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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
HARVEYS CASINO RESORTS
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(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/X/ Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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HARVEYS CASINO RESORTS
P.O. BOX 128
U.S. HIGHWAY 50 & STATELINE AVENUE
LAKE TAHOE, NEVADA 89449
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 14, 1998
------------------------
To the Stockholders:
NOTICE is hereby given that the Annual Meeting of Stockholders (the "Annual
Meeting") of Harveys Casino Resorts (the "Company") will be held at Harveys
Resort Hotel/Casino, U.S. Highway 50 and Stateline Avenue, Lake Tahoe, Nevada
89449, on Thursday, May 14, 1998 at 10:00 a.m. local time, for the following
purposes:
1. To consider and vote upon a proposal to adopt an Agreement and Plan of
Merger, dated as of February 1, 1998 and approve the merger described
therein (the "Merger") providing for the merger of the Company and Harveys
Acquisition Corporation, a Nevada corporation ("Acq Corp") which is an
affiliate of Colony Investors III, L.P., a Delaware limited partnership
("Colony Investors") and an affiliate of Colony Capital, Inc., a Delaware
corporation. As a result of the Merger:
(a) The Company and Acq Corp will be merged, with the Company being the
surviving corporation and an affiliate of Colony Investors; and
(b) Each share of Common Stock of the Company outstanding at the time the
Merger becomes effective (other than shares of Common Stock held in the
Company's treasury and by Acq Corp) will be converted into the right to
receive $28.00 in cash, subject to increase, as described in the
accompanying Proxy Statement.
2. To elect three directors to serve for a term of three years until the 2001
Annual Meeting of Stockholders and until their respective successors have
been duly elected and qualified, in the event that the Merger is not
approved or consummated, or a term representing the period from the Annual
Meeting until the time the Merger becomes effective, if the Merger is
approved and consummated; and
3. To consider and transact such other business as may properly come before the
Annual Meeting or any adjournment thereof.
Holders of the Company's common stock, par value $.01 per share (the "Common
Stock"), at the close of business on March 27, 1998, the record date fixed by
the Company's board of directors (the "Board of Directors"), are entitled to
notice of and to vote at the Annual Meeting. The Board of Directors urges all
stockholders of record to exercise their right to vote at the meeting personally
or by proxy. Accordingly, we are sending you the following Proxy Statement and
the enclosed proxy card.
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE SPECIFY YOUR
VOTE ON THE ACCOMPANYING PROXY CARD AND SIGN, DATE AND RETURN IT AS PROMPTLY AS
POSSIBLE IN THE ENCLOSED SELF-ADDRESSED, POSTAGE-PAID ENVELOPE.
Your prompt response will be appreciated.
By Order of the Board of Directors
[LOGO]
Charles W. Scharer
CHAIRMAN OF THE BOARD OF DIRECTORS,
PRESIDENT AND
CHIEF EXECUTIVE OFFICER
Lake Tahoe, Nevada
April 1, 1998
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HARVEYS CASINO RESORTS
P.O. BOX 128
U.S. HIGHWAY 50 & STATELINE AVENUE
LAKE TAHOE, NEVADA 89449
------------------------
PROXY STATEMENT
------------------
The accompanying proxy is solicited by the board of directors (the "Board of
Directors" or the "Board") of Harveys Casino Resorts (the "Company" or
"Harveys") to be used at the Annual Meeting of Stockholders on Thursday, May 14,
1998 (the "Annual Meeting") to be held at 10:00 a.m. local time at Harveys
Resort Hotel/Casino, U.S. Highway 50 and Stateline Avenue, Lake Tahoe, Nevada.
This Proxy Statement, the enclosed form of proxy and the Annual Report to
Stockholders are being sent to stockholders on or about April 1, 1998.
At the Annual Meeting, stockholders will be asked to consider and vote upon
the following matters:
ITEM I: The adoption of an Agreement and Plan of Merger, dated as of
February 1, 1998 (the "Merger Agreement") and approval of the merger
described therein (the "Merger") providing for the merger of the
Company and Harveys Acquisition Corporation, a Nevada corporation
("Acq Corp") which is an affiliate of Colony Investors III, L.P., a
Delaware limited partnership ("Colony Investors") and an affiliate
of Colony Capital, Inc., a Delaware corporation ("Colony Capital")
(unless the context otherwise requires, Colony Investors, Colony
Capital and related entities are referred to collectively as
"Colony" in this Proxy Statement).
ITEM II: The election of three directors to serve until the 2001 Annual
Meeting, in the event that the Merger is not approved or
consummated, or a term representing the period from the Annual
Meeting until the time the Merger becomes effective, if the Merger
is approved and consummated.
As a result of the Merger, at the time the Merger becomes effective (the
"Effective Time"), without any action on the part of the stockholders, each
share of the Company's Common Stock, $.01 par value (the "Common Stock") then
outstanding (except those shares of Common Stock held by the Company and its
subsidiaries or held by Acq Corp) will be converted into the right to receive
$28.00 in cash without interest. If the closing of the Merger does not take
place before September 1, 1998 due to the failure of Acq Corp to meet certain
conditions relating to its and its directors and officers being licensed or
found suitable by gaming authorities, the consideration per share will include
an additional amount of cash, without interest, equal to the difference, if
positive, of (i) the product of (x) $1.96 and (y) a fraction the numerator of
which shall be the number of days elapsed from and including September 1, 1998
to and excluding the closing date of the Merger and the denominator of which
shall be 365, minus (ii) (x) the aggregate amount of all cash dividends on the
Common Stock paid during the period from and including September 1, 1998 to and
excluding the closing date of the Merger, divided by (y) the number of shares of
Common Stock upon which the Merger consideration is paid plus the number of
shares of Common Stock underlying any stock options, warrants and other rights
to acquire Common Stock canceled in connection with the Merger (together with
the $28.00 per share, the "Merger Consideration"). Also at the Effective Time,
each share of Acq Corp will be converted into an equivalent share of the Company
as the surviving corporation. See "The Merger Agreement--Conversion of Shares."
If the Merger Agreement is adopted and the Merger is approved by the Company's
stockholders, subject to the satisfaction or waiver of the other conditions set
forth in the Merger Agreement, it is anticipated that the Merger will be
consummated as soon as practicable after the approval of applicable gaming
authorities and the receipt of necessary gaming licenses and permits are
obtained. See "The Merger Agreement--Effective Time of the Merger,"
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"--Conversion of Shares" and "-- Conditions to the Merger." The Merger Agreement
is attached to this Proxy Statement as ANNEX A.
THE BOARD OF DIRECTORS, AFTER CAREFUL CONSIDERATION, HAS UNANIMOUSLY
APPROVED THE MERGER AGREEMENT AND DETERMINED THAT THE MERGER IS FAIR TO, AND IN
THE BEST INTERESTS OF, THE STOCKHOLDERS AND RECOMMENDS THAT YOU VOTE FOR
ADOPTION OF THE MERGER AGREEMENT AND APPROVAL OF THE MERGER. In reaching its
determination, the Board of Directors considered, among other things, the
opinion, dated February 1, 1998, of Donaldson, Lufkin & Jenrette Securities
Corporation ("DLJ"), the Company's financial advisor, to the effect that, as of
the date of such opinion and based upon and subject to the assumptions,
limitations and qualifications set forth in the opinion, the consideration to be
received by the stockholders of the Common Stock pursuant to the Merger
Agreement is fair to such stockholders from a financial point of view. See
"Opinion of the Company's Financial Advisor." The opinion is included as ANNEX B
hereto.
The Board of Directors believes that the election of its director nominees
is in the best interests of the Company and its stockholders and recommends to
the stockholders the approval of each of the nominees.
Any stockholder giving a proxy may revoke it at any time prior to its
exercise at the Annual Meeting by giving notice of such revocation either
personally or in writing to the Secretary of the Company at the Company's
executive offices, by subsequently executing and delivering another proxy or by
voting in person at the Annual Meeting.
The Annual Report to Stockholders that accompanies this Proxy Statement is
not to be regarded as proxy soliciting material.
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT IN CONNECTION
WITH THE SOLICITATION OF PROXIES AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. THIS PROXY STATEMENT DOES NOT CONSTITUTE THE SOLICITATION OF A PROXY IN
ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH
SOLICITATION. THE DELIVERY OF THIS PROXY STATEMENT SHALL NOT, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. THE COMPANY DOES
NOT UNDERTAKE ANY OBLIGATION TO UPDATE THE INFORMATION CONTAINED HEREIN
SUBSEQUENT TO THE DATE HEREOF.
THE DATE OF THIS PROXY STATEMENT IS MARCH 30, 1998.
VOTING
Only holders of record at the close of business on March 27, 1998 (the
"Record Date") of the Common Stock will be entitled to vote at the Annual
Meeting. On March 20, 1998 there were 10,066,497 shares of Common Stock
outstanding. The number of shares outstanding may change between such date and
the Record Date if any currently exercisable options to purchase Common Stock
are exercised, if the Company elects to repurchase any shares, or if the Company
otherwise authorizes the issuance of any shares. Each share of Common Stock is
entitled to one vote on all matters presented at the Annual Meeting.
Shares of Common Stock represented by duly executed and unrevoked proxies in
the enclosed form received by the Board of Directors will be voted at the Annual
Meeting in accordance with the specifications made therein by the stockholders,
unless authority to do so is withheld. If no specification is made, shares of
Common Stock represented by duly executed and unrevoked proxies in the enclosed
form
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will be voted FOR the adoption of the Merger Agreement and the approval of the
Merger and the election of all of the nominees listed herein and, with respect
to any other matter that may properly come before the meeting, in the discretion
of the persons voting the respective proxies.
This proxy solicitation is made by the Board of Directors. The cost of
preparing, assembling and mailing the proxy materials will be borne by the
Company. The Company has retained American Stock Transfer & Trust Co. to solicit
proxies at an estimated cost of $15,000.
VOTES REQUIRED
Under the Company's Restated Articles of Incorporation, the affirmative vote
of the holders of sixty-six and two-thirds percent (66 2/3%) of the voting power
of all of the shares of the Company entitled to vote, in person or by proxy, is
required to approve a merger (such as the Merger) to which the Company is a
party and which requires stockholder approval under the Nevada Revised Statutes.
The election of the director nominees requires a plurality of the votes cast
in person or by proxy at the Annual Meeting.
Shares as to which a stockholder abstains or withholds from voting on the
Merger and shares as to which a broker indicates that it does not have
discretionary authority to vote ("broker non-votes") on the Merger will not be
counted as voting on, and therefore counted as voting not in favor of, the
Merger. Shares as to which a stockholder abstains or withholds from voting on
the election of directors and broker non-votes on the election of directors will
not be counted and therefore will not affect the election of the nominees
receiving a plurality of the votes cast.
THE STOCKHOLDERS OF THE COMPANY HAVE NO DISSENTERS' OR APPRAISAL RIGHTS IN
CONNECTION WITH ITEM I OR II UNDER THE NEVADA REVISED STATUTES.
ADJOURNMENT OF THE ANNUAL MEETING
If there are not sufficient votes to adopt the Merger Agreement and approve
the Merger at the Annual Meeting, such proposal could not be approved unless the
Annual Meeting were adjourned to permit further solicitation of proxies from the
Company's stockholders. Proxies that are being solicited by the Board of
Directors of the Company grant the discretionary authority to vote for any such
adjournment. If it is necessary to adjourn the Annual Meeting, no notice of the
time and place of the adjourned meeting is required to be given to the Company's
stockholders other than the announcement of such time and place at the Annual
Meeting. The affirmative vote of at least a majority of the Common Stock present
or represented, in person or by proxy, and voting at the Annual Meeting is
required to approve such adjournment, whether or not a quorum is present at the
Annual Meeting. An adjournment of the Annual Meeting may be necessary because
the limited time between the mailing of the Proxy Statement and the Annual
Meeting may result in the lack of a quorum at the Annual Meeting or the lack of
votes sufficient to approve the Merger (which has a 66 2/3% requirement). To
obtain the requisite vote, it may be necessary to adjourn the Annual Meeting to
solicit additional proxies.
If the Annual Meeting is postponed or adjourned, at any subsequent
reconvening of the Annual Meeting, all proxies will be voted in the same manner
as such proxies would have been voted at the original convening of the Annual
Meeting (except for any proxies that have been effectively revoked or withdrawn
before the reconvening).
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HARVEYS CASINO RESORTS
PROXY STATEMENT
TABLE OF CONTENTS
<TABLE>
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VOTING..................................................................................................... ii
TABLE OF CONTENTS.......................................................................................... iv
SUMMARY OF PROXY STATEMENT................................................................................. 1
GENERAL INFORMATION........................................................................................ 1
THE MERGER................................................................................................. 1
Item I: THE MERGER......................................................................................... 4
BACKGROUND OF THE MERGER AND REASONS FOR THE MERGER........................................................ 5
Background of the Merger................................................................................. 5
Negotiations with Colony................................................................................. 6
Recommendation of the Board of Directors; Harveys' Reasons for the Merger................................ 7
OPINION OF THE COMPANY'S FINANCIAL ADVISOR................................................................. 8
THE MERGER AGREEMENT....................................................................................... 12
Effective Time........................................................................................... 12
Conversion of Shares..................................................................................... 13
Surrender of Shares and Payment.......................................................................... 13
Stock Options............................................................................................ 13
Conduct of Business Pending the Merger................................................................... 13
Conditions to the Merger................................................................................. 15
Expenses of the Merger................................................................................... 15
Financing of the Merger.................................................................................. 15
No Solicitation.......................................................................................... 15
Breakup Fee.............................................................................................. 16
Termination.............................................................................................. 16
Amendment................................................................................................ 16
INTEREST OF CERTAIN PERSONS IN THE TRANSACTION............................................................. 17
CERTAIN FEDERAL INCOME TAX CONSEQUENCES.................................................................... 18
ACCOUNTING TREATMENT OF THE TRANSACTION.................................................................... 18
REGULATORY APPROVALS....................................................................................... 18
PRICE OF THE COMMON STOCK.................................................................................. 19
SELECTED FINANCIAL DATA.................................................................................... 20
Item II: NOMINEES FOR ELECTION OF DIRECTORS................................................................ 22
DIRECTORS AND EXECUTIVE OFFICERS........................................................................... 23
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............................................. 28
EXECUTIVE COMPENSATION..................................................................................... 30
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION.................................................... 39
STOCK PERFORMANCE GRAPH.................................................................................... 41
CERTAIN TRANSACTIONS....................................................................................... 41
SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS................................................................ 42
OTHER MATTERS.............................................................................................. 42
STOCKHOLDER PROPOSALS...................................................................................... 42
ANNUAL REPORT.............................................................................................. 42
AVAILABLE INFORMATION...................................................................................... 42
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE.......................................................... 43
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995....................................................................................... 43
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SUMMARY OF PROXY STATEMENT
The following is a summary of the material provisions of certain information
contained elsewhere in this Proxy Statement. This summary is qualified in its
entirety by reference to the full text of this Proxy Statement, the Annexes
hereto and the documents incorporated by reference.
