<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 NOVEMBER 30, 1997
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)
<TABLE>
<S> <C>
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)
</TABLE>
Registrant's telephone number, including area code (702) 588-2411
------------------------
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<S> <C>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
- ---------------------------------------------- --------------------------------------------
Common Stock; par value $0.01 per share New York Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: None
------------------------
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 the 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 the 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_]
Based on the closing sales price of February 23, 1998 the aggregate market
value of the voting stock held by non-affiliates of the registrant was
$152,560,292.
The number of shares outstanding of the registrant's common stock, $.01 par
value was 10,014,234 as of February 23, 1998.
Part III incorporates information by reference from the registrant's
definitive Proxy Statement to be filed with the Commission within 120 days after
the close of the registrant's fiscal year.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART I
ITEM 1. BUSINESS
Harveys Casino Resorts (the "Company" or the "Registrant") is an established
owner, operator and developer of high-quality hotel/casinos in Nevada and new
gaming jurisdictions. The Company owns and operates Harveys Resort Hotel/Casino
("Harveys Resort"), the Lake Tahoe area's largest hotel/casino. Harveys Resort,
in operation since 1944, is situated on the south shore of scenic Lake Tahoe on
the Nevada/California state line. The Company owns and operates Harveys Wagon
Wheel Hotel/Casino ("Harveys Wagon Wheel") in Central City, Colorado, which
opened in December 1994 as the first major hotel/casino serving the greater
Denver area. The Company owns and operates a riverboat casino and
hotel/convention center in Council Bluffs, Iowa across the Missouri River from
Omaha, Nebraska. The Harveys Casino Hotel riverboat casino opened on January 1,
1996 and is one of only three operators in the Omaha/Council Bluffs gaming
market, which includes one other riverboat casino and a slot machine operator at
the local dogtrack. The adjacent land-based hotel and convention center
facilities opened in May 1996. 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.
Harveys Resort was originally founded on the south shore of Lake Tahoe by
Harvey and Llewellyn Gross in 1944 as a one-room saloon, cafe and casino. Major
additions to the property were made in 1955 and 1963, and since 1979 the Company
has pursued a master plan through which it has developed the property into a
major hotel/casino consisting of 740 hotel rooms, an 88,000-square foot casino,
23,000 square feet of convention space, 2,967 parking spaces, the 280-seat
Emerald Theater and Cabaret, a wedding chapel, restaurants and retail shops, a
pool, a health club and a video arcade. Mr. Gross ran Harveys Resort until the
early 1980s at which time he transferred responsibilities to an experienced
casino management team. Today, Harveys Resort offers its customers high-quality
hotel rooms, excellent dining facilities, an exciting location, entertaining
events and a lively gaming atmosphere.
Through Harveys Wagon Wheel, which opened in December 1994, the Company
established the first major hotel/casino serving the greater Denver area,
Colorado's major population center of more than 2 million people. No other
gaming facility in the Central City area currently offers overnight
accommodations, on-site parking and non-gaming amenities comparable to those
offered by the Company. Harveys Wagon Wheel includes 1,047 slot machines, 18
table games and a nine-table poker area, a 118-room hotel and 730 on-site
parking spaces. Other amenities include a Tony Roma's Famous for Ribs restaurant
and a Tony Roma's Express, an entertainment lounge and a children's arcade.
The Harveys Casino Hotel riverboat casino accommodates 2,352 passengers and
is berthed on the Missouri River directly across from Omaha, Nebraska in Council
Bluffs, Iowa. The riverboat casino has 24,500 square feet of casino space on
three decks and contains 905 slot machines, 48 table games and a seven-table
poker area. The land-based amenities, which opened in May 1996, include surface
parking for approximately 2,200 cars and a 14-story, 251-room hotel with a
21,000-square foot convention center.
RECENT DEVELOPMENT
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 controlled affiliate of Colony Capital, Inc. of Los Angeles,
California ("Colony Capital"). Upon closing of the transaction contemplated by
the Merger Agreement, the Company will be an affiliate of Colony Capital. The
all-cash transaction values each of the approximately 10.8 million fully diluted
common shares of the Company at $28. Closing of the merger is subject to a
2
<PAGE>
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.
BUSINESS STRATEGY
The Company's business strategy is to develop premium hotel/casino
facilities in markets in which the Company believes it can establish and
maintain a prominent position or niche. Each of the Company's properties offers
casino gaming and a full range of amenities in a friendly atmosphere that caters
to middle- and upper middle-income customers. This strategy emphasizes the
following elements:
HIGH-QUALITY FACILITIES AND SUPERIOR CUSTOMER SERVICE
As part of its commitment to providing a quality entertainment experience
for its patrons, the Company is dedicated to ensuring a high level of customer
satisfaction and loyalty by providing distinctive and modern accommodations and
attentive customer service in a friendly atmosphere. Management recognizes that
consistent quality and a comfortable atmosphere can differentiate its facilities
from the competition in all of its markets. The Company strives to meet customer
demand by furnishing each of its properties with a variety of restaurants and
non-gaming amenities. To foster a high level of customer satisfaction through
attentive customer service, management plays an active role in the training of
all of its employees at all levels. The Company's goal of becoming a truly
customer-focused organization has been achieved at all the Company's properties
through training programs, role playing and simulations. Management believes
that these programs have evolved to provide the Company's customers with a truly
unique experience. The Company has implemented attractive employee benefit
programs at all of its facilities to recruit and retain friendly, professional
employees.
STRATEGIC LOCATIONS
Management believes that location is the key to attracting customers. South
Lake Tahoe, which draws approximately 2 million visitors per year, is a unique
gaming location because of its natural surroundings and variety of outdoor
attractions and activities. Harveys Resort is strategically placed on a site
adjacent to the California border in close proximity to more than 6,500 hotel
and motel rooms in non-gaming facilities. Harveys Wagon Wheel is located on a
highly visible site in Central City, Colorado, a picturesque mountain town
approximately 35 miles west of Denver, serving the greater Denver area with its
population of over 2 million people. Harveys Casino Hotel is within a ten-minute
drive of the Omaha/Council Bluffs metropolitan regional airport and is located
directly off Interstate 29, Interstate 80 and Interstate 480.
TARGETED CUSTOMER BASE
The Company targets middle- to upper middle-income customers who tend to
have more disposable income for gaming and entertainment. Harveys Resort seeks
to attract these customers by offering well-appointed rooms and a "party"
atmosphere for those seeking nightlife and entertainment. The Company also has
established extensive customer databases and uses sophisticated player tracking
systems to award cash rebates or promotional allowances, such as complimentary
rooms, food, beverage and entertainment, when gaming play warrants. Management
believes that by continuing to focus its efforts on the maintenance of customer
relationships and the Harveys image, it will increase its share of higher-income
customers attracted to the South Lake Tahoe market. Harveys Wagon Wheel targets
middle- to upper middle-income customers from the greater Denver area who seek a
quality gaming experience, convenient parking and overnight accommodations. By
offering a facility with overnight accommodations and more amenities than are
offered by other casinos in the Central City/Black Hawk market, Harveys Wagon
Wheel
3
<PAGE>
has been successfully building a loyal customer base. Harveys Wagon Wheel opened
a 530 space parking garage in June 1997, providing a new level of parking
convenience for customers. Harveys Casino Hotel targets frequent, mid-level
players from Omaha, Council Bluffs and the surrounding areas. The Company
believes that the hotel and convention facilities, opened in mid-1996, attract
new players by capturing overnight guests as well as meetings and small
conventions business. In addition, by promoting itself as "Harveys, You Can Have
It All!" management believes that Harveys Casino Hotel attracts a large
percentage of the gaming revenues generated by the Omaha/Council Bluffs regional
population and visitors to the Omaha/Council Bluffs area.
EFFECTIVE MARKETING
In February 1997, the Company announced that Bill Cosby agreed to become a
spokesperson for the Company. Under a contractual relationship with the Company,
Mr. Cosby is actively involved in promoting Harveys Casino Resorts through
entertainment appearances at the Company's properties and through commercial
messages, including television and radio. The Company believes that this
association has been and will continue to be helpful in enhancing the national
visibility of Harveys Casino Resorts.
Since 1989, the Company has aggressively promoted Harveys Resort and a
lively image through television, radio, billboard and print advertising. The
current advertising, with Bill Cosby as the centerpiece of the campaign,
features Harveys Resort as the "Tahoe Players Club." Since 1989, the Company has
increased its share of gaming revenues in South Lake Tahoe from approximately
24% to approximately 28% in 1997, due largely to its targeted marketing
strategy. The Company attracts customers to Harveys Wagon Wheel by aggressively
promoting the facility's hotel rooms, on-site parking, quality dining facilities
and varied entertainment activities in a market in which such amenities are a
distinct competitive advantage. Harveys Casino Hotel is marketed as "Harveys,
You Can Have It All!" in the Omaha/Council Bluffs market through the extensive
use of television and newspaper advertisement, billboards, regular promotions
and sweepstakes as well as point-of-sale materials located in local hotels,
restaurants and other visitor attractions.
EMPHASIS ON SLOT PLAY
Responding to the increased popularity of slot machines over the past
several years, the Company has shifted its gaming mix toward slot machines. The
mix of slot machines is closely matched to the demand of the customer base at
each property. Harveys Resort, for instance, now includes a greater percentage
of $1 and higher denominated machines to appeal to the higher-income gaming
clientele of Harveys Resort, including $5, $25 and $100 slot machines offered
within a premium player section. This increase in higher denominated machines
increased win per unit at Harveys Resort by approximately 28% between 1988 and
1997. Harveys Wagon Wheel offers 1,047 slot machines, approximately 350 more
machines than are currently offered by any other gaming facility in the area and
Harveys Casino Hotel offers 905 slot machines. Slot machines, which are less
labor intensive and require less square footage than table games, also generate
higher profit margins compared to table games. The Company monitors payout
percentages closely and ensures that its slot machine payouts are competitive.
THE PROPERTIES
HARVEYS RESORT
Harveys Resort, the largest hotel/casino in the Lake Tahoe area, is located
on approximately 19.8 acres on U.S. Highway 50, the main route through South
Lake Tahoe. The hotel/casino, situated on the south shore of Lake Tahoe with a
panoramic view of the lake and surrounding mountains, is among Lake Tahoe's most
modern facilities. The main structure is an all-glass 17-story tower which was
completed in 1991, connected to a 12-story tower which was completely re-built
in 1982. Harveys Resort features 740 rooms, 36 of which are luxury suites, and
an 88,000-square foot casino containing approximately 2,185 slot
4
<PAGE>
machines, 99 table games, an 11-table poker area, a race and sports book and a
keno lounge. Other amenities include 23,000 square feet of convention space,
2,967 parking spaces, the 280-seat Emerald Theater and Cabaret, a wedding
chapel, restaurants, retail shops, a pool, a health club and a video arcade.
Harveys Resort's seven restaurants offer a wide variety of high quality food and
consist of a coffee shop, a Mexican restaurant, a seafood and pasta restaurant,
a premier steakhouse, a buffet, a burger emporium and Llewellyn's, Harveys
Resort's award-winning restaurant featuring top quality food and a spectacular
view of Lake Tahoe. In recognition of the outstanding quality of the facility
and its excellent service, Harveys Resort has received both the Mobil Four Star
and AAA Four Diamond Awards every year for the last 16 years. Management has
allocated a total of approximately $18.5 million for capital expenditures,
including improvements to be made to Harveys Resort through 1997 and 1998 to
increase the Company's market share and to position the Company to benefit from
the ongoing South Lake Tahoe Redevelopment Project. The improvements will
include the addition of a new Hard Rock Cafe on the casino floor of Harveys
Resort with the opening scheduled prior to the busy summer season of 1998. In
1984, the City of South Lake Tahoe, California, adopted a redevelopment plan and
created the South Tahoe Redevelopment Agency. The redevelopment plan has
resulted in the removal of numerous older motel and retail properties along
Highway 50 through the City of South Lake Tahoe. The properties were demolished,
creating a scenic open space corridor containing public facilities and wetlands.
The redevelopment plan resulted in a 400-room Embassy Suites hotel on the
California-Nevada state line, completed in 1991. It is anticipated that the next
phase of redevelopment will involve the condemnation of certain older motels and
retail establishments located within one mile of Harveys Resort and the
replacement thereof with a regional transit center including an aerial tram to
the Heavenly ski area, parking facilities, a theater complex, retail space,
upscale hotels and vacation interval units. It is anticipated that the third
phase, also to be located immediately adjacent to the California-Nevada state
line, will result in a regional convention facility, hotel, retail space,
regional parking facilities and various public amenities.
The Lake Tahoe area is a unique gaming location because of its natural
surroundings and variety of year-round outdoor recreational activities,
including skiing, boating, fishing and golfing. The South Lake Tahoe area draws
tourists primarily from nearby Reno and Northern California. There are four
major casinos in this market to serve the approximately 2 million annual
visitors.
HARVEYS WAGON WHEEL
Through Harveys Wagon Wheel, which opened in December 1994, the Company
established the first major hotel/casino serving the greater Denver area.
Harveys Wagon Wheel is located on a highly visible site in Central City,
Colorado, a picturesque mountain town approximately 35 miles west of Denver.
Unlike most existing gaming facilities in the Central City area, which offer no
overnight accommodations, scarce on-site parking and few non-gaming amenities,
Harveys Wagon Wheel includes approximately 40,000 square feet of casino space,
1,047 slot machines, 18 table games, a nine-table poker area, a 118-room hotel
and 730 on-site parking spaces, including 530 spaces in the market's first
self-parking garage which was completed in June of 1997. Other amenities include
a Tony Roma's Famous for Ribs restaurant and a Tony Roma's Express, an
entertainment lounge and a children's arcade. No other casino in Central
City/Black Hawk currently offers all of these amenities.
Harveys C. C. Management Company, Inc. ("HCCMC"), a wholly-owned subsidiary
of the Company and the owner and operator of Harveys Wagon Wheel, owns
approximately 40 acres of undeveloped land adjacent to the Harveys Wagon Wheel
facility.
HARVEYS CASINO HOTEL
On January 1, 1996, the Company opened, as the first phase of Harveys Casino
Hotel, a 2,352-passenger riverboat casino berthed on the Missouri River directly
across from Omaha, Nebraska in Council Bluffs, Iowa. The riverboat casino has
24,500 square feet of casino space on three decks and contains 905 slot
machines, 48 table games and a seven-table poker area . On May 24, 1996, the
Company opened the second phase of Harveys Casino Hotel, including surface
parking for approximately 2,200 cars, and a
5
<PAGE>
14-story, 251-room hotel with a 21,000-square foot convention center. A
remodeling project, currently in process and expected to be completed in March
1998, will expand the casino square footage to approximately 28,200 square feet
and accommodate an additional 180 slot machines. Harveys Casino Hotel is within
a ten-minute drive of the Omaha/Council Bluffs regional airport and is located
directly off of Interstate 29, Interstate 80 and Interstate 480.
Harveys Casino Hotel is located on a 60-acre parcel of land which the
Company acquired from the City of Council Bluffs. Approximately 20 acres of the
site are occupied by a municipal nine-hole golf course, which is leased to the
City of Council Bluffs for a nominal fee. This arrangement allows the Company
the option of using this land for future expansion needs. In addition, the
Company has acquired an adjacent 44-acre site to accommodate future expansion or
support facilities.
Harveys Casino Hotel's target market is the approximately 760,000 residents
in the greater Omaha/ Council Bluffs metropolitan area and the nearly 3 million
residents within a three-hour drive of the facility. In addition, the casino,
hotel and convention facilities are marketed to the estimated 2.5 million
visitors and tourists who visit the Omaha metropolitan area annually. Harveys
Casino Hotel markets itself as "Harveys, You Can Have It All!" in the
Omaha/Council Bluffs market through the extensive use of television and
newspaper advertisement, billboards, regular promotions and sweepstakes as well
as point-of-sale materials located in local hotels, restaurants and other
visitor attractions. Harveys Casino Hotel targets frequent, mid-level players
from Omaha, Council Bluffs and the surrounding area. The Company believes that
the hotel and convention facilities attracts new players by capturing overnight
guests and individuals attending meetings and small conventions. In addition,
management believes that promoting the property as "Harveys, You Can Have It
All!" has contributed to making Harveys Casino Hotel the number one performing
riverboat casino (based on gaming revenues) in Iowa.
COMPETITION
LAKE TAHOE
The Company competes for customers primarily on the basis of location, range
and pricing of amenities and overall atmosphere. Several of the competitors of
Harveys Resort have substantially greater name recognition and financial and
marketing resources. Harveys Resort competes with a number of other
hotel/casinos at Lake Tahoe and, to a lesser extent, with hotel/casino
operations located in Reno, Las Vegas and Laughlin, Nevada and Native American
owned casinos in California. In South Lake Tahoe, Harveys Resort competes
primarily with three other major casino operations: Harrah's Lake Tahoe, Caesars
Tahoe and the Horizon Casino Resort.
In 1987, the Tahoe Regional Planning Agency, an entity established under a
bi-state compact reached between the states of California and Nevada, placed
restrictions on additional commercial, residential and tourist accommodation
construction at Lake Tahoe in an effort to curb development and to preserve the
local environment. Under the bi-state compact and community plan constraints,
future tourist accommodation units added to the market will be required to
mitigate environmental impacts from expansion. Such measures may include
replacing an imposed multiple of older tourist accommodation units. The limited
number of rooms available at Lake Tahoe, however, allows Lake Tahoe hotel/casino
operators to achieve much higher nightly room rates than those in most of the
gaming industry. The occupancy rate for the 2,250 upscale rooms in the four
major south Lake Tahoe casinos has historically been between 80% and 85%, while
the occupancy rate in the motels is typically between 40% and 50%. It is
estimated that the average day room rate for the Lake Tahoe hotel/casinos is
approximately $100, compared to average estimated rates of $28-$62 for Las
Vegas, Reno and Laughlin. The Tahoe Regional Planning Agency has imposed
significant restrictions on construction as well as on expansion of gaming
facilities. These restrictions prohibit existing casinos from expanding cubic
volume of structures housing gaming and limit expansion of the gaming areas
within such structures. The Company believes that because of such restrictions,
it is unlikely that any new hotel/casinos will commence operations at Lake Tahoe
or that any of the smaller existing casinos will expand to a size that could
make them competitive with the four major
6
<PAGE>
casinos; however, the Company expects that the four major hotel/casinos will
continue to compete intensely.
CENTRAL CITY/BLACK HAWK
Harveys Wagon Wheel competes primarily with the five casinos with the
largest number of gaming devices in Central City and Black Hawk as well as the
25 smaller gaming establishments in operation as of October 1, 1997, in Central
City and Black Hawk. The top five casinos, together with Harveys Wagon Wheel,
currently control more than 47% of all gaming devices in the Central City/Black
Hawk area. See "Harveys Wagon Wheel" above. In addition, as of October 1, 1997,
there were approximately 23 other gaming establishments operating within Cripple
Creek, the third city in the state of Colorado where gaming is legal, and two
establishments located on two Native American reservations in southwest
Colorado. The contiguous cities of Central City and Black Hawk form Colorado's
primary gaming market. In Colorado the majority of the existing gaming
establishments lack on-site parking, overnight accommodations and non-gaming
amenities. However, a number of projects are either under construction or in the
planning stages. Some or all of these projects may include on-site parking,
overnight accommodations or other amenities that would increase competition with
Harveys Wagon Wheel. Currently, limited stakes gaming in Colorado is legal in
Central City, Black Hawk, Cripple Creek and two Native American reservations in
southwest Colorado. However, there can be no assurances that gaming will not be
approved in other Colorado communities in the future. The legalization of gaming
closer to Denver, the major population center of Colorado, would likely have a
material adverse effect on the Company's operation in Central City.
OMAHA/COUNCIL BLUFFS
Harveys Casino Hotel, with its riverboat casino that opened on January 1,
1996 and the adjacent 251-room hotel and 21,000-square foot convention center
that opened on May 24, 1996, provided the first of only two major hotel products
in the city. The Company's target markets are the residential population base
(approximately 760,000) of the greater Omaha/Council Bluffs area, and the nearly
3 million residents within a three-hour drive of the facility. Additionally, the
Company's hotel and convention facilities are marketed to an estimated 2.5
million visitors and tourists who visit the Omaha metropolitan area annually,
which now offers approximately 7,000 hotel and motel units and is home to major
tourist attractions such as zoos, museums, pari-mutuel tracks and historic
monuments. The Company's casino competes with Ameristar Casino Inc.'s riverboat
casino in Council Bluffs, which opened on January 19, 1996, as well as with the
slot machines installed at a dogtrack in the Council Bluffs area and other
amusement attractions. Should casino-style gaming be legalized in Nebraska, and
should gaming facilities be opened in Omaha, Nebraska, Harveys Casino Hotel
could be materially adversely affected.
EMPLOYEES
As of February 23, 1998 the Company had approximately 4,010 employees.
Management believes that employee relations are good. The Company has entered
into a collective bargaining agreement that covers approximately ten employees.
This agreement relates to stage-hand employees who provide support to
entertainment facilities at Harveys Resort. None of the Company's other
employees are represented by labor unions.
REGULATORY MATTERS
NEVADA GAMING LAWS AND RELATIONS
The ownership and operation of casino gaming facilities in Nevada are
subject to the Nevada Gaming Control Act and the regulations promulgated
thereunder (collectively, "Nevada Act") and various local regulations. The
Company's gaming operations are subject to the licensing and regulatory control
of the Nevada State Gaming Control Board (the "Nevada Board"), the Nevada Gaming
Commission (the "Nevada Commission" and together with the Nevada Board, the
"Nevada Gaming Authorities").
7
<PAGE>
The laws, regulations and supervisory procedures of the Nevada Gaming
Authorities are based upon 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) to provide a source of state and local revenues
through taxation and licensing fees. Change in such laws, regulations and
procedures could have an adverse effect on the Company's gaming operations.
Any company that operates a Nevada gaming casino is required to be licensed
by the Nevada Gaming Authorities. The gaming license requires the periodic
payment of fees and taxes and is not transferable. The Company is registered by
the Nevada Commission as a publicly traded corporation ("Registered
Corporation") and as such, it is required periodically to submit detailed
financial and operating reports to the Nevada Commission and furnish any other
information which the Nevada Commission may require. The Company has obtained
from the Nevada Gaming Authorities the various registrations, approvals, permits
and licenses required in order to engage in gaming activities in Nevada.
The Nevada Gaming Authorities may investigate any individual who has a
material relationship to, or material involvement with, the Company 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 Company must file applications with the Nevada Gaming
Authorities and 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 which they deem reasonable. A finding of suitability is
comparable to licensing, and both require submission of detailed personal and
financial information followed by a thorough investigation. The applicant for
licensing or a finding of suitability must pay all the costs of the
investigation. Changes in licensed positions must be reported to the Nevada
Gaming Authorities and in addition to their authority to deny an application for
a finding of suitability or licensure, the Nevada Gaming Authorities 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 Company, the companies involved would have to sever all
relationships with such person. In addition, the Nevada Commission may require
the Company to terminate the employment of any person who refuses to file
appropriate applications. Determinations of suitability or of questions
pertaining to licensing are not subject to judicial review in Nevada.
The Company is required to submit detailed financial and operating reports
to the Nevada Commission. Substantially all material loans, leases, sales of
securities and similar financing transactions by the Company must be reported
to, or approved by, the Nevada Commission.
If it were determined that the Nevada Act was violated by the Company, the
gaming licenses it holds could be limited, conditioned, suspended or revoked,
subject to compliance with certain statutory and regulatory procedures. In
addition, the Company, and the persons involved, could be subject to substantial
fines of up to $250,000 for each separate violation of the Nevada Act at the
discretion of the Nevada Commission. Further, a supervisor could be appointed by
the Nevada Commission to operate the Company's gaming properties and, under
certain circumstances, earnings generated during the supervisor's appointment
(except for the reasonable rental value of the Company's gaming properties)
could be forfeited to the State of Nevada. Limitation, conditioning or
suspension of any gaming license or the appointment of a supervisor could (and
revocation of any gaming license would) materially adversely affect the
Company's gaming operations.
8
<PAGE>
Any beneficial holder of the Company's voting securities, regardless of the
number of shares owned, may be required to file an application, be investigated,
and have such holder's suitability as a beneficial holder of the Company's
voting securities determined if the Nevada 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 investigation incurred by
the Nevada Gaming Authorities in conducting any such investigation.
The Nevada Act requires any person who acquires more than 5% of the
Company's voting securities to report the acquisition to the Nevada Commission
and may be required to be found suitable. The Nevada Act requires that
beneficial owners of more than 10% of the Company's voting securities apply to
the Nevada Commission for a finding of suitability within thirty days after the
Chairman of the Nevada Board mails the written notice requiring such 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
Company's voting securities may apply to the Nevada Commission for a waiver of
such finding of suitability if such institutional investor holds the voting
securities for investment purposes only. An institutional investor shall not be
deemed to hold voting securities for investment purposes 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 Company, any change in the Company's corporate charter, bylaws,
management, policies or operations of the Company, or any of its gaming
affiliates, or any other action which the Nevada Commission finds to be
inconsistent with holding the Company's voting securities for investment
purposes only. Activities which are not deemed to be inconsistent with holding
voting securities for investment purposes only include: (i) voting on all
matters voted on by stockholders; (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 Nevada Commission may determine to be
consistent with such investment intent. 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 thirty days after being ordered to do so by the Nevada Commission
or the Chairman of the Nevada Board, may be found unsuitable. The same
restrictions apply to a record owner if the record owner, after request, fails
to identify the beneficial owner. Any stockholder 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
Nevada Commission may be guilty of a criminal offense. The Company is subject to
disciplinary action if, after it receives notice that a person is unsuitable to
be a stockholder or to have any other relationship with the Company, the Company
(i) pays that person any dividend or interest upon voting securities of the
Company, (ii) allows that person to exercise, directly or indirectly, any voting
right conferred through securities held by that person, (iii) pays remuneration
in any form to that person for services rendered or otherwise, or (iv) fails to
pursue all lawful efforts to require such unsuitable person to relinquish his
voting securities for cash at fair market value.
