5% to 77.5%, for all
performance periods including the 1997-98 fiscal year, and any
subsequent fiscal years.
E. Where not inconsistent herein, the parties republish and reaffirm the
terms and conditions of the Agreement as set forth herein verbatim.
DATED this 15th day of December, 1997.
EMPLOYEE:
/s/ Charles W. Scharer
------------------------------------------------
CHARLES W. SCHARER
EMPLOYER:
HARVEYS CASINO RESORTS, a Nevada
corporation
By /s/ E.R. White
---------------------------------------------
EUGENE WHITE
Chairman/Compensation Committee
Attest:
/s/ William B. Ledbetter
- ------------------------
WILLIAM B. LEDBETTER,
Secretary
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> NOV-30-1998 NOV-30-1997
<PERIOD-START> DEC-01-1997 DEC-01-1996
<PERIOD-END> FEB-28-1998 FEB-28-1997
<CASH> 54,083 18,868
<SECURITIES> 0 471
<RECEIVABLES> 5,929 7,717
<ALLOWANCES> 275 329
<INVENTORY> 3,967 3,326
<CURRENT-ASSETS> 70,997 38,746
<PP&E> 449,193 432,387
<DEPRECIATION> 132,515 117,050
<TOTAL-ASSETS> 405,030 388,967
<CURRENT-LIABILITIES> 30,559 27,961
<BONDS> 150,220 178,004
0 0
0 0
<COMMON> 101 98
<OTHER-SE> 184,327 149,428
<TOTAL-LIABILITY-AND-EQUITY> 405,030 388,967
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<CGS> 4,771 4,381
<TOTAL-COSTS> 37,986 32,630
<OTHER-EXPENSES> 24,203 21,325
<LOSS-PROVISION> 172 160
<INTEREST-EXPENSE> 4,464 4,950
<INCOME-PRETAX> 2,551 7
<INCOME-TAX> 1,020 3
<INCOME-CONTINUING> 1,531 4
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<EXTRAORDINARY> 0 0
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<NET-INCOME> 1,531 4
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