GENERAL INFORMATION
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Date, Time and Place of Annual Thursday, May 14, 1998, at 10:00 a.m. local time at
Meeting....................... Harveys Resort Hotel/Casino, U.S. Highway 50 & Stateline
Avenue, Lake Tahoe, Nevada 89449.
Record Date..................... March 27, 1998
Purpose of the Meeting.......... To consider and vote upon proposals to (i) adopt the
Merger Agreement and approve the Merger and (ii) elect
three directors to serve for a term of three years, in the
event that the Merger is not approved or consummated, or a
term representing the period from the Annual Meeting until
the time the Merger becomes effective, if the Merger is
approved and consummated.
Vote Required................... Adoption of the Merger Agreement and approval of the
Merger is required by the holders of at least 66 2/3% of
the voting power of all of the shares of the Company
entitled to vote in person or by proxy. Only holders of
record at the close of business on March 27, 1998 (the
"Record Date") of the Common Stock will be entitled to
vote at the Annual Meeting. On March 20, 1998 there were
10,066,497 shares of Common Stock outstanding and entitled
to vote. The number of shares outstanding may change
between such date and the Record Date if any currently
exercisable options to purchase Common Stock are
exercised, if the Company elects to repurchase any shares,
or if the Company otherwise authorizes the issuance of any
shares.
Certain persons who collectively constitute the Company's
largest stockholder, the Ledbetter family, have agreed to
vote their shares, representing approximately 41% of the
Common Stock, in favor of the Merger.
The election of the director nominees requires a plurality
of the votes cast in person or by proxy at the Annual
Meeting.
Recommendation.................. The Board of Directors of the Company has unanimously
approved the Merger Agreement and the Merger and
recommends that stockholders vote for adoption of the
Merger Agreement and approval of the Merger.
The Board of Directors recommends that stockholders vote
for the election of the three nominees to the Board of
Directors.
THE MERGER
Reasons for the Merger.......... The Board of Directors has concluded that the acquisition
of the Company by Colony upon the terms and subject to the
conditions set forth in the Merger Agreement is fair to,
and in the best interests of, the stockholders. See
"Background of the Merger and Reasons for the Merger."
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Opinion of Financial Advisor.... The Company retained DLJ to act as its financial advisor
in connection with a possible business combination.
On February 1, 1998, DLJ rendered to the Company its
written opinion to the effect that, as of such date and
based upon and subject to the factors, assumptions,
limitations and qualifications set forth therein, the
consideration to be received by the stockholders of the
Common Stock pursuant to the Merger Agreement is fair to
such stockholders from a financial point of view. The full
text of the DLJ opinion, which sets forth the assumptions
made, the matters considered and the limits of review
undertaken by DLJ, is attached as ANNEX B to this Proxy
Statement and should be read in its entirety. See "Opinion
of the Company's Financial Advisor."
Effective Time of the Merger.... If the stockholders adopt the Merger Agreement and approve
the Merger, the Merger is expected to become effective as
soon as practicable after the approval of applicable
gaming authorities and the receipt of necessary gaming
licenses and permits are obtained. No assurances can be
given that the necessary gaming licenses and permits will
be obtained or that they will be obtained on a timely
basis. See "The Merger Agreement--Effective Time of the
Merger" and "--Conditions to the Merger" and "Regulatory
Approval."
Conversion of Shares and Each share of Common Stock outstanding at the Effective
Surrender of Stock............ Time (except those shares of stock held by the Company and
its subsidiaries or by Acq Corp) will be converted into
the right to receive the Merger Consideration, which will
include, if the closing of the Merger does not take place
before September 1, 1998 due to the failure of Acq Corp to
meet certain conditions relating to its and its directors
and officers being licensed or found suitable by gaming
authorities, an additional amount of cash generally
representing an additional 7% per annum of the $28.00 per
share consideration less the per share equivalent of any
cash dividends paid on the Common Stock from September 1,
1998 to the closing date of the Merger (but excluding cash
dividends paid on the Common Stock prior to September 1,
1998, which the Company will be permitted to continue to
pay in an amount not to exceed $.05 per share per
quarter). See "The Merger" and "The Merger
Agreement--Conversion of Shares." As soon as practicable
after the Effective Time, a form letter of transmittal and
instructions will be mailed to each person who was,
immediately prior to the Effective Time, a holder of
record of outstanding Common Stock. The letter of
transmittal should be used by each stockholder to
surrender such stockholder's certificates representing
shares of Common Stock.
DO NOT SEND IN YOUR CERTIFICATES UNTIL YOU RECEIVE THE
LETTER OF TRANSMITTAL.
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Stock Options................... All options for the purchase of Common Stock (the
"Options") will be canceled by the Company immediately
prior to the Effective Time. Holders of Options will be
entitled to receive an amount equal to the product of (i)
the amount by which the Merger Consideration exceeds the
exercise price per share subject to the Option and (ii)
the number of shares subject to the Option. See "The
Merger" and "The Merger Agreement--Stock Options."
Conditions to the Merger........ Consummation of the Merger is subject to certain
conditions, including the adoption of the Merger Agreement
and approval of the Merger by the Company's stockholders
and the receipt of necessary gaming and other regulatory
approvals, and the absence of any order or injunction that
would prevent the consummation of the Merger. See "The
Merger Agreement--Conditions to the Merger."
No Solicitation................. The Merger Agreement prevents the Company and its
directors and officers from, among other things,
soliciting any proposals or offers to acquire a material
amount of the Company's assets or over 10% of any class of
the Company's equity securities (a "Proposal"). In the
event a Proposal is received pursuant to which the
consideration offered exceeds that offered by Acq Corp and
is otherwise more favorable to the Company, and Acq Corp
declines to match such competitive Proposal, the Company
may accept such Proposal and terminate the Merger
Agreement. See "The Merger Agreement-- No Solicitation."
Breakup Fee..................... The Company has agreed to pay Acq Corp $10 million plus
its reasonably documented out-of-pocket expenses if the
Merger Agreement is terminated under certain
circumstances, including the Company's acceptance of a
more favorable Proposal. See "The Merger Agreement--
Breakup Fee."
Termination..................... The Merger Agreement may be terminated if, among other
reasons, the Effective Time has not occurred prior to
February 1, 1999. If the grant of approval from any
necessary gaming authority has not been finally determined
prior to February 1, 1999 and the parties obtain
reasonable assurances that a hearing has been or is
reasonably expected to be scheduled prior to April 1,
1999, then neither party will be able to terminate the
Merger Agreement prior to April 1, 1999 due to Acq Corp's
failure to obtain gaming authority approval. See "The
Merger Agreement--Termination."
Interest of Certain Persons in In considering the recommendation of the Board of
the Transaction............... Directors of the Company with respect to the Merger
Agreement and the Merger, stockholders should be aware
that the Ledbetter family and certain members of
management have interests in the Merger that are in
addition to or different from the interests of the
Company's stockholders generally, including in the case of
the Ledbetter family the continuation of certain
perquisites and in the case of management the continuation
of employment and the receipt of ownership interests in
the surviving corporation. See "Interest of Certain
Persons in the Transaction."
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Certain Federal Income Tax The receipt of cash for shares of Common Stock pursuant to
Consequences.................. the Merger will be a taxable transaction for federal
income tax purposes and may also be a taxable transaction
under applicable foreign, state, local and other income
tax laws. See "Certain Federal Income Tax Consequences."
Regulatory Approvals............ The consummation of the Merger is subject to the prior
approval of the federal Department of Justice and Federal
Trade Commission under applicable antitrust laws, as well
as the approval of the gaming authorities of Nevada,
Colorado and Iowa. See "The Merger Agreement--Conditions
to the Merger" and "Regulatory Approval."
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ITEM I
THE MERGER
Colony Capital is a private, international real estate investment firm
headquartered in Los Angeles with additional offices in New York, Texas,
Florida, Hawaii and Paris, France. Colony Investors is a limited partnership and
an affiliate of Colony Capital formed to make private equity investments. Acq
Corp has advised the Company that Colony Investors has $1 billion in capital
commitments to date. Acq Corp is an affiliate of Colony Investors formed for the
purpose of entering into the Merger. Colony's executive offices are located at
1999 Avenue of the Stars, Los Angeles, California 90067, telephone number (310)
843-3660.
On February 1, 1998, the Company and Acq Corp entered into the Merger
Agreement, which sets forth the terms and conditions upon which the Merger is to
be effected. If the Merger Agreement is adopted and the Merger is approved at
the Annual Meeting and all other conditions to the obligations of the parties to
consummate the Merger, including receiving approval from the gaming authorities
of Nevada, Colorado and Iowa, are satisfied, Acq Corp will be merged with and
into the Company, which will be the surviving corporation of the Merger. At the
Effective Time, without any action on the part of the stockholders, the Company
will become owned by the owners of Acq Corp immediately prior thereto, Acq Corp
will cease to exist and each outstanding share of Common Stock (except shares
held by the Company or its subsidiaries or by Acq Corp) will be canceled and
converted into the right to receive the Merger Consideration.
The Company will cause each option to purchase shares of Common Stock (an
"Option") to be canceled in exchange for payment of an amount of cash equal to
the Merger Consideration less the amount of the exercise price for each share of
Common Stock subject to the Option. See "The Merger Agreement--Stock Options."
On the date of the Merger Agreement, certain persons who collectively
constitute the Company's largest stockholder, the Ledbetter family, entered into
a Voting and Profit Sharing Agreement (the "Voting Agreement") with Acq Corp.
Pursuant to the Voting Agreement, William B. Ledbetter, Kirk B. Ledbetter,
Jessica L. Ledbetter and a trust affiliated with the Ledbetter family
(collectively, the "Ledbetter Family") have agreed: (i) to vote their shares of
Common Stock, representing approximately 41% of the outstanding Common Stock, in
favor of the Merger; (ii) to vote against any proposal before the stockholders
that would have the effect of impeding the Merger, including any proposal from
an entity other than Acq Corp to acquire the Company; (iii) not to solicit any
competing proposals in their individual capacities; and (iv) if the Merger
Agreement terminates under circumstances in which Acq Corp is entitled to a
breakup fee, to remit to Acq Corp 62.5% of any consideration received for the
Ledbetter Family's shares within 12 months after such termination, to the extent
the consideration exceeds what would have been received under the terms of the
Merger Agreement as in effect on February 1, 1998. The Voting Agreement requires
the Ledbetter Family to make this profit-sharing payment to Acq Corp even if the
topping bid is made by Acq Corp or another Colony entity. See "Interest of
Certain Persons in the Transaction."
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BACKGROUND OF THE MERGER AND REASONS FOR THE MERGER
BACKGROUND OF THE MERGER
Beginning in July 1997, management became concerned that, while the Company
was delivering record financial results, its stock price was relatively
stagnant. The Company was in the process of selling its interests in Hard Rock
Hotel, Inc. for cash and did not have an expansion project in which to put such
cash to work immediately. Management therefore began a process of exploring
opportunities to return increased value to its stockholders. Management
considered various forms of stock buy-back programs, leveraged
recapitalizations, a special dividend and the sale of the Company. Among other
factors, limitations contained in the indenture governing the Company's 10 5/8%
Senior Subordinated Notes due 2006 (the "Notes") limited the amount of its own
stock the Company could buy back or the amount of a special dividend it could
pay without the consent of the holders of the Notes. A leveraged
recapitalization would also require the consent of the holders of the Notes.
While it was possible that such consents might be obtained, management believed
that the cost of the consent payment, the other transaction costs involved and
the increased leverage on the Company as a result of such a transaction, while
possibly affording stockholders a short-term benefit, was not in the best
long-term interest of its stockholders. While management did not reach any final
conclusions during this period, which extended from July through September 1997,
it became apparent that, at an appropriate price, the best strategy to realize
current value for the existing stockholders would be a sale or other business
combination involving the Company.
Management had received inquiries during this period and previously from
various entities concerning the Company's interest in a business combination.
Previously the Company had believed its best strategy to maximize stockholder
value was to proceed with long-term expansion through the development of premium
hotel/casino facilities in markets in which the Company believed it could
establish and maintain a prominent position or niche. However, with little
prospect for the legalization of gaming in new domestic jurisdictions in the
near term and the difficulty of finding acceptable new projects in jurisdictions
where gaming is legal, management began to view with increased interest
overtures from other entities expressing interest in a business combination.
Management consulted on an individual basis with various members of the Board of
Directors including the three directors who are members of the Ledbetter Family
and jointly control approximately 41% of the Company's issued and outstanding
shares, about the advisability of pursuing overtures possibly leading to a
business combination. Management received a favorable response that, if a
transaction could be negotiated at an appropriate price, such directors believed
that the transaction might be in the best long-term interest of the
stockholders.