The Nevada Commission may, in its 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 a Registered Corporation. If the
Nevada 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 Nevada
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.
9
<PAGE>
The 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 disclosure may be grounds for finding the
record holder unsuitable. The Company is also required to render maximum
assistance in determining the identity of the beneficial owner. The Nevada
Commission has the power to require the Company's stock certificates to bear a
legend indicating that the securities are subject to the Nevada Act. However, to
date, the Nevada Commission has not imposed such a requirement on the Company.
The Company may not make a public offering of its securities without the
prior approval of the Nevada 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. Such approval, if given, does not constitute a finding, recommendation
or approval by the Nevada Commission or the Nevada Board as to the accuracy or
adequacy of the prospectus or the investment merits of the securities. Any
representation to the contrary is unlawful.
Changes in control of the Company through merger, consolidation, stock or
asset acquisitions, management or consulting agreements, or any act or conduct
by a person whereby the person obtains control, may not occur without the prior
approval of the Nevada Gaming Authorities. Entities seeking to acquire control
of a Registered Corporation must satisfy the Nevada Board and Nevada Commission
in a variety of stringent standards prior to assuming control of such Registered
Corporation. The Nevada Commission may also require controlling stockholders,
officers, directors and other persons having a material relationship or
involvement with the entity proposing to acquire control to be investigated and
licensed as part of the approval process relating to the transaction.
The Nevada legislature has declared that some corporate acquisitions opposed
by management, repurchases of voting securities and corporate defense tactics
affecting Nevada gaming licensees, and Registered Corporations that are
affiliated with those operations, may be injurious to stable and productive
corporate gaming. The Nevada Commission has established a regulatory scheme to
ameliorate the potentially adverse effects of these business practices upon
Nevada's gaming industry and to further Nevada's policy to: (i) assure the
financial stability of corporate gaming operators and their affiliates; (ii)
preserve the beneficial aspects of conducting business in the corporate form;
and (iii) promote a neutral environment for the orderly governance of corporate
affairs. Approvals are, in certain circumstances, required from the Nevada
Commission before the Company can make exceptional repurchases of voting
securities above the current market price thereof and before a corporate
acquisition opposed by management can be consummated. The Nevada Act also
requires prior approval of a plan of recapitalization proposed by the Company's
Board of Directors in response to a tender offer made directly to the Registered
Corporation's stockholders for the purposes of acquiring control of the
Registered Corporation.
License fees and taxes, computed in various ways depending on the type of
gaming or 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 the 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, required to
be registered, or is under common control with such persons (collectively,
"Licensees"), and who proposes to become involved in a gaming venture outside of
Nevada is required to deposit with the Nevada Board, and thereafter maintain,
10
<PAGE>
a revolving fund in the amount of $10,000 to pay the expenses of investigation
of the Nevada Board of their participation in such foreign gaming. The revolving
fund is subject to increase or decrease in the discretion of the Nevada
Commission. Thereafter, Licensees are required to comply with certain reporting
requirements imposed by the Nevada Act. A licensee is also subject to
disciplinary action by the Nevada Commission if it knowingly violates any laws
of the foreign jurisdiction pertaining to the foreign gaming operation, fails to
conduct the foreign gaming operation in accordance with the standards of honesty
and integrity required of Nevada gaming operations, engages in activities that
are harmful to the State of Nevada or its ability to collect gaming taxes and
fees, or employs a person in the foreign operation who has been denied a license
or finding of suitability in Nevada on the ground of personal unsuitability.
COLORADO GAMING LAWS AND REGULATIONS
The State of Colorado created the Division of Gaming (the "Division") within
the Department of Revenue to license, implement, regulate and supervise the
conduct of limited gaming under the Colorado Limited Gaming Act. The Director of
the Division, under the supervision of a five-member Colorado Limited Gaming
Control Commission (the "Colorado Commission"), has been granted broad power to
ensure compliance with the Colorado gaming regulations (the "Colorado
Regulations"). The Director may inspect, without notice, impound or remove any
gaming device. He may examine and copy any licensee's records, may investigate
the background and conduct of licensees and their employees, and may bring
disciplinary actions against licensees and their employees. He may also conduct
detailed background investigations of persons who loan money to the Company.
The Colorado Commission is empowered to issue five types of gaming and
gaming-related licenses. The licenses are revocable and non-transferable. The
failure or inability of the Company, HCCMC, Harveys Wagon Wheel or others
associated with Harveys Wagon Wheel, to maintain necessary gaming licenses will
have a material adverse effect on the operations of the Company. All persons
employed by the Company, HCCMC or Harveys Wagon Wheel and involved, directly or
indirectly, in gaming operations in Colorado also are required to obtain a
Colorado gaming license. All licenses must be renewed annually.
As a general rule, under the Colorado Regulations, it is a criminal
violation for any person to have a legal, beneficial, voting or equitable
interest, or right to receive profits, in more than three retail gaming licenses
in Colorado. The Commission has ruled that a person does not have an interest in
a licensee for purposes of the multiple license prohibition if: (i) such person
has less than a five percent (5%) interest in an institutional investor which
has an interest in a publicly traded licensee or publicly traded company
affiliated with a licensee (such as the Company); (ii) a person has a five
percent (5%) or more financial interest in an institutional investor, but the
institutional investor has less than a five percent (5%) interest in a publicly
traded licensee or publicly traded company affiliated with a licensee; (iii) an
institutional investor has less than a five percent (5%) financial interest in a
publicly traded licensee or publicly traded company affiliated with a licensee;
(iv) an institutional investor possesses securities in a fiduciary capacity for
another person, and does not exercise voting control over five percent (5%) or
more of the outstanding voting securities of a publicly traded licensee or of a
publicly traded company affiliated with a licensee; (v) a registered broker or
dealer retains possession of securities of a publicly traded licensee or of a
publicly traded company affiliated with a licensee for its customers in street
name or otherwise, and exercises voting rights for less than five percent (5%)
of the publicly traded licensee's voting securities or of a publicly traded
company affiliated with a licensee; (vi) a registered broker or dealer acts as a
market maker for the stock of a publicly traded licensee or of a publicly traded
company affiliated with a licensee and possesses a voting interest in less than
five percent (5%) of the stock of the publicly traded licensee or of a publicly
traded company affiliated with a licensee; (vii) an underwriter is holding
securities of a publicly traded licensee or of a publicly traded company
affiliated with a licensee as part of an underwriting for no more than 90 days
if it exercises voting rights of less than five percent (5%) of the outstanding
securities of a publicly traded licensee or of a publicly traded company
affiliated with a licensee; (viii) a stock clearinghouse holds voting securities
for third parties, if it exercises voting rights with respect to less
11
<PAGE>
than five percent (5%) of the outstanding securities of a publicly traded
licensee or of a publicly traded company affiliated with a licensee; or (ix) a
person owns less than five percent (5%) of the voting securities of the publicly
traded licensee or publicly traded company affiliated with a licensee. Hence,
the Company's and its stockholders' business opportunities in Colorado are
limited to such interests that comply with the statute and Commission's rule.
Although attorneys for the Colorado legislature initially expressed concern
that the promulgation of the above-described regulation was beyond the Colorado
Commission's statutory delegated authority, they appear to have retreated from
this position. Therefore, unless the Colorado legislature repeals the
regulation, it is likely that it will continue in effect.
In addition, pursuant to the Colorado Regulations, no manufacturer or
distributor of slot machines may have an interest in any casino operator, allow
any of its officers to have such an interest, employ any person if such person
is employed by a casino operator, or allow any casino operator or person with a
substantial interest therein to have an interest in a manufacturer's or
distributor's business. The Commission has ruled that a person does not have a
"substantial interest" if it directly or indirectly has less than five percent
(5%) of such voting securities of a licensee.
Under the Colorado Regulations, any person or entity having any direct or
indirect interest in a gaming licensee or an applicant for a gaming license,
including, but not limited to, the Company and stockholders of the Company, may
be required to supply the Colorado Commission with substantial information,
including, but not limited to, background information, source of funding
information, a sworn statement that such person or entity is not holding his
interest for any other party, and fingerprints. Such information, investigation
and licensing as an "associated person" automatically will be required of all
persons (other than certain institutional investors discussed below) which
directly or indirectly own ten percent (10%) or more of a direct or indirect
legal, beneficial or voting interest in Harveys Wagon Wheel, through their
ownership in the Company. Such persons must report their interest and file
appropriate applications within 45 days after acquiring such interest. Persons
directly or indirectly having a five percent (5%) or more interest (but less
than 10%) in Harveys Wagon Wheel, through their ownership in the Company, must
report their interest to the Colorado Commission within ten (10) days after
acquiring such interest and may be required to provide additional information
and to be found suitable. If certain institutional investors provide certain
information to the Colorado Commission, such investors, at the Colorado
Commission's discretion, may be permitted to own up to 14.99% of Harveys Wagon
Wheel, through their ownership in the Company, before being required to be found
suitable. All licensing and investigation fees will have to be paid by the
person in question. The associated person investigation fee currently is $48 per
hour.
The Colorado Commission also has the right to request information from any
person directly or indirectly interested in, or employed by, a licensee, and to
investigate the moral character, honesty, integrity, prior activities, criminal
record, reputation, habits and associations of (i) all persons licensed pursuant
to the Colorado Limited Gaming Act, (ii) all officers, directors and
stockholders of a licensed privately held corporation, (iii) all officers,
directors and stockholders holding either a five percent (5%) or greater
interest or a controlling interest in a licensed publicly traded corporation,
(iv) all general partners and all limited partners of a licensed partnership,
(v) all persons which have a relationship similar to that of an officer,
director or stockholder of a corporation (such as members and managers of a
limited liability company), (vi) all persons supplying financing or loaning
money to any licensee connected with the establishment or operation of limited
gaming, and (vii) all persons having a contract, lease or ongoing financial or
business arrangement with any licensee, where such contract, lease or
arrangement relates to limited gaming operations, equipment, devices or
premises.
In addition, under the Colorado Regulations, every person who is a party to
a "gaming contract" with an applicant for a license, or with a licensee, upon
the request of the Colorado Commission or the Director, must promptly provide to
the Colorado Commission or Director all information which may be
12
<PAGE>
requested concerning financial history, financial holdings, real and personal
property ownership, interests in other companies, criminal history, personal
history and associations, character, reputation in the community, and all other
information which might be relevant to a determination whether a person would be
suitable to be licensed by the Colorado Commission. Failure to provide all
information requested constitutes sufficient grounds for the Director or the
Colorado Commission to require a licensee or applicant to terminate its "gaming
contract" (as defined below) with any person who failed to provide the
information requested. In addition, the Director or the Colorado Commission may
require changes in "gaming contracts" before an application is approved or
participation in the contract is allowed. A "gaming contract" is defined as an
agreement in which a person does business with or on the premises of a licensed
entity.
An application for licensure or suitability may be denied for any cause
deemed reasonable by the Colorado Commission or the Director, as appropriate.
Specifically, the Colorado Commission and the Director must deny a license to
any applicant who (i) fails to prove by clear and convincing evidence that the
applicant is qualified; (ii) fails to provide information and documentation
requested; (iii) fails to reveal any fact material to qualification, or supplies
information which is untrue or misleading as to a material fact pertaining to
qualification; (iv) has been, or is any director, officer, general partner,
stockholder, limited partner or other person who has a financial or equity
interest in the applicant who has been, convicted of certain crimes, including
the service of a sentence upon conviction of a felony in a correctional
facility, city or county jail, or community correctional facility or under the
state board of parole or any probation department within ten years prior to the
date of the application, gambling-related offenses, theft by deception or crimes
involving fraud or misrepresentation, is under current prosecution for such
crimes (during the pendency of which license determination may be deferred), is
a career offender or a member or associate of a career offender cartel, or is a
professional gambler; or (v) has refused to cooperate with any state or federal
body investigating organized crime, official corruption or gaming offenses.
If the Colorado Commission determines that a person or entity is unsuitable
to own interests in the Company, then the Company, HCCMC or Harveys Wagon Wheel
may be sanctioned, which may include the loss by the Company, HCCMC or Harveys
Wagon Wheel of their respective approvals and licenses.
The Colorado Commission does not need to approve in advance a public
offering of securities but rather requires a filing of notice and additional
documents with regard to such public offering prior to such public offering.
Under the regulations, the Colorado Commission may, in its discretion, require
additional information and prior approval of such public offering.
In addition, the Colorado Regulations prohibit a licensee or affiliated
company thereof, such as the Company, from paying dividends, interest or other
remuneration to any unsuitable person, or recognizing the exercise of any voting
rights by any unsuitable person. Further, the Company may repurchase the shares
of anyone found unsuitable at the lesser of the cash equivalent to the original
investment in the Company or the current market price. Further, the regulations
require anyone with a material involvement with a licensee, including a director
or officer of a holding company, such as the Company, to file for a finding of
suitability if required by the Colorado Commission.
In addition to its authority to deny an application for a license or
suitability, the Colorado Commission has jurisdiction to disapprove a change in
corporate position of a licensee and may have such authority with respect to any
entity which is required to be found suitable by the Colorado Commission. The
Colorado Commission has the power to require the Company, HCCMC and Harveys
Wagon Wheel to suspend or dismiss managers, officers, directors and other key
employees or sever relationships with other persons who refuse to file
appropriate applications or whom the authorities find unsuitable to act in such
capacities; and may have such power with respect to any entity which is required
to be found suitable.
A person or entity may not sell, lease, purchase, convey or acquire a
controlling interest in the Company without the prior approval of the Colorado
Commission. The Company may not sell any interest in HCCMC or Harveys Wagon
Wheel without the prior approval of the Colorado Commission.
13
<PAGE>
Harveys Wagon Wheel must meet certain architectural requirements, fire
safety standards and standards for access for disabled persons. Harveys Wagon
Wheel also must not exceed certain gaming square footage limits as a total of
each floor and the full building. The casino at Harveys Wagon Wheel may operate
only between 8:00 a.m. and 2:00 a.m., and may permit only individuals 21 years
or older to gamble in the casino. It may permit slot machines, blackjack and
poker, with a maximum single bet of $5.00. Harveys Wagon Wheel may not provide
credit to its gaming patrons.
The Colorado Regulations permit gaming only in a limited number of cities
and certain commercial districts.
The Colorado Constitution permits a gaming tax of up to 40% on adjusted
gross gaming proceeds. The Colorado Commission has set a gaming tax rate of 2%
on adjusted gross gaming proceeds of up to and including $2 million, 4% over $2
million up to and including $4 million, 14% over $4 million up to and including
$5 million, 18% over $5 million up to and including $10 million and 20% on
adjusted gross gaming proceeds in excess of $10 million. The Colorado Commission
also has imposed an annual device fee of $75 per gaming device. The Colorado
Commission may revise the gaming tax rate and device fee from time to time.
Central City has imposed an annual device fee of $1,165 per gaming device and
may revise the same from time to time.
The sale of alcoholic beverages is subject to licensing, control and
regulation by the Colorado Liquor Agencies. All persons who directly or
indirectly own 10% or more of Harveys Wagon Wheel, through their ownership of
the Company, must file applications and possibly be investigated by the Colorado
Liquor Agencies. The Colorado Liquor Agencies also may investigate those persons
who, directly or indirectly, loan money to or have any financial interest in
liquor licensees. All licenses are revocable and not transferable. The Colorado
Liquor Agencies have the full power to limit, condition, suspend or revoke any
such license and any such disciplinary action could (and revocation would) have
a material adverse effect upon the operations of the Company. Harveys Wagon
Wheel holds a hotel and restaurant liquor license for its casino, hotel and
restaurant operations, rather than a gaming tavern license. Accordingly, no
person with an interest in the Company can have an interest in a liquor licensee
which holds anything other than a hotel and restaurant liquor license, and
specifically cannot have an interest in an entity which holds a gaming tavern
license.
IOWA GAMING LAWS AND REGULATIONS
The State of Iowa first authorized excursion gambling boat activities in
1989. The Iowa Racing and Gaming Commission (the "Iowa Commission") has the
authority to grant and review licenses to owners and operators of excursion
gambling boats and has the further authority to adopt and enforce rules
governing a broad range of subjects dealing with excursion gambling boat
facilities and operations. The Iowa Commission consists of five members who are
appointed by the governor and confirmed by the state senate. Members serve a
term not to exceed three years at the pleasure of the governor.
Under Iowa law, only non-profit organizations may receive a license to own
gambling game operations; for profit organizations may receive a license for
their management and operation. The Company, through its wholly-owned
subsidiary, Harveys Iowa Management Company, Inc. ("HIMC"), together with Iowa
West, a qualified non-profit organization, have been granted the necessary
licenses to own and operate the current gambling facilities and activities on
the riverboat casino at Harveys Casino Hotel. The present licenses have a term
expiring March 31, 1998. The licenses are granted upon the condition that the
license holders accept, observe and enforce all applicable laws, regulations,
ordinances, rules and orders. Any violation by a license holder, including
violations by its officers, employees or agents, may result in disciplinary
action, including the suspension or revocation of the license.
HIMC and Iowa West have entered into an excursion sponsorship and operating
agreement dated August 22, 1994 (the "Operating Agreement") pursuant to which
Iowa West authorizes HIMC to operate the excursion gambling boat activities on
the riverboat casino under Iowa West's gaming license. The
14
<PAGE>
Operating Agreement's initial term continues through December 31, 2002 and
during such term HIMC has agreed to pay Iowa West a fee equal to $1.50 for each
adult passenger embarking upon the excursion gambling boat. HIMC further agrees
to pay, and hold Iowa West harmless from, the admission fees payable to the Iowa
Commission and the local municipality and the wagering tax imposed by Iowa law.
Following the expiration of the initial term of the Operating Agreement, HIMC
may extend its provisions for five successive three-year periods, except that
the admission fees payable by HIMC to Iowa West for each such period shall be
adjusted to reflect increases in the consumer price index.
Excursion boat gambling licenses may be granted by the Iowa Commission only
in those counties that have approved the conduct of gambling games in a
county-wide referendum. Gambling has been approved by the county electorate in
Pottawattamie County, Iowa, the location of Harveys Casino Hotel, but another
referendum requested by petition can be held and there can be no assurance that
gambling would again be approved. If licenses to conduct gambling games and to
operate an excursion gambling boat are in effect at the time gambling is
disapproved by a referendum of the county electorate, the licenses remain valid
and may, at the discretion of the Iowa Commission, be renewed for a total of
nine years from the date of the original issue.
Following the issuance of a gaming license, the Iowa Commission monitors and
supervises the activities of the excursion gambling boat and its licenses.
Material contracts to be entered into by the licensee, changes in ownership of
the licensee and acquisitions of interests in other gambling activities by the
licensee or its owners must all be reported to, and approved by, the Iowa
Commission. Further, the Iowa Commission has the authority to determine the
payouts from the gambling games, to set the payout rate for all slot machines,
to establish minimum charges for admission to excursion gambling boats and
regulate the number of free admissions and to define the excursion season and
the duration of an excursion.
Iowa law authorizes the imposition of an admission fee, set by and payable
to the Iowa State Treasurer, on each person embarking on an excursion gambling
boat. An additional admission fee may be imposed by the municipality in which
the gambling operation is located. In practice, the Iowa Commission has not
imposed a per-person admission fee, but rather imposed a fee on each excursion
gambling boat based upon the estimated costs of supervision and enforcement to
be incurred by the Iowa Commission for the ensuing fiscal year. For the fiscal
year beginning July 1, 1997, the fee is $294,632, payable in weekly installments
of $5,666. A $0.50 per person admission fee is also payable to the City of
Council Bluffs, Iowa. Further, Iowa law imposes an annual wagering tax ranging
from five percent on the first million of adjusted gross receipts from gambling
games to 20 percent on adjusted gross receipts in excess of $3 million.
The Company's excursion gambling boat activities are also subject to safety
and inspection requirements of the State of Iowa and the U.S. Coast Guard. These
requirements set limits on the operation of the vessel; mandate that it must be
operated by a minimum complement of licensed personnel; establish periodic
inspections, including the physical inspection of the outside hull requiring the
vessel to be drydocked every five years; and establish other mechanical and
operational rules.
ITEM 2. PROPERTIES
Harveys Resort comprises approximately 1,020,000 square feet on
approximately 19.8 acres, of which the Company owns approximately 5.4 acres and
leases approximately 14.4 acres pursuant to several ground leases that expire in
2045. A 973,000-square foot parking garage and certain other amenities are
located on the leased property.
The Harveys Wagon Wheel hotel and casino facility encompasses approximately
200,000 square feet on approximately 1.1 acres and a 530-space self-parking
garage on a contiguous 8 acre parcel. Additionally, HCCMC owns approximately 40
acres of undeveloped land adjacent to the Harveys Wagon Wheel facility.
15
<PAGE>
Harveys Casino Hotel is located on approximately 36 acres of land owned by
the Company. The land-based amenities, including a covered "skywalk" to the
riverboat casino, are comprised of a hotel, convention center, and passenger
staging area, totaling nearly 300,000 square feet. Contiguous thereto is a
24-acre leasehold parcel which contains the boat docking facility and additional
parking. This parcel is subject to a long term lease with the City of Council
Bluffs for a nominal annual sum. Additionally, the Company owns an adjacent
44-acre parcel suitable for expansion or support facilities.
ITEM 3. LEGAL PROCEEDINGS
The Company is a defendant in various lawsuits relating to routine matters
incidental to its business. Management does not believe that the outcome of any
such litigation, in the aggregate, will have a material adverse effect on the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter of fiscal 1997.
16
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The $0.01 par value per share common stock of the Company (the "Common
Stock") is traded on the New York Stock Exchange (the "NYSE") under the symbol
"HVY." The following table sets forth, for the periods indicated, the high and
low sale price per share of the Common Stock as reported on the NYSE composite
tape.
<TABLE>
<CAPTION>
Year Ended November 30, 1997:
<S> <C> <C>
HIGH LOW
--------- -------
First Quarter........................... 19 1/8 14 3/8
Second Quarter.......................... 16 15/16 14
Third Quarter........................... 18 7/8 15 3/8
Fourth Quarter.......................... 20 3/8 17 1/4
<CAPTION>
Year Ended November 30, 1996:
HIGH LOW
--------- -------
<S> <C> <C>
First Quarter........................... $19 7/8 $15 1/8
Second Quarter.......................... 21 1/2 15 1/2
Third Quarter........................... 23 16 3/8
Fourth Quarter.......................... 19 15 5/8
</TABLE>
As of February 23, 1998 there were 2,169 stockholders of record of the
Company's Common Stock.
Since the Company's initial public offering on February 14, 1994, the
Company has paid regular quarterly cash dividends. Until the second quarter of
fiscal 1996, the regular quarterly dividend amounted to $0.04 per share.
Beginning with the second quarter of fiscal 1996, the regular quarterly dividend
was increased to $0.05 per share. The payment of dividends in the future will be
at the discretion of the Board of Directors. In determining whether to pay
dividends (as well as the amount and timing thereof), the Board of Directors
will consider a number of factors, including the Company's financial condition,
earnings and capital requirements, legal requirements and regulatory
constraints, and any applicable restrictive provisions in any credit agreements
to which the Company is a party at such time. The Company's $115.0 million
reducing revolving credit facility and the indenture governing the Company's
$150.0 million of senior subordinated notes allow for the payment of dividends
if the Company meets certain financial performance standards. The Company does
not expect that the regulatory constraints or other restrictions will affect its
ability to declare or pay the quarterly dividends contemplated by the dividend
policy described above. See Item 7. "Management's Discussion and Analysis of the
Company's Financial Condition and Results of Operations."
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data of the
Company for the years ended November 30, 1993 through November 30, 1997. The
statement of income and balance sheet data are derived from the Company's
audited Consolidated Financial Statements for the years ended November 30, 1993
through November 30, 1997. Deloitte & Touche LLP's report with respect to the
financial statements for the fiscal years ended November 30, 1996 and 1997 is
included elsewhere in this report. Grant Thornton LLP's report with respect to
the financial statements for the fiscal year ended November 30, 1995 is included
elsewhere in this report. The Selected Consolidated Financial Data is not
necessarily indicative of the Company's future results of operations or
financial condition, and should be read in conjunction with "Management's
Discussion and Analysis of the Company's Financial Condition and Results of
Operations" and the Company's Consolidated Financial Statements, including the
Notes thereto, and the other financial and statistical information appearing
elsewhere in this report.