During October 1997, management received indications of interest from five
entities concerning a possible business combination with the Company. Various
informal discussions took place between members of management and such entities
on issues concerning the form of consideration to be received in such
combination, the ability of the interested entity to complete the transaction as
to financing, licensing and other relevant criteria. At the Board of Directors'
regularly scheduled meeting in October 1997, management informed the Board
generally of the state of discussions with interested parties and received the
approval of the Board to continue those discussions on a confidential basis and
on the basis of publicly available information about the Company. At the Board's
regularly scheduled November meeting, the Board was informed that negotiations
with the five interested parties had proceeded at varying degrees of intensity
and interest and that it appeared that two of such entities had indicated
interest at price levels which represented a substantial premium over the
Company's then current stock price and that each entity seemed to have the
ability to complete a transaction. As a preparatory step to considering a
business combination, the Board authorized management to negotiate an engagement
letter with DLJ to perform an evaluation of the Company and to inform the Board
as to the ranges of value which DLJ might consider as being fair to the
stockholders from a financial point of view. At a meeting of the Board on
December 5, 1997, the Board approved the engagement of DLJ and DLJ made a
presentation to the Board concerning DLJ's financial analysis of the Company in
contemplation of a possible business combination and informed the Board that it
would consider an offer in the range of $21.50 to $28.00 per share to be fair to
the
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stockholders from a financial point of view. DLJ and management also updated the
Board on the status of discussions with the five parties who had expressed
interest in a business combination with the Company and one additional entity
which had also expressed an interest. Two such entities had indicated they would
be willing to make a proposal for an all cash bid for all outstanding shares of
stock and one party had indicated that it would be willing to make a proposal at
a lower price than the other two. The two entities which had submitted proposals
at a higher price also strongly indicated that they would not participate in a
public "auction" process and would withdraw their indications of interest should
the Company commence such a process. There had been no further discussions since
the previous meeting with two of the entities, and the one new entity which had
expressed preliminary interest had not indicated a price. Following the
discussion of the DLJ presentation and the update concerning the current status
of negotiations with interested parties, the Board laid down four criteria that
it considered relevant to an acceptable bid: (1) consideration only in cash, (2)
demonstrated financial ability to close an all cash transaction with no
financing contingency, (3) an enumeration of the other contingencies a
prospective bidder would expect, and (4) a schedule of due diligence review and
timing of negotiations and completion of the transaction. DLJ was authorized to
contact on a confidential basis any other entities which it believed, based on
its experience in the gaming industry, might possibly be interested in a
business combination with the Company. DLJ was retained as the financial advisor
to the Company and authorized to conduct all negotiations with prospective
bidders and to report back to the full Board as events warranted.
At a meeting of the Board on December 15, the Board received an update from
DLJ. Of the several parties contacted by DLJ, none had expressed interest in a
possible business combination with the Company. The two previously contacted
entities were still interested in a business combination involving all cash
consideration, one entity which had been informed that its bid was inadequate
had made no new bid but simply reaffirmed its previous bid, and the other three
entities which had originally expressed interest either had ceased interest or
had not made or were incapable of making proposals which fit the Board's
criteria. On that basis, the Board authorized management to enter into
confidentiality agreements with any entity indicating a willingness to pay
$27.00 or more per share in cash for the Company which also had the demonstrated
financial ability to close such a transaction without a financing contingency.
Following the meeting, DLJ continued discussions with five interested parties
and informed them of the Board's decision. In the month of December, DLJ on
behalf of the Company entered into confidentiality agreements with the two
entities which had indicated a willingness since November to make all cash
proposals and those entities then proceeded to conduct due diligence, including
on the basis of non-public information furnished by the Company and interviews
with management.
In preparation for the regularly scheduled meeting of the Board on January
22, 1998, DLJ requested that all five parties submit written proposals meeting
the Board's previously articulated criteria. Of the two entities which had
entered into confidentiality agreements and performed due diligence, Colony
submitted a written proposal and the other entity orally reconfirmed its
previous proposal. One other entity submitted a proposal at $27.00 per share,
one-third in cash and two-thirds in stock, despite having been informed by DLJ
that such a proposal would be unacceptable to the Board. Two entities made no
proposal. In its written proposal for the Board meeting on January 22, 1998,
Colony increased its bid to $28.00. On the basis of the increased bid and other
components of the proposal, the Board authorized the Company to enter into a
period of exclusive negotiations with Colony to see if an acceptable business
combination could be negotiated.
NEGOTIATIONS WITH COLONY
Immediately following the January 22 Board meeting, DLJ informed Bear,
Stearns & Co. Inc., Colony's financial advisor ("Bear, Stearns"), that, on the
basis of Colony's indication of interest in an all cash transaction at $28.00
per share, the Board had decided to grant Colony a three-week period during
which representatives of Harveys would negotiate exclusively with Colony to see
if an acceptable form of transaction could be agreed upon. All such discussions
were conducted orally and no written agreements were entered into between
Harveys or its representatives and Colony or its representatives at this time.
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During the week of January 25, 1998, representatives of Harveys, DLJ and Morgan,
Lewis & Bockius LLP, Harveys' legal counsel in the transaction ("ML&B"), met
with representatives of Colony, Bear, Stearns and Skadden, Arps, Slate, Meagher
& Flom LLP, Colony's legal counsel, and negotiated the terms of an agreement and
plan of merger. Representatives of Colony and its advisors also conducted
separate negotiations with the Ledbetter Family and its advisors concerning the
terms of the Voting Agreement and a Non-Competition and Trade Secret Agreement.
Finally, representatives of Colony also met with senior executives of Harveys
and their counsel to negotiate a Memorandum of Understanding concerning the
continued employment of certain members of management and the possible ownership
stake of management in the surviving corporation. On Sunday, January 31, 1998,
the Board met and, having previously received earlier drafts of the Merger
Agreement, received a presentation from ML&B concerning the terms of the Merger
Agreement as they had been negotiated between Colony and Harveys, and received
the opinion of DLJ delivered in writing that the terms of the Merger were fair
to Harveys' stockholders from a financial point of view. The Board also reviewed
the terms of the Voting Agreement and were informed of the terms of the
Memorandum of Understanding. The Board of Directors unanimously approved the
Merger Agreement and the Voting Agreement and directed the authorized officers
of the Company to execute the Merger Agreement on behalf of Harveys.
RECOMMENDATION OF THE BOARD OF DIRECTORS; HARVEYS' REASONS FOR THE MERGER
THE BOARD OF DIRECTORS, BY UNANIMOUS VOTE, HAS DETERMINED THAT THE MERGER IS
FAIR TO, AND IN THE BEST INTERESTS OF, THE STOCKHOLDERS OF THE COMPANY AND
RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR ADOPTION OF THE MERGER AGREEMENT AND
APPROVAL OF THE MERGER.
The Board of Directors has unanimously determined that the Merger is
advisable and fair to, and in the best interests of, the stockholders of the
Company. The Board of Directors believes that as a result of the Merger, the
Company will have better access to the substantial capital needed for continued
expansion. In addition, the Board of Directors has determined that the Merger
affords the Company's stockholders a substantial premium over the market price
of the Common Stock prior to the public disclosure of the Merger Agreement. The
price of $28 per share of Common Stock offered in the Merger Agreement
represents a premium of 23% over the highest sales price of the Common Stock on
January 30, 1998, the last business day before the execution of the Merger
Agreement and announcement of the Merger, and a premium of 41% over the highest
sales price of Common Stock during the fiscal year ended November 30, 1997.
In approving the Merger Agreement and the transactions contemplated thereby,
the Board of Directors considered a number of factors. The factors material to
the decision of the Board of Directors are summarized below:
(i) The Board of Directors' consideration of current industry, economic and
market conditions;
(ii) The terms and conditions of the Merger Agreement, including the amount
and form of the consideration to be received in the Merger;
(iii) The historical market prices and trading information with respect to
the Common Stock;
(iv) The substantial premium over the market price of the Common Stock
represented by the Merger Consideration and that the offer was at the
top of the range of prices that DLJ considered to be fair to the
stockholders from a financial point of view;
(v) The history of the Company's discussions over a period of four months
with other parties, including (a) the fair and ample opportunity
provided to interested parties to submit proposals to the Company, (b)
that none of the other proposals contemplated the acquisition of the
Company for more than $28.00 per share in cash, (c) that the noncash
component of several other interested parties' proposals would subject
the stockholders of the Company to the risks and
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uncertainties associated with equity securities, and (d) that following
contacts with many entities, the Colony proposal was the best proposal
received;
(vi) The ability to terminate the Merger Agreement and accept another
Proposal in the event that a Proposal was received pursuant to which
the consideration offered exceeded the Merger Consideration and was
otherwise more favorable to the Company; and
(vii) The presentation by DLJ to the Board of Directors, including DLJ's
written opinion, dated February 1, 1998, to the effect that, as of the
date of such opinion and based upon and subject to the assumptions,
limitations and qualifications set forth therein, the consideration to
be received by the stockholders of the Company pursuant to the Merger
Agreement is fair to such stockholders from a financial point of view.
The Board of Directors did not assign relative weights to the factors
discussed above.
OPINION OF THE COMPANY'S FINANCIAL ADVISOR
The Company selected DLJ as its financial advisor with respect to the Merger
because DLJ is a nationally recognized investment banking firm that has
substantial experience in the gaming and resort industries and is familiar with
the Company and its business and has had a prior investment banking relationship
with the Company. DLJ, as part of its investment banking services, is regularly
engaged in the valuation of businesses and securities in connection with
mergers, acquisitions, underwritings, sales and distributions of listed and
unlisted securities, private placements and valuations for corporate and other
purposes.
The Board of Directors asked DLJ, as part of its role as financial advisor
to the Company, to render an opinion as to the fairness to the Company's
stockholders of the consideration to be received by the stockholders pursuant to
the Merger Agreement. On February 1, 1998, DLJ delivered its written opinion
(the "DLJ Opinion") to the Board of Directors to the effect that, as of the date
of such opinion and based upon and subject to the assumptions, limitations and
qualifications set forth in the opinion, the consideration to be received by the
stockholders of the Common Stock pursuant to the Merger Agreement is fair to
such stockholders from a financial point of view.
A COPY OF THE DLJ OPINION IS ATTACHED HERETO AS ANNEX B. STOCKHOLDERS ARE URGED
TO READ THE DLJ OPINION CAREFULLY IN ITS ENTIRETY FOR THE ASSUMPTIONS MADE, THE
PROCEDURES FOLLOWED, THE MATTERS CONSIDERED AND THE LIMITS OF THE REVIEW MADE BY
DLJ IN CONNECTION WITH SUCH OPINION.
The DLJ Opinion was prepared for the Board of Directors and addresses only
the fairness of the consideration to be received by the Company's stockholders
from a financial point of view. The DLJ Opinion does not constitute a
recommendation to any stockholder as to how to vote on the Merger. No
restrictions or limitations were imposed by the Company upon DLJ with respect to
the investigations made or the procedures followed by DLJ in rendering the DLJ
Opinion.
In arriving at its opinion, DLJ reviewed the Merger Agreement and the
schedules and exhibits thereto, as well as other information that was publicly
available or furnished to DLJ by the Company including information provided
during discussions with management. Included in the information provided to DLJ
were certain financial projections of the Company prepared by the management of
the Company. In addition, DLJ compared certain financial and securities data of
the Company with various other companies whose securities are traded in the
public markets, reviewed the historical stock prices and trading volumes of the
Common Stock, reviewed prices and premiums paid in certain other business
combinations and conducted such other financial studies, analyses and
investigations as DLJ deemed appropriate for the purposes of its opinion.
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In rendering the DLJ Opinion, DLJ relied upon and assumed the accuracy and
completeness of all of the financial and other information that was available to
it from public sources, that was provided to it by the Company or its
representatives or that was otherwise reviewed by it. With respect to the
financial projections supplied to DLJ, DLJ assumed that they were reasonably
prepared on the basis reflecting the best currently available estimates and
judgments of the management of the Company as to the future operating and
financial performance of the Company. DLJ has not assumed any responsibility for
making an independent evaluation of any assets or liabilities or for making any
independent verification of any of the information it reviewed.
The DLJ Opinion is necessarily based on economic, market, financial and
other conditions as they existed on, and on the information made available to it
as of, the date of the DLJ Opinion. Although subsequent developments may affect
its opinion, DLJ does not have any obligation to update, revise or reaffirm its
opinion.
The following is a summary of certain factors and the principal financial
analyses performed by DLJ to arrive at its opinion dated February 1, 1998. This
summary does not purport to be a complete description of the analyses performed
by DLJ. DLJ drew no specific conclusions from any of these analyses but
subjectively factored its observations from these analyses into its qualitative
assessment of the relevant facts and circumstances.
DISCOUNTED CASH FLOW ANALYSIS. DLJ performed a discounted cash flow
analysis of the Company using the Company's management's estimates of future
performance and future results of operations under two scenarios: (i) current
budgeted base business and (ii) current budgeted base business plus a Las Vegas
development project (the "Las Vegas Project") which would be assumed to commence
operations in fiscal 2000. For Harveys' base business, DLJ selected a range of
terminal multiples of 5.25x to 6.25x earnings before interest expense, income
taxes, depreciation and amortization ("EBITDA") and a weighted average cost of
capital range of 10% to 14% based upon its subjective judgments about, among
other things, the capital markets, Harveys' prospects and the gaming industry.
The terminal exit multiple represents an estimate of the value of Harveys'
earnings at the end of the three-year period covered by Harveys' management's
projections and an additional two-year period covered by an extrapolation of
Harveys' management's projections by DLJ. This analysis implied a per share
value of Harveys of between $16.71 and $25.21. For the Las Vegas Project, DLJ
selected a range of terminal multiples of between 6.50x and 7.50x EBITDA to
reflect the higher value of a Las Vegas property and a range of weighted average
cost of capital of 15.0% to 19.0% to reflect increased riskiness, based upon
subjective judgments about, among other things, the capital markets, location of
the proposed project, sources of funding for the project, Harveys' management's
projections and the gaming industry. The terminal exit multiple represents an
estimate of the value of the Las Vegas Project's earnings at the end of the
five-year period covered by Harveys' management's projections. This analysis
implied a per share value of the Las Vegas Project of between $1.79 and $3.96,
which, if added to the discounted cash flow analysis valuation of the Harveys'
base business above, results in a total per share value of between $18.50 and
$29.17.