17
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
YEARS ENDED NOVEMBER 30,
-----------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF INCOME DATA
Revenues
Casino.............................................. $ 216,564 $ 186,369 $ 121,369 $ 83,991 $ 87,523
Lodging............................................. 32,175 28,746 25,499 21,870 22,292
Food and beverage................................... 44,406 39,852 33,970 29,768 31,011
Other............................................... 7,277 6,402 6,287 5,599 5,866
Management fees and joint venture................... 4,507 5,023 1,669 -- --
Less casino promotional allowances.................. (21,366) (18,643) (15,594) (12,942) (14,433)
--------- --------- --------- --------- ---------
Total net revenues................................ 283,563 247,749 173,200 128,286 132,259
--------- --------- --------- --------- ---------
Costs and expenses
Casino.............................................. 100,500 86,732 57,520 40,999 43,235
Lodging............................................. 13,374 11,677 9,458 7,429 6,534
Food and beverage................................... 29,886 24,797 20,280 17,401 17,271
Other operating..................................... 2,811 2,813 2,838 2,557 2,733
Selling, general and administrative................. 73,945 67,128 50,270 39,813 38,159
Depreciation and amortization....................... 19,077 16,482 12,333 9,704 10,300
Business development costs.......................... 2,690 -- -- -- --
Pre-opening expenses................................ -- 4,099 2,147 -- --
Nonrecurring compensaton charges.................... -- -- -- -- 1,834
--------- --------- --------- --------- ---------
Total costs and expenses.......................... 242,283 213,728 154,846 117,903 120,066
--------- --------- --------- --------- ---------
Operating income...................................... 41,280 34,021 18,354 10,382 12,193
Interest expense, net (1)............................. 18,892 14,195 7,960 2,886 4,256
Gain on sale of interests in unconsolidated
affiliate........................................... 27,422 -- -- -- --
Life insurance benefits............................... -- -- 2,246 371 --
Other income (expense), net........................... (137) (221) 605 (230) (134)
--------- --------- --------- --------- ---------
Income before income taxes and extraordinary item..... 49,673 19,605 13,245 7,638 7,803
Income tax provision.................................. (18,898) (7,791) (3,900) (2,500) (2,994)
--------- --------- --------- --------- ---------
Income before extraordinary item...................... 30,775 11,814 9,345 5,138 4,809
Loss on early retirement of debt, net of taxes........ -- 522 -- -- --
--------- --------- --------- --------- ---------
Net income............................................ $ 30,775 $ 11,292 $ 9,345 $ 5,138 $ 4,809
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
PER SHARE DATA
Net income.......................................... $ 3.13 $ 1.16 $ 0.99 $ 0.58 $ 0.67
Dividends on common stock........................... $ 0.20 $ 0.18 $ 0.16 $ 0.13 $ 0.11
Weighted average common shares outstanding.......... 9,843,871 9,698,500 9,456,051 8,885,525 7,181,730
OTHER OPERATING DATA
Adjusted EBITDA (2)................................. $ 63,047 $ 54,602 $ 35,080 $ 20,458 $ 24,327
Net cash provided by operating activities........... 44,637 39,768 19,594 14,106 15,563
Net cash provided by (used in) investing
activities.......................................... 24,428 (55,502) (70,433) (33,505) (25,592)
Net cash provided by (used in) financing
activities.......................................... (35,151) 26,363 53,886 15,506 (730)
Capital expenditures (3)............................ 22,532 72,395 74,418 35,593 10,648
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents........................... $ 55,035 $ 21,121 $ 10,493 $ 7,446 $ 11,338
Total assets........................................ 403,465 393,768 313,244 238,544 213,463
Long-term debt, net................................. 150,220 181,354 126,676 64,896 80,203
Stockholders' equity................................ 179,358 149,763 132,301 123,611 90,008
</TABLE>
18
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE COMPANY'S FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company currently owns and operates (a) Harveys Resort on the south
shore of Lake Tahoe, Nevada, (b) Harveys Wagon Wheel 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.
The following table presents certain operating results for the Company's
properties. The operating results for Harveys Resort, which, since June 1, 1997,
has been owned and operated by the Company's wholly-owned subsidiary, Harveys
Tahoe Management Company, Inc. ("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." On April 30, 1996, the Company acquired all of the 30% minority
interest in Harveys Wagon Wheel Casino Limited Liability Company ("HWW") which
owned Harveys Wagon Wheel. Since that time Harveys Wagon Wheel has been wholly
owned by the Company. The riverboat casino portion of Harveys Casino Hotel
opened on January 1, 1996 and the land-based facilities opened on May 24, 1996.
The operating results of HLVMC include the fees earned by such entity for
managing the operations of Hard Rock Hotel and Casino and the 40% equity
interest in the income of the Hard Rock Hotel and Casino from the date that
property opened, March 9, 1995, through the date the Company sold its interests
in HRHC, October 24, 1997.
Notes to Selected Consolidated Financial Data:
(1) Net of amounts capitalized and interest income.
(2) 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 Adjusted 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. For fiscal 1997, EBITDA has been adjusted to exclude
approximately $2.7 million of business development costs; for fiscal 1996
and fiscal 1995, EBITDA has been adjusted to exclude approximately $4.1
million and $2.1 million of pre-opening expenses, respectively; for fiscal
1995 and fiscal 1994, EBITDA has been adjusted to include approximately $2.2
million and $371, 000 of life insurance benefits, respectively; and for
fiscal 1993, EBITDA has been adjusted to exclude approximately $1.8 million
of nonrecurring compensation charges.
(3) Of amounts shown, approximately $11.6 million in fiscal 1997, $7.2 million
in fiscal 1996, $4.6 million in fiscal 1995, $4.4 million in fiscal 1994,
and $6.5 million in fiscal 1993 related to recurring capital expenditures
for maintenance of the current facilities.
19
<PAGE>
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Net Revenues
Harveys Resort............................................................. $ 129,970 $ 130,535 $ 130,615
Harveys Wagon Wheel........................................................ 49,445 43,128 40,911
Harveys Casino Hotel....................................................... 99,641 69,063 --
Harveys Las Vegas Management Co............................................ 4,507 5,023 1,669
Corporate and Development.................................................. -- -- 5
---------- ---------- ----------
Total Net Revenues....................................................... $ 283,563 $ 247,749 $ 173,200
---------- ---------- ----------
---------- ---------- ----------
Operating Income (Loss) (1)
Harveys Resort............................................................. $ 23,674 $ 23,585 $ 21,575
Harveys Wagon Wheel........................................................ 9,848 8,652 5,031
Harveys Casino Hotel....................................................... 17,630 8,016 --
Harveys Las Vegas Management Co............................................ 4,308 4,800 1,469
Corporate and Development.................................................. (14,180) (11,032) (9,721)
---------- ---------- ----------
Total Operating Income................................................... $ 41,280 $ 34,021 $ 18,354
---------- ---------- ----------
---------- ---------- ----------
Adjusted EBITDA (2)
Harveys Resort............................................................. $ 32,125 $ 32,127 $ 30,886
Harveys Wagon Wheel........................................................ 13,114 11,564 10,305
Harveys Casino Hotel....................................................... 24,285 16,849 --
Harveys Las Vegas Management Co............................................ 4,507 5,021 1,635
Corporate and Development.................................................. (10,984) (10,959) (7,746)
---------- ---------- ----------
Total Adjusted EBITDA.................................................... $ 63,047 $ 54,602 $ 35,080
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
- ------------------------
(1) The operating loss for Corporate and Development for fiscal year 1997
includes a write-off of business development costs of approximately $2.7
million. For fiscal year 1996 and fiscal year 1995, operating income
includes approximately $4.1 million of pre-opening expenses relative to
Harveys Casino Hotel and approximately $2.1 million of pre-opening expenses
relative to Harveys Wagon Wheel, respectively.
(2) 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 Adjusted 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. For fiscal year 1997, EBITDA for Corporate and Development
excludes the write-off of approximately $2.7 million of business development
costs. For fiscal year 1996, Harveys Casino Hotel's EBITDA excludes
approximately $4.1 million of pre-opening expenses. For fiscal year 1995,
EBITDA for (a) Harveys Resort includes approximately $271,000 of life
insurance benefits, (b) Harveys Wagon Wheel excludes approximately $2.1
million of pre-opening expenses, and (c) Corporate and Development includes
approximately $2.0 million in life insurance benefits.
FISCAL YEAR ENDED NOVEMBER 30, 1997 COMPARED TO FISCAL YEAR ENDED NOVEMBER 30,
1996
The Company's consolidated net revenues for fiscal 1997 were $283.6 million,
an increase of $35.9 million, or 14.5%, from the $247.7 million recorded in
fiscal 1996. The improvement was substantially attributable to the $30.6 million
increase in net revenues produced by Harveys Casino Hotel. Net revenues for
fiscal 1997 from the Council Bluffs, Iowa property included a full twelve months
of operations of the complete facility while fiscal 1996 included only eleven
months of revenues from the riverboat casino
20
<PAGE>
and six full months of revenues from the land-based facilities. Net revenues
from the Company's Lake Tahoe property declined by approximately $0.5 million,
the result of adverse first quarter 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. Mud slides triggered by the
inclement weather 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.
Harveys Wagon Wheel experienced an increase in net revenues of $6.3 million, a
substantial portion of which was recognized in the third and fourth quarters,
after the opening of that property's new parking garage. The revenue
contribution from the management fees and equity in earnings from the Hard Rock
Hotel and Casino decreased approximately $0.5 million, as a result of the sale
of the Company's interest in the Hard Rock Hotel and Casino on October 24, 1997.
CASINO. Fiscal 1997 casino revenues increased $30.2 million, up 16.2% from
fiscal 1996 casino revenues of $186.4 million to $216.6 million. The twelve
months of gaming activity in Iowa produced an increase of approximately $23.6
million in casino revenues compared to those produced at the Council Bluffs
property during the initial eleven months of operations in fiscal 1996. The
Company's Lake Tahoe property suffered a decline in casino revenues of
approximately $0.8 million as a result of the adverse weather and road
conditions experienced in the first quarter. Harveys Wagon Wheel produced an
increase of approximately $7.4 million in casino revenues over the prior year
comparable period. Casino costs and expenses increased for the comparable
periods, up $13.8 million to $100.5 million for the current year period. The
Council Bluffs casino accounted for $10.6 million of the increase while the
Colorado operations accounted for approximately $4.3 million of the increase.
The Lake Tahoe operations produced a $1.1 million improvement in casino costs
due to lower payroll and related costs and the reduction of other operating
costs in reaction to the lower casino volume resulting from the impact of the
first quarter's adverse weather conditions.
LODGING. Lodging revenues of $32.2 million for fiscal 1997 were up $3.5
million, or 11.9%, from fiscal 1996. The hotel facility in Council Bluffs, which
opened at the end of May 1996, contributed an increase of $2.8 million in
lodging revenues during 1997, accounting for the majority of the lodging
revenues improvement. Lodging profits improved by approximately $1.7 million.
The decline in lodging profit margins was the result of the contribution from
the Council Bluffs hotel, which has a lower profit margin than the Lake Tahoe
hotel, becoming a more significant part of lodging profits and of the increase
in promotional costs at the Lake Tahoe hotel.
FOOD AND BEVERAGE. Food and beverage revenues improved by 11.4%, up $4.5
million to $44.4 million. Food and beverage revenues from the Council Bluffs
property, which included revenues from the land-based facilities for all of
1997, compared to six full months of the 1996 period, contributed an increase of
approximately $6.3 million. That increase was offset by declines at Lake Tahoe,
precipitated by the effects of adverse weather, and declines at Central City as
the result of outsourcing, commencing the second quarter of fiscal 1996, the
food service and a portion of the beverage service. Food and beverage profits
and margins declined for the period-to-period comparison primarily as a result
of the decision to attractively price the food and beverage offerings at the
Council Bluffs property to attract local customers.
OTHER REVENUES. Other revenues amounted to $11.8 million in fiscal 1997,
including $4.5 million in management fees and the Company's 40% equity interest
in the earnings from the Hard Rock Hotel and Casino, an improvement of $0.4
million from fiscal 1996. The improvement in other revenues was achieved despite
the fact that the contribution from the Hard Rock Hotel and Casino was
recognized for approximately 11 months of fiscal 1997 compared to a full year's
contribution in fiscal 1996.
SG&A, DEPRECIATION AND AMORTIZATION, NET INTEREST EXPENSE. Consolidated
selling, general and administrative expense increased 10.2%, up $6.8 million to
$73.9 million for fiscal 1997. The operations in Council Bluffs experienced an
increase of approximately $5.0 million in selling, general and administrative
expenses. The increase was attributable, in part, to the fact that the entire
Council Bluffs facility was in operation for all of fiscal 1997 compared to
eleven months and approximately six months of operations for
21
<PAGE>
the riverboat casino and land based facilities, respectively, in fiscal 1996.
Additionally, the assessed value of the property was increased resulting in an
increase in property taxes of approximately $0.9 million. Certain fees required
to be paid on the basis of customer headcounts increased by approximately $1.8
million as the result of increases in the number of customers visiting the
Council Bluffs property. The Lake Tahoe operations recognized an improvement in
overall selling, general and administrative expenses of approximately $0.1
million from the fiscal 1996 period to the fiscal 1997 period. Selling, general
and administrative expenses increased by $1.8 million at the Central City
property as a result of an increase in promotional costs and a grand opening
event promoting the new parking garage. Depreciation and amortization expenses
increased by $2.6 million. The increase in depreciation was associated with the
expanded facilities in Council Bluffs and the opening of the Central City
parking garage. Interest expense, net of interest income and interest
capitalized, increased by approximately $4.7 million to $18.9 million for fiscal
1997. The increase was attributable to the senior subordinated notes which were
issued in May 1996, and to the effect of capitalizing approximately $2.6 million
of interest in fiscal 1996 in connection with the construction of the Council
Bluffs facilities compared to the effect of capitalizing approximately $0.4
million of interest in the current year in connection with the construction of
the parking facility in Central City.
BUSINESS DEVELOPMENT COSTS. In the fourth quarter of fiscal 1997, the
Company reviewed and evaluated certain capitalized costs relative to business
development efforts in specific geographical areas where there was a potential
for approval of casino gaming. As a result of the review process, amounts
previously capitalized with respect to real estate options, joint ventures,
legal and other costs were written off or revalued. The amount expensed in the
fourth quarter was approximately $2.7 million. The amount of such costs that
continued to be deferred at November 30, 1997 was approximately $0.9 million.
SALE OF INTERESTS IN UNCONSOLIDATED AFFILIATE. In the fourth quarter of
fiscal 1997, the Company sold its 40% equity interest in HRHC and all of the
Company's rights under a management agreement to manage the operations of the
Hard Rock Hotel and Casino. The Company received $45.0 million cash for its
equity interest and the rights under the management agreement and an additional
$1.2 million cash in satisfaction of a note and other amounts due the Company at
the time of the sale. The Company recognized a gain of approximately $27.4
million on the transaction.
NET INCOME. Net income for fiscal 1997 amounted to approximately $30.8
million, including the after-tax gain of approximately $17.4 million
attributable to the sale of the Company's interests in the Hard Rock Hotel and
Casino and the after-tax write-down of approximately $1.7 million related to
certain business development costs, compared to $11.3 million of net income for
fiscal 1996.
FISCAL YEAR ENDED NOVEMBER 30, 1996 COMPARED TO FISCAL YEAR ENDED NOVEMBER 30,
1995
The Company's net revenues for fiscal 1996 were $247.7 million, an increase
of $74.5 million, or 43.0%, from the $173.2 million recorded in fiscal 1995. Of
the increase, $69.1 million, or 92.6% of the total increase, was attributable to
the first year of operations of Harveys Casino Hotel in Council Bluffs.
Approximately $3.4 million of the net revenue increase was attributable to an
increase in the combination of the management fees earned for the management of
the Hard Rock Hotel and Casino in Las Vegas and the Company's 40% equity
interest in the income of HRHC. The balance of the increase in net revenues was
provided by operations of Harveys Wagon Wheel.
CASINO. Fiscal 1996 casino revenues increased $65.0 million, up 53.6% from
fiscal 1995 casino revenues of $121.4 million, to $186.4 million. The first year
operations of Harveys Casino Hotel provided $62.6 million of the increase. While
the Lake Tahoe operations accounted for $84.4 million, or 45.3% of consolidated
casino revenues, the contribution to casino revenues from the northern Nevada
property declined by 1.6%. The contribution from the Company's casino operations
in the Colorado market improved by $3.7 million over the prior year. Casino
costs and expenses also increased with the opening of Harveys Casino Hotel.
While the Council Bluffs property accounted for 96.3% of the casino revenue
22
<PAGE>
growth, it also accounted for 86.8% of the growth in casino costs and expenses,
up in total from $57.5 million in fiscal 1995 to $86.7 million in fiscal 1996.
LODGING. Lodging revenues of $28.7 million for fiscal 1996 were up $3.2
million, or 12.7%, from fiscal 1995. Revenues from the 251-room Council Bluffs
hotel operation provided nearly $2.3 million of the increase with an occupancy
rate of 80.0% since its opening in late May 1996 through the end of fiscal 1996.
Management's decision to price the Council Bluffs hotel rooms at an attractive
rate was successful in attracting initial customers to the property. The
740-room hotel at the Lake Tahoe facility provided the balance of the lodging
revenue increase due to an increase in occupancy from 76.9% in fiscal 1995 to
80.5% in fiscal 1996. As expected, due to the promotional pricing in Council
Bluffs, total lodging costs and expenses increased at a higher rate than lodging
revenue growth. The 740-room Lake Tahoe hotel operates at a greater economy of
scale than the 251-room Council Bluffs hotel or the 118-room Central City hotel
and commands a higher average daily rate while spreading necessary costs over a
more extensive room base.
FOOD AND BEVERAGE. Food and beverage revenues improved by 17.3%, up $5.9
million to $39.9 million. Approximately $6.5 million was provided by the new
operations in Council Bluffs where the decision had been made to attractively
price the food service to entice local customers to the property. The Lake Tahoe
property experienced a 5.3% decline in the number of meals served but recognized
an increase in the average guest check which resulted in flat food revenues at
the property. Beverage revenues at Lake Tahoe improved by approximately
$425,000. Food and beverage revenues at the Central City property declined
approximately $1.1 million, primarily as the result of outsourcing the food
service during the second half of fiscal 1996. As expected, food and beverage
profit margins declined due to promotional pricing and the attendant higher
cost-of-goods-sold percentage experienced in Council Bluffs.
OTHER REVENUES. Other revenues amounted to $11.4 million in fiscal 1996,
including $5.0 million from the combination of management fees and a 40% equity
interest in the income from the Hard Rock Hotel and Casino. Other revenues in
fiscal 1995 amounted to $8.0 million, including $1.7 million attributable to the
Hard Rock Hotel and Casino, net of the Company's pro rata share of pre-opening
expenses. Other expenses remained relatively flat in absolute dollars.
SG&A, DEPRECIATION AND AMORTIZATION, NET INTEREST EXPENSE. Consolidated
selling, general and administrative expenses increased 33.5%, up $16.9 million
to $67.1 million for fiscal 1996. Approximately $17.7 million was attributable
to the new operations in Council Bluffs. The offsetting savings of approximately
$0.8 million represented a 5.1% decrease from comparable expenses in fiscal 1995
primarily as a result of reduced marketing costs at the Lake Tahoe property.
Depreciation and amortization increased $4.1 million from fiscal 1995 to fiscal
1996. The 1996 depreciation charges associated with the Company's Council Bluffs
property amounted to $4.7 million. All other operations recorded a decrease of
nearly $0.6 million as a result of the value of fully depreciated and retired
assets in fiscal 1996 exceeding the value of depreciable assets acquired.
Interest expense, net of interest capitalized, increased $6.2 million, or 78.3%,
from fiscal 1995 to fiscal 1996. This increase was attributable to Harveys
Casino Hotel financing and the issuance of senior subordinated notes. In fiscal
1995, $1.1 million of interest was capitalized, primarily in conjunction with
the construction of Harveys Casino Hotel in Council Bluffs. In fiscal 1996, an
additional $2.6 million was capitalized in conjunction with that construction.
PRE-OPENING EXPENSES. As a result of the opening of Harveys Casino Hotel in
fiscal 1996, the Company recognized $4.1 million of pre-opening expenses. These
charges had previously been incurred in connection with the development of that
property and deferred until the facility opened. Approximately $2.1 million of
such costs had been deferred through fiscal 1995 year end. In fiscal 1995 the
Company recognized approximately $2.1 million of pre-opening expenses with the
opening of Harveys Wagon Wheel. Extraordinary Item. In May 1996, the Company
expensed the remaining unamortized debt issuance costs related to a $10 million
note payable that was retired before maturity. In June 1996, the Company applied
a portion of the net proceeds from the sale of senior subordinated notes to
retire the note payable under a
23
<PAGE>
riverboat financing agreement and expensed the unamortized debt issuance cost
related to that agreement. In July 1996, the Company retired subordinated notes
issued in exchange for notes payable by HWW and recognized expense as the result
of writing off the related debt issuance costs. These items are reflected in
operating results as an extraordinary loss of approximately $0.5 million, net of
income tax benefit.
INCOME TAX PROVISION. The income tax provision for fiscal 1996 was
unfavorably affected by the state income taxes applicable to the expansion of
the Company's operations outside of the state of Nevada.
NET INCOME. As a result of the above, net income for fiscal 1996 improved
to $11.3 million from $9.3 million in fiscal 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity and capital resources have been
cash flow from operations, and borrowings under various credit arrangements.
Additionally, in fiscal year 1997, the Company received $46.2 million when it
sold its interests in an unconsolidated affiliate and approximately $3.7 million
from the sale of other assets.
Cash flow from operations for fiscal year 1997 was approximately $44.6
million. On October 24, 1997 the Company received $45.0 million cash when it
sold: (a) all of the capital stock of HRHC held by the Company, representing 40%
of the then outstanding capital stock of HRHC, and (b) all of the Company's
rights under a management agreement between HRHC and HLVMC relating to the
management and operations of the Hard Rock Hotel and Casino. The Company also
received approximately $1.2 million cash in satisfaction of a note and other
amounts due the Company from HRHC as of October 24, 1997. Additionally, the
Company sold, in separate transactions in fiscal year 1997, a note receivable
from an unrelated party and the Company's airplane, realizing net proceeds of
approximately $3.7 million from these transactions.
During fiscal year 1997, the Company expended approximately $1.5 million in
cash relative to construction payables and retentions associated with the
construction of the hotel and convention center portion of Harveys Casino Hotel
in Council Bluffs and expended approximately $7.6 million in cash relative to
the construction of a parking garage at Harveys Wagon Wheel in Central City,
Colorado. Additionally, the Company made cash payments for dividends of
approximately $2.0 million during the period, incurred additional cash
expenditures of approximately $16.9 million in connection with capital
improvements and replacements and made net cash payments of approximately $33.3
million reducing the Company's outstanding borrowings.
During fiscal year 1996, the Company completed the construction of the
Council Bluffs project, expending $36.8 million in cash and financing the
acquisition of the riverboat and equipment through a $20 million riverboat
financing agreement. Additionally, the Company made cash payments for dividends
of approximately $1.7 million during the year and incurred additional cash
expenditures of approximately $11.6 million in connection with capital
improvements and replacements at the operating properties and corporate offices.
On April 30, 1996, the Company paid the holders of approximately $11.9
million of 12% subordinated notes payable by HWW (the"HWW Notes") $6 million in
cash and issued an aggregate of $8 million in subordinated notes in exchange for
all of the outstanding HWW Notes and unpaid interest accrued thereon (the "Debt
Exchange"). On such date, the Company also exchanged 382,500 shares of the
Company's common stock for: (a) 30% of the equity interests of HWW, (b) the
rights to an approximately $3 million priority return from HWW, and (c) an
option to acquire an additional 5% of the equity interests in HWW (the "Equity
Exchange").
On May 22, 1996, the Company completed its public debt offering of $150
million of 10 5/8% senior subordinated notes, due 2006 (the "Senior Subordinated
Notes"). The proceeds, $145.5 million net of underwriting discounts and
commissions, were used to: (a) pay off a $10 million note payable to a private
24
<PAGE>
investor, (b) retire the $19 million principal balance of the note payable under
a riverboat financing agreement, (c) redeem, for $7.8 million plus accrued and
unpaid interest, the $8 million aggregate principal amount of subordinated notes
issued in the Debt Exchange, and (d) reduce the outstanding principal balance
under a reducing revolving credit agreement with a consortium of banks (the
"Credit Facility").
During fiscal 1995, the Company's principal uses of funds were: (a) advances
and investments of approximately $49.6 million to fund the development and
construction of Harveys Casino Hotel in Council Bluffs, (b) investment of an
additional $4.0 million in HRHC, (c) advances of an additional $7.3 million to
complete the funding for the construction of Harveys Wagon Wheel, (d) dividend
payments of approximately $1.5 million, and (e) pursuing additional expansion
opportunities.
The Company expects that its primary capital needs for fiscal 1998 will
include: (a) approximately $16.8 million of capital replacements and
improvements at the Company's current facilities, and (b) dividend payments and
debt service.
At November 30, 1997, the Company had approximately $55.0 million of cash
and cash equivalents and a maximum borrowing capacity of approximately $113.8
million under the Credit Facility, subject to compliance with certain financial
covenants.
The Company's debt at November 30, 1997, including the current portion of
approximately $633,000, amounted to $150.9 million and consisted of $150 million
of Senior Subordinated Notes, $623,000 outstanding under HWW equipment financing
notes payable to a financing company and approximately $230,000 of other debt.
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. The guaranteeing Restricted
Subsidiaries are: (a) HCCMC, (b) HIMC, (c) HLVMC, and (d) 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.
The Indenture contains certain covenants that impose limitation 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 incurrence 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 November 30, 1997.