ANALYSIS OF CERTAIN OTHER PUBLICLY TRADED COMPANIES. To provide contextual
data and comparative market information, DLJ compared selected historical
earnings and operating and financial ratios for Harveys to corresponding data
and ratios of certain gaming companies whose securities are publicly traded. In
conducting its analysis, DLJ compared the ratios implied by the consideration to
be paid by Colony Capital in the transaction contemplated by the Merger
Agreement (the "Transaction") to the ratios implied from the market valuation of
publicly traded companies selected by DLJ (collectively the "Gaming Companies")
based upon qualitative factors which DLJ deemed relevant based upon its
expertise in the gaming industry. These companies included: Ameristar Casinos,
Aztar Corporation, Boyd Gaming Corporation, Primadonna Resorts, Inc., Showboat,
Inc. ("Showboat") and Station Casinos, Inc. ("Station"). Market prices for
Showboat and Station were taken from one business day prior to the respective
announcements of Showboat's transaction with Harrah's Entertainment, Inc. and
Station's transaction with Crescent Real Estate Equities. DLJ also compared the
ratios implied by the consideration to be paid by
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Colony in the Transaction to the ratios implied from the market valuation of a
subgroup of the Gaming Companies which included Ameristar Casinos and Primadonna
Resorts, Inc. (the "Selected Gaming Companies") based upon the fact that the
Selected Gaming Companies are multi-property, multi-jurisdictional gaming
entities which have similar growth rates and operating performance to Harveys.
Although DLJ used these companies for comparative purposes, none of such
companies is directly comparable to Harveys. Data and ratios considered
included: the ratio of enterprise value to 1997 revenues and 1997 projected
EBITDA and the ratio of market price to fiscal 1998 and 1999 projected earnings
per share ("EPS"). All projected information for the Gaming Companies was
obtained from First Call which summarizes the estimates made by analysts
employed by several investment banking firms and from the published reports of
research analysts employed by investment banking firms, including analysts
employed by DLJ. Enterprise value is defined as the sum of the principal amount
of a company's debt and minority interest in consolidated subsidiaries plus the
market value of its equity securities less excess cash. EBITDA was selected for
analysis by DLJ because it is a widely used estimate of cash flows generated by
operations. The ratio of enterprise value to 1997 revenue ranged from 1.1x to
2.1x (with a mean, excluding the high and the low value (the "Mean") of 1.5x)
for the Gaming Companies, was 1.4x for Ameristar Casinos and is 1.5x in the
Transaction. The ratio of enterprise value to 1997 projected EBITDA ranged from
5.9x to 9.1x (with a Mean of 6.7x) for the Gaming Companies, 6.2x to 6.8x for
the Selected Gaming Companies and is 7.1x in the Transaction. The ratio of
market price to 1998 projected EPS ranged from 10.6x to 42.1x (with a Mean of
17.2x) for the Gaming Companies, 10.6x to 14.6x for the Selected Gaming
Companies and is 17.2x in the Transaction. The ratio of market value to 1999
projected EPS ranged from 9.6x to 36.8x (with a Mean of 12.4x) for the Gaming
Companies, 9.6x to 13.9x for the Selected Gaming Companies and is 17.0x in the
Transaction.
No company utilized in this analysis is identical to the Company.
Accordingly, an analysis of the results of the foregoing necessarily involves
complex considerations and judgments concerning differences in financial and
operating characteristics of the Gaming Companies and the Company and other
factors that could affect the public trading value of the Gaming Companies.
Mathematical analysis such as determining the mean is not in itself a meaningful
method of using comparable company data.
COMPARABLE MERGER AND ACQUISITION ANALYSIS. DLJ reviewed the implied
valuation multiples of: (i) selected merger and acquisition transactions in the
gaming industry with target enterprise values of between $250 million and $1
billion since 1984 (the "Casino Resort Transactions"); (ii) Crescent Real Estate
Equities' pending acquisition of Station Casinos, Inc. (the "Station
Transaction"); (iii) Harrah's Entertainment, Inc.'s pending acquisition of
Showboat, Inc. (the "Showboat Transaction"); (iv) Grand Casino, Inc.'s announced
proposal to acquire Casino Magic Corporation (the "Casino Magic Transaction");
and (v) Sun International Hotel Ltd.'s acquisition of Griffin Gaming and
Entertainment (the "Griffin Transaction"). None of the preceding merger and
acquisition transactions are directly comparable to the Transaction.
Additionally, in reviewing the multiples in the transactions set forth above,
DLJ considered the effects of prevailing market conditions. DLJ compared the
ratios implied by the aggregate consideration to be paid by Colony to the
holders of Common Stock in the Transaction to the ratios implied by the Mean of
the Casino Resort Transactions, the Station Transaction, the Showboat
Transaction, the Casino Magic Transaction and the Griffin Transaction. The ratio
of enterprise value implied by the consideration paid or to be paid to the
latest twelve months ("LTM") revenues at the time of announcement or closing was
a Mean of 1.4x for the Casino Resort Transactions, 2.1x for the pending Station
Transaction, 0.9x for the pending Showboat Transaction, 1.2x for the potential
Casino Magic Transaction, 0.9x for the Griffin Transaction and is 1.5x in the
Transaction. The ratio of enterprise value implied by the consideration paid or
to be paid to LTM EBITDA at the time of announcement or closing was a Mean of
7.6x for the Casino Resort Transactions, 9.2x for the pending Station
Transaction, 6.1x for the pending Showboat Transaction, 6.7x for the proposed
Casino Magic Transaction, 6.5x for the Griffin Transaction and is 7.1x in the
Transaction.
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No transaction utilized in this analysis is identical to the Transaction.
Accordingly an analysis of the results of the foregoing necessarily involves
complex considerations and judgments concerning differences in financial and
operating characteristics of the Company and the companies involved in the
Casino Resort Transactions and other factors that could affect the acquisition
value of the companies to which it is being compared. Mathematical analysis such
as determining the mean is not in itself a meaningful method of using comparable
transactions data.
RECAPITALIZATION ANALYSIS. DLJ analyzed the value to current holders of the
Common Stock of a recapitalization of Harveys. It was assumed that Harveys paid
a dividend of $18.00 per share to holders of its Common Stock by raising
approximately $200 million of addition debt (the "Recapitalization"). The value
of Harveys equity was then valued using: (i) discounted cash flow analysis with
terminal exit multiples of between 5.25x to 6.25x EBITDA and weighted average
cost of capital of between 12% and 16%; and (ii) estimated price earnings
multiples ranging from 10.0x to 20.0x applied to Harveys' pro forma earnings.
This analysis was based upon, among other things, DLJ's knowledge of the capital
markets and DLJ's expertise in the gaming industry. The discounted cash flow
methodology implied a per share present value to Common Stock holders of between
$18.00 and $22.92 per share and the estimated price earnings methodology implied
a per share present value to Common Stock holders of between $22.26 and $26.53.
STOCK TRADING PRICE HISTORY. DLJ reviewed the history of the trading prices
for Harveys Common Stock since its initial public offering during which time the
stock has traded between $10.63 and $23.75 per share. Over the 52 weeks prior to
the announcement of the Transaction, the Common Stock traded between $14.25 and
$23.13 per share and had a high price of $23.13 on January 27, 1998, three
business days prior to the announcement of the Transaction. Over the 90 days
prior to the announcement of the Transaction, the Common Stock traded between
$17.88 and $23.13 per share. The all time high of Harveys Common Stock was
$23.75 per share on May 17, 1995.
PREMIUM ANALYSIS. DLJ calculated the premium implied by the purchase price
per share of the Common Stock under the Transaction to the closing price of the
Common Stock one day, one week and one month prior to the closing price on
January 30, 1998, the last trading day prior to the signing of the Merger
Agreement. The purchase price represents a premium of 24.4%, 23.8% and 34.1% to
the closing price one day, one week and one month prior to the closing price on
January 30, 1998, respectively. DLJ also reviewed the premiums paid in selected
merger and acquisition transactions with target enterprise values of between
$250 to $500 million. The average premium paid to the closing price of the
common stock of the targets one day, one week, and one month prior to the
announcement of such transactions was 25.1%, 26.4% and 27.7%, respectively.
The summary set forth above does not purport to be a complete description of
the analyses performed and factors considered by DLJ. The preparation of a
fairness opinion involves various determinations as to the most appropriate and
relevant methods of financial analysis and the application of these methods to
the particular circumstances and, therefore, such an opinion is not readily
susceptible to summary description. Accordingly, notwithstanding the separate
factors summarized above, DLJ believes that its analysis must be considered as a
whole and that selecting portions of its analysis and the factors considered by
it, without considering all analyses and factors, could create an incomplete
view of the evaluation process underlying its opinions. Furthermore, in arriving
at its fairness opinion, DLJ did not attribute any particular weight to any
analysis or factor considered by it, but rather made subjective and qualitative
judgments as to the significance and relevance of each analysis and factor and
concluded that its analyses, taken as a whole, supported its determination. In
performing its analyses, DLJ made numerous assumptions with respect to industry
performance, business and economic conditions and other matters. The analyses
performed by DLJ are not necessarily indicative of actual values or future
results, which may be significantly more or less favorable than suggested by
such analyses.
Pursuant to the terms of an engagement letter dated December 3, 1997 by
which the Company agreed to retain DLJ as its exclusive financial advisor in
connection with the potential acquisition of the Company,
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the Company has agreed to pay DLJ (i) a cash fee of $500,000 for rendering its
fairness opinion in connection with the Merger, irrespective of the conclusion
reached therein, (ii) a cash fee of $50,000 for any updating opinion and (iii) a
fee of 0.65% of the Company's Enterprise Value less $250,000 paid to DLJ by the
Company at the time of DLJ's initial financial valuation of the Company and the
amount previously paid pursuant to (i) above. The Enterprise Value fee is to be
paid at the consummation of the Merger. "Enterprise Value" is defined in the
engagement letter as the aggregate value of the Common Stock, including shares
issuable upon the exercise of options, warrants or other rights of conversion
outstanding (less the value necessary to purchase such shares), plus the amount
of debt assumed in connection with the Merger. If the Merger closes before
September 1, 1998, the Enterprise Value will be (i) $28 per share plus (ii)
approximately $120 million representing the amount of debt to be assumed by
Colony. If the Merger closes after September 1, 1998, the Enterprise Value will
be that described in the preceding sentence, plus an additional amount per share
calculated as (A) the product of (x) $1.96 and (y) a fraction the numerator of
which shall be the number of days elapsed from and including September 1, 1998
to and excluding the closing date of the Merger and the denominator of which
shall be 365, minus (B) (x) the aggregate amount of all cash dividends on the
Common Stock paid during the period from and including September 1, 1998 to and
excluding the closing date of the Merger, divided by (y) the number of shares of
Common Stock upon which the Merger Consideration is paid plus the number of
shares of Common Stock underlying any stock options, warrants and other rights
to acquire Common Stock canceled in connection with the Merger. In addition, the
Company will reimburse DLJ for out-of-pocket expenses incurred in connection
with its engagement in an amount not to exceed $10,000 without the Company's
written consent, plus fees of outside counsel retained by DLJ, not to exceed
$25,000 without the Company's written consent. The Company has agreed to
indemnify DLJ and certain of its related persons against certain liabilities in
connection with its engagement, including liabilities under federal securities
laws. The terms of the fee agreement with DLJ, which DLJ and the Company believe
are customary in transactions of this nature, were negotiated at arm's length
between the Company and DLJ.
DLJ has performed investment banking and advisory services for the Company
in the past, including advising the Company and providing a fairness opinion
regarding the sale of the Company's 40% interest in the Hard Rock Hotel & Casino
in October 1997, lead managing the Company's issuance of $150 million of 10 5/8%
Senior Subordinated Notes due 2006 in May 1996 and advising the Company on its
acquisition of a 30% interest in Harveys Wagon Wheel Hotel & Casino in April
1996, and has received customary compensation for such services.
THE MERGER AGREEMENT
The terms and conditions of the proposed Merger are contained in the Merger
Agreement, a copy of which is attached as ANNEX A to this Proxy Statement.
Stockholders are urged to read the Merger Agreement carefully. The descriptions
of the material terms and conditions of the Merger Agreement are set forth below
and are qualified in their entirety by reference to the complete text of the
Merger Agreement.
EFFECTIVE TIME
The Merger Agreement provides that the Merger will become effective at the
time the Articles of Merger are duly filed with the Nevada Secretary of State,
or, if agreed to by the Company and Acq Corp, at a later time not to exceed 90
days after the filing. Such filing will be made no later than the third business
day after the date on which all of the conditions to the parties' obligations to
consummate the Merger, including the approval of the gaming authorities of
Nevada, Colorado and Iowa and the receipt of the necessary gaming licenses and
permits by Acq Corp and its directors and officers, are met.
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CONVERSION OF SHARES
As of the Effective Time, each share of Common Stock outstanding immediately
prior to the Effective Time (other than shares held by the Company and its
subsidiaries or held by Acq Corp) will be converted into the right to receive
the Merger Consideration. See "The Merger." All shares of Common Stock held by
the Company or any of its subsidiaries as treasury shares, or by Acq Corp, will
be canceled, and each issued and outstanding share of Acq Corp stock will be
converted into an equivalent share of Common Stock of the Company, as the
surviving corporation in the Merger.
SURRENDER OF SHARES AND PAYMENT
Immediately prior to the Effective Time, Acq Corp will designate a bank or
trust company to act as paying agent (the "Paying Agent") and will make funds
available to the Paying Agent at the times and in the amounts needed for payment
of the Merger Consideration upon surrender of stock certificates by
stockholders.
DO NOT SEND IN YOUR STOCK CERTIFICATES AT THIS TIME. YOU WILL RECEIVE A
LETTER OF TRANSMITTAL AND FURTHER INSTRUCTIONS AS SOON AS PRACTICABLE AFTER THE
EFFECTIVE TIME OF THE MERGER.
Each holder of shares of Common Stock that have been converted into the
right to receive the Merger Consideration will be entitled to receive the Merger
Consideration upon surrender of the holder's certificate or certificates
representing such shares to the Paying Agent, together with a properly executed
letter of transmittal. The stock certificate or certificates surrendered will be
canceled. After the Effective Time, stock certificates for the Common Stock will
represent for all purposes only the right to receive the Merger Consideration.
Holders of Common Stock will have no further ownership rights in the Common
Stock and there will be no further registration of transfers of shares of Common
Stock. If certificates representing shares of Common Stock are presented for
transfer after the Effective Time, they will be canceled and exchanged for the
Merger Consideration pursuant to the terms of the Merger Agreement.
Any amounts made available to the Paying Agent pursuant to the Merger
Agreement for payment of the Merger Consideration that remain unclaimed by
holders of shares of Common Stock six months after the Effective Time will, upon
Acq Corp's request, be delivered to an entity to be chosen by Colony. Any such
holder who has not exchanged shares prior to that time will be entitled to look
only to such entity for payment of the holder's claim for the Merger
Consideration. The Company, Acq Corp, Colony and the Paying Agent will not be
liable to any stockholder for any unclaimed amounts that are eventually
delivered to a government official pursuant to any abandoned property, escheat
or similar law.