In September 1996, the Credit Facility was amended. Among other things the
amendment: (a) extended the maturity date from August 16, 2000 to February 15,
2002, (b) extended the due dates of
25
<PAGE>
required repayments of principal, (c) modified the terms of certain financial
covenants, and (d) reduced the maximum available principal balance to $115
million.
At November 30, 1997 there were no outstanding borrowings under the Credit
Facility. Letters of credit exposure, which reduces the amount available under
the Credit Facility, was approximately $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. Additional 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
November 30, 1997 were 2.00% with respect to the LIBOR based interest rate, and
0.50%, with respect to the Wells Fargo prime rate based interest rate.
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 the 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 November 30,
1997.
The Company pays Wells Fargo an annual agency fee of $100,000 for its
services as agent of the lenders under the Credit Facility and an annual
non-usage fee of 3/8 of one percent to 1/2 of one percent of the average daily
amount of the unused portions of funds committed under the Credit Facility,
depending upon the applicable interest rate margins.
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 for the next
twelve months, including: (a) capital improvements and replacements at the
operating properties, and (b) dividend and debt service requirements. 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, no
assurance can be made that such financing would be available at terms acceptable
to the Company, if at all.
YEAR 2000. The Company has undertaken a review and evaluation of its
existing computer systems to identify the systems affected by the year 2000
issue. The Company also is communicating with suppliers, financial institutions
and others with which it does business to coordinate year 2000 conversion. Many
26
<PAGE>
computer systems were originally designed to recognize calendar years by their
last two digits. Calculations performed using these truncated fields may not
work properly with dates from the year 2000 and beyond.
As a result of the review and evaluation completed to date, the Company
expects to either modify or upgrade existing systems or to replace some systems
altogether. Acquisitions of new systems will be capitalized. Modifications to
existing systems necessary for year 2000 compliance will be expensed. The
Company has not yet determined the total costs of modifications to systems,
however, the Company believes that the incremental costs associated with this
process will not have a material effect on the Company's results of operations
or liquidity.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and supplementary data are as set
forth in the "INDEX TO CONSOLIDATED FINANCIAL STATEMENTS" on page 30.
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
Not applicable
PART III
For information required under Items 10, 11, 12 and 13, see the Company's
definitive Proxy Statement relating to the Annual Meeting of Stockholders to be
held on May 14, 1998, which sections are hereby incorporated by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) Financial Statements.
The consolidated financial statements of the Company are set forth in
the "INDEX TO CONSOLIDATED FINANCIAL STATEMENTS" on page 30.
(2) Financial Statement Schedules.
Schedules have been omitted because they are not applicable, are not
required or because the information is included elsewhere in the
Consolidated Financial Statements or the notes thereto.
(3) Exhibits are set forth in the "EXHIBIT INDEX" on page 57.
(b) Reports on Form 8-K filed during the last quarter of fiscal 1997.
On November 6, 1997 the Company filed a Current Report on Form 8-K, under
Item 2, Disposition of Assets, to report the October 24, 1997 sale of the
Company's interests in the Hard Rock Hotel and Casino.
27
<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 revisions to such forward-looking statements to reflect
events or circumstances after the date hereof.
28
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of
1934, as amended, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized this 26th day of February,
1998.
<TABLE>
<S> <C> <C>
HARVEYS CASINO RESORTS
By: /s/ CHARLES W. SCHARER
-----------------------------------------
Charles W. Scharer
CHAIRMAN OF THE BOARD
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed by the following persons on behalf of the
registrant in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
Chairman of the Board,
President, Chief
/s/ CHARLES W. SCHARER Executive Officer and
- ------------------------------ Director February 26, 1998
Charles W. Scharer (Principal Executive
Officer)
/s/ WILLIAM B. LEDBETTER
- ------------------------------ Vice Chairman of the Board February 26, 1998
William B. Ledbetter and Director
Senior Vice President,
/s/ JOHN J. MCLAUGHLIN Chief Financial Officer
- ------------------------------ and February 26, 1998
John J. McLaughlin Treasurer (Principal
Financial Officer)
/s/ JOHN P. HEWITT Corporate Controller
- ------------------------------ (Principal Accounting February 26, 1998
John P. Hewitt Officer)
/s/ RICHARD F. KUDRNA, SR.
- ------------------------------ Director February 26, 1998
Richard F. Kudrna, Sr.
/s/ JESSICA L. LEDBETTER
- ------------------------------ Director February 25, 1998
Jessica L. Ledbetter
/s/ KIRK B. LEDBETTER
- ------------------------------ Director February 26, 1998
Kirk B. Ledbetter
/s/ LUTHER MACK
- ------------------------------ Director February 26, 1998
Luther Mack
/s/ FRANKLIN K. RAHBECK
- ------------------------------ Director February 23, 1998
Franklin K. Rahbeck
/s/ EUGENE R. WHITE
- ------------------------------ Director February 23, 1998
Eugene R. White
/s/ RONALD R. ZIDECK
- ------------------------------ Director February 26, 1998
Ronald R. Zideck
29
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Deloitte & Touche LLP, Independent Certified Public Accountants............... 31
Report of Grant Thornton LLP, Independent Certified Public Accountants.................. 32
Consolidated Balance Sheets as of November 30, 1997 and 1996............................ 33
Consolidated Statements of Income for the Years Ended November 30, 1997, 1996 and
1995.................................................................................. 34
Consolidated Statements of Stockholders' Equity for the Years Ended November 30, 1997,
1996 and 1995......................................................................... 35
Consolidated Statements of Cash Flows for the Years Ended November 30, 1997, 1996 and
1995.................................................................................. 36
Notes to Consolidated Financial Statements.............................................. 37
</TABLE>
30
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Harveys Casino Resorts:
We have audited the accompanying consolidated balance sheets of Harveys Casino
Resorts and subsidiaries as of November 30, 1997 and 1996, and the related
consolidated statements of income, stockholders' equity and cash flows for the
years 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 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, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of November 30, 1997
and 1996, and the results of its operations and its cash flows for the years
then ended in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Reno, Nevada
January 9, 1998
31
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Harveys Casino Resorts
We have audited the accompanying consolidated statement of income,
stockholders' equity, and cash flows of Harveys Casino Resorts for the year
ended November 30, 1995. 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 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated results of Harveys Casino Resorts'
operations and its consolidated cash flows for the year ended November 30, 1995,
in conformity with generally accepted accounting principles.
GRANT THORNTON LLP
Reno, Nevada
January 12, 1996
32
<PAGE>
HARVEYS CASINO RESORTS
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
NOVEMBER 30,
---------------------------------
1997 1996
--------------- ---------------
<S> <C> <C>
Current assets
Cash and cash equivalents............. $ 55,034,861 $ 21,121,376
Accounts receivable, net of allowances
for doubtful accounts of $100,724 and
$288,093.............................. 5,263,837 8,760,106
Inventories........................... 3,658,746 3,320,897
Prepaid expenses and other current
assets................................ 3,446,870 4,461,531
Deferred income taxes................. 651,965 3,483,912
--------------- ---------------
Total current assets................ 68,056,279 41,147,822
--------------- ---------------
--------------- ---------------
Property and equipment
Land.................................. 20,717,863 20,670,975
Buildings and improvements............ 260,327,007 247,968,009
Leasehold improvements................ 21,191,721 20,802,147
Equipment, furniture and fixtures..... 144,126,256 135,535,533
Construction in progress.............. 16,791 2,908,129
--------------- ---------------
446,379,638 427,884,793
Less: Accumulated depreciation and
amortization.......................... (128,109,637) (112,976,595)
--------------- ---------------
318,270,001 314,908,198
--------------- ---------------
Notes receivable-related parties...... 1,875,765 2,071,163
--------------- ---------------
Notes receivable--other............... -- 2,796,715
--------------- ---------------
Other assets.......................... 15,263,376 17,606,509
--------------- ---------------
Investment in unconsolidated
affiliate............................. -- 15,237,480
--------------- ---------------
Total assets........................ $ 403,465,421 $ 393,767,887
--------------- ---------------
--------------- ---------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt..... $ 633,354 $ 2,752,799
Accounts and contracts payable........ 5,990,363 9,542,590
Income taxes payable.................. 7,056,237 --
Accrued expenses...................... 20,945,046 17,139,810
--------------- ---------------
Total current liabilities........... 34,625,000 29,435,199
Long-term debt, net of current
portion............................... 150,220,304 181,353,658
Deferred income taxes................. 23,022,615 19,339,319
Other liabilities..................... 16,239,952 13,876,639
--------------- ---------------
Total liabilities................... 224,107,871 244,004,815
Commitments and contingencies (see note
8)
Stockholders' equity
Preferred stock, $.01 par value;
5,000,000 shares authorized; none
issued................................ -- --
Common stock, $.01 par value;
30,000,000 shares authorized; issued
9,853,488 and 9,818,322............... 98,535 98,183
Additional paid-in capital and other.... 39,191,390 38,634,439
Treasury stock, at cost; 12,516 shares
and 10,036 shares..................... (199,672) (151,276)
Deferred compensation................... (148,069) (425,187)
Retained earnings....................... 140,415,366 111,606,913
--------------- ---------------
Total stockholders' equity.......... 179,357,550 149,763,072
--------------- ---------------
Total liabilities and stockholders'
equity.............................. $ 403,465,421 $ 393,767,887
--------------- ---------------
--------------- ---------------
</TABLE>
The accompanying notes are an integral part of these statements.
33
<PAGE>
HARVEYS CASINO RESORTS
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED NOVEMBER 30,
---------------------------------------------------
1997 1996 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
Revenues
Casino................................ $ 216,564,140 $ 186,368,776 $ 121,368,981
Lodging............................... 32,175,206 28,745,686 25,499,036
Food and beverage..................... 44,405,880 39,851,616 33,969,834
Other................................. 7,276,772 6,402,770 6,287,024
Management fees and joint venture..... 4,507,159 5,023,381 1,668,934
Less: Casino promotional allowances... (21,365,746) (18,643,497) (15,593,778)
--------------- --------------- ---------------
Total net revenues.................. 283,563,411 247,748,732 173,200,031
--------------- --------------- ---------------
--------------- --------------- ---------------
Costs and expenses
Casino................................ 100,500,468 86,732,228 57,519,779
Lodging............................... 13,373,681 11,677,166 9,458,539
Food and beverage..................... 29,886,093 24,796,962 20,280,268
Other operating....................... 2,811,332 2,812,983 2,837,956
Selling, general and administrative... 73,945,020 67,126,744 50,269,869
Depreciation and amortization......... 19,077,058 16,482,145 12,332,956
Business development costs............ 2,689,875 -- --
Pre-opening expenses.................. -- 4,099,490 2,146,667
--------------- --------------- ---------------
Total costs and expenses............ 242,283,527 213,727,718 154,846,034
Operating income........................ 41,279,884 34,021,014 18,353,997
--------------- --------------- ---------------
Other income (expense)
Interest income....................... 509,620 903,975 950,525
Interest expense...................... (19,401,110) (15,098,509) (8,910,714)
Gain on sale of interests in
unconsolidated affiliate.............. 27,422,228 -- --
Life insurance benefits............... -- -- 2,245,520
Other, net............................ (137,448) (221,048) 605,933
--------------- --------------- ---------------
Total other income (expense)........ 8,393,290 (14,415,582) (5,108,736)
--------------- --------------- ---------------
Income before income taxes and
extraordinary item.................... 49,673,174 19,605,432 13,245,261
Income tax provision.................... (18,898,553) (7,791,497) (3,900,000)
--------------- --------------- ---------------
Income before extraordinary item........ 30,774,621 11,813,935 9,345,261
Loss on early retirement of debt, net of
taxes................................. -- (521,705) --
--------------- --------------- ---------------
Net income.............................. $ 30,774,621 $ 11,292,230 $ 9,345,261
--------------- --------------- ---------------
--------------- --------------- ---------------
Net income per common share
Income before extraordinary item...... $ 3.13 $ 1.22 $ 0.99
Extraordinary item.................... -- (0.06) --
--------------- --------------- ---------------
Net income............................ $ 3.13 $ 1.16 $ 0.99
--------------- --------------- ---------------
--------------- --------------- ---------------
Weighted average common shares
outstanding........................... 9,843,871 9,698,500 9,456,051
--------------- --------------- ---------------
--------------- --------------- ---------------
</TABLE>
The accompanying notes are an integral part of these statements.
34
<PAGE>
HARVEYS CASINO RESORTS
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
YEARS ENDED NOVEMBER 30,
---------------------------------------------------
1997 1996 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
Common stock
Balance at beginning of year
Shares: 9,818,322 in 1997, 9,402,657
in 1996, and 9,348,823 in 1995...... $ 98,183 $ 94,026 $ 93,488
Issuance of restricted stock, Shares:
1,500 in 1996 and 50,500 in 1995...... -- 15 505
Issuance of stock in acquisition of
minority interest of subsidiary
Shares: 382,500 in 1996............. -- 3,825 --
Stock options exercised, Shares:
35,166 in 1997, 31,665 in 1996 and
3,334 in 1995....................... 352 317 33
--------------- --------------- ---------------
Balance at end of year, Shares:
9,853,488 in 1997, 9,818,322 in 1996
and 9,402,657 in 1995................. 98,535 98,183 94,026
--------------- --------------- ---------------
Additional Paid-in capital and other
Balance at beginning of year.......... 38,634,439 31,419,882 30,511,349
Issuance of restricted stock.......... -- 26,798 969,245
Issuance of stock in acquisition of
minority interest of subsidiary,
net of issuance costs of $507,098... -- 6,660,952 --
Stock options exercised............... 531,920 447,568 43,558
Other................................. 25,031 79,239 (104,270)
--------------- --------------- ---------------
Balance at end of year................ 39,191,390 38,634,439 31,419,882
--------------- --------------- ---------------
Treasury Stock
Balance at beginning of year.......... (151,276) (79,733) (28,765)
Forfeiture of restricted stock........ (40,250) (49,000) (24,500)
Acquisition of treasury stock......... (8,146) (22,543) (26,468)
--------------- --------------- ---------------
Balance at end of year................ (199,672) (151,276) (79,733)
--------------- --------------- ---------------
Deferred Compensation
Balance at beginning of year.......... (425,187) (1,196,828) (1,181,719)
Issuance of restricted stock.......... -- (26,814) (969,750)
Amortization of deferred
compensation.......................... 236,868 749,455 930,141
Forfeiture of restricted stock........ 40,250 49,000 24,500
--------------- --------------- ---------------
Balance at end of year................ (148,069) (425,187) (1,196,828)
--------------- --------------- ---------------
Retained Earnings
Balance at beginning of year.......... 111,606,913 102,063,739 94,216,595
Net income............................ 30,774,621 11,292,230 9,345,261
Cash dividends declared............... (1,966,168) (1,749,056) (1,498,117)
--------------- --------------- ---------------
Balance at end of year................ 140,415,366 111,606,913 102,063,739
--------------- --------------- ---------------
Total Stockholders' Equity............ $ 179,357,550 $ 149,763,072 $ 132,301,086
--------------- --------------- ---------------
--------------- --------------- ---------------
</TABLE>
The accompanying notes are an integral part of these statements.
35
<PAGE>
HARVEYS CASINO RESORTS
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED NOVEMBER 30,
---------------------------------------------------
1997 1996 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income.............................. $ 30,774,621 $ 11,292,230 $ 9,345,261
Adjustments to reconcile net income to
net cash provided by operating
activities
Depreciation and amortization......... 19,077,058 16,482,145 12,332,956
Gain on sale of interests in
unconsolidated affiliate.............. (27,422,228) -- --
Equity in (income) loss of
unconsolidated affiliate.............. (1,665,880) (1,720,710) 731,724
Amortization of deferred
compensation.......................... 236,868 749,455 930,141
Amortization of debt issuance costs... 1,042,668 1,719,218 331,417
Deferred income taxes................. 6,515,243 2,439,759 352,320
Other................................. 162,369 126,726 (588,078)
(Increase) decrease in assets
Accounts receivable, net............ 2,984,090 (1,020,290) (5,111,091)
Inventories......................... (369,346) (750,456) 116,986
Prepaid expenses and other current
assets.............................. (235,227) 1,388,880 (289,594)
Other assets........................ 74,573 (315,760) (4,816,950)
Increase (decrease) in liabilities
Accounts and contracts payable...... 236,936 2,897,695 1,014,726
Accrued expenses.................... 4,433,595 5,285,369 4,808,098
Income taxes payable................ 7,056,237 -- (259,510)
Other liabilities................... 1,734,973 1,193,685 695,705
--------------- --------------- ---------------
Net cash provided by operating
activities........................ 44,636,550 39,767,946 19,594,111
--------------- --------------- ---------------
Cash flows from investing activities
Proceeds from disposition of assets... 3,716,157 198,920 220,455
Capital expenditures.................. (22,531,641) (51,395,297) (66,897,927)
Proceeds from sale of marketable
securities............................ 498,032 1,833,202 300,000
Purchase of marketable securities..... (27,751) (132,592) (159,498)
Purchase of notes and accrued interest
of consolidated subsidiary............ -- (6,000,000) --
Investment in unconsolidated
affiliate............................. -- -- (4,000,500)
Loan to unconsolidated affiliate...... -- (200,000) --
Advances to employees................. (173,510) -- (184,949)
Proceeds from notes receivable........ 168,910 193,608 289,482
Proceeds from sale of interests in
unconsolidated affiliate.............. 46,226,920 -- --
Decrease in construction payables..... (3,448,828) -- --
--------------- --------------- ---------------
Net cash provided by (used in)
investing activities.............. 24,428,289 (55,502,159) (70,432,937)
--------------- --------------- ---------------
Cash flows from financing activities
Net borrowings under short-term credit
agreements............................ (340,335) (335,019) 281,099
Proceeds from long-term debt.......... 11,013,876 245,900,000 181,436,932
Principal payments on long-term
debt.................................. (44,266,675) (210,835,153) (124,736,101)
Dividends paid........................ (1,966,168) (1,749,056) (1,498,117)
Debt issuance costs................... (116,178) (7,043,342) (1,615,419)
Stock options exercised............... 532,272 447,885 43,591
Acquisition of treasury stock......... (8,146) (22,543) (26,468)
--------------- --------------- ---------------
Net cash provided by (used in)
financing activities.............. (35,151,354) 26,362,772 53,885,517
--------------- --------------- ---------------
Increase in cash and cash equivalents... 33,913,485 10,628,559 3,046,691
Cash and cash equivalents at beginning
of year............................... 21,121,376 10,492,817 7,446,126
--------------- --------------- ---------------
Cash and cash equivalents at end of
year.................................. $ 55,034,861 $ 21,121,376 $ 10,492,817
--------------- --------------- ---------------
--------------- --------------- ---------------
Supplemental disclosure of cash flows
information
Cash paid for interest, net of amounts
capitalized........................... $ 18,426,216 $ 15,775,000 $ 6,602,000
Cash paid for income taxes............ 3,429,087 6,068,000 4,600,000
Supplemental schedule of non-cash
investing and financing activities
Property and equipment acquired on
contracts and trade payables.......... -- 22,303,908 7,520,305
Acquisition of minority interest in
subsidiary
Fair value of net assets acquired... -- 5,480,971 --
Minority interest................... -- 1,690,904 --
Common stock issued................. -- (7,171,875) --
Subordinated notes issued in
acquisition of notes and
accrued interest of subsidiary...... -- 8,000,000 --
</TABLE>
The accompanying notes are an integral part of these statements.
36
<PAGE>
HARVEYS CASINO RESORTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION AND CONSOLIDATION
Harveys Casino Resorts and subsidiaries (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, the Company, through 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 (see Note 10). 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 riverboat casino portion of the
complex opened for business on January 1, 1996 and the land-based hotel opened
for business on May 24, 1996.
The consolidated financial statements include the accounts of Harveys Casino
Resorts and its majority and wholly-owned subsidiaries. In consolidating, all
significant intercompany accounts and transactions have been eliminated.
Investments in an unconsolidated affiliate are stated at cost adjusted by the
Company's equity in undistributed earnings or losses of the affiliate.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash on hand and in banks, interest
bearing deposits and highly liquid debt instruments purchased with initial
maturities of three months or less. Cash equivalents are carried at cost which
approximates market value.
INVENTORIES
Inventories consist primarily of operating supplies and food and beverage
stock and are stated at the lower of weighted-average cost or market.
37
<PAGE>
HARVEYS CASINO RESORTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY, EQUIPMENT AND DEPRECIATION
Property and equipment are stated at cost. Interest incurred during
construction is capitalized and amortized over the life of the asset. Costs of
improvements are capitalized. Costs of normal repairs and maintenance are
charged to expense as incurred. Upon the sale or retirement of property and
equipment, the cost and related accumulated depreciation are removed from the
respective accounts, and the resulting gain or loss, if any, is included in
income. Depreciation of property and equipment is provided on the straight-line
method over the estimated useful lives of the respective assets. Leasehold
improvements are amortized over the shorter of the asset life or lease term.
Depreciable lives are as follows:
<TABLE>
<S> <C>
15 to 45
Buildings and improvements................................... years
Riverboat.................................................... 20 years
Leasehold improvements....................................... 5 to 30 years
Equipment, furniture and fixtures............................ 5 to 10 years
</TABLE>
UNAMORTIZED LOAN COSTS AND DEBT ISSUANCE COSTS
Loan costs incurred in connection with a reducing revolving credit agreement
are amortized to interest expense over the term of the loan on a straight-line
method. Debt issuance costs associated with the Company's senior subordinated
notes are amortized to interest expense over the term of the notes on the
interest method.
FUTURE DEVELOPMENT COSTS
The Company capitalizes costs associated with new gaming projects until (a)
the project is no longer considered viable and the costs are expensed, or (b)
the likelihood of the project is relatively certain and the costs are
reclassified to pre-opening and expensed when operations commence. Capitalized
future development costs, relating to potential new gaming projects, of
approximately $907,000 and $1,427,000 as of November 30, 1997 and 1996,
respectively, are included on the accompanying balance sheet as other assets.
During the fourth quarter of 1997, the Company expensed approximately $2.7
million of future business development costs.
PRE-OPENING EXPENSES
Pre-opening expenses are associated with the acquisition, development and
opening of the Company's new casino resorts. These amounts are expensed when the
casino commences operations and include items that were capitalized as incurred
prior to opening and items that are directly related to the opening of the
property and are nonrecurring in nature. In 1996, approximately $4.1 million was
expensed in conjunction with the Company's opening of the Harveys Casino Hotel
project in Council Bluffs, Iowa.
Approximately $2.1 million was expensed in fiscal 1995 in conjunction with
the Company's opening of Harveys Wagon Wheel Hotel/Casino in Central City,
Colorado. Additionally, the Company's equity in the loss of the Hard Rock Hotel
and Casino for fiscal year 1995 included the Company's share of approximately
$4.5 million in pre-opening expenses.
38
<PAGE>
HARVEYS CASINO RESORTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASINO REVENUES AND PROMOTIONAL ALLOWANCES
In accordance with industry practice, the Company recognizes as casino
revenues the net win from gaming activities, which is the difference between
gaming wins and losses. Promotional allowances consist principally of the retail
value of complimentary rooms, food, beverage, and other promotional allowances
provided to customers without charge. The estimated costs of providing such
complimentary services have been classified as casino operating expenses through
interdepartmental allocations as follows:
<TABLE>
<CAPTION>
YEARS ENDED NOVEMBER 30,
-------------------------------------------
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Hotel............................................................... $ 2,743,124 $ 2,454,401 $ 1,707,465
Food and beverage................................................... 10,871,776 9,805,175 8,566,136
Other............................................................... 63,505 51,782 53,527
------------- ------------- -------------
$ 13,678,405 $ 12,311,358 $ 10,327,128
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
INCOME TAXES
The Company and its subsidiaries file a consolidated federal income tax
return. Income taxes are recorded in accordance with the liability method
specified by Statement of Financial Accounting Standards ("SFAS") No.
109--ACCOUNTING FOR INCOME TAXES. The following basic principles are applied in
accounting for income taxes: (a) a current liability or asset is recognized for
the estimated taxes payable or refundable for the current year; (b) a deferred
tax liability or asset is recognized for the estimated future tax effects
attributable to temporary differences and carryforwards; (c) the measurement of
current and deferred tax liabilities and assets is based on the provisions of
the enacted tax law, the effects of future changes in tax laws or rates are not
anticipated; and (d) the measurement of deferred taxes is reduced, if necessary,
by the amount of any tax benefits that, based upon available evidence, are not
expected to be realized.
NET INCOME PER COMMON SHARE
Net income per common share is computed based on the weighted average number
of shares of common stock and dilutive common stock equivalents outstanding
during the year.
Fully diluted earnings per share amounts are substantially the same as
primary earnings per share amounts for the years presented.
FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107--DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS requires
the determination of fair value for certain of the Company's assets, liabilities
and contingent liabilities. When practicable, the following methods and
assumptions were used to estimate the fair value of those financial instruments
included in the following categories:
Notes receivable: The fair value of notes receivable is based upon projected
cash flows discounted at estimated current market rates of interest. It is not
practicable to estimate the fair value of notes receivable-related parties due
to the related party nature of those instruments.
Long-term debt: The fair value of long-term debt is estimated based on the
current borrowing rates offered to the Company for debt of the same remaining
maturities.
39
<PAGE>
HARVEYS CASINO RESORTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
It is estimated that the carrying amounts of the Company's financial
instruments approximate fair value at November 30, 1997.