STOCK OPTIONS
Immediately prior to the Effective Time the Company will cause all
outstanding Options to purchase shares of Common Stock granted under any stock
option or other stock-based incentive plan to be canceled. Holders of Options
will be entitled to receive a cash payment equal to the product of (i) the
number of shares of Common Stock subject to each option times (ii) the excess,
if any, of the Merger Consideration over the per share exercise price of such
Option. See "The Merger."
The Company estimates that the aggregate cash payments required to be made
in respect of Options would be approximately $9,540,000.
CONDUCT OF BUSINESS PENDING THE MERGER
In the Merger Agreement, the Company has agreed that during the term of the
Agreement, the Company and its subsidiaries will carry on their respective
businesses in the ordinary course of business,
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keep the services of current officers and employees available and preserve their
ongoing business relationships. The Company has also agreed that it (and, where
applicable, its subsidiaries) will not:
(a) issue any new capital stock (other than upon the exercise of Options),
sell or pledge any shares of its capital stock, split or combine any outstanding
stock, redeem or purchase any outstanding stock other than as required by gaming
laws, or declare or pay any dividends or distributions in respect of capital
stock other than the declaration and payment of regular quarterly dividends on
the Common Stock in an amount not greater than $.05 per share;
(b) amend its Restated Articles of Incorporation or By-laws;
(c) take any action that would result in the failure to maintain the listing
of the Common Stock on the New York Stock Exchange ("NYSE");
(d) develop or acquire any projects, assets or lines of business, other than
purchases of inventory in the ordinary course of business and expenditures
consistent with the Company's current capital budget;
(e) sell, lease, mortgage or otherwise encumber or dispose of any of its
properties or assets other than in the ordinary course of business;
(f) incur any indebtedness exceeding $10 million in the aggregate, including
through the issuance of debt securities or guaranties, other than working
capital borrowings in the ordinary course of business, for projects approved by
the Board of Directors prior to February 1, 1998 and specific projects at
existing facilities; or make any loans, advances or investments other than in
the ordinary course of business or for pre-approved or budgeted projects;
(g) settle any claim or action relating to material taxes, make any material
tax election or amend any material tax return;
(h) pay, settle or satisfy any material liabilities, or waive the benefit of
any confidentiality, standstill or similar agreement other than in the ordinary
course of business;
(i) make any change in the compensation payable to officers, directors,
employees, agents or consultants, other than general increases for employees who
are not officers or directors and salary increases pursuant to regular annual
reviews for officers other than Charles W. Scharer, or enter into or amend any
employment, severance, consulting, termination or other agreement or employee
benefit plan;
(j) pay or accrue any payment pursuant to any employee benefit plan or
agreement to any officers, directors, or employees other than in the ordinary
course of business, as required by law or the current terms of such plan or
agreement;
(k) enter into any collective bargaining agreement;
(l) make any payments, loans or advances, other than regular compensation,
to, or enter into any transaction or agreement with, any officers, directors,
stockholders or affiliates of the Company or the family members of any such
parties, or do any of the foregoing with respect to employees, agents or
consultants of the Company other than in the ordinary course of business; or
(m) modify, amend or terminate any material contract.
The Company may continue making monthly payments in connection with an
Option Agreement with Grand Plaza Limited Partnership under which the Company
has an option to purchase a parcel of land, and may expend reasonable amounts in
connection with development activities relating to the parcel of land subject to
the Option Agreement and for certain existing development opportunities in
Massachusetts and Illinois.
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CONDITIONS TO THE MERGER
The respective obligations of the Company and Acq Corp to consummate the
Merger are subject to the satisfaction of a number of conditions, including:
(a) The stockholders of the Company shall have adopted the Merger Agreement
and approved the Merger;
(b) All licenses, permits, registrations, findings of suitability and other
approvals required to be obtained from gaming authorities in Nevada, Colorado
and Iowa in order to permit the Company and its subsidiaries to conduct business
in the same manner as before the Merger shall have been obtained;
(c) The Company and Acq Corp shall each have performed all obligations and
complied with all covenants required by the Merger Agreement to be performed or
complied with prior to the effective time of the Merger and all representations
and warranties given by the Company and Acq Corp in the Merger Agreement shall
continue to be true in all material respects;
(d) No events which would have a material adverse effect on the Company or
any of its material subsidiaries shall have occurred;
(e) No statute, regulation, decree, temporary restraining order, injunction
or any other legal restraint preventing the consummation of the Merger or the
transactions contemplated in the Merger Agreement shall be in effect and all
necessary consents of governmental entities shall have been obtained;
(f) all Options shall have been canceled; and
(g) a registration statement on Form 10 in connection with the registration
under the Securities Exchange Act of 1934 of the Class A Common Stock of Acq
Corp shall have become effective and remain in effect at the date of closing of
the Merger.
EXPENSES OF THE MERGER
The Merger Agreement provides that if the Merger is consummated the Company
and Acq Corp will each pay their own costs and expenses in connection with the
Merger. If the Merger terminates under certain circumstances described elsewhere
in this Proxy Statement, the Company must pay Acq Corp a breakup fee of $10
million plus its out-of-pocket expenses. See "Breakup Fee" and "Termination."
FINANCING OF THE MERGER
Acq Corp has agreed to have sufficient funds to pay the Merger Consideration
on the date of closing of the Merger, and has agreed to maintain the ability to
obtain $10 million in cash upon 10 business days' prior notice, pursuant to a
binding commitment from Colony Investors or another reasonably acceptable
source, until the earlier of the consummation of the Merger or six months
following any termination of the Merger Agreement prior to the Effective Time.
(Acq Corp's obligations to maintain the commitment will terminate if Acq Corp
terminates the Merger Agreement because the approval of the Company's
stockholders is not obtained by June 1, 1998 or if the Company enters into a
definitive agreement with respect to a qualifying competitive Proposal as
described below).
NO SOLICITATION
The Merger Agreement prohibits the Company, its subsidiaries and its
directors, officers, agents and affiliates from directly or indirectly
soliciting any proposals or offers to purchase a material amount of the
Company's assets or over 10% of any class of equity security, or any merger or
other business combination transaction involving the Company or its subsidiaries
(other than the Merger) or any other transaction which would interfere with the
Merger, or participate in discussions or provide information that might lead
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<PAGE>
to such a proposal or offer. The Board of Directors may not withdraw its support
for the Merger or recommend any proposal or offer from another party.
However, in the event that a third party were to make an offer or proposal
that the Board of Directors would have to consider in carrying out its fiduciary
duties, because the proposed consideration exceeded the Merger Consideration,
the offer was otherwise "more favorable" to the Company and certain other
conditions specified in the Merger Agreement were met (a "qualifying competitive
Proposal") , the Board of Directors would be permitted to entertain the
proposal. Under the Merger Agreement, the Board of Directors would have to
provide notice and the terms of the proposal to Acq Corp, which would have 10
days to decide whether to match the proposal. If Acq Corp declined to match the
proposal, the Merger Agreement would terminate and the Company would have to pay
Acq Corp a breakup fee plus out-of-pocket expenses. See "--Breakup Fee."
BREAKUP FEE
The Company has agreed to pay Acq Corp $10 million plus all reasonably
documented out-of-pocket expenses if (i) the Agreement has not been approved by
the Company's stockholders by June 1, 1998, Acq Corp terminates the Merger
Agreement and a Proposal is made before the date of such termination, (ii)
before stockholder approval of the Merger, the Company receives a more favorable
qualifying competitive Proposal that Acq Corp declines to match and enters into
an agreement with respect to such Proposal, or (iii) the Company receives any
Proposal, the Merger Agreement is terminated for any reason other than Acq
Corp's failure to obtain the necessary regulatory approval or comply with
certain other material obligations under the Merger Agreement, and within 12
months after the termination, an agreement to be acquired is entered into by the
Company or recommended by the Board of Directors.
TERMINATION
The Merger Agreement may be terminated at any time prior to the Effective
Time by mutual written consent of the Company and Acq Corp. Either the Company
or Acq Corp may terminate the Merger Agreement if any governmental entity has
permanently enjoined or prohibited payment of the Merger Consideration for the
Common Stock. In addition, if the Effective Time has not occurred by February 1,
1999, either the Company or Acq Corp may terminate the Merger Agreement;
however, if the grant of approval from the gaming authorities of Nevada,
Colorado or Iowa has not been finally determined prior to February 1, 1999 and
the parties can obtain reasonable assurances that a hearing will be scheduled
prior to April 1, 1999, then neither party will be able to terminate the Merger
Agreement prior to April 1, 1999, due to Acq Corp's failure to obtain gaming
authority approval. Acq Corp may terminate the Merger Agreement if the Company's
stockholders have not approved the Merger by June 1, 1998, and the Company may
terminate if before stockholder approval of the Merger it receives a more
favorable qualifying competitive Proposal which Colony declines to match and
enters into a definitive agreement with respect to such Proposal. See "--No
Solicitation."
AMENDMENT
The Merger Agreement may be amended at any time by mutual agreement of the
Company and Acq Corp, provided that after approval of the Merger Agreement by
the stockholders, no amendment may be made if it would require further approval
of the stockholders without the further approval of the stockholders.
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INTEREST OF CERTAIN PERSONS IN THE TRANSACTION
In considering the recommendation of the Board of Directors with respect to
the Merger Agreement, the Company's stockholders should be aware that the
Ledbetter Family and certain officers of the Company, including Charles W.
Scharer (who is also Chairman of the Board), John J. McLaughlin and Stephen L.
Cavallaro, have interests in the Merger that are in addition to or different
from the interests of the Company's stockholders generally.
The Ledbetter Family has entered into the Voting Agreement, pursuant to
which William B. Ledbetter, Kirk B. Ledbetter and Jessica L. Ledbetter, all of
whom are members of the Board of Directors, and a trust affiliated with the
family have agreed to vote their shares, representing approximately 41% of the
Common Stock, in favor of the Merger. Under the Voting Agreement, the Ledbetter
Family has also agreed (i) to vote against any proposal before the stockholders
that would have the effect of impeding the Merger, including any proposal from
an entity other than Acq Corp to acquire the Company; (ii) not to solicit any
competing offers or proposals; and (iii) if the Merger Agreement terminates
under circumstances in which Acq Corp is entitled to a breakup fee, to remit to
Acq Corp 62.5% of any consideration received for the Ledbetter Family's shares
within 12 months after such termination, to the extent such consideration
exceeds the Merger Consideration that would have been received under the terms
of the Merger Agreement as in effect on February 1, 1998. The Voting Agreement
requires the Ledbetter Family to make the profit-sharing payment to Acq Corp
even if the topping bid is made by Colony. The agreements of William B.
Ledbetter, Kirk B. Ledbetter and Jessica L. Ledbetter not to solicit any
competing offers for the Company would not be violated by any actions taken by
him or her in his or her capacity as an officer or director of the Company, but
such actions must be taken in conformance with the nonsolicitation provisions of
the Merger Agreement. See "The Merger Agreement--No Solicitation."
William B. Ledbetter, Kirk B. Ledbetter and Jessica L. Ledbetter have also
entered into a Noncompetition and Trade Secret Agreement with Acq Corp (the
"Noncompetition Agreement"). Under the Noncompetition Agreement, the Ledbetters
have agreed not to engage or be employed or make certain investments in the
business of owning, operating and developing gaming and gaming-related projects,
including hotel/casinos, for a period of three years after the closing of the
Merger. Kirk B. Ledbetter and Jessica L. Ledbetter are permitted, however, to
own an interest in, or be employed by, any convention or hotel/motel business
within a 60 mile radius from Stateline, Nevada, provided that any such hotels or
motels may not contain more than 350 guest rooms, more than 15 table games or
more than 250 slot machines in the aggregate. The Noncompetition Agreement
grants the Ledbetters the continuation of certain perquisites, many of which are
contractual in nature, from the Company, including participation in certain
benefit plans, medical insurance and complimentary services at the level
provided to holders of "Platinum Cards" issued by Harveys Casino Resort in Lake
Tahoe. The Noncompetition Agreement also restricts the Ledbetters from
soliciting or inducing officers, directors, agents, employees and consultants of
the Company from terminating their respective employment or other relationships
with the Company, and requires the Ledbetters to maintain the confidentiality of
certain proprietary information relating to the Company's business.
Charles W. Scharer, John J. McLaughlin and Stephen L. Cavallaro have entered
into a binding Memorandum of Understanding with Acq Corp (the "MOU"). The MOU
provides that upon consummation of the Merger, each of Mr. Scharer, Mr.
McLaughlin and Mr. Cavallaro will enter into a new five-year employment
agreement with the Company, remaining in the offices they now hold, and that Mr.
Scharer will continue to serve as a director and Mr. Cavallaro will be appointed
to the Company's Board of Directors in a non-voting capacity. After the Merger
Mr. Scharer, Mr. McLaughlin, Mr. Cavallaro, the general managers of the
Company's Nevada, Iowa and Colorado facilities, the vice president of human
resources, the vice president of marketing, the vice president of business
development and such other employees as are determined by Mr. Scharer and the
Board of Directors will be granted a number of shares of Common Stock of the
Company in the aggregate amount of shares representing three percent of
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the outstanding Common Stock, plus an additional two percent if the Company
achieves certain performance goals before the fifth anniversary of the Merger,
and options to purchase the number of shares of Common Stock of the Company that
is equivalent in the aggregate to five percent of the outstanding Common Stock.
Under the MOU each of Mr. Scharer, Mr. McLaughlin and Mr. Cavallaro have agreed
to support the Merger, including voting shares of Common Stock held by him in
favor of the Merger.
The Merger Agreement provides that Acq Corp will provide directors and
officers liability insurance coverage to the current directors and officers of
the Company for a term of six years following the Effective Time.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following general description of the federal income tax consequences of
the Merger does not take into account the facts and circumstances of any
particular stockholder of the Company. EACH STOCKHOLDER SHOULD CONSULT SUCH
HOLDER'S OWN TAX ADVISOR ABOUT THE SPECIFIC TAX CONSEQUENCES TO SUCH HOLDER OF
THE PROPOSED TRANSACTIONS, INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL,
FOREIGN, AND OTHER TAX LAWS, CHANGES IN SUCH TAX LAWS, AND TAX RETURN REPORTING
REQUIREMENTS. Special tax consequences not described herein may be applicable to
a particular class of taxpayers, such as financial institutions, broker-dealers,
persons who are not citizens or residents of the United States and stockholders
who acquired their Common Stock through the exercise of an employee stock option
or otherwise as compensation.