CONCENTRATIONS OF CREDIT RISK
The Company maintains its cash in bank deposit accounts which, at times, may
exceed federally insured limits. The Company has not experienced any losses in
such accounts. The Company believes it is not exposed to any significant credit
risk on cash and cash equivalents.
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Company is a party to financial instruments with off-balance-sheet risk
in the normal course of business. These financial instruments consist of standby
letters of credit.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the standby letters of credit is represented by the contractual
amount of those instruments. The Company uses the same credit policies in making
commitments and conditional obligations as it does for on-balance-sheet
instruments. The Company does not have collateral or other security to support
financial instruments with off-balance-sheet credit risk.
LONG-LIVED ASSETS
In accordance with the provisions of SFAS No. 121--ACCOUNTING FOR THE
IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, the
Company reviews the carrying amount of long-lived assets and certain
identifiable intangibles whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Such reviews have
not had a material effect on the Company's results of operations or financial
position.
RECENTLY ISSUED ACCOUNTING STANDARDS
The Financial Accounting Standards Board ("FASB") has issued SFAS No.
128--EARNINGS PER SHARE, which (a) simplifies current standards by eliminating
the presentation of primary earnings per share ("EPS") and requiring the
presentation of basic EPS, which includes no potential common shares and thus no
dilution, (b) requires companies with complex capital structures to present
basic and diluted EPS on the face of the income statement, and (c) eliminates
the modified treasury stock method of computing potential shares. SFAS No. 128
will be effective for the Company beginning December 1, 1997, including interim
periods ending after that date. On adoption, restatement of all prior-period EPS
data presented will be required. Basic EPS, calculated in accordance with the
provisions of SFAS No. 128, are as follows: 1997, $3.13 per share; 1996, $1.22
per share before extraordinary item, $(0.05) per share for the extraordinary
item and $1.17 per share after the extraordinary item; 1995, $1.00 per share.
Diluted EPS, calculated in accordance with the provisions of SFAS No. 128, are
the same as those presented in the financial statements.
40
<PAGE>
HARVEYS CASINO RESORTS
NOTES TO CONSOLIDATED STATEMENTS (CONTINUED)
The 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 years 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.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior years' consolidated
financial statements to conform to the current year presentation. These
reclassifications have no effect on net income.
2. ACCRUED EXPENSES
Accrued expenses consist of the following as of:
<TABLE>
<CAPTION>
NOVEMBER 30,
----------------------------
1997 1996
------------- -------------
<S> <C> <C>
Provision for progressive jackpot payouts.......................................... $ 1,458,571 $ 1,355,382
Accrued interest................................................................... 174,706 242,480
Accrued salaries, wages and other employee benefits................................ 8,301,094 7,131,230
Accrued taxes other than income taxes.............................................. 4,462,947 2,066,110
Self-funded workers' compensation and medical claims accrual....................... 2,368,755 1,640,617
Outstanding gaming chips and tokens................................................ 870,159 1,613,158
Race and sports book futures and unclaimed winners................................. 808,903 754,279
Other accrued liabilities.......................................................... 2,499,911 2,336,554
------------- -------------
$ 20,945,046 $ 17,139,810
------------- -------------
------------- -------------
</TABLE>
41
<PAGE>
HARVEYS CASINO RESORTS
NOTES TO CONSOLIDATED STATEMENTS (CONTINUED)
3. LONG-TERM DEBT
Long-term debt consists of the following as of:
<TABLE>
<CAPTION>
NOVEMBER 30,
------------------------------
1997 1996
-------------- --------------
<S> <C> <C>
10 5/8% senior subordinated notes, due 2006...................................... $ 150,000,000 $ 150,000,000
Banks and others--
Note payable to banks.......................................................... -- 30,500,000
Notes payable to financing company............................................. 623,387 3,367,226
Other.......................................................................... 230,271 239,231
-------------- --------------
150,853,658 184,106,457
Less current portion........................................................... 633,354 2,752,799
-------------- --------------
$ 150,220,304 $ 181,353,658
-------------- --------------
-------------- --------------
</TABLE>
Aggregate annual maturities of long-term debt, based on amounts borrowed as
of November 30, 1997, are as follows:
<TABLE>
<CAPTION>
YEARS ENDING NOVEMBER 30,
- --------------------------------------------------------------------
<S> <C>
1998................................................................ $ 633,354
1999................................................................ 11,089
2000................................................................ 12,336
2001................................................................ 13,724
2002................................................................ 15,268
2003 and thereafter................................................. 150,167,887
-------------
$ 150,853,658
-------------
-------------
</TABLE>
10 5/8% SENIOR SUBORDINATED NOTES, DUE 2006
On May 22, 1996 the Company issued and sold, pursuant to an underwritten
public offering, $150 million in aggregate principal amount of 10 5/8% senior
subordinated notes due 2006 (the "Senior Subordinated Notes").
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. The guaranteeing Restricted
Subsidiaries are HCCMC, HIMC, HLVMC and HTMC. Separate financial statements of
the guaranteeing Restricted Subsidiaries have not been included because
management has determined that they are not material to investors.
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
42
<PAGE>
HARVEYS CASINO RESORTS
NOTES TO CONSOLIDATED STATEMENTS (CONTINUED)
3. LONG-TERM DEBT (CONTINUED)
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.
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 in excess of regular
quarterly dividends which are not to exceed $500,000 per quarter, (c) the
repurchase of capital stock and the making of certain other Restricted Payments
and Restricted Investments (each 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 incurrence 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 November 30, 1997.
NOTE PAYABLE TO BANKS
The Company is party to a reducing revolving credit agreement with a
consortium of banks (the "Credit Facility"). As of November 30, 1997, under the
Credit Facility, the Company could borrow up to a maximum available principal
balance of $115 million. The maximum available under the Credit Facility is
reduced by the advanced but unpaid principal balance and by any letter of credit
exposure. The advanced but unpaid principal balance at November 30, 1997 and
1996 was zero and $30.5 million, respectively. Outstanding letters of credit
amounted to approximately $1.2 million at November 30, 1997. The note payable
under the Credit Facility matures in February 2002. Until then, the annual
year-end maximum principal balances are as follows:
<TABLE>
<CAPTION>
NOVEMBER 30,
- ------------------------------------------------------------------------------
<S> <C>
1998.......................................................................... $ 103,500,000
1999.......................................................................... 92,000,000
2000.......................................................................... 74,750,000
2001.......................................................................... 57,500,000
</TABLE>
The Company pays quarterly fees at an annual rate varying from three-eights
of one percent (0.375%) to one-half of one percent (0.5%) on the unborrowed
maximum principal balance depending on the Company's ratio of funded debt to
earnings before interest, taxes, depreciation and amortization. The rate in
effect at November 30, 1997 was 0.425%.
Interest is due and payable monthly and is provided at the higher of the
prime rate or the Federal Funds Rate plus one-half of one percent (0.5%), plus
an applicable margin. However, in accordance with the terms of the Credit
Facility, the Company has the option to cause a portion, or all, of the
outstanding principal balance to accrue interest at a rate equal to the London
Inter-Bank Offering Rate ("LIBOR") plus an applicable margin. In each case, the
applicable margin is determined by reference to the Company's ratio of funded
debt to earnings before interest, taxes, depreciation and amortization. The
applicable margins at November 30, 1997 were 2.0%, with respect to LIBOR-based
borrowings, and 0.5%, with respect to prime rate borrowings.
43
<PAGE>
HARVEYS CASINO RESORTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. LONG-TERM DEBT (CONTINUED)
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
Nevada corporation, which is wholly owned by 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. Additional
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 Nevada
corporation, which is wholly owned by the Company.
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 the 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 November 30,
1997.
NOTES PAYABLE TO FINANCING COMPANY
HWW entered into an equipment financing agreement with a financing company
to finance the acquisition of up to $7.5 million of gaming and associated
equipment. The obligations to repay the outstanding principal balances of the
secured notes under the equipment financing agreement have been assumed by HCCMC
and, as of November 30, 1997 were approximately $191,000 and $432,000. The notes
are secured by the equipment acquired and are payable in monthly payments of
approximately $194,000 and $56,000 including interest that accrues at a rate of
12.15% per annum. The notes will mature in December 1997 and July 1998,
respectively.
4. OPERATING LEASE COMMITMENTS
The Company's future minimum lease commitments under noncancellable
operating leases (principally for land) as of November 30, 1997 are as follows:
<TABLE>
<CAPTION>
YEARS ENDING NOVEMBER 30,
- -------------------------------------------------------------------------------
<S> <C>
1998........................................................................... $ 2,668,801
1999........................................................................... 2,603,438
2000........................................................................... 2,515,615
2001........................................................................... 2,358,919
2002........................................................................... 2,296,670
2003 and thereafter............................................................ 94,717,473
</TABLE>
Certain leases included above have provisions which require periodic
increases in the rental payments based upon the consumer price index as of
certain dates. In addition, annual lease payments under an obligation on a land
lease are based upon an escalating percentage of gross gaming revenues or all
net revenues, whichever calculation is greater, of Harveys Resort Hotel/Casino.
The percentages applicable to gross gaming revenues and all net revenues in
fiscal 1998 will be 3.25% and 2.15%, respectively. In fiscal 1999 the
percentages increase to 3.35% and 2.25%, respectively, and in fiscal 2000 and
years thereafter the percentages are 3.5% and 2.35%, respectively. The actual
rent paid is the greater of the rent calculated as a percentage or a minimum
rent, as adjusted for the consumer price index. In 1997, the expiration of this
44
<PAGE>
HARVEYS CASINO RESORTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. OPERATING LEASE COMMITMENTS (CONTINUED)
land lease was extended to the year 2045. For 1997, 1996 and 1995, the Company
recognized rental expense in connection with the land lease of approximately
$3.0 million, $3.1 million and $3.1 million, respectively, which includes
approximately $789,000, $655,000 and $740,000, respectively, above the minimum
rental amounts. Total rental expense recognized for 1997, 1996 and 1995 amounted
to approximately $3.7 million, $3.7 million and $3.6 million, respectively.
The Company is also a lessor on several noncancellable lease agreements. Of
the rental income recognized for the years ended November 30, 1997, 1996 and
1995, approximately $118,000, $77,000 and $85,000, respectively, represents
rents received as a percentage of gross receipts. The remaining amounts are
attributable to specified minimum rent. Future minimum payments due to the
Company under these noncancellable lease agreements are as follows:
<TABLE>
<CAPTION>
YEARS ENDING NOVEMBER 30,
- --------------------------------------------------------------------------------
<S> <C>
1998............................................................................ $ 1,315,441
1999............................................................................ 437,656
2000............................................................................ 395,493
2001............................................................................ 310,143
2002............................................................................ 78,525
</TABLE>
5. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED NOVEMBER 30,
-----------------------------------------
1997 1996 1995
------------- ------------ ------------
<S> <C> <C> <C>
Current............................................................... $ 12,383,310 $ 5,484,923 $ 3,547,680
Deferred.............................................................. 6,515,243 2,306,574 352,320
------------- ------------ ------------
Income tax provision before extraordinary item........................ 18,898,553 7,791,497 3,900,000
Income tax benefit of extraordinary item.............................. -- (334,497) --
------------- ------------ ------------
Income tax provision.................................................. $ 18,898,553 $ 7,457,000 $ 3,900,000
------------- ------------ ------------
------------- ------------ ------------
</TABLE>
The difference between the Company's provision for income taxes as presented
in the accompanying consolidated statements of income, and the provision for
income taxes computed at the statutory rate is comprised of the items shown in
the following table as a percent of pre-tax earnings.
<TABLE>
<CAPTION>
YEARS ENDED NOVEMBER 30,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Federal income tax at the statutory rate............................................ 35.0% 35.0% 35.0%
Non-deductible expenses............................................................. 1.2 0.8 0.7
Tax credits......................................................................... (0.5) (1.1) (1.2)
Nontaxable life insurance benefits.................................................. -- -- (5.3)
State income tax, net of federal benefit............................................ 1.7 1.9 --
Other, net.......................................................................... 0.6 3.1 0.2
--------- --------- ---------
38.0% 39.7% 29.4%
--------- --------- ---------
--------- --------- ---------
</TABLE>
45
<PAGE>
HARVEYS CASINO RESORTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. INCOME TAXES (CONTINUED)
The components of the deferred income tax assets and liabilities as
presented in the consolidated balance sheets, are as follows at November 30:
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
<S> <C> <C>
DEFERRED TAX ASSET
Accrued compensation.............................................................. $ 5,025,651 $ 4,513,769
Other accrued expenses............................................................ 702,304 2,401,454
-------------- --------------
5,727,955 6,915,223
DEFERRED TAX LIABILITY
Property and equipment............................................................ (28,098,605) (22,770,630)
-------------- --------------
Net deferred tax liability........................................................ $ (22,370,650) $ (15,855,407)
-------------- --------------
-------------- --------------
Current deferred asset............................................................ $ 651,965 $ 3,483,912
Noncurrent deferred liability..................................................... (23,022,615) (19,339,319)
-------------- --------------
Net deferred tax liability........................................................ $ (22,370,650) $ (15,855,407)
-------------- --------------
-------------- --------------
</TABLE>
In 1997 the Internal Revenue Service completed examinations of the Company's
federal income tax returns for fiscal years 1995 and 1994. No significant
adjustments were made to the Company's income tax liability or income tax
provision as a result of the examinations.
6. STOCK-BASED COMPENSATION
OMNIBUS INCENTIVE PLANS
In November 1993, the Company adopted the 1993 Omnibus Incentive Plan (the
"1993 Plan") and in March 1996, the Company adopted the 1996 Omnibus Incentive
Plan (the "1996 Plan" and together with the 1993 Plan, collectively referred to
as the "Plans"). Under the Plans, shares of the Company's common stock may be
granted to employees or prospective employees of the Company and/or its
subsidiaries who are responsible for the management, growth and protection of
the business of the Company. Issuance of shares of common stock under the Plans
may consist of stock options, stock appreciation rights, restricted stock
grants, performance units and dividend equivalents. The Plans are administered
by a committee of the Board of Directors (the "Committee") whose members
determine who will be awarded stock options, stock appreciation rights,
restricted stock grants, performance units and dividend equivalents.
Under the 1993 Plan, 915,219 shares of the Company's common stock were
reserved for potential awards and under the 1996 Plan, an additional 500,000
shares of the Company's common stock were reserved.
Stock options may be granted alone or in addition to other awards or in
tandem with stock appreciation rights. The exercise price of stock options
granted under the Plans is established by the Committee, but the exercise price
may not be less than the market price of the Company's common stock on the date
the option is granted. The term of each stock option will be fixed by the
Committee. However, the term of any stock option may not exceed ten years. Stock
options granted under the Plans generally vest ratably over a three year period
from the date of grant.
In May 1997, the Board of Directors of the Company authorized the repricing
of certain stock options. The repricing resulted in the cancellation of stock
options to purchase 498,880 shares and the issuance of
46
<PAGE>
HARVEYS CASINO RESORTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. STOCK-BASED COMPENSATION (CONTINUED)
stock options to purchase 498,880 shares. The stock options were issued with an
exercise price equal to the market value of the common stock on the date of
repricing. The repriced options will vest 33 1/3% on each of the next three
anniversaries of the grant.
Stock appreciation rights entitle the holder to receive in cash an amount
equal to the excess of the fair market value of common stock on the date of
exercise over the fair market value of common stock on the date of grant. A
stock appreciation right may be exercised at any time following the date which
is six months after the date of grant, but not prior to the exercisability of
any stock option with which it is granted in tandem. As of November 30, 1997, no
stock appreciation rights had been granted.
Restricted stock grants are awards of shares of common stock granted subject
to such restrictions, terms and conditions as the Committee deems appropriate.
The Committee determines the number of restricted shares to be granted and may
impose different terms and conditions on any particular restricted share grant
made to any employee. The Company has granted a total of 228,500 shares of
restricted common stock. Of the restricted shares granted, in each case, 25% of
the shares vested immediately as of the date of the grant and vest an additional
25% on each of the next three anniversaries of the grant. As of November 30,
1997, grantees of the restricted shares had forfeited 8,375 shares pursuant to
terms of the Plans. The Company has recognized approximately $ 237,000,
$750,000, and $930,000 as compensation expense in 1997, 1996, and 1995,
respectively.
At November 30, 1997, 177,469 shares of the Company's common stock were
available for grant under the Plans.
1993 NON-EMPLOYEE DIRECTORS' STOCK OPTION PROGRAM
In November 1993, the Company adopted the 1993 Non-Employee Directors' Stock
Option Program (the "Program") whereby each currently serving non-employee
director was granted an option to purchase 4,500 shares of the Company's common
stock, and will be granted an option to purchase 1,500 shares of common stock
immediately following each annual meeting. Each new non-employee director
receives a grant of an option to purchase 4,500 shares of the Company's common
stock immediately after the first annual meeting of shareholders after any such
director is elected or appointed to the Board of Directors and will receive an
option to purchase 1,500 shares of common stock immediately following each
subsequent annual meeting. The options granted will vest 33 1/3% on the date of
grant and 33 1/3% on each of the next two anniversaries of grant. The exercise
price will be the fair market value of the common stock on the date of grant. A
total of 60,000 shares have been reserved for issuance under this plan.
STOCK OPTIONS PURSUANT TO EMPLOYMENT CONTRACTS
Two of the Company's directors, who are also employees, have been granted
options, outside of the Plans or the Program, to purchase 15,000 and 12,500
shares of the Company's common stock, respectively. The stock options were
granted in November 1993 pursuant to employment contracts and in anticipation of
the Company's initial public offering in February 1994. The stock options have
an exercise price of $14.00 per share. None of the stock options have been
exercised. All of the stock options are currently exercisable and expire ten
years from the date of grant.
47
<PAGE>
HARVEYS CASINO RESORTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. STOCK-BASED COMPENSATION (CONTINUED)
The following table summarizes information relative to stock options
granted, exercised, canceled, outstanding and exercisable under the various
plans discussed above:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
OPTIONS EXERCISE PRICE
---------- -----------------
<S> <C> <C>
Options outstanding at December 1, 1994............................................ 413,000 $ 14.00
Options granted.................................................................... 125,200 19.21
Options canceled................................................................... 15,434 13.74
Options exercised.................................................................. 3,334 13.07
---------- ------
Options outstanding at November 30, 1995........................................... 519,432 $ 15.32
Options granted.................................................................... 413,580 18.90
Options canceled................................................................... 21,834 13.81
Options exercised.................................................................. 31,665 14.14
---------- ------
Options outstanding at November 30, 1996........................................... 879,513 $ 16.96
Options granted.................................................................... 684,193 16.48
Options canceled................................................................... 513,080 19.04
Options exercised.................................................................. 35,166 13.77
---------- ------
Options outstanding at November 30, 1997........................................... 1,015,460 $ 15.69
----------
----------
Options exercisable at November 30, 1995........................................... 274,166 $ 14.00
Options exercisable at November 30, 1996........................................... 476,042 15.13
Options exercisable at November 30, 1997........................................... 377,583 14.35
</TABLE>
The following table provides additional information relative to stock
options outstanding at November 30, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
--------------------------------
WEIGHTED-AVERAGE
REMAINING OPTIONS EXERCISABLE
CONTRACTUAL ---------------------
LIFE WEIGHTED-AVERAGE WEIGHTED-AVERAGE
RANGE OF NUMBER IN EXERCISABLE NUMBER EXERCISABLE
EXERCISE PRICES OUTSTANDING YEARS PRICE EXERCISABLE PRICE
- ---------------- ------------ ------ -------- ---------- --------
<S> <C> <C> <C> <C> <C>
$12.44 - $16.25 339,367 6.17 $ 14.04 328,533 $ 14.00
$16.44 638,693 9.50 $ 16.44 38,150 $ 16.44
$17.16 -$19.25 37,400 9.17 $ 17.96 10,900 $ 17.57
------------ ------ -------- ---------- --------
1,015,460 8.16 $ 15.69 377,583 $ 14.35
------------ ----------
------------ ----------
</TABLE>
The FASB has issued SFAS No. 123--ACCOUNTING FOR STOCK-BASED COMPENSATION.
SFAS No. 123 provides, among other things, that companies may elect to either
record expense based on the fair value of stock-based compensation upon issuance
or continue to apply the methods prescribed by Accounting Principles Board
Opinion No. 25 ("APB No. 25") whereby no compensation cost is recognized upon
grant if certain requirements are met. The Company has elected to continue to
account for stock-based compensation in accordance with APB No. 25.
Had the Company recorded stock-based compensation cost consistent with the
provisions of SFAS No. 123, the Company's net income and earnings per share
would have been reduced to the pro forma amounts included in the table below.
The table also discloses the weighted-average assumptions used in estimating the
fair value of stock options using the Black-Scholes option pricing model and the
weighted-
48
<PAGE>
HARVEYS CASINO RESORTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. STOCK-BASED COMPENSATION (CONTINUED)
average fair value of the stock options granted. Because the accounting method
prescribed by SFAS No. 123 does not apply to stock options granted by the
Company prior to December 1, 1995, the compensation cost reflected in the pro
forma amounts included in the table below may not be representative of that to
be expected in future years.
<TABLE>
<CAPTION>
YEARS ENDED NOVEMBER
30,
--------------------
1997 1996
--------- ---------
DOLLARS IN
THOUSANDS, EXCEPT
PER SHARE AMOUNTS
<S> <C> <C>
Income before extraordinary item
As reported............................................................................ $ 30,775 $ 11,814
Pro forma.............................................................................. 30,406 11,465
Net income
As reported............................................................................ $ 30,775 $ 11,292
Pro forma.............................................................................. 30,406 10,943
Income per share before extraordinary item
As reported............................................................................ $ 3.13 $ 1.22
Pro forma.............................................................................. $ 3.09 $ 1.18
Net income per share
As reported............................................................................ $ 3.13 $ 1.16
Pro forma.............................................................................. $ 3.09 $ 1.13
Weighted-average assumptions
Expected stock price volatility........................................................ 31.70% 32.64%
Risk-free interest rate................................................................ 5.20% 5.81%
Expected option lives (years).......................................................... 2.84 3.06
Expected dividend yield................................................................ 1.00% 1.00%
Estimated fair value of options granted................................................ $ 4.05 $ 3.97
</TABLE>
7. EMPLOYEE BENEFIT PLANS
401(k) PLAN
The Company maintains a defined contribution retirement savings plan for all
full-time employees who have at least one year of continuous employment and
1,000 hours of service. The Company contributes amounts equal to 50% of each
eligible employee's voluntary contributions. For purposes of determining the
Company's required contribution to the plan, the employee's voluntary
contributions cannot exceed 6% of the employee's qualified compensation. The
Company's contribution to the plan for the years ended November 30, 1997, 1996
and 1995 amounted to approximately $1.6 million, $1.0 million and $1.0 million,
respectively.
LONG-TERM INCENTIVE PLAN
In 1994, the Company adopted a long-term incentive plan for key employees.
Under the plan, incentives are accrued based upon annual operating results;
however, ultimate payment of these incentives is contingent upon the Company
attaining certain financial objectives over consecutive and concurrent
three-year periods. As of November 30, 1997 and 1996, the amount due to plan
participants was approximately $1.0 million and $782,000, respectively.
49
<PAGE>
HARVEYS CASINO RESORTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. EMPLOYEE BENEFIT PLANS (CONTINUED)
DEFERRED COMPENSATION PLAN
In 1990, the Company established a non-qualified deferred compensation plan
for designated executives and outside directors. Individuals electing to
participate in this plan may voluntarily defer receipt of up to twenty-five
percent (25%) of the participant's annual compensation. The deferred
compensation is credited to each participant's account, and interest on such
amounts is added to the participant's account each quarter. The interest rate
paid on amounts deferred prior to calendar year 1995 is the prime rate at the
beginning of each quarter plus five percent (13.25% at November 30, 1997). The
interest rate paid on amounts deferred subsequent to December 31, 1994 is the
prime rate plus two and one-half percent (10.75% at November 30, 1997). The
Company is under no obligation to fund amounts under this plan, and such amounts
are unsecured and treated as general obligations of the Company. As of November
30, 1997 and 1996, the amount due participants in this plan was approximately
$2.3 million and $2.0 million, respectively.
POSTRETIREMENT BENEFITS
The Company provides postretirement medical benefits for certain key
executives and members of the Company's Board of Directors. These plans have
been accounted for in accordance with the provisions of SFAS No. 106--EMPLOYERS'
ACCOUNTING FOR POSTRETIREMENT BENEFITS OTHER THAN PENSIONS. This statement
requires that the cost of these postretirement medical benefits be recognized
under the accrual method of accounting. As permitted by SFAS No. 106, the
Company has elected to amortize over a period of 20 years the accumulated
postretirement benefit obligation (transition obligation) related to prior
service costs. The components of the periodic expense for postretirement
benefits were as follows:
<TABLE>
<CAPTION>
YEARS ENDED NOVEMBER 30,
----------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Service cost of benefits earned.............................................. $ 75,219 $ 94,414 $ 70,372
Interest cost on liability................................................... 56,907 55,338 47,470
Amortization of transition obligation........................................ 12,197 12,197 12,197
Prior service cost........................................................... 6,683 6,683 5,012
Loss......................................................................... -- 3,136 1,766
---------- ---------- ----------
Net periodic postretirement benefit cost..................................... $ 151,006 $ 171,768 $ 136,817
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
50
<PAGE>
HARVEYS CASINO RESORTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. EMPLOYEE BENEFIT PLANS (CONTINUED)
The Company's current policy is to fund the plan as covered benefits are
paid. The actuarial and recorded liabilities for postretirement benefits, none
of which have been funded, were as follows:
<TABLE>
<CAPTION>
NOVEMBER 30,
------------------------
1997 1996
----------- -----------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees.............................................................................. $ 71,761 $ 35,433
Fully eligible active plan participants............................................... 104,182 97,139
Other active plan participants........................................................ 739,129 775,681
----------- -----------
915,072 908,253
Plan assets at fair value............................................................... -- --
----------- -----------
Accumulated postretirement benefit obligation in excess of plan assets.................. 915,072 908,253
Prior service cost not recognized in net periodic postretirement benefit cost........... (95,864) (102,547)
Unrecognized net gain (loss)............................................................ 13,589 (110,393)
Unrecognized transition obligation...................................................... (182,943) (195,140)
----------- -----------
Postretirement benefit liability recognized in the consolidated balance sheets.......... $ 649,854 $ 500,173
----------- -----------
----------- -----------
</TABLE>
A 6% annual rate of increase in the per capita cost of covered health care
benefits was assumed for 1997 and 1996. Increasing the assumed health care cost
trend rates by one percentage point in each year would increase the accumulated
postretirement benefit obligation as of November 30, 1997 and 1996 by
approximately $142,000 and $139,000, respectively, and increase the service and
interest cost components of net periodic postretirement benefit cost by
approximately $23,000 and $26,000, respectively. The weighted-average discount
rate used to estimate the accumulated postretirement benefit obligation at
November 30, 1997 and 1996 was 7.25%.
SUPPLEMENTAL RETIREMENT PLANS
The Company provides noncontributory supplemental executive retirement plans
for certain key executives. Normal retirement under the supplemental executive
retirement plans is age 65, and participants receive benefits based on years of
service and compensation. The Company provides a noncontributory plan for
members of the Company's Board of Directors. Participants in the Board of
Directors plan receive benefits based on years of service, as a non-employee
director, upon retirement from the Board.
51
<PAGE>
HARVEYS CASINO RESORTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. EMPLOYEE BENEFIT PLANS (CONTINUED)
The following table sets forth the plan's funded status and amounts
recognized in the Company's balance sheet as of November 30, 1997 and 1996:
ACTUARIAL PRESENT VALUE OF BENEFIT OBLIGATION
<TABLE>
<CAPTION>
NOVEMBER 30,
----------------------------
1997 1996
------------- -------------
<S> <C> <C>
Accumulated benefit obligation, including vested benefits of $11,556,484 and
$10,024,952, respectively........................................................ $ 12,038,065 $ 10,662,987
------------- -------------
------------- -------------
Projected benefit obligation for service rendered to date.......................... $ 15,133,038 $ 13,660,863
Plan assets at fair value.......................................................... -- --
------------- -------------
Projected benefit obligation in excess of plan assets.............................. 15,133,038 13,660,863
Unrecognized net loss.............................................................. (2,639,993) (2,586,914)
Prior service cost not yet recognized in net periodic pension cost................. (1,649,152) (1,862,149)
Unrecognized net obligation at adoption date....................................... (1,714,122) (1,885,821)
------------- -------------
Accrued pension cost recognized.................................................... $ 9,129,771 $ 7,325,979
------------- -------------
------------- -------------
ADDITIONAL LIABILITY AND INTANGIBLE ASSET:
Accumulated benefit obligation..................................................... $ 12,038,065 $ 10,662,987
Less: Plan assets at fair value.................................................... -- --
------------- -------------
Unfunded accumulated benefit obligation............................................ 12,038,065 10,662,987
Less: Accrued pension cost......................................................... (9,129,771) (7,325,979)
------------- -------------
Additional liability............................................................... $ 2,908,294 $ 3,337,008
------------- -------------
------------- -------------
Intangible asset--limited to unrecognized net obligation
plus prior service cost.......................................................... $ 2,908,294 $ 3,337,008
------------- -------------
------------- -------------
</TABLE>
Pension cost consists of the following components:
<TABLE>
<CAPTION>
YEARS ENDED NOVEMBER 30,
----------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Service cost--benefits earned during the period......................... $ 502,946 $ 425,334 $ 286,453
Interest cost on projected benefit obligation........................... 987,746 907,147 835,627
Return on plan assets................................................... -- -- --
Net amortization and deferral........................................... 496,173 517,165 451,468
------------ ------------ ------------
Net periodic pension cost............................................... $ 1,986,865 $ 1,849,646 $ 1,573,548
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The projected benefit obligation for November 30, 1997 and 1996 was
determined using an assumed discount rate of 7.25% and an assumed salary
increase rate of 5%. The Company has recorded additional liabilities of
$2,908,294 and $3,337,008, and intangible assets of $2,908,294 and $3,337,008 as
of November 30, 1997 and 1996, respectively. As of November 30, 1997 and 1996, a
liability of approximately $12.0 and $10.6 million, respectively, is included in
the consolidated balance sheets under the caption "Other liabilities" for the
above plan.
52
<PAGE>
HARVEYS CASINO RESORTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. EMPLOYEE BENEFIT PLANS (CONTINUED)
SELF INSURED PLANS
The Company is self insured for employee medical coverage and workers'
compensation for the benefit of its employees. Estimated accrued obligations for
claims under these self-insured plans as of November 30, 1997 and 1996 were
approximately $2.4 million and $1.6 million, respectively. The Company's maximum
liability under both plans is limited by stop-loss agreements with insurance
companies.
8. COMMITMENTS AND CONTINGENCIES
LETTERS OF CREDIT
In connection with regulatory requirements, the Company was required to
issue irrevocable standby letters of credit to guarantee the Company's
obligation to satisfy a progressive slot machine jackpot payout and guarantee
payment of workers' compensation benefits. Outstanding standby letters of credit
as of November 30, 1997 were as follows:
<TABLE>
<CAPTION>
AMOUNT EXPIRATION DATE
------------ -----------------
<S> <C> <C>
Gaming Patron................................................................... $ 430,476 March 31, 1998
St. Paul Fire and Marine (workers' compensation)................................ 812,500 April 15, 1998
------------
$ 1,242,976
------------
------------
</TABLE>
EMPLOYMENT CONTRACTS
The Company has entered into employment agreements, each of which expires
prior to November 30, 2002, with certain key executives. The employment
agreements provide for, among other things, annual base compensation,
participation in bonus plans, certain stock grants and stock option provisions.
EMPLOYEE MEALS AND PAYROLL TAXES
On September 30, 1997, the United States Tax Court issued an adverse ruling
applicable to hotels and casinos which provide meals to employees. The Tax Court
ruled that nonqualifying employees are required to recognize income based upon
the fair value of the meals received in excess of the amount paid by the
employee. Accordingly, employers may be liable for withholding and payroll taxes
associated with the fair value of the meals provided to employees in excess of
the amount paid by the employee. At this time it is uncertain whether or not the
Company will be liable for withholding and payroll taxes related to the income
excluded from nonqualifying employee wages for the meals it has provided.
CLAIMS AND LEGAL ACTIONS
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, all pending matters
are either adequately covered by insurance or if not covered by insurance, will
not have a material adverse effect on the Company's financial statements taken
as a whole.
53
<PAGE>
HARVEYS CASINO RESORTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. RELATED PARTY TRANSACTIONS
NOTES RECEIVABLE FROM RELATED PARTY TRUST
Jessica L. Ledbetter, Kirk B. Ledbetter and Franklin K. Rahbeck, all
directors of the Company, and Wells Fargo Bank, National Association are the
co-trustees of the William B. Ledbetter and Beverlee A. Ledbetter Irrevocable
Trust ("the Trust"). The Trust owns survivorship life insurance policies on the
lives of William B. Ledbetter and Beverlee A. Ledbetter, deceased. William B.
Ledbetter is an officer and director of the Company and until her death on
September 12, 1995, Beverlee A. Ledbetter was the largest shareholder of the
Company. Prior to fiscal 1995, the Company had paid premiums on the life
insurance policies owned by the Trust. The Company has no further obligation to
pay such premiums. The Trust has issued two notes payable to the Company for the
amounts of the premiums previously paid by the Company. The notes are in the
principal amounts of $1,376,995 and $455,272 and bear interest at the rate of
5.84% and 6.30%, respectively. Interest on the notes is payable on December 31
of each year and the entire unpaid principal amount becomes due on the earlier
of November 15, 2001 or the death of William B. Ledbetter.
10. SALE OF INTERESTS IN UNCONSOLIDATED AFFILIATE
Until October 24, 1997, the Company owned a 40% equity interest in HRHC. The
Company accounted for this investment on the equity method. Pursuant to a
management agreement between HRHC and HLVMC, relating to the management and
operations of the Hard Rock Hotel and Casino owned by HRHC (the "Management
Agreement"), the Company earned a base management fee from HRHC of 4% of
adjusted gross revenue, as defined in the Management Agreement, and up to an
additional 2% of adjusted gross revenue if certain financial targets were met.
On October 24, 1997, the Company sold all of the capital stock of HRHC held
by the Company, representing 40% of the then outstanding capital stock of HRHC,
and all of the Company's rights under the Management Agreement. The capital
stock and the rights under the Management Agreement were sold to HRHC. The sale
closed pursuant to the terms of a Stock Purchase and Management Buyout Agreement
entered into on July 1, 1997 by and among the Company, HLVMC, Lily Pond
Investments, Inc., a Nevada corporation ("Lily Pond") and HRHC. Upon closing,
the Management Agreement terminated and a stockholders' agreement among the
Company, HRHC and Lily Pond was canceled.
The Company received $45.0 million cash for the capital stock and the
Company's rights under the Management Agreement. The Company received, in
addition, approximately $1.2 million cash in satisfaction of a note and other
amounts due the Company from HRHC as of October 24, 1997.
54
<PAGE>
HARVEYS CASINO RESORTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. SALE OF INTERESTS IN UNCONSOLIDATED AFFILIATE (CONTINUED)
Summarized balance sheet and statement of income information for HRHC as of
November 30, 1996, for the year ended November 30, 1996 and for the period from
December 1, 1996 through October 24, 1997 were as follows:
<TABLE>
<CAPTION>
NOVEMBER 30,
1996
------------
<S> <C>
Summarized Balance Sheet Information (in thousands)
Current assets.................................................................................... $ 11,376
Land, building and equipment, net................................................................... 84,466
Other assets........................................................................................ 11,792
------------
Total assets.................................................................................... 107,634
------------
Current liabilities............................................................................... 20,950
Long-term debt.................................................................................... 55,922
------------
Total liabilities............................................................................... 76,872
------------
Net assets...................................................................................... $ 30,762
------------
------------
</TABLE>
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED
OCTOBER 24, NOVEMBER 30,
1997 1996
------------ ------------
<S> <C> <C>
Summarized Statement of Income Information (in thousands)
Revenues........................................................................... $ 68,699 $ 77,289
Operating income................................................................... 11,323 12,663
Net income......................................................................... 4,295 4,467
</TABLE>
11. SUBSEQUENT EVENT (UNAUDITED)
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 controlled affiliate of Colony Capital, Inc. of Los Angeles,
California ("Colony Capital"). Upon closing of the transaction contemplated by
the Merger Agreement, the Company will be an affiliate of Colony Capital. The
all-cash transaction values each of the approximately 10.8 million fully diluted
common shares of the Company at $28. 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.
If the merger is consummated, under the terms of 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. See footnote 3.
55
<PAGE>
HARVEYS CASINO RESORTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following table sets forth unaudited selected quarterly financial
information for each quarter of fiscal 1997 and 1996. This information, in the
opinion of management, includes only normal recurring adjustments necessary for
a fair representation of the information set forth therein. The operating
results for any quarter are not indicative of results for any future period.
Quarterly results may not be comparative due to the seasonal nature of
operations.
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
--------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Fiscal 1997
Revenue............................................................. $ 58,554 $ 71,709 $ 83,676 $ 69,624
Operating income.................................................... 4,599 11,560 17,995 7,126
Income before income taxes (a)...................................... 7 6,683 12,981 30,002
Net income (a)...................................................... 4 3,978 7,724 19,068
Net income per common share (a) (b)................................. $ 0.00 $ 0.40 $ 0.78 $ 1.93
Fiscal 1996
Revenue............................................................. $ 49,474 $ 59,380 $ 74,249 $ 64,647
Operating income.................................................... 895 8,147 15,198 9,781
Income (loss) before income taxes and extraordinary item............ (896) 5,049 10,533 4,918
Extraordinary item, net of tax...................................... -- (141) (380) --
Net income (loss)................................................... (576) 3,003 5,905 2,961
Net income (loss) per common share (b)
Income (loss) before extraordinary item........................... $ (0.06) $ 0.33 $ 0.64 $ 0.30
Extraordinary item, net of tax.................................... -- (0.02) (0.04) --
Net income (loss) per common share................................ $ (0.06) $ 0.31 $ 0.60 $ 0.30
</TABLE>
- ------------------------
(a) Income before income taxes, net income and net income per common share for
the fourth quarter of fiscal 1997 include the effect of the gain recognized
on the sale of the Company's interests in the Hard Rock Hotel and Casino.
The gain on the transaction was approximately $27.4 million, before income
taxes, and approximately $17.4 million on an after-tax basis.
(b) Net income (loss) per share calculations for each quarter are based on the
weighted average number of common stock and common stock equivalents
outstanding during the respective quarters; accordingly, the sum of the
quarters does not equal the full-year income per share.
56
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- -------------------------------------------------------------------------------------------
<C> <S> <C>
2.1 Acquisition Agreement, dated as of March 28, 1996, between the Registrant and Mountain City
Casino Partners, L. P. (9)
2.2 Stock Purchase Agreement, dated July 1, 1997 (7)
2.3 Agreement and Plan of Merger, dated February 1, 1998, (20)
3.1 Restated Articles of Incorporation of the Registrant (1)
3.2 Sixth Amended Bylaws of the Registrant (11)
4.1 Form of Stock Certificate of the Registrant (1)
4.2 Indenture, dated as of April 30, 1996 between the Registrant and IBJ Schroder Bank and
Trust, as Trustee (including form of Note) (9)
4.3 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)
(10)
4.4 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 Trustees (12)
4.5 Second Supplemental Indenture, dated as of May 22, 1997, supplementing the Indenture Dated
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 & Trust Company ("Trustee") (19)
10.1 Net Lease Agreement, dated February 28, 1985, between Park Cattle Co. and the Registrant
(1)
10.2 Lease, dated July 9, 1973, between Park Cattle Co. and the Registrant (1)
10.3 Deed of Trust with Assignment of Rents and Security Agreement (Nevada Property), dated
March 15, 1985, between the Registrant and Lawyers Title of Northern Nevada, as Trustee,
and First Interstate Bank of Nevada, N.A., First Interstate Bank of California, National
Bank of Detroit, First Interstate Bank of Denver, N.A., First Interstate of Washington,
N.A., and First Interstate Bank of Utah, N.A. (1)
10.4 First Amendment to Deed of Trust with Assignment of Rents and Security Agreement (Nevada
Property), dated April 20, 1989, between the Registrant and Western Title Company, Inc., as
Trustee, and First Interstate Bank of Nevada, N.A., First Interstate Bank of California,
National Bank of Detroit, First Interstate Bank of Denver, N.A., First Interstate Bank of
Washington, N.A., First Interstate Bank of Utah, N.A., First Interstate Bank of Oregon,
N.A., and West One Bank, Idaho, N.A. (1)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- -------------------------------------------------------------------------------------------
<C> <S> <C>
10.5 Deed of Trust and Assignment of Rents (California Property), dated March 15, 1985, between
the Registrant and Lawyers Title Insurance Corporation, as Trustee, and First Interstate
Bank of Nevada, N.A., First Interstate Bank of California, National Bank of Detroit, First
Interstate Bank of Denver, N.A., First Interstate Bank of Washington, N.A., and First
Interstate Bank of Utah, N.A. (1)
10.6 First Amendment to Deed of Trust with Assignment of rents and Security Agreement
(California Property), dated April 20, 1989, between the Registrant and Western Tiel
Company, Inc., as Trustee, and First Interstate Bank of Nevada, N.A., First Interstate Bank
of California, National Bank of Detroit, First Interstate Bank of Denver, N.A.,First
Interstate of Washington, N.A., and First Interstate Bank of Utah, N.A., First Interstate
Bank of Oregon, N.A., and West One Bank Idaho, N.A. (1)
10.7 Second Amendment to Deed of Trust with Assignment of Rents and Security Agreement (Nevada
Property), dated January 12, 1993, between the Registrant and Western Title Company, Inc.,
as Trustee, and First Interstate Bank of Nevada, N.A., First Interstate Bank of California,
First Interstate Bank of Denver, N.A., First Interstate Bank of Utah, N.A., West One Bank,
Idaho, and NBD Bank, N.A. (1)
10.8 Second Amendment to Deed of Trust with Assignment of Rents and Security Agreement
(California Property), dated January 12, 1993, between the Registrant and Western Title
Company, Inc., as Trustee, and First Interstate Bank of Nevada, N.A., First Interstate Bank
of California, First Interstate Bank of Denver, N.A.,First Interstate Bank of Utah, N.A.,
West One Bank, Idaho, and NBD Bank, N.A. (1)
10.9 Employment Agreement, dated November 1, 1993, between Richard F. Kudrna, Sr. and the
Registrant (1)
10.10 Employment Agreement, dated November 30, 1993, between William B. Ledbetter and the
Registrant (1)
10.11 Outside Directors Retirement Plan, Amended (1)
10.12 Supplemental Executive Retirement Plan (1)
10.13 Senior Supplemental Executive Retirement Plan (1)
10.14 Honorary Director Resolution--Vera Gross (1)
10.15 1993 Omnibus Incentive Plan (2)
10.16 1993 Non-Employee Directors Stock Option Program (2)
10.17 Form of Deferred Compensation Agreement and Schedule of 1994 Participants (2)
10.18 Form of Indemnification Agreement for Directors and Officers and Schedule of Indemnities
(21)
10.19 Amendment No. 1 to 1993 Non-Employee Directors Stock Option Program (2)
10.20 Excursion Boat Sponsorship and Operations Agreement, dated August 22, 1994, by and between
Iowa West Racing Association and Harveys Iowa Management Company, Inc. (3)
10.21 Commitment Letter, dated January 18, 1995, between the Registrant and First Interstate Bank
of Nevada, N.A. (4)
10.22 Form of Deferred Compensation Agreement and Schedule of 1995 Participants (4)
10.23 Employment Agreement dated May 9, 1995 by and between the Registrant and Gary Armentrout
(5)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- -------------------------------------------------------------------------------------------
<C> <S> <C>
10.24 Employment Agreement dated August 14, 1995, by and between the Registrant and John
McLaughlin (6)
10.25 Employment Agreement dated August 14, 1995, by and between the Registrant and Kevin
Servatius (6)
10.26 Employment Agreement dated August 24, 1995, by and between the Registrant and Edward B.
Barraco (6)
10.27 Reducing Revolving Credit Agreement, dated as of August 14, 1995, by and among the
Registrant and Harveys C.C. Management Company, Inc., Harveys Iowa Management Company,
Inc., (the "Borrowers")and First Interstate Bank of Nevada, N.A., First Interstate Bank of
California, Bank of the West, First Security Bank of Idaho, N.A., Imperial Bank, Norwest
Bank of Nebraska, N.A., NBD Bank, Societe Generale, The Daiwa Bank, Limited, U.S. Bank of
Nevada, West One Bank, Idaho and Argentbank, (the "Lenders"). (6)
10.28 Second Amendment to Loan Agreement, dated November 7, 1995, by and among First Interstate
Bank of Nevada, N. A., Societe Generale, NBD Bank, N. A., United States National Bank of
Oregon, West One Bank, Idaho, First Security Bank of Idaho, N. A., The Daiwa Bank, Limited,
U. S. Bank of Nevada, Hard Rock Hotel, Inc. and Harveys Casino Resorts. (7)
10.29 Second Amended and Restated Reducing Revolving Credit Promissory Note, dated November 7,
1995 between First Interstate Bank of Nevada, N. A. as Agent Bank and Hard Rock Hotel, Inc.
(7)
10.30 Second Amendment to Guaranty of Loan, dated November 7, 1995, between Harveys Casino
Resorts and First Interstate Bank of Nevada, N. A., Societe Generale, NBD Bank, N. A.,
United State National Bank of Oregon, West One Bank, Idaho, First Security Bank of Idaho,
N. A., The Daiwa Bank, Limited and U. S. Bank of Nevada. (7)
10.31 Employment Agreement, dated October 22, 1995 and effective December 1, 1995 by and between
Harveys Casino Resorts and Thomas M. Yturbide. (7)
10.32 Employment Agreement, dated October 22, 1995 and effective December 1, 1995 by and between
Harveys Casino Resorts and Charles W. Scharer. (7)
10.33 Modification of Employment Agreement, dated November 21, 1995 by and between Harveys Casino
Resorts and Richard F. Kudrna, Sr. (7)
10.34 Harveys Casino Resorts Management Incentive Plan, approved August 8, 1995. (7)
10.35 Long-term Incentive Plan Guidelines (1995-1997 Performance Period) (7)
10.36 1996 Deferred Compensation Plan Participants (8)
10.37 Long-term Incentive Plan Targets, 1996, 1997, 1998 Cycle (8)
10.38 1996 Omnibus Incentive Plan (10)
10.39 First Amendment, dated as of May 15, 1996, to Reducing Revolving Credit Agreement by and
among the Registrant, Harveys C. C. Management Company, Inc., Harveys Wagon Wheel Casino
Limited Liability Company and Harveys Iowa Management Company, Inc. (the "Borrowers"),Wells
Fargo Bank, N.A., Bank of the West, First Security Bank of Idaho, N. A., Imperial Bank,
Norwest Bank of Nebraska, N. A., NBD Bank, Societe Generale, The Sumitomo Bank Limited,
Chicago Branch, U. S. Bank of Nevada, West One Bank, Idaho and Argentbank (the "Lenders")
(11)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- -------------------------------------------------------------------------------------------
<C> <S> <C>
10.40 Second Amendment, dated as of May 23, 1996, to Reducing Revolving Credit Agreement by and
among the Registrant, Harveys C. C. Management Company, Inc., Harveys Wagon Wheel Casino
Limited Liability Company and Harveys Iowa Management Company, Inc. (the "Borrowers"),
Wells Fargo Bank, N. A., Bank of the West, First Security Bank of Idaho, N. A., Imperial
Bank, Norwest Bank of Nebraska, N. A., NBD Bank, Societe Generale, The Sumitomo Bank
Limited, Chicago Branch, U. S. Bank of Nevada, West One Bank, Idaho and Argentbank (the
"Lenders") (11)
10.41 Release of Guaranty Agreement, dated May 10, 1996, by and among the Registrant, the
Lenders, the Agent Bank, the Banks and Hard Rock Hotel, Inc. (13)
10.42 Third Amendment, dated as of September 30, 1996, to Reducing Revolving Credit Agreement by
and among the Registrant, Harveys C.C. Management Company, Inc., Harveys Wagon Wheel Casino
Limited Liability Company and Harveys Iowa Management Company, Inc. (the "Borrowers"),
Wells Fargo Bank, National Association, U. S. Bank of Nevada, Bank of the West, First
Security Bank, N. A., Imperial Bank, Norwest Bank of Nebraska, N. A., NBD Bank, Societe
Generale, the Sumitomo Bank Limited, Chicago Branch and Agrentbank (the "Lenders"). (15)
10.43 Certificate of Joinder to General Continuing Subsidiary Guaranty, dated as of September 30,
1996, by Harveys L. V. Management Company, Inc., ("Joining Party") and Wells Fargo Bank,
National Association ("Beneficiary") under the General Continuing Subsidiary Guarantee
dated as of August 14, 1995, made by Reno Projects, Inc. (15)
10.44 Modification of Employment Agreement, dated November 27, 1996 between John McLaughlin and
the Registrant (16)
10.45 Extension of Employment Agreement dated February 10, 1997 between Stephen L. Cavallaro and
the Registrant (16)
10.46 1997 Deferred Compensation Participants and Form of Agreement (16)
10.47 Addendum to Employment Agreement, dated March 7, 1997 between Thomas M. Yturbide and the
Registrant (18)
10.48 Extension to Employment Agreement, dated January 30, 1997 between Edward B. Barrace and the
Registrant (18)
10.49 Employment Agreement, dated June 23, 1997 between James J. Rafferty and the Registrant (19)
10.50 Employment Agreement, dated July 1, 1997 between Verne Welch and the Registrant (19)
10.51 Employment Agreement, dated July 21 1997 between John R. Bellotti and the Registrant (19)
10.52 Assignment of Leases, effective June 1, 1997 by and between Harveys Casino Resorts,
formerly known as Harvey's Wagon Wheel, Inc. (the "Assignor"), a Nevada corporation,
Harveys Tahoe Management Company, Inc., (the "Assignee"), a Nevada corporation, and Park
Cattle Co. (the "Landlord"), a Nevada corporation (19)
10.53 Third Amendment to Lease Agreement, dated June 1, 1997, by and between Park Cattle Co. (the
"Landlord"), a Nevada corporation and Harveys Casino Resorts, formerly known as Harvey's
Wagon Wheel, Inc., (the "Tenant"), a Nevada corporation (19)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- -------------------------------------------------------------------------------------------
<C> <S> <C>
10.54 First Amendment to Lease Agreement, dated June 1, 1997, between Park Cattle Co. (the
"Landlord"), a Nevada corporation and Harveys Casino Resorts, formerly known as Harveys
Wagon Wheel, Inc., (the "Tenant"), a Nevada corporation (Douglas County, Nevada property)
(19)
10.55 First Amendment to Lease Agreement, dated June 1, 1997, between Park Cattle Co. (the
"Landlord"), a Nevada corporation and Harveys Casino Resorts, formerly known as Harveys
Wagon Wheel, Inc., (the "Tenant"), a Nevada corporation (El Dorado County, California
property) (19)
10.56 Fourth Amendment to Reducing Revolving Credit Agreement, dated July 25, 1997, by and among
Harveys Casino Resorts, a Nevada corporation, Harveys C. C. Management Company, Inc., a
Nevada corporation, Harveys Wagon Wheel Casino Limited Liability Company, Harveys Iowa
Management Company, Inc., a Nevada corporation, Harveys Tahoe Management Company, Inc., a
Nevada corporation (collectively the "Borrowers") Wells Fargo Bank, N. A., Bank of the
West, First Security Bank, N. A., Imperial Bank, Norwest Bank of Nebraska, N. A., The First
National Bank of Chicago, Societe Generale, The Sumitomo Bank, Limited, U. S. Bank and
Argentbank (the "Lenders") (19)
10.57 Assumption Agreement, dated July 25, 1997, by and among Harveys Casino Resorts, a Nevada
corporation, Harveys Tahoe Management Company, Inc., a Nevada corporation and Wells Fargo
Bank, N. A. (19)
10.58 Asset Transfer Agreement between Harveys Casino Resorts and Harveys Tahoe Management
Company, Inc., effective June 1, 1997 (19)
10.59 Harveys Casino Resorts Change of Control Plan, effective June 1, 1997 (21)
10.60 Supplemental Executive Retirement Plan, effective as of November 20, 1997 (21)
10.61 Second Modification of Employment Agreement, dated October 27, 1997 between John McLaughlin
and the Registrant (21)
10.62 Extension of Employment Agreement dated September 8, 1997 between Gary Armentrout and the
Registrant (21)
16.1 Grant Thornton LLP's letter regarding a change in certifying accountant (14)
21.1 List of Subsidiaries of the Registrant (21)
23.1 Consent of Deloitte & Touche LLP (21)
23.2 Consent of Grant Thornton LLP (21)
27 Financial Data Schedule (21)
</TABLE>
- ------------------------
(1) Incorporated herein by reference to Registration Statement No. 33-70670
(2) Incorporated herein by reference to the Registrant's Quarterly Report on
Form 10-Q for the period ended February 28, 1994
(3) Incorporated herein by reference to Registrant's Annual Report on Form 10-K
for the period ended November 30, 1994
(4) Incorporated herein by reference to Registrant's Quarterly Report on Form
10-Q for the period ended February 28, 1995
(5) Incorporated herein by reference to Registrant's Quarterly Report on Form
10-Q for the period ended May 31, 1995
(6) Incorporated herein by reference to Registrant's Quarterly Report on Form
10-Q for the period ended August 31 1995
<PAGE>
(7) Incorporated herein by reference to Registrant's Annual Report on Form 10-K
for the period ended November 30, 1995
(8) Incorporated herein by reference to Registrant's Quarterly Report on Form
10-Q for the period ended February 29, 1996.