The receipt of cash for shares of Common Stock pursuant to the Merger will
be a taxable transaction for federal income tax purposes under the Internal
Revenue Code of 1986, as amended, and may also be a taxable transaction under
applicable state, local, foreign and other tax laws. Generally, for federal
income tax purposes, a stockholder will recognize gain or loss in an amount
equal to the difference between the cash received by the stockholder pursuant to
the Merger and the stockholder's adjusted tax basis in the shares of Common
Stock surrendered pursuant to the Merger. For federal income tax purposes, such
gain or loss will be capital gain or loss to the stockholders if the Common
Stock surrendered was a capital asset in the hands of the stockholder and will
be long-term capital gain or loss if the stockholder held the shares of Common
Stock for more than one year. Long-term capital gain of individuals will be
subject to a maximum rate of 20 percent, in the case of shares of Common Stock
held more than 18 months, and 28 percent, in the case of shares of Common Stock
held more than one year but not more than 18 months.
Payments to a stockholder in connection with the Merger may be subject to 31
percent "backup withholding" unless the stockholder provides its taxpayer
identification number or social security number (a "TIN") and certifies that
such number is correct or properly certifies that it is awaiting a TIN, or
unless an exemption applies (certain taxpayers are generally exempt from backup
withholding, including corporations and financial institutions). Backup
withholding is not an additional tax, but rather it is an advance tax payment
that is subject to refund if it results in an overpayment of tax. Certain
penalties apply for failure to furnish correct information and for failure to
include reportable payments in income.
ACCOUNTING TREATMENT OF THE TRANSACTION
Management believes that the most likely method of accounting for the Merger
will be under the "purchase" method. If this is the case, a determination of the
fair value of the Company's assets and liabilities will be made in order to
allocate the purchase price to the assets acquired and the liabilities assumed.
REGULATORY APPROVALS
ANTITRUST. Transactions such as the Merger are reviewed by the Antitrust
Division of the United States Department of Justice (the "DOJ") and the United
States Federal Trade Commission (the "FTC")
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to determine whether they comply with applicable antitrust laws. Under the
provisions of the Anti-Trust Improvements Act of 1976, as amended (the "HSR
Act"), the Merger may not be consummated until such time as the applicable
waiting period requirements of the HSR Act have been satisfied. Harveys and
Colony intend to file notification reports, together with requests for early
termination of the waiting period, with the DOJ and the FTC under the HSR Act
immediately following the Annual Meeting.
At any time before or after the Effective Time, the DOJ, the FTC or a
private person or entity could seek under the antitrust laws, among other
things, to enjoin the Merger or cause Colony to divest itself, in whole or in
part, of Harveys or of other business conducted by Colony. There can be no
assurance that a challenge to the Merger will not be made or that, if such a
challenge is made, Harveys and Colony will prevail.
GAMING REGULATION. The gaming operations of Harveys are subject to
extensive regulation, and Harveys now holds gaming licenses or permits in the
three jurisdictions--Nevada, Colorado and Iowa--in which it operates gaming
activities. In each such jurisdiction, certain regulatory requirements must be
complied with, applications filed, and/or certain approvals must be obtained in
connection with the Merger. Acq Corp's and Harveys' obligations to consummate
the Merger are subject to the condition that all necessary gaming regulatory
approvals and authorizations shall have been obtained. No assurances can be
given that the necessary gaming regulatory approvals and authorizations will be
obtained or that they will be obtained on a timely basis.
Review of the Merger by gaming regulatory authorities will involve
examination of the structure of the Company and its financial stability after
the Merger and will require the demonstration of qualifications and suitability
of key individuals associated with Colony.
The failure to obtain the required approval of the Merger or the failure to
comply with the procedural requirements prescribed by any applicable gaming
regulatory authority or the failure of the Company or certain key individuals to
qualify or make disclosure or license applications as required under the laws
and regulations of any applicable gaming regulatory authority may result in the
loss of license or denial of application for licensure in one or all
jurisdictions.
PRICE OF THE COMMON STOCK
On January 30, 1998, the last day Common Stock was traded on the NYSE prior
to the announcement of the Merger Agreement, the high price of the Common Stock
was $22 11/16 per share and the low price of the Common Stock was $21 7/8 per
share.
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SELECTED 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. 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
Operation" and the Company's Consolidated Financial Statements, including the
Notes thereto, and the other financial and statistical information appearing in
the Company's Annual Report on Form 10-K for the fiscal year ended November 30,
1997 which is incorporated herein by reference.
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
YEARS ENDED NOVEMBER 30,
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997 1996 1995 1994 1993
------------ ------------ ------------ ------------ ------------
<CAPTION>
(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 compensation 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 10,383 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
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
</TABLE>
20
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<TABLE>
<CAPTION>
YEARS ENDED NOVEMBER 30,
--------------------------------------------------------------------
1997 1996 1995 1994 1993
------------ ------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
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>
- ------------------------
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.
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ITEM II
NOMINEES FOR ELECTION OF DIRECTORS
The Company's Restated Articles of Incorporation and Bylaws currently set
the number of directors on the Board of Directors at nine (9) and provide that
the number of directors may from time to time be decreased to not less than
three (3) or increased by amending the Bylaws. The Board of Directors presently
consists of the following persons: Richard F. Kudrna, Sr., William B. Ledbetter,
Jessica L. Ledbetter, Kirk B. Ledbetter, Luther Mack, Jr., Franklin K. Rahbeck,
Charles W. Scharer, Eugene R. White and Ronald R. Zideck. The Board is staggered
into three classes, with each class consisting of three members. Class I
consists of Mr. Kudrna, Ms. Ledbetter and Mr. Rahbeck, whose terms expire in
1998. Class II consists of Mr. W. Ledbetter, Mr. K. Ledbetter and Mr. White,
whose terms expire in 1999. Class III consists of Mr. Mack, Mr. Scharer, and Mr.
Zideck whose terms expire in 2000. At each annual meeting, the terms of three
directors expire and director nominees are elected to the Board of Directors for
terms of three years.
At the Annual Meeting, three directors are to be elected to serve until the
2001 Annual Meeting and until their successors are elected and qualified, in the
event that the Merger is not approved or consummated, or a term representing the
period from the Annual Meeting until the time the Merger becomes effective, if
the Merger is approved and consummated. Unless authority to vote for directors
is withheld in the proxy card, it is the intention of the persons named in the
enclosed form of proxy to vote FOR the election of the three nominees listed
below. The persons designated as proxies will have discretion to cast votes for
other persons in the event any nominee for director is unable to serve. At
present, it is not anticipated that any nominee will be unable to serve.
The names and certain information concerning the persons to be nominated as
directors by the Board of Directors at the Annual Meeting are set forth below.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE ELECTION OF THE NOMINEES
LISTED BELOW.
RICHARD F. KUDRNA, SR. Mr. Kudrna served as Chairman of the Board of
Directors from 1983 until December 1, 1995, when he became Chairman Emeritus of
the Board of Directors. Prior to joining the Company in 1968, he had been
employed by Harrah's for 4 1/2 years. Mr. Kudrna served as Sr. Vice President of
Administration, then as Sr. Vice President and General Manager before assuming
the position of Chairman of the Board. Mr. Kudrna is a past board member of the
Lake Tahoe Gaming Alliance, past director of the Lake Tahoe Visitors Authority
and charter member and past president of the Douglas County Education
Foundation. Mr. Kudrna has also served as past board president of the Tahoe
Douglas Rotary Club, past president of the Tahoe Douglas Chamber of Commerce and
a member of the Douglas County Planning Committee. He currently sits on the
Advisory Board for the University of Nevada-Reno Business College.
JESSICA L. LEDBETTER. Ms. Ledbetter served as Executive Assistant from 1988
to 1993 and has served as a Director since 1987. Ms. Ledbetter has been employed
by the Company in a variety of capacities, including internal audit, accounting
and cashier functions, Director of Planning, games and slot operations and food
and beverage service. She currently serves as a member of the Board of Directors
of Barton Memorial Hospital, Lake Tahoe Community Trust and the Lake Tahoe
Education Foundation. Ms. Ledbetter presently owns and operates the Thunderbird
Ranch in northern Nevada. Ms. Ledbetter is the daughter of William B. Ledbetter
and the sister of Kirk B. Ledbetter.
FRANKLIN K. RAHBECK. Mr. Rahbeck has served as a Director since 1987. He is
also a director for the Washoe Tribe's Economic Development Corporation and has
served on the Board of Directors of Barton Memorial Hospital Foundation. In
1947, Mr. Rahbeck founded the Nevada Lumber Company, which he operated until its
sale to Diamond International in 1959. He is the co-founder of the Outdoorsman
retail store in South Lake Tahoe which he managed for a period of 23 years until
1983. Mr. Rahbeck currently resides in Carson Valley where he engages in cattle
ranching.
22
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the directors and executive officers of the
Company as of March 20, 1998. All directors hold their positions until their
terms expire or until their respective successors are elected and qualified.
Executive officers are elected by and serve at the discretion of the Board of
Directors until their successors are duly chosen and qualified.
<TABLE>
<CAPTION>
NAME AGE TITLE
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Charles W. Scharer................................... 42 Chairman of the Board of Directors, President and
Chief Executive Officer
William B. Ledbetter................................. 67 Vice Chairman of the Board of Directors and Secretary
Richard F. Kudrna, Sr................................ 64 Director Emeritus
Jessica L. Ledbetter................................. 42 Director
Kirk B. Ledbetter.................................... 38 Director
Luther Mack, Jr...................................... 58 Director
Franklin K. Rahbeck.................................. 75 Director
Eugene R. White...................................... 66 Director
Ronald R. Zideck..................................... 60 Director
Stephen L. Cavallaro................................. 40 Chief Operating Officer of Subsidiary Properties
Gary D. Armentrout................................... 50 Senior Vice President of Business Development and
Government Relations
John J. McLaughlin................................... 43 Senior Vice President, Chief Financial Officer and
Treasurer
James J. Rafferty.................................... 42 Senior Vice President of Corporate Marketing
Edward B. Barraco.................................... 53 Senior Vice President and General Manager-- Harveys
Wagon Wheel Hotel/Casino
Kevin O. Servatius................................... 45 Senior Vice President and General Manager-- Harveys
Resort Hotel/Casino
Verne H. Welch, Jr................................... 60 Senior Vice President and General Manager-- Harveys
Casino Hotel
John R. Bellotti..................................... 40 Corporate Vice President of Human Resources
</TABLE>
Set forth below are the Class II and Class III directors whose terms do not
expire this year and executive officers of the Company, along with certain
information regarding these individuals.
CHARLES W. SCHARER. Mr. Scharer was elected Chairman of the Board on May 1,
1997 and was elected President and Chief Executive Officer effective December 1,
1995. He has served as a Director since April 1995. Mr. Scharer's current term
as a member of the Board of Directors will expire at the 2000 Annual Meeting of
Stockholders. Prior to becoming President and Chief Executive Officer, Mr.
Scharer served as Executive Vice President from August 1995. Mr. Scharer was
elected Chief Financial Officer in July 1993 and Treasurer in September 1993.
Mr. Scharer, a Certified Public Accountant, joined the Company in 1982 as Audit
Manager. He received progressive promotions to Corporate Director of Internal
Control in 1983, to Assistant General manager in 1985, to Director of Cashier
Operations in 1988 and to Vice President Finance and Administration in December
1988.
23
<PAGE>
WILLIAM B. LEDBETTER. Mr. Ledbetter has served as Vice Chairman of the
Board of Directors and Secretary since October 1993. His current term as a
Director will expire at the 1999 Annual Meeting of Stockholders. From 1983 until
October 1993, Mr. Ledbetter served as President, Chief Executive Officer and a
Director. Since joining the Company in 1954, he has been involved in virtually
every aspect of the Company's operations. Mr. Ledbetter was instrumental in
developing the Company's present management team. From 1984 to 1991, he was
intimately involved in overseeing the completion of the Company's master plan.
Mr. Ledbetter is the father of Jessica L. Ledbetter and Kirk B. Ledbetter.
KIRK B. LEDBETTER. Mr. Ledbetter has served as a Director since 1987. His
current term as a Director will expire at the 1999 Annual Meeting of
Stockholders. He has been with the Company since 1977 and over the last 20 years
has obtained a wide range of experience in various functional systems and
customer service areas. He is currently the Director of Community Services and
Governmental Affairs. He presently is the president and member of the Board of
Trustees for the Douglas County Education Foundation, was formerly a member of
the board of the Boys and Girls Club of Lake Tahoe and is active in community
service sitting on various committees. Mr. Ledbetter holds B. S. and MBA degrees
from the University of Nevada-Reno. Mr. Ledbetter is the son of William B.
Ledbetter and brother of Jessica L. Ledbetter.
LUTHER MACK, JR. Mr. Mack joined the Company's Board of Directors in August
1994. Mr. Mack's current term as a member of the Board of Directors will expire
at the 2000 Annual Meeting of Stockholders. A respected business and civic
leader in the Reno-Sparks area, Mr. Mack has been an owner-operator of several
McDonald franchises for over 20 years. He is also the President and Chief
Executive Officer of the Nevada Television Corporation. Mr. Mack is a member of
the board of the Nevada State Athletic Commission and the Reno-Tahoe
International Airport, as well as director and member of the audit committee for
Pioneer Citizens Bank of Nevada.
EUGENE R. WHITE. Mr. White was appointed to the Board of Directors in
November 1996. His current term as a Director will expire at the 1999 Annual
Meeting of Stockholders. Mr. White serves as chairman of the board of Antares
Alliance Group, a joint venture between EDS and Amdahl Corporation for the
development and marketing of software products. Mr. White is also a member of
the board of Needham and Company, Inc., a New York investment banking firm;
Varco International, Inc., an oil service company and Tyecin Systems, Inc., a
software systems company. Mr. White also serves as a trustee of JAIMS (Japan-
American Institute of Management Science) and as a consultant to the president
and chairman of Fujitsu Limited of Japan.
RONALD R. ZIDECK. Mr. Zideck was elected to the Board of Directors in 1997.
His current term as a member of the Board of Directors will expire at the 2000
Annual Meeting of Stockholders. Mr. Zideck is a Certified Public Accountant with
more than 30 years of public accounting experience including 15 years as
Managing Partner for the Reno office of Grant Thornton LLP, an international
firm of accountants and management consultants. Mr. Zideck served on Grant
Thornton LLP's National Executive Committee for six years. He is a member of the
University of Nevada's College of Business Advisory Board, is a founding board
member and past president of the University's Accounting Circle, and is chairman
of the University's Legislative Steering Committee. Mr. Zideck currently serves
as a board member and the treasurer for the Utility Shareholders' Association of
Nevada, as a board member of Saint Mary's Health Network and as a trustee of the
Economic Development Authority of Western Nevada. Mr. Zideck also serves on the
board of directors for Comstock Bancorp and Innovative Gaming Corporation of
America. Previously, he served on the boards of the Reno Philharmonic and the
Nevada Museum of Art. Mr. Zideck is a past president of Western Industrial
Nevada and past chairman of the Greater Reno-Sparks Chamber of Commerce.
STEPHEN L. CAVALLARO. Mr. Cavallaro was appointed Chief Operating Officer
of Subsidiary Properties in February 1996. In this position Mr. Cavallaro has
operational responsibility for Harveys Wagon Wheel Hotel/Casino in Central City,
Colorado and Harveys Casino Hotel in Council Bluffs, Iowa. Until October 24,
1997, when the Company sold its interests therein, Mr Cavallaro also had
operational responsibility
24
<PAGE>
for the Hard Rock Hotel and Casino in Las Vegas, Nevada. Mr. Cavallaro joined
the Company in February 1994 to direct and develop the Hard Rock Hotel and
Casino as Senior Vice President and General Manager--Hard Rock Hotel. From 1992
to 1994, Mr. Cavallaro served as Vice President and General Manager of the
Palace Station Hotel/Casino. Mr. Cavallaro also served as Executive Vice
President and General Manager of Maloof Companies from 1990 to 1992.
GARY D. ARMENTROUT. Mr. Armentrout has served as Senior Vice President of
Business Development and Government Relations since May 1995. In this position
he is responsible for identifying and pursuing the development of new projects.
Prior to joining the Company, Mr. Armentrout was employed by President Riverboat
Casinos, Inc. where he served as Vice President--Gaming from May 1990 until June
1994 when he became Vice President--Gaming Development, a position he held until
May 1995. From 1984 until 1990, Mr. Armentrout was Vice President and Assistant
General Manager for Harrah's Las Vegas.
JOHN J. MCLAUGHLIN. Mr. McLaughlin was elected Senior Vice President, Chief
Financial Officer and Treasurer in March 1996. Mr. McLaughlin joined the Company
in September 1995 as Chief Financial Officer. Mr. McLaughlin is a Certified
Public Accountant with over 16 years experience in the gaming industry and
served most recently as Chief Financial Officer of President Riverboat Casinos,
Inc. from January 1993 until September 1995. From 1984 until 1993, Mr.
McLaughlin was employed by TropWorld Casino and Entertainment Resort in Atlantic
City, where he served as Director of Financial Reporting from 1984 to 1986 and
then as Executive Director of Finance until 1993.
JAMES J. RAFFERTY. Mr. Rafferty was appointed Corporate Vice President of
Marketing in December 1995 and was promoted to Senior Vice President of
Corporate Marketing in 1997. Mr. Rafferty joined the Company in 1988 and has
over 19 years of experience in the gaming and hospitality industry, including
management positions in the Las Vegas and Atlantic City markets. Mr. Rafferty
served as Vice President, Marketing--Lake Tahoe from 1992 to 1995. From 1988
through 1992, he served as Director of Employee Development.
EDWARD B. BARRACO. Mr. Barraco has served as Senior Vice President and
General Manager-- Harveys Wagon Wheel Hotel/Casino since July 1995. Mr. Barraco
joined the Company in 1971 and has over 30 years experience in the gaming and
hospitality industry. From 1985 to 1995, Mr. Barraco served as Assistant General
Manager--Lake Tahoe, where he was responsible for overseeing all aspects of the
operation on an assigned shift.
KEVIN O. SERVATIUS. Mr. Servatius was appointed Senior Vice President and
General Manager-- Harveys Resort Hotel/Casino in August 1995. Mr. Servatius has
over 17 years of experience in the gaming and hospitality industry. He started
his career with Harrah's where he progressed through the ranks of both the
Harrah's and Embassy Suites organizations, becoming Senior Vice President and
General Manager of Harrah's--Lake Tahoe in March 1993. He serves as Vice
Chairman of the Board of the Tahoe Douglas Visitors Authority and serves as
President and board member of the Lake Tahoe Gaming Alliance.
VERNE H. WELCH, JR. Mr. Welch has served as Senior Vice President and
General Manager--Harveys Casino Hotel since September 1995. Mr. Welch joined the
Company in 1987 and has over 24 years of experience in the gaming and
hospitality industry. Prior to moving to the Council Bluffs property, Mr. Welch
served as Senior Vice President and General Manager--Lake Tahoe from December
1993. From 1988 to December 1993, he served as Vice President Casino Operations.
JOHN R. BELLOTTI. Mr. Bellotti was appointed Corporate Vice President of
Human Resources in August 1997. Mr. Bellotti has 18 years of human resources
experience in the hospitality and gaming industry. Prior to joining the Company
in August 1997, Mr. Bellotti was employed by Hyatt Hotels
25
<PAGE>
Corporation where he served as Corporate Manager of Staffing from 1986 to 1989,
Director of Compensation from 1989 to 1991, Director of Labor Relations from
1991 to 1993 and Assistant Vice President of Human Resources from 1993 to 1997.
MEETINGS OF THE BOARD OF DIRECTORS
During fiscal year 1997, the Board of Directors met on 13 occasions. None of
the members of the Board of Directors attended less than 75% of the meetings of
the Board of Directors held during fiscal year 1997 or of the meetings of
committees of the Board of Directors on which such member served during fiscal
year 1997.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has established a standing Audit Committee and
Compensation Committee. The functions of the Audit Committee are to recommend
annually to the Board of Directors the appointment of the independent public
accountants of the Company, discuss and review the scope and the fees of the
prospective annual audit and review the results thereof with the independent
public accountants, review and approve non-audit services of the independent
public accountants, review compliance with existing major accounting and
financial policies of the Company, review the adequacy of the financial
organization of the Company and review management's procedures and policies
relative to the adequacy of the Company's internal accounting controls. The
current members of the Audit Committee are Luther Mack, Jr. (chair), Franklin K.
Rahbeck, and Ronald R. Zideck. During fiscal year 1997, the Audit Committee met
on four occasions.
The functions of the Compensation Committee are to set compensation ranges
for the Company; review annual salaries and bonuses for all executive officers;
review and approve the annual salary and bonus for the President and Chief
Executive Officer and review, approve and recommend to the Board of Directors
the terms and conditions of all employee benefit plans or changes thereto. The
current members of the Compensation Committee are Eugene R. White (chair),
Jessica L. Ledbetter, Luther Mack, Jr., William B. Ledbetter and Franklin K.
Rahbeck. During fiscal year 1997, the Compensation Committee met on five
occasions.
COMPENSATION OF DIRECTORS
In fiscal 1997, non-employee directors received an annual retainer of
$30,000 and an additional $1,000 for each board meeting attended. During such
period, non-employee committee members received $1,000 for each committee
meeting attended, and the non-employee chairs of each of the Audit Committee and
the Compensation Committee received $1,200 for each meeting attended.
Non-employee directors are reimbursed for expenses incurred in connection with
attending meetings of the Board of Directors and Committees thereof.
Non-employee directors are eligible to participate in the Non-Employee Directors
Stock Option Program. See "--1993 Non-Employee Directors Stock Option Program."
The Company has established an Outside Directors' Retirement Plan pursuant
to which each outside director and any employee-director who is not covered
under the Company's Supplemental Executive Retirement Plan or Senior
Supplemental Executive Retirement Plan and who has served five or more years, or
his/her beneficiaries as applicable, shall be entitled to receive $25,000 per
year for up to ten years upon such director's retirement, death or disability.
The plan also provides for continuing medical insurance coverage under the
Company's executive health plan for a period of up to 10 years.
Directors who are also employees may be eligible to participate in the
Incentive Plans. See "--Employee Benefit Plans--Omnibus Incentive Plans."
26
<PAGE>
HONORARY DIRECTOR PROGRAM
The Company's Honorary Director Program is a special program designed to
compensate Vera Gross for her years of service to the Company. Vera Gross served
as Executive Assistant and Director of the Company. She contributed over 25
years of service to the Company. Under the Honorary Director Program, for the
duration of her life, Mrs. Gross will receive annual payments of $50,000 and
benefits under the Company's Group Health Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The following individuals served on the Compensation Committee during fiscal
year 1997: Eugene R. White (Chair), Jessica L. Ledbetter, Luther Mack, Jr.,
William B. Ledbetter and Franklin K. Rahbeck. Charles W. Scharer and John J.
McLaughlin participated as non-voting members. During fiscal year 1997, Charles
W. Scharer served as the Company's Chairman of the Board, President and Chief
Executive Officer. John J. McLaughlin served as Senior Vice President, Chief
Financial Officer and Treasurer of the Company during fiscal year 1997.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's executive officers and directors and
persons who own more than 10% of the Company's Common Stock to file reports of
ownership on Forms 3, 4 and 5 with the Commission. Executive officers, directors
and 10% stockholders are required by the Securities and Exchange Commission to
furnish the Company with copies of all Forms 3, 4 and 5 they file.
Based solely on the Company's review of the copies of such forms it has
received, the Company believes that all its executive officers, directors and
greater than 10% beneficial owners complied with all the filing requirements
applicable to them with respect to transactions during fiscal 1997.
LEGAL PROCEEDINGS INVOLVING DIRECTORS, OFFICERS, AFFILIATES OR BENEFICIAL OWNERS
No director, officer or affiliate of the Company or beneficial owner of more
than 5% of the outstanding shares of Common Stock ("Beneficial Owner"), or any
associate thereof, is a party adverse to the Company or any of its subsidiaries
in any lawsuit nor has a material adverse interest thereto.
27
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL STOCKHOLDERS
The following table sets forth as of March 20, 1998 certain information
regarding the shares of Common Stock beneficially owned by each stockholder who
is known by the Company to beneficially own in excess of 5% of the outstanding
shares of Common Stock, by each director and Named Executive Officer (as
hereinafter defined) and by all executive officers and directors as a group.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF BENEFICIAL OWNER(1) NUMBER(2) PERCENT OF CLASS(2)
- --------------------------------------------------------------------------------- ---------- ---------------------
<S> <C> <C>
Ledbetter Marital Trust (3)...................................................... 2,924,392 29.1
Kirk B. Ledbetter (3) (4)........................................................ 3,543,392 35.2
Jessica L. Ledbetter (3) (5)..................................................... 3,439,088 34.1
William B. Ledbetter (3) (6)..................................................... 2,939,442 29.2
FMR Corp. ....................................................................... 982,100 9.8
82 Devonshire Street
Boston, Massachusetts 02109 (7)
Dimensional Fund Advisors Inc. .................................................. 518,100 5.1
1299 Ocean Avenue, 11th Floor
Santa Monica, California 90401 (7)
Thomas M. Yturbide (8)........................................................... 13,750 *
Charles W. Scharer (8)........................................................... 50,000 *
Stephen L. Cavallaro (8)......................................................... 45,000 *
Richard F. Kudrna, Sr. (6)(9).................................................... 53,550 *
Kevin O. Servatius (8)........................................................... 15,000 *
John J. McLaughlin (8)........................................................... 10,000 *
Gary D. Armentrout (8)........................................................... 10,000 *
Franklin K. Rahbeck (5).......................................................... 16,500 *
Luther Mack, Jr. (5)............................................................. 7,700 *
Ronald R. Zideck (5)............................................................. 3,500 *
Eugene R. White (5).............................................................. 3,000 *
Executive Officers and Directors as a Group (18 persons)(3)(4)(5)(6)(8)(9)....... 4,379,388 42.8
</TABLE>
- ------------------------
* Less than one percent
(1) Unless otherwise indicated, the address of each of the stockholders named in
this table is: c/o Harveys Casino Resorts, P.O. Box 128, Highway 50 &
Stateline Avenue, Lake Tahoe, Nevada 89449.
(2) Unless otherwise indicated in the footnotes to this table and subject to the
community property laws where applicable, each of the stockholders named in
this table has sole voting and investment power with respect to the shares
shown as beneficially owned. Percentages of beneficial ownership total more
than one hundred percent because shares of Common Stock held by the
Ledbetter Marital Trust are reported as beneficially owned by each of Kirk
B. Ledbetter, Jessica L. Ledbetter and William B. Ledbetter.
28
<PAGE>
(3) Includes the 2,924,392 shares held by the Ledbetter Marital Trust. Kirk B.
Ledbetter, Jessica L. Ledbetter and William B. Ledbetter are co-trustees of
the trust and share the voting power and investment power of the shares held
by the trust, subject to such rights and restrictions imposed under the
terms of the governing trust instrument and the applicable state law.
(4) Includes 200 shares owned by Kirk B. Ledbetter's spouse and 100 shares each
controlled by Mr. Ledbetter's spouse as custodian for their son and
daughter. Kirk B. Ledbetter disclaims beneficial ownership of all 400
shares.
(5) Includes, in respect to (a) each of Jessica L. Ledbetter and Franklin K.
Rahbeck, options to purchase 8,500 shares of Common Stock, (b) Luther Mack,
Jr., options to purchase 7,000 shares of Common Stock, and (c) each of
Eugene R. White and Ronald R. Zideck, options to purchase 3,000 shares of
Common Stock all granted under the terms of the Company's 1993 Non-Employee
Directors Stock Option Program, which options are currently exercisable or
are exercisable within 60 days.
(6) Includes the following options to purchase shares of Common Stock granted
under the terms of employment contracts, which options are currently
exercisable: William B. Ledbetter, 15,000 and Richard F. Kudrna, Sr.,
12,500.