(9) Incorporated herein by reference to Registration Statement No. 333-616
(10) Incorporated herein by reference to Registration Statement No. 333-3576
(11) Incorporated herein by reference to Registrant's Quarterly Report on Form
10-Q for the period ended May 31, 1996
(12) Incorporated herein by reference to Registrant's Current Report on Form 8-K
filed June 14, 1996
(13) Incorporated herein by reference to Registrant's Quarterly Report on Form
10-Q for the period ended August 31, 1996
(14) Incorporated herein by reference to Registrant's Current Report on Form 8-K
filed on July 3, 1996
(15) Incorporated herein by reference to Registrant's Annual Report on Form 10-K
for the period ended November 30, 1996
(16) Incorporated herein by reference to Registrant's Quarterly Report on Form
10-Q for the period ended February 28, 1997
(17) Incorporated herein by reference to Registrant's Current Report on Form 8-K
filed July 2, 1997
(18) Incorporated herein by reference to Registrant's Quarterly Report on Form
10-Q for the period ended May 31, 1997
(19) Incorporated herein by reference to Registrant's Quarterly Report on Form
10-Q for the period ended August 31, 1997
(20) Incorporated herein by reference to Registrant's Quarterly Report on Form
8-K for the period ended February 3, 1998
(21) Filed herewith
<PAGE>
EXHIBIT 10.18
INDEMNIFICATION AGREEMENT
This Indemnification Agreement (this "Agreement") is made as of this
_____ day of __________, 199_, by and between HARVEYS CASINO RESORTS, a
Nevada corporation (the "Company"), and ________ ("Indemnitee").
WHEREAS, the Company and Indemnitee recognize the difficulty in
obtaining directors' and officers' liability insurance, the substantial cost
of such insurance and the limitations in the coverage of such insurance;
WHEREAS, the Company and Indemnitee further recognize the substantial
level of corporate litigation in general, subjecting officers, directors and
key employees to expensive litigation risks while the availability and
coverage of liability insurance is severely limited;
WHEREAS, the Company desires to attract and retain the services of
highly qualified individuals, such as Indemnitee, to serve as officers,
directors and key employees of the Company and to indemnify its officers,
directors and key employees so as to provide them with the maximum protection
permitted by law.
NOW, THEREFORE, for good and valuable consideration, the receipt of
which is hereby acknowledged, the Company and Indemnitee hereby agree as
follows:
l. INDEMNIFICATION.
(a) THIRD PARTY PROCEEDINGS. The Company shall indemnify
Indemnitee if Indemnitee is or was a party or is threatened to be made a
party to or is involved in any action, suit or proceeding, whether civil,
criminal, administrative, or investigative, (other than an action by or in
the right of the Company) by reason of the fact that Indemnitee or a person
of whom Indemnitee is the legal representative is or was a director, officer,
employee, or agent of the Company, or any subsidiary of the Company, by
reason of any action or inaction on the part of the Indemnitee while an
officer, director, or key employee, or by reason of the fact that Indemnitee
is or was serving at the request of the Company as an officer, director,
employee or agent of another corporation, partnership, joint venture, trust
or other enterprise, to the fullest extent permitted by law, against all
expenses, liability and loss (including attorney fees, judgments, fines and
amounts paid or to be paid in settlement) reasonably incurred or suffered by
Indemnitee in connection with the action, suit or proceeding.
The indemnification above provided shall include, but not be limited to,
reimbursement of all fees, including amounts paid in settlement and
attorneys' fees actually and reasonably incurred, in connection with the
defense or settlement of any action or suit if
1
<PAGE>
Indemnitee acted in good faith and in a manner Indemnitee reasonably believed
to be in or not opposed to the best interests of the company, and, with
respect to any criminal action or proceeding, had no reasonable cause to
believe Indemnitee's conduct was unlawful. The termination of any action,
suit or proceeding by judgment, order, settlement, conviction or upon a plea
of nolo contendere or its equivalent, shall not, of itself, create a
presumption that Indemnitee reasonably believed to be in or not opposed to
the best interests of the Company, and that with respect to any criminal
action or proceeding, he or she had no reasonable cause to believe that
Indemnitee's conduct was unlawful.
(b) PROCEEDINGS BY OR IN THE RIGHT OF THE COMPANY. The Company
shall indemnify Indemnitee if Indemnitee was or is a party or is threatened
to be made a party to or is involved in any action, suit, or proceeding by or
in the right of the Company or any subsidiary of the Company to procure a
judgment in its favor by reason of the fact that Indemnitee or a person of
whom indemnitee is the legal representative is or was a director, officer,
employee or agent of the Company or any subsidiary of the Company, by reason
of any action or inaction on the part of Indemnitee while an officer or
director or by reason of the fact that Indemnitee is or was serving at the
request of the Company as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, to the
fullest extent permitted by law, against all expenses, liability and loss
(including attorneys fees, judgments, fines and amounts paid in settlement)
in each case, to the extent actually and reasonably incurred by Indemnitee in
connection with the defense or settlement of such action, suit, or proceeding
if Indemnitee acted in good faith and in a manner Indemnitee reasonably
believed to be in or not opposed to the best interests of the Company and
its shareholders, except that no indemnification shall be made in respect of
any claim, issue or matter as to which Indemnitee shall have been adjudged by
a court of competent jurisdiction, after exhaustion of all appeals therefrom
to be liable to the Company or for amounts paid in settlement to the Company
in the performance of Indemnitee's duty to the Company and its shareholders
unless and only to the extent that the court in which such action, suit or
proceeding is or was pending shall determine upon application that, in view
of all of the circumstances of the case, Indemnitee is fairly and reasonably
entitled to indemnity for such expenses as the court deems and then only to
the extent that the court shall determine.
2. EXPENSES; INDEMNIFICATION PROCEDURE.
(a) ADVANCEMENT OF EXPENSES. The Company shall advance all
expenses incurred by Indemnitee in connection with the investigation,
defense, settlement or appeal of any civil or criminal action or proceeding
referenced in Section 1(a) or (b) hereof (but not amounts actually paid in
settlement of any such action or proceeding) and to the extent consistent
with the Restated Articles of Incorporation and Bylaws of the Company.
Indemnitee hereby undertakes to repay such amounts advanced if, and to the
extent that, it shall ultimately be determined by a court of competent
jurisdiction that Indemnitee is not entitled to be indemnified by the Company
as authorized hereby. The advances to be made hereunder shall be paid by
the Company to Indemnitee within twenty (20) days following delivery of a
written request therefor by Indemnitee to the
2
<PAGE>
Company.
(b) NOTICE/COOPERATION BY INDEMNITEE. Indemnitee shall, as a
condition precedent to Indemnitee's right to be indemnified under this
Agreement, give the Company notice in writing as soon as practicable of any
claim made against Indemnitee for which indemnification will or could be
sought under this Agreement. Notice to the Company shall be directed to the
President/Chief Executive Officer of the Company, with a copy to the
Company's general counsel, at the addresses shown on the signature page of
this Agreement (or such other address as the Company shall designate in
writing to Indemnitee). Notice shall be deemed received three business days
after the date postmarked if sent by domestic, certified or registered mail,
properly addressed; otherwise notice shall be deemed received when such
notice shall actually be received by said parties. In addition, Indemnitee
shall give the company such information and cooperation as it may reasonably
require as shall be within Indemnitee's power.
(c) PROCEDURE. Any indemnification provided for in Section 1
shall be made no later than forty-five (45) days after receipt of the written
request of Indemnitee. If a claim under this Agreement, under any statute or
under any provision of the Company's Restated Articles of Incorporation or
Bylaws providing for indemnification is not paid in full by the Company
within forty-five (45) days after a written request for payment therefor has
first been received by the company, then Indemnitee may, but need not, at any
time thereafter bring an action against the Company to recover the unpaid
amount of the claim and, subject to Section 14 of this Agreement, Indemnitee
shall also be entitled to be paid for the expenses (including attorneys'
fees) of bringing such action. It shall be a defense to any such action
(other than an action brought to enforce a claim for expenses incurred in
connection with any action or proceeding in advance of its final disposition)
that Indemnitee has not met the standards of conduct which make it
permissible under applicable law or this Agreement for the Company to
indemnify Indemnitee for the amount claimed, but the burden of proving such
defense shall be on the Company, and Indemnitee shall be entitled to receive
interim payments of expenses pursuant to Subsection 3(a) unless and until
such defense may be finally adjudicated by court order or judgment from which
no further right of appeal exists. It is the parties intention that if the
Company contests Indemnitee's right to indemnification, the question of
Indemnitee's right to indemnification shall be for the court to decide, and
neither the failure of the Company (including its Board of Directors, any
committee or subgroup of its Board of Directors, its independent legal
counsel or its shareholders) to have made a determination that
indemnification of Indemnitee is proper in the circumstances because
Indemnitee has met the applicable standard of conduct required by the
applicable law or this Agreement, nor an actual determination by the Company
(its Board of Directors, any committee or subgroup, its Board of Directors,
its independent legal counsel or its shareholders) that Indemnitee has not
met such applicable standard of conduct, shall create a presumption that
Indemnitee has or has not met the applicable standard of conduct.
(d) NOTICE TO INSURERS. If, at the time of the receipt of a
notice of a claim pursuant to section 3(b) hereof, the Company has director
and officer liability insurance in effect, then the Company shall give prompt
notice of the commencement of such proceeding to the insurers in accordance
with the procedures set forth in the respective policies. The Company shall
thereafter
3
<PAGE>
take all necessary or appropriate action to cause such insurers to pay, on
behalf of Indemnitee, all amounts payable as a result of such proceeding in
accordance with the terms of such policies.
(e) SELECTION OF COUNSEL. If the Company shall be obligated under
Section 3(a) hereof to pay the expenses of any proceeding against Indemnitee,
then the Company, if appropriate, shall be entitled to assume the defense of
such proceeding, with counsel approved by Indemnitee, which approval shall
not be unreasonably withheld, upon the delivery to Indemnitee of written
notice of its election so to do. After delivery of such notice, approval of
such counsel by Indemnitee and the retention of such counsel by the Company,
the Company will not be liable to Indemnitee under this Agreement for any
fees of counsel subsequently incurred by Indemnitee with respect to the same
proceeding, provided, that (i) Indemnitee shall have the right to employ
Indemnitee's counsel in any such proceeding at Indemnitee's expense; and
(ii) if (A) the employment of counsel by Indemnitee has been previously
authorized by the Company, (B) Indemnitee shall have reasonably concluded
that there may be a conflict of interest between the Company and Indemnitee
in the conduct of any such defense or (C) the Company shall not have employed
counsel to assume the defense of such proceeding, then the fees and expenses
of Indemnitee's counsel shall be at the expense of the Company.
3. ADDITIONAL INDEMNIFICATION OF RIGHTS; NONEXCLUSIVITY.
(a) SCOPE. Notwithstanding any other provision of this Agreement,
the Company hereby agrees to indemnify Indemnitee to the fullest extent
permitted by law, notwithstanding that such indemnification is not
specifically authorized by the other provisions of this Agreement, the
Company's Restated Articles of Incorporation, the Company's Bylaws or by
statute. In the event of any change, after the date of this Agreement, in
any applicable law, statute or rule which expands the right of a Nevada
corporation to indemnify a member of its board of directors or an officer,
such changes shall be, ipso facto, within the purview of Indemnitee's rights
and Company's obligations, under this Agreement. In the event of any change
in any applicable law, statute or rule which narrows the right of a Nevada
corporation to indemnify a member of its Board of Directors or an officer,
such statute or rule to be applied to this Agreement shall have no effect on
this Agreement or the parties, rights and obligations hereunder.
(b) NONEXCLUSIVITY. The indemnification provided by this
Agreement shall not be deemed exclusive of any rights to which Indemnitee may
be entitled under the Company's Restated Articles of Incorporation, its
Bylaws, any agreement, any vote of shareholders or disinterested directors,
the Private Corporation Law of the State of Nevada or otherwise, both as to
action in Indemnitee's official capacity and as to action in another capacity
while holding such office. The indemnification provided under this Agreement
shall continue as to the Indemnitee for any action taken or not taken while
serving in an indemnified capacity even though Indemnitee may have ceased to
serve in such capacity at the time of any action or other covered proceeding.
4. PARTIAL INDEMNIFICATION. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of the expenses, judgments,
4
<PAGE>
fines, penalties actually or reasonably incurred by Indemnitee on
investigation, defense, appeal or settlement of any civil or criminal action
or proceeding, but not, however, for the total amount thereof, the Company
shall nevertheless indemnify Indemnitee for the portion of such expenses,
judgments, fines or penalties to which Indemnitee is entitled.
5. MUTUAL ACKNOWLEDGMENT. Both the Company and Indemnitee acknowledge
that in certain instances, federal law or applicable public policy may
prohibit the Company from indemnifying its directors and officers under this
Agreement or otherwise. Indemnitee understands and acknowledges that the
Company has undertaken or may be required in the future to undertake with the
Securities and Exchange Commission to submit the question of indemnification
to a court in certain circumstances for a determination of the Company's
right under public policy to indemnify Indemnitee.
6. DIRECTORS' AND OFFICERS' LIABILITY INSURANCE. The Company shall,
from time to time, make the good faith determination whether or not it is
practicable for the Company to obtain and maintain a policy or policies of
insurance with reputable insurance companies providing the officers and
directors of the Company with coverage for losses from wrongful acts, or to
ensure the Company's performance of its indemnification obligations under
this Agreement. Among other considerations, the Company will weigh the costs
of obtaining such insurance coverage against the protection afforded by such
coverage. Notwithstanding the foregoing, the Company shall have no
obligation to obtain or maintain such insurance if the Company determines in
good faith that such insurance is not reasonably available, if the premium
costs for such insurance are disproportionate to the amount of coverage
provided, if the coverage provided by such insurance is limited by exclusions
so as to provide an insufficient benefit or if Indemnitee is covered by
similar insurance maintained by a subsidiary or parent of the Company.
7. SEVERABILITY. Nothing in this Agreement is intended to require or
shall be construed as requiring the Company to do or fail to do any act in
violation of applicable law. The Company's inability, pursuant to court
order, to perform its obligations under this Agreement shall not constitute a
breach of this Agreement. The provisions of this Agreement shall be severable
as provided in this Section 8. If this Agreement or any portion hereof shall
be invalidated on any ground by any court of competent jurisdiction, then the
Company shall nevertheless indemnify Indemnitee to the full extent permitted
by any applicable portion of this Agreement that shall not have been
invalidated, and the balance of this Agreement shall not have been so
invalidated and the balance of this Agreement not so invalidated shall be
enforceable in accordance with its terms.
8. EXCEPTIONS. Any other provision herein to the contrary
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
(a) EXCLUDED ACTS. To indemnify Indemnitee for any acts or
omissions or transactions from which a director or officer may not be
relieved of liability under the Nevada General Corporation Law;
5
<PAGE>
(b) CLAIMS INITIATED BY INDEMNITEE. To indemnify or advance
expenses to Indemnitee with respect to proceedings or claims initiated or
brought voluntarily by Indemnitee and not by way of defense, except with
respect to proceedings brought to establish or enforce a right to
indemnification under this Agreement or any other statute or law or otherwise
as required under Section 78.751 of the Nevada General Corporation Law or the
Restated Articles of Incorporation or Bylaws of the Company, but such
indemnification or advancement of expenses may be provided by the Company in
specific cases if the Board of Directors has approved the initiation or
bringing of such suit;
(c) LACK OF GOOD FAITH. To indemnify Indemnitee for any expenses
incurred by Indemnitee with respect to any proceedings instituted by
Indemnitee to enforce or interpret this Agreement, if a court of competent
jurisdiction determines that each of the material assertions made by
Indemnitee in such proceeding was not made in good faith or was frivolous;
(d) INSURED CLAIMS. To indemnify Indemnitee for expenses or
liabilities of any type whatsoever (including judgments, fines, ERISA excise
taxes or penalties and amounts paid in settlement) which have been paid
directly to Indemnitee by an insurance carrier under a policy of director and
officer liability insurance maintained by the Company; or
(e) CLAIMS UNDER SECTION 16(b). To indemnify Indemnitee for
expenses and the payment of profits arising from the purchase and sale by
Indemnitee of securities in violation of Section 16(b) of the Securities
Exchange Act of 1934, as amended, or any similar successor statute.
9. EFFECTIVENESS OF AGREEMENT. To the extent that the indemnification
permitted under the terms of certain provisions of this Agreement exceeds the
scope of the indemnification provided for in the Nevada General Corporation
Law, such provisions shall not be effective unless and until the Company's
Restated Articles of Incorporation or Bylaws authorize such additional rights
of indemnification. In all other respects, the balance of this Agreement
shall be effective as of the date set forth on the first page and may apply
to acts or omissions of Indemnitee which occurred prior to such date if
Indemnitee was an officer, director, employee or other agent of the Company,
or was serving at the request of the Company as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise at the time such act or omission occurred.
10. CONSTRUCTION OF CERTAIN PHRASES.
(a) For purposes of this Agreement, references to "Company" shall
include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, employees
or agents, so that if Indemnitee is or was a director, officer, employee, or
agent of such constituent corporation or is or was serving at the request of
such constituent corporation as a director, officer, employee, or agent of
another corporation, partnership, joint venture, trust or other enterprise,
then Indemnitee shall
6
<PAGE>
stand in the same position under the provisions of this Agreement with
respect to the resulting or surviving corporation as Indemnitee would have
with respect to such constituent corporation if its separate existence had
continued.
(b) For purposes of this Agreement, references to "other
enterprises" shall include employee benefit plans; references to "fines"
shall include any excise taxes assessed on Indemnitee with respect to an
employee benefit plan; and references to "serving at the request of the
Company": shall include any service as a director, officer, employee or agent
of the Company which imposes duties on, or involves services by, such
director, officer, employee or agent with respect to an employee benefit
plan, its participants or its beneficiaries.
11. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original, and all of which
shall constitute one and the same agreement.
12. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of and be enforceable by the parties hereto and their
respective successors, assigns, including any direct or indirect successor by
purchase, merger, consolidation or otherwise to all or substantially all of
the business and/or assets of the Company, spouses, heirs, and personal and
legal representatives. The Company shall require and cause any successor
(whether direct or indirect by purchase, merger, consolidation or otherwise)
to all or substantially all, or a substantial part of the business or assets
of the Company, by written agreement in the form and substance satisfactory
to Indemnitee, expressly to assume and agree to perform this Agreement in the
same manner and to the same extent that the Company would be required to
perform if no such succession had taken place. This Agreement shall continue
in effect regardless of whether Indemnitee continues to serve as a director,
officer, or agent of the Company or of any other enterprise at the Company's
request.
13. ATTORNEYS FEES. In the event that any action is instituted by the
Indemnitee under this Agreement to enforce or interpret any of the terms
hereof, Indemnitee shall be entitled to be paid all court costs and expenses,
including reasonable attorneys' fees, incurred by Indemnitee with respect to
such action, unless as a part of such action, the court determines that each
of the material assertions made by Indemnitee as a basis for such action were
not made in good faith or were frivolous. In the event of an action
instituted by or in the name of the Company under this Agreement or to
enforce or interpret any of the terms of this Agreement, Indemnitee shall be
entitled to be paid all court costs and expenses, including attorneys fees,
incurred by Indemnitee in defense of such action (including with respect to
Indemnitee's counterclaims and cross-claims made in such action), unless as a
part of such action the court determines that each of Indemnitee's material
defenses to such action were not made in good faith or were frivolous. In
the event of an action instituted by or in the name of the company under this
Agreement or to enforce or interpret any of the terms of this Agreement,
Indemnitee shall be entitled to be paid all court costs and expenses,
including attorneys' fees, incurred by Indemnitee in defense of such action
(including with respect to Indemnitee's counterclaims and cross-claims made
in such action), unless as a part of such action, the court determines that
each of Indemnitee's material defenses to such action were not made in
7
<PAGE>
good faith or were frivolous.
14. NOTICE. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be deemed duly given (i)
if delivered by hand and receipted for by the party addressee on the date of
such receipt, or (ii) if mailed by domestic certified or registered mail with
postage prepaid on the third business day after the date postmarked.
Addresses for notice to either party are as shown on the signature page of
this Agreement, or as subsequently modified by written notice.
15. CONSENT TO JURISDICTION. The Company and Indemnitee each hereby
irrevocably consent to the jurisdiction and venue of the courts of the County
of Douglas, State of Nevada for all purposes in connection with any action or
proceeding which arises out of or relates to this Agreement.
16. CHOICE OF LAW. This Agreement shall be governed by and its
provisions construed in accordance with the laws of the State of Nevada.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above-written.
HARVEYS CASINO RESORTS
Post Office Box 128
Stateline, Nevada 89449
By:________________________________
________________________________
Chairman of the Board
With a copy to:
RONALD D. ALLING
SCARPELLO & ALLING, LTD.
Post Office Box 3390
Lake Tahoe, Nevada 89449-3390
AGREED TO AND ACCEPTED: INDEMNITEE:
___________________________________
Address:___________________________
___________________________________
8
<PAGE>
SCHEDULE OF INDEMNITIES AS OF NOVEMBER 30, 1997
Gary D. Armentrout William Ledbetter
Edward B. Barraco John McLaughlin
John R. Bellotti James J. Rafferty
John Brower Charles W. Scharer
Stephen L. Cavallaro Kevin Servatius
John Hewitt Verne Welch
David J. Hurst Thomas Yturbide
Louis R. Kelmanson And past members of the
Board of Directors since 11/29/93
<PAGE>
EXHIBIT 10.59
HARVEYS CASINO RESORTS
CHANGE OF CONTROL PLAN
1. PURPOSE. The purpose of Harveys Casino Resorts ("Harveys") Change of
Control Plan (the "Plan") is to provide additional special arrangements for
a select group of senior management if termination of their employment or
substantial diminution of their compensation or responsibilities occurs in
connection with a change in control, or ownership of Harveys; and to provide
special arrangements for certain members of Harveys Board of Directors. It
is intended that the Plan will help retain key employees during times of
disruption and potential loss of employment; maintain the integrity of
Harveys' management team and preserve the continued value of Harveys during
periods of disruption surrounding a Change of Control; enable the Board of
Directors and senior management to make the "right" decision without undue
concern for their own well-being or continued employment; and provide a
positive incentive for Board Members and key executives to support a desired
transaction and maximize value for shareholders.