(7) Represents shares beneficially owned as of December 31, 1997, based on
filings with the Securities and Exchange Commission in February 1998.
(8) Includes those restricted shares of Common Stock awarded under the terms of
the Company's Omnibus Incentive Plans in the following amounts: Thomas M.
Yturbide, 13,750; Charles W. Scharer, 18,000; Stephen L. Cavallaro. 15,000;
Kevin O. Servatius, 15,000; John J. McLaughlin, 10,000; Gary D. Armentrout,
10,000; and, to all officers and directors as a group 111,500. Recipients of
such shares have immediate power to vote all such shares; however, ownership
of such shares is subject to restrictions which lapse as to 25% on the date
of grant of such shares and on each of the following three anniversaries of
the grant date. Includes the following options to purchase shares of Common
Stock awarded under the terms of the Company's Omnibus Incentive Plans,
which options are currently exercisable or are exercisable within 60 days:
Charles W. Scharer, 32,000; Stephen L. Cavallaro, 30,000; and, to all
officers and directors as a group, 110,500.
(9) Includes 34,000 shares owned by Richard F. Kudrna, Sr.'s spouse. Mr. Kudrna
disclaims beneficial ownership of all 34,000 shares.
29
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the compensation earned by the Chief
Executive Officer of the Company, the other four most highly compensated
executive officers of the Company and a former executive officer who would have
been one of the other four most highly compensated executive officers had he
continued to be an executive officer through the end of the fiscal year, for
services rendered to the Company in all capacities during the last three fiscal
years ended November 30, 1997 (the six individuals are referred to herein as the
"Named Executive Officers").
HARVEYS CASINO RESORTS
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
AWARDS
-------------------------------------
ANNUAL COMPENSATION PAYOUTS
------------------------------------------ RESTRICTED -----------
OTHER STOCK LTIP
FISCAL ANNUAL AWARDS OPTIONS PAYOUTS
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($) ($)(1) (#) ($)(2)
- --------------------------- ----------- ----------- ----------- ---------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Charles W. Scharer (4)..... 1997 428,462 360,000 -- -- 183,500 81,384
Chairman of the Board, 1996 347,400 168,000 -- -- 135,000 --
President and Chief 1995 240,507 125,000 -- -- -- --
Executive Officer
Stephen L. Cavallaro (5)... 1997 333,462 240,000 -- -- 48,800 61,718
Chief Operating Officer
of 1996 267,785 120,000 -- -- 28,000 --
Subsidiary Properties 1995 242,135 124,020 -- -- -- --
John J. McLaughlin (6)..... 1997 221,346 165,000 -- -- 41,000 --
Sr. Vice President, Chief 1996 175,000 70,000 -- -- 10,000 --
Financial Officer &
Treasurer 1995 30,288 7,500 21,586(7) 190,000 20,000 --
Gary D. Armentrout (8)..... 1997 234,598 130,000 -- -- 41,000 --
Sr. Vice President of 1996 210,384 67,735 -- -- 10,000 --
Business Development and 1995 107,692 11,000 -- 198,750 20,000 --
Government Relations
Kevin O. Servatius (9)..... 1997 268,846 105,000 -- -- 51,000 --
Sr. Vice
President/General 1996 231,538 100,000 -- -- 10,000 --
Manager Harveys Resort 1995 60,577 7,500 -- 285,000 30,000 --
Hotel/Casino
Thomas M. Yturbide (10).... 1997 400,000 -- -- -- 100,000 148,350
Consultant to the
President 1996 400,000 -- -- -- 100,000 --
and Chief Executive
Officer 1995 400,000 148,000(11) -- -- --
<CAPTION>
ALL OTHER
COMPENSATION
NAME AND PRINCIPAL POSITION ($)(3)
- --------------------------- ---------------
<S> <C>
Charles W. Scharer (4)..... 11,067
Chairman of the Board, 8,845
President and Chief 6,439
Executive Officer
Stephen L. Cavallaro (5)... 9,115
Chief Operating Officer
of 3,873
Subsidiary Properties 1,777
John J. McLaughlin (6)..... 6,735
Sr. Vice President, Chief 808
Financial Officer &
Treasurer --
Gary D. Armentrout (8)..... 5,512
Sr. Vice President of 3,081
Business Development and --
Government Relations
Kevin O. Servatius (9)..... 8,037
Sr. Vice
President/General 1,828
Manager Harveys Resort --
Hotel/Casino
Thomas M. Yturbide (10).... 59,116
Consultant to the
President 45,896
and Chief Executive
Officer 38,694
</TABLE>
- ------------------------
(1) In the case of Mr. McLaughlin, represents the market value ($19.00 per
share) of 10,000 shares of restricted stock awarded to Mr. McLaughlin on
August 14, 1995. The value as of November 30, 1997 was $199,063. In the
case of Mr. Armentrout, represents the market value ($19.875 per share) of
10,000 shares of restricted stock awarded to Mr. Armentrout on May 9, 1995.
The value as of November 30, 1997 was $199,063. In the case of Mr.
Servatius, represents the market value ($19.00 per share) of 15,000 shares
of restricted stock awarded to Mr. Servatius on August 14, 1995. The value
as of November 30, 1997 was $298,595. All of the awards were made pursuant
to the Company's Omnibus Incentive Plans and vested immediately as to 25%
of the award on the date of grant and vested, or will vest, as to 25% on
each of the next three anniversaries of the date of grant. The Named
Executive Officers receive dividends on all of their shares. See
"--Employee Benefit Plans--Omnibus Incentive Plans".
(2) In 1994, the Company adopted a long-term incentive plan for key employees.
Payment of incentives under the plan is contingent upon the Company
attaining certain financial objectives over consecutive and concurrent
three-year periods. See "Long-Term Incentive Plans--Awards in Fiscal Year
1997" below.
(3) Amounts include the Company's 401(k) Plan contributions, payments of term
life insurance premiums and above-market rate interest earned on deferred
compensation. In fiscal 1997, the Company's 401(k) Plan contributions were
$4,750 for each of Mr. Scharer, Mr. Cavallaro and Mr. Yturbide and $6,735,
$5,512 and $7,477, respectively, for Mr. McLaughlin, Mr. Armentrout and Mr.
Servatius. In fiscal 1997, the Company paid term life insurance premiums of
$1,130 and $7,093 for policies insuring the lives of Mr. Scharer and Mr
Yturbide, respectively. In fiscal 1997, the above-market rate interest
earned by Mr. Scharer,
30
<PAGE>
Mr. Cavallaro, Mr. Servatius and Mr. Yturbide on deferred compensation
amounted to $5,187, $4,365, $560 and $47,273, respectively.
(4) On December 1, 1995, Mr. Scharer became the Company's President and Chief
Executive Officer and on May 1, 1997 was elected Chairman of the Board of
Directors.
(5) On February 1, 1996, Mr. Cavallaro became Chief Operating Officer of
Subsidiary Operations.
(6) Mr. McLaughlin was appointed Chief Financial Officer on September 18, 1995,
and was elected Senior Vice President, Chief Financial Officer and
Treasurer in March 1996.
(7) Includes $20,120 of relocation expense reimbursement, $1,312 of
compensation related to the personal use of a Company provided automobile
and $154 of medical expense payments in excess of the Company's group
medical insurance coverage.
(8) Mr. Armentrout was appointed Senior Vice President of Business Development
and Government Relations on May 9, 1995.
(9) On August 14, 1995, Mr. Servatius became Senior Vice President and General
Manager-Harveys Resort Hotel/Casino.
(10) From December 1, 1995 to May 1, 1997, Mr. Yturbide served as the Company's
Chairman of the Board of Directors. Since May 1, 1997, Mr. Yturbide has
served as Consultant to the President and Chief Executive Officer.
(11) Includes a $100,000 signing bonus paid by the Company in connection with
Mr. Yturbide's employment contract.
OPTIONS
The tables below set forth certain information regarding options granted to
the Named Executive Officers during fiscal year 1997.
OPTIONS GRANTED IN FISCAL YEAR 1997
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PERCENT OF TOTAL PRICE APPRECIATION FOR
NUMBER OF OPTIONS GRANTED EXERCISE OR OPTION TERM
SHARES UNDERLYING TO EMPLOYEES BASE PRICE EXPIRATION ----------------------
NAME OPTIONS GRANTED(1) IN FISCAL YEAR ($/SHARE) DATE 5%($) 10%($)
- ----------------------------- ------------------ ----------------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Charles W. Scharer........... 183,500 26.82 16.4375 05/22/07 1,896,923 4,807,176
Stephen L. Cavallaro......... 48,800 7.13 16.4375 05/22/07 504,468 1,278,420
John J. McLaughlin........... 41,000 5.99 16.4375 05/22/07 423,836 1,074,083
Gary D. Armentrout........... 41,000 5.99 16.4375 05/22/07 423,836 1,074,083
Kevin O. Servatius........... 51,000 7.45 16.4375 05/22/07 527,210 1,336,054
Thomas M. Yturbide........... 100,000 14.62 16.4375 05/22/07 1,103,720 2,840,086
</TABLE>
- ------------------------
(1) The Named Executive Officers received options pursuant to the Company's
incentive plans. See "--Employee Benefit Plans--Omnibus Incentive Plans".
The options granted during the fiscal year include options granted in
previous years that were repriced May 22, 1997. Options to purchase a total
of 498,880 shares were repriced on that date. Of that total, the Named
Executive Officers received the following repriced options: Mr. Scharer,
135,000; Mr. Cavallaro, 28,000; Mr. McLaughlin, 30,000; Mr. Armentrout,
30,000; Mr. Servatius, 40,000; and Mr. Yturbide, 100,000. See "--Ten Year
Option Repricings".
31
<PAGE>
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1997 AND FISCAL 1997 YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF IN-THE-MONEY
SHARES UNEXERCISED OPTIONS AT UNEXERCISED OPTIONS AT
ACQUIRED ON VALUE NOVEMBER 30,1997 NOVEMBER 30, 1997(1)
NAME EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ------------------------------ ----------------- ------------- ---------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C>
Charles W. Scharer............ -- -- 32,000 183,500 $ 189,002 $ 636,525
Stephen L. Cavallaro.......... -- -- 30,000 48,800 177,189 169,277
John J. McLaughlin............ -- -- -- 41,000 -- 142,221
Gary D. Armentrout............ -- -- -- 41,000 -- 142,221
Kevin O. Servatius............ -- -- -- 51,000 -- 176,909
Thomas M. Yturbide............ -- -- 110,000 100,000 649,693 346,880
</TABLE>
- ------------------------
(1) Options are in-the-money if the fair market value of the underlying
securities exceeds the exercise price of the options.
REPORT OF COMPENSATION COMMITTEE ON REPRICING
The Company's employee stock option plans were adopted to attract, retain
and motivate key employees of the Company and to align the interests of those
key employees with those of the Stockholders of the Company. The Compensation
Committee (the "Committee") of the Board of Directors determined that an
imbalance existed between the exercise prices under many of the outstanding
stock options and the prevailing market price for the Common Stock, thereby
negating the effectiveness of the stock options to retain and motivate key
employees. To restore that effectiveness, the Committee repriced certain
outstanding non-qualified employee stock options with exercise prices ranging
from $18.625 to $20.25 per share and covering 498,880 shares with repriced
options having an exercise price of $16.4375 per share (the fair market value on
May 22, 1997, the date of the repricing) and covering 498,880 shares. Although
options covering 143,331 shares, in respect of the Named Executive Officers,
were fully vested at the time of repricing, all of the repriced options, with
the exception of certain of the repriced options granted to Mr. Scharer and Mr.
Yturbide, will vest as to one-third of the options on each of May 22, 1998, 1999
and 2000. Mr. Scharer received repriced options covering 135,000 shares, 35, 000
of such options will vest as described above and 100,000 of such options will
vest as to one-third on each of December 1, 1998, 1999 and 2000. Mr. Yturbide
received repriced options covering 100,000 shares. One-half of Mr. Yturbide's
repriced options vested on December 1, 1997 and the remaining one-half will vest
on December 1, 1998. Except as disclosed above, each repriced option continues
to be governed by the same terms as applied to the prior option.
HARVEYS CASINO RESORTS COMPENSATION COMMITTEE
<TABLE>
<S> <C>
Eugene White (Chair) Luther Mack, Jr.
William B. Ledbetter Franklin K. Rahbeck
Jessica L. Ledbetter
</TABLE>
32
<PAGE>
TEN-YEAR OPTION REPRICINGS
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES MARKET PRICE EXERCISE LENGTH OF ORIGINAL
UNDERLYING OF STOCK AT PRICE OPTION TERM
OPTIONS TIME OF AT TIME OF REMAINING AT DATE
REPRICED OR REPRICING OR REPRICING OR NEW EXERCISE OF REPRICING
NAME DATE AMENDED AMENDMENT($) AMENDMENT($) PRICE ($) OR AMENDMENT
- ------------------------- --------- ----------- ------------- ------------- ------------ -------------------
<S> <C> <C> <C> <C> <C> <C>
Charles W. Scharer....... 5/22/97 100,000 16.4375 18.6250 16.4375 8 Years 193 Days
35,000 16.4375 19.2500 16.4375 9 Years 64 Days
Stephen L. Cavallaro..... 5/22/97 28,000 16.4375 19.2500 16.4375 9 Years 64 Days
John J. McLaughlin....... 5/22/97 20,000 16.4375 19.0000 16.4375 8 Years 84 Days
5/22/97 10,000 16.4375 19.2500 16.4375 9 Years 64 Days
Gary D. Armentrout....... 5/22/97 20,000 16.4375 19.8750 16.4375 7 Years 352 Days
5/22/97 10,000 16.4375 19.2500 16.4375 9 Years 64 Days
Kevin O. Servatius....... 5/22/97 30,000 16.4375 19.0000 16.4375 8 Years 84 Days
5/22/97 10,000 16.4375 19.2500 16.4375 9 Years 64 Days
Thomas M. Yturbide....... 5/22/97 100,000 16.4375 18.6250 16.4375 8 Years 193 Days
</TABLE>
33
<PAGE>
LONG-TERM INCENTIVE PLAN
In fiscal year 1994, the Company adopted a Long-Term Incentive Plan. The
table below sets forth