2. ELIGIBILITY. Persons eligible to participate in the Plan shall be
limited to those members of senior management that are specifically
identified by the President/CEO and confirmed by the Compensation Committee
of the Board of Directors of Harveys whose:
(a) Employment is terminated as a result of a Change of Control;
(b) Position has been restructured to involve demotion or other
diminution of duties or responsibilities as a result of a Change of Control;
or
(c) Compensation is materially reduced in anticipation of, or within
two (2) years of a Change of Control.
3. CHANGE OF CONTROL. For the purposes of this Plan, "CHANGE OF CONTROL"
shall mean the definition as set forth in Harveys Casino Resorts 1996 Omnibus
Incentive Plan. The anticipation of Change of Control shall occur when the
Participant's employment is terminated before such Change of Control and it
is reasonably demonstrated that such employment termination:
(a) Was at the request, directly or indirectly, of a third-party who
has taken steps reasonably calculated to effect the Change of Control; or
(b) Otherwise arose in connection with, or in anticipation of the
Change of Control.
For purposes of this Plan, Change of Control shall be deemed to have occurred
immediately prior to the employment termination of a Participant.
4. SEVERANCE COMPENSATION. A Participant in this Plan shall be entitled to
receive
1
<PAGE>
severance compensation, i.e. continuation of salary and core benefits
(medical, dental, vision and life) for the remainder of the balance of his or
her employment contract term, or as specifically set forth below, whichever
is greater.
PARTICIPANT EMPLOYEE SALARY & BENEFITS
-------------------- -----------------
Level I - CEO 36 months
Level II - COO & CFO 30 months
Level III - Remaining Participants 24 months
5. MANAGEMENT INCENTIVE PLAN (SHORT TERM INCENTIVE PLAN). A Participant
who is also an eligible participant in the Management Incentive Plan, whose
employment is terminated as a result of a Change of Control shall receive a
lump sum payout at maximum, of the sums payable for that year under the
Management Incentive Plan upon termination. If following a Change of Control
the Management Incentive Plan is terminated or amendments are made that
materially adversely affect a Participant, who is also a participant in the
Management Incentive Plan, then that Participant shall receive a lump sum
payout at maximum within sixty (60) days following the termination of the
Management Incentive Plan, or the fiscal year during which the material
amendments were made.
6. LONG-TERM INCENTIVE PLAN. A Participant in this Plan, who is also a
participant in the Long-Term Incentive Plan, who is retained at the same
level of responsibility and compensation subsequent to a Change of Control,
shall receive a payout at maximum for each cycle of the Long Term Incentive
Plan, within sixty (60) days following the end of each plan year.
Participants who are also participants in the Long-Term Incentive Plan, who
are discharged as a result of a Change of Control, shall receive a lump sum
payout at maximum for each cycle of the Long-Term Incentive Plan within
thirty (30) days of their termination. Participants who are also
participants in the Long-Term Incentive Plan, who are retained but demoted,
or who have had their compensation materially reduced as a result of a Change
of Control, shall receive a lump sum payment at maximum for each cycle of
the Long-Term Incentive Plan within thirty (30) days of their demotion or
reduction in compensation.
7. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN. Upon a Change of Control, a
Participant who is also a participant in the Supplemental Executive
Retirement Plan, shall be entitled to the greater of their actual vesting,
plus the term of the severance payment, they will receive pursuant to the
schedule set forth in Section 4 above, or five (5) years. (Adjusted Vested
Interest).
A Participant who is also a participant in the Supplemental Executive
Retirement Plan, who is demoted, discharged, or who has had their
compensation materially reduced as a result of a Change of Control, shall be
entitled to receive a present value lump sum payment equal to their
2
<PAGE>
Adjusted Vested Interest in the Supplemental Executive Retirement Plan within
30 days from a Change of Control.
Projected Annual Salary (PAS) shall be a Participant's monthly based
salary as of the date of Change of Control x 12 (months), plus a Five Percent
(5%) annual increase, compounded times the number of years until a
Participant's Normal Retirement Age (as defined in the Supplemental
Retirement Plan).
The lump sum formula used herein shall be a Participant's adjusted
vested interest times Vesting Per Plan Schedule times PAS times 15 (length of
normal payout under SERP), discounted by 15 year treasury bill rate as quoted
on the close of the last business day immediately preceding the date of the
Change of Control.
AVI X Vesting Per Plan Schedule* X PAS X 15
-------------------------------------------
15-Year T-Bill Rate
* The SERP Plan dated October 25, 1990, provides a retirement benefit as
a percentage of Projected Annual Salary (PAS) as follows: 3 years of service
10%, 4 years of service 20%, 5 years of service 30%, 6 years of service 40%,
and 7 years of service and thereafter 50%. The Amended SERP Plan, dated
October 27, 1994, provides for a 2.5% vesting each year up to 20 years.
8. BOARD OF DIRECTORS. Members of the Board of Directors who are asked to
resign as a result of Change of Control shall be paid their Annual
Compensation for the balance of their term for which they were elected, in
cash, simultaneously with their resignation.
Members of the Board of Directors who are asked to resign as a result of
the Change of Control shall be entitled to a lump sum payment of the benefit
compensation due under the Board of Directors Retirement Plan in effect
immediately prior to the Change of Control.
All options granted to the directors under the 1993 Non-Employee
Directors Stock Option Plan shall immediately vest upon a Change of Control.
9. COVENANTS NOT TO COMPETE. A Participant in this Plan, who has
previously signed a Covenant Not to Compete with Harveys, shall, in the event
of a Change of Control, no longer be bound by the previously entered into
Covenant Not to Compete, upon his or her termination of employment, as a
result of a Change of Control.
10. RIGHT TO TERMINATE EMPLOYMENT. Nothing contained in this Change of
Control Plan, or in any agreement entered into pursuant to this Change of
Control Plan shall confer upon any person the right to continue in the
employment of Harveys or affect any right Harveys may have to terminate the
employment of such person.
3
<PAGE>
11. WITHHOLDING. Whenever any payments are to be made under this Change of
Control Plan, Harveys shall withhold amounts sufficient to satisfy any
withholding tax requirement.
12. AFFECT ON OTHER PLANS. Except as specifically set forth in this Change
of Control Plan, this Plan shall not affect a Participant's eligibility to
participate in any other Plan of Harveys.
13. AMENDMENT. Harveys may terminate or amend this Change of Control
Plan at any time. No amendment or termination, however, shall adversely
affect the right of a Participant in this Plan to receive payment of any
amounts determined prior to such amendment or termination.
14. EFFECTIVE DATE. This Plan, except for the portions dealing with
Members of the Board of Directors, was approved in concept by the Board of
Directors on May 22, 1997, and shall be effective as of June 1, 1997,
notwithstanding a later execution hereof. Those portions dealing with the
Members of the Board of Directors shall be effective as of the 1st day of
August, 1997.
Dated this 19th day of August, 1997.
---- ------
/s/ Charles W. Scharer
---------------------------------
CHARLES W. SCHARER
Chairman, President/CEO
HARVEYS CASINO RESORTS
/s/ Eugene White
---------------------------------
EUGENE WHITE
Chairman, Compensation Committee
HARVEYS CASINO RESORTS
4
<PAGE>
EXHIBIT 10.60
HARVEYS CASINO RESORTS
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
1. PURPOSE. The purpose of the Harveys Casino Resorts Supplemental Executive
Retirement Plan is to reward and promote the continued employment and best
efforts of key employees on behalf of Harveys by providing selected
employees and their beneficiaries with supplemental retirement and retiree
medical benefits. It is intended that the Plan will constitute an unfunded
plan primarily for the purpose of providing deferred compensation for a
select group of management or highly compensated employees.
2. DEFINITIONS. The following words and phrases shall have the meanings
described below:
2.1 "ADMINISTRATOR" shall mean Harveys Director of Compensation and
Benefits or such other individual or group of individuals as may be
designated from time to time for such purpose.
2.2 "AMENDMENT DATE" SHALL MEAN NOVEMBER 20, 1997.
2.3 "BOARD" shall mean the Board of Directors of Harveys.
2.4 "EFFECTIVE DATE" shall mean 10/01/94.
2.5 "HARVEYS" shall mean Harveys Casino Resorts and any successor or
successors thereof.
2.6 "NORMAL RETIREMENT AGE" shall mean the date on which a Participant
attains age 65.
2.7 "PARTICIPANT" shall mean an employee selected to participate in the
Plan.
2.8 "PLAN" shall mean this Supplemental Executive Retirement Plan of
Harveys Casino Resorts, as amended from time to time.
3. ELIGIBILITY. Employees of the Corporation whose positions are classified
as Harveys Casino Resorts Executive Committee shall be eligible to
participate in the Plan unless already covered by the Senior Supplemental
Retirement Plan. Individuals who were in an eligible position prior to the
Amendment Date and assumes a position of eligibility on the Harveys Casino
Resorts Executive Committee shall accrue time towards vesting from their
original date of hire. (see Addendum I)
<PAGE>
4. PARTICIPATION. Participants shall be selected from among those employees
eligible by Harveys President and Chief Executive Officer, subject to the
approval and confirmation of the Compensation Committee of the Board. Upon
selection and approval, Participants shall be notified of their
participation by the Chairman of the Board and shall be required to
acknowledge their participation in the Plan in the form of an agreement
letter or in such other form and subject to such conditions as may be
prescribed from time to time for such purpose.
5. NORMAL RETIREMENT BENEFIT. A Participant who has served at least 5 years
in an eligible position, and who retires from Harveys on or after attaining
Normal Retirement Age shall receive a monthly retirement benefit in an
amount equal to two and one-half percent (2.5%) times the completed years
of service times the Participant's average monthly base salary earned
during his or her last five years of employment with Harveys, payable over
180 months in equal monthly installments commencing on the first day of the
month following the Participant's retirement.
SCHEDULE OF BENEFITS
<TABLE>
<CAPTION>
COMPLETED YEARS BENEFIT AS A PERCENT OF
OF EMPLOYMENT AVERAGE BASE SALARY
--------------- -----------------------
<S> <S>
5 12.5%
6 15.0%
7 17.5%
8 20.0%
9 22.5%
10 25.0%
11 27.5%
12 30.0%
13 32.5%
14 35.0%
15 37.5%
16 40.0%
17 42.5%
18 45.0%
19 47.5%
20 50.0%
</TABLE>
In the event of the death of a retired participant, the balance of any
undistributed benefits shall continue to be paid to the beneficiary(ies) of
record.
6. EARLY RETIREMENT BENEFIT. A Participant who has completed five or more
years of employment with Harveys and has attained age sixty may elect to
retire early and receive a
<PAGE>
monthly retirement benefit in an amount equal to a percent of the
Participant's average monthly base salary earned during his or her last
five years of employment with Harveys, based on the Participant's attained
age at retirement determined in accordance with the following schedule:
<TABLE>
<CAPTION>
ATTAINED AGE AT BENEFIT AS A PERCENT
RETIREMENT OF AVERAGE BASE SALARY
---------------- ----------------------
<S> <C>
64 46.50%
63 43.25%
62 40.22%
61 37.40%
60 34.78%
</TABLE>
This benefit shall be payable over 180 months commencing on the first day
of the month following the Participant's retirement.
7. RETIREE MEDICAL BENEFIT. A Participant with at least fifteen years of
credited service who retires from Harveys, on or after attaining age 60,
and his or her spouse shall be eligible to receive Class I or Class II
health care benefits under Harveys executive medical plan, as amended from
time to time, during the period commencing with the Participant's
retirement and ending with the conclusion of retirement benefits under this
Plan. Health care benefits will be provided under the same benefit class
in which the Participant participated prior to retirement. All health care
benefits under this Plan shall be secondary to any other group health care
plan or individual medical insurance policy providing health care coverage
to the Participant or his or her spouse, or Medicare. The Executive
Medical plan can be modified from time to time.
8. TERMINATION OF EMPLOYMENT PRIOR TO RETIREMENT. A Participant who
terminates employment with Harveys prior to normal or early retirement
other than as a result of death, disability or termination for Cause shall
be entitled at age 65 to receive a monthly retirement benefit based on the
Schedule of Benefits in Section 5. A Participant may elect to receive
early retirement benefits prior to age 65, but not before age 60,
consistent with section #6 of this document.
This benefit shall be payable over 180 months commencing on the first day
of the month following the Participant's attainment of age 65. In the
event that a Participant's employment is terminated by Harveys for Cause,
all rights under this Plan shall be forfeited and no payments shall be
made. "Cause" shall mean: (1) the willful and continued failure of the
Participant to perform his or her duties other than such failure resulting
from the Participant's incapacity due to physical or mental illness or
injury; (2) the conviction of the Participant of
<PAGE>
a felony; and, (3) the willful engaging by the Participant in misconduct
which is materially injurious to Harveys.
9. TERMINATION OF EMPLOYMENT AS A RESULT OF DISABILITY. A Participant who
terminates employment with Harveys as a result of total disability shall
receive a monthly retirement benefit based on the Schedule of Benefits in
section 5, payable over 180 months commencing on the first day of the sixth
month following the Participant's termination of employment. "Total
Disability" shall mean a disability resulting from bodily injury or
disease, which prevents the Participant from engaging for remuneration or
profit in any and every occupation of business for which the Participant is
reasonably suited by education, training, or experience. The total and
irrevocable loss of the sight of both eyes, or the use of both hands, both
feet, or one hand and one foot shall be regarded as total disability.
Total disability shall be determined by Harveys who may consult with a
physician and shall have the right to require a Participant to undergo
physical examinations or such other examinations as may be required to
determine total disability.
10. DEATH OF A PARTICIPANT. In the event of a Participant's death while in the
employ of Harveys and prior to retirement, the Participant's beneficiaries
shall receive a monthly retirement benefit based on the Schedule of
Benefits in Section 5.
11. BENEFICIARY DESIGNATION. A Participant may designate the beneficiary or
beneficiaries who shall receive on or after his or her death, the benefits
payable under this Plan. Such designation shall be made by executing and
filing with the Administrator the form prescribed for that purpose. The
Participant also may revoke or change, at any time and from time to time,
any beneficiary designations previously made. Such revocations and changes
shall be made by executing and filing with the Administrator the form
prescribed for that purpose. If a Participant names a trust as
beneficiary, a change in the identity of the trustees or in the instrument
governing the trust shall not be deemed a change of beneficiary. A
designation, revocation, or change of beneficiaries shall be valid and
effective only when received by the Administrator. If a Participant fails
to designate a beneficiary, upon the Participant's death, Harveys shall
make any remaining payments under the Plan to the Participant's surviving
spouse. If the Participant is unmarried or the spouse does not survive the
Participant, the payments shall be made to the Participant's surviving
children, share and share alike. If the Participant has no spouse or
children surviving, the payments shall be made to the executor or
administrator of the Participant's estate. If a participant is married,
the spouse must consent to the designation of any third party (not a
spouse) as a beneficiary.
12. LUMP SUM PAYMENTS. Notwithstanding anything to the contrary, Harveys may,
in its sole discretion, in lieu of monthly payments pay the Participant or
his or her beneficiary in a single payment in an amount equal to the lump
sum present value of the Participant's benefit. The lump sum present value
shall equal the cost of purchasing an immediate annuity for the
<PAGE>
respective benefit period. The cost of the annuity shall be determined by
ascertaining the actual cost of obtaining such an annuity from three
different well-established and separate life insurance companies and
averaging the costs.
13. FUNDING. Harveys may acquire life insurance policies or other investments,
in its sole discretion, to finance the benefits payable under this Plan.
Nothing contained in this Plan shall be construed as for providing for
assets to be held in trust or escrow of any other form of asset segregation
for the Participant or his or her beneficiary, the Participant's only
interest being the right to receive benefits set forth in this Plan. To
the extent that the Participant or any other person acquires a right to
receive benefits under this Plan, such right shall be no greater than the
right of any unsecured general creditor of Harveys.
14. IMPACT ON OTHER PLANS. This Plan shall replace all prior supplemental
retirement plans or agreements entered into by the Participant and Harveys
unless specifically provided otherwise. Those participants who were
previously eligible under the seven (7) year vesting schedule shall
continue to vest under that schedule. (see Addendum II) By accepting
participation in this Plan, the Participant waives all benefits and rights
under any such prior plans or agreements. This Plan shall not affect the
Participant's rights under, or replace, Harveys Executive Medical Plan,
401(k) Plan, Management Incentive Plan, Long-Term Incentive Plan, Stock
Incentive Plan, Deferred Compensation Plan or other benefit plans, each of
which shall remain in effect.
15. RIGHT TO TERMINATE EMPLOYMENT. This plan is not an employment contract
between the participant and Harveys, nor shall it be deemed to be a
guarantee of continued employment with Harveys. Harveys shall continue to
be allowed to terminate a participant's employment at will.
16. NON-ASSIGNMENT. Except as expressly provided to the contrary herein, no
benefits payable under the Plan or the right to receive future benefits may
be anticipated, alienated, pledged, encumbered, or subject to any charge of
legal process.
17. AMENDMENT AND TERMINATION. Harveys may amend the Plan in any manner by
action of the Board; provided, however, that no amendment shall deprive any
Participant of any benefit which has accrued or vested as of the date of
adoption of such amendment. Harveys may terminate the Plan at any time by
action of the Board provided, however, that any benefits which have accrued
shall be deemed vested as of the date of adoption of such termination and
shall be payable under the terms and conditions set forth in this Plan.
18. EXCEPTIONS. The President and Chief Executive Officer shall have the
authority to selectively modify on a case-by-case basis the terms of the
plan to facilitate the hiring and/or separation of key executives. Once
such modifications have been affected, the President and Chief Executive
Officer will so advise the Board.
<PAGE>
19. ADMINISTRATION. The Plan shall be administered by the Administrator.
20. GOVERNING LAW. This Plan shall be interpreted in accordance with the laws
of the State of Nevada, as amended from time to time.
<PAGE>
The Supplemental Executive Retirement Plan was originally authorized by the
Board of Directors on the 25th day of October, 1990, and the plan was
modified primarily with regard to the vesting period and eligibility for
retiree medical coverage for new participants after June of 1994. These
modifications were approved on the 23rd day of June, 1994, and re-affirmed by
the Board of Directors on the 27th day of October, 1994. The plan was
further modified to include only the Executive Committee and full/partially
vested participants below the Executive Committee. These modifications were
approved by the Board of Directors on November 20, 1997. The non-executive
committee participants that qualify as full or partially vested are listed on
the attached Addendum III.
/s/ Eugene White /s/ Charles W. Scharer
- ------------------------------- --------------------------------
Compensation Committee Chairman Chairman of the Board
ATTEST:
/s/ William B. Ledbetter
---------------------------------
Secretary
<PAGE>
ADDENDUM I
Individuals in an eligible position prior to the November 20, 1997 amendment
date who will accrue benefits from their original date of hire if at a future
date become Plan Participants:
Tom Brown
Geri Clerkin
Bill French
Art Hill
Ralph Horejs
Dave Hurst
Lou Kelmanson
Joelle Mathis
<PAGE>
ADDENDUM II
Plan Participants continuing in the Plan covered by the seven (7) year vesting
schedule.
Gary Aiazzi
Heinz Blaume
Ed Barraco
Steve Cavallaro
Debra Fletcher
Art Goldberg
Phil Herback
John Hewitt
Jim Rafferty
Chuck Scharer
Verne Welch
<PAGE>
ADDENDUM III
Full/partially vested S.E.R.P. Participants below the Executive Committee level
who will continue to participate, as of the Amendment Date.
Gary Aiazzi
Heinz Blaume
John Brower
Sue Ewald
Debra Fletcher
Art Goldberg
Phil Herback
John Hewitt
<PAGE>
EXHIBIT 10.61
SECOND MODIFICATION OF EMPLOYMENT AGREEMENT
THIS MODIFICATION, made and entered into this 22nd day of October, 1997,
by and between HARVEYS CASINO RESORTS, a Nevada corporation, hereinafter
referred to as "Harveys" and/or "Employer", and JOHN MCLAUGHLIN, hereinafter
referred to as "Employee", is as follows:
W I T N E S S E T H:
WHEREAS, Harveys and Employee did, on the 14th day of August, 1995, execute
an Employment Agreement (the "Agreement");
and
WHEREAS, Harveys and Employee did, on the 27th day of November, 1996,
execute a document modifying the Agreement; and
WHEREAS, Harveys desires to continue to engage the services of Employee,
who is desirous of continued employment by Harveys under the terms and
conditions as set forth herein; and
WHEREAS, the parties desire to again amend the Agreement as of the date
hereof in the follow particulars:
A. Section 3.01 shall be modified by extending the term of employment for
one (1) additional year commencing the 18th day of September, 1999, and
terminating on the 17th day of September, 2000, unless further extended by
mutual agreement of the parties.
B. Section 3.01 shall also be modified by adding the following language:
"Effective the 20th day of October, 1997, Employee's annual salary shall be
increased to $250,000.00 per annum."
C. Paragraph 8.02 shall be modified by increasing Employee's vacation
time from two (2) weeks per year to three (3) weeks per year, commencing on the
2nd anniversary date of hire.
<PAGE>
Where not inconsistent herewith, the remaining terms and conditions of the
Agreement shall remain in full force and effect and shall be deemed restated
herein as if set forth herein verbatim.
DATED this __ day of October, 1997.
EMPLOYEE:
/s/ John McLaughlin
-----------------------------------------------
John McLaughlin
EMPLOYER:
HARVEYS CASINO RESORTS, a Nevada corporation
By: /s/ Charles W. Scharer
-------------------------------------------
CHARLES W. SCHARER
President/Chief Executive Officer
<PAGE>
EXHIBIT 10.62
EXTENSION OF EMPLOYMENT AGREEMENT
THIS EXTENSION AGREEMENT is made and entered into this 8th day of
September, 1997, by and between HARVEYS CASINO RESORTS, a Nevada corporation,
hereinafter referred to as "Harveys", and GARY ARMENTROUT, hereinafter
referred to as "Employee", as follows:
W I T N E S S E T H:
WHEREAS, Harveys and Employee did, on the 9th day of May, 1995, entered
into an Employment Agreement (the "Agreement"); and
WHEREAS, Harveys and Employee did on the 23rd day of August, 1996,
extend the term of employment for an additional one (1) year from May 8, 1997
to and including May 8, 1998; and
WHEREAS, Harveys and the Employee desire to extend the term of
employment;
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 to extend the term of
employment of an additional one (1) year period, from May 8, 1998 through and
including May 8, 1999
Executed the day and year first above written.
EMPLOYEE:
/s/ Gary D. Armentrout
---------------------------------------------
Gary Armentrout
EMPLOYER:
HARVEYS CASINO RESORTS, a Nevada corporation
By: /s/ Charles W. Scharer
-----------------------------------------
CHARLES W. SCHARER
Chairman/President/CEO
<PAGE>
EXHIBIT 21.1
LIST OF SUBSIDIARIES OF THE REGISTRANT
--------------------------------------
NAME STATE OF INCORPORATION
- ---- ----------------------
Harveys Tahoe Management Company, Inc. ........... Nevada
Harveys Iowa Management Company, Inc. ............ Nevada
Harveys C.C. Management Company, Inc. ............ Nevada
HCR Services Company, Inc. ....................... Nevada
Harveys L.V. Management Company, Inc. ............ Nevada
Reno Projects, Inc. .............................. Nevada
West Ad........................................... Nevada
Harveys Maryland Management Company, Inc. ........ Nevada
Harveys N.Y. Management Company, Inc. ............ Nevada
Harveys Mass. Management Company, Inc. ........... Nevada
Harveys P.C., Inc. ............................... Nevada
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements No.
33-75932 and No. 333-08983 of Harveys Casino Resorts on Form S-8 of our
report dated January 9, 1998, appearing in this Annual Report on Form 10-K of
Harveys Casino Resorts for the year ended November 30, 1997.
/s/ Deloitte & Touche LLP
Reno, Nevada
January 9, 1998
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We have issued our report dated January 12, 1996, accompanying the
consolidated financial statements incorporated by reference of Harveys Casino
Resorts on Form 10-K for the year ended November 30, 1997. We hereby consent
to the incorporation by reference of said report in the Registration
Statement of Harveys Casino Resorts on Forms S-8 (File No. 33-75932,
effective March 2, 1994 and File No. 333-08983, effective July 26, 1996).
/s/ Grant Thornton LLP
Reno, Nevada
February 25, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> NOV-30-1997
<CASH> 55,035
<SECURITIES> 0
<RECEIVABLES> 5,365
<ALLOWANCES> 101
<INVENTORY> 3,659
<CURRENT-ASSETS> 68,056
<PP&E> 446,380
<DEPRECIATION> 128,110
<TOTAL-ASSETS> 403,465
<CURRENT-LIABILITIES> 34,625
<BONDS> 150,220
0
0
<COMMON> 98
<OTHER-SE> 179,259
<TOTAL-LIABILITY-AND-EQUITY> 403,465
<SALES> 51,683
<TOTAL-REVENUES> 283,563
<CGS> 19,979
<TOTAL-COSTS> 146,572
<OTHER-EXPENSES> 95,712
<LOSS-PROVISION> 547
<INTEREST-EXPENSE> 19,401
<INCOME-PRETAX> 49,673
<INCOME-TAX> 18,898
<INCOME-CONTINUING> 30,775
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30,775
<EPS-PRIMARY> 3.13
<EPS-DILUTED> 3.13
</TABLE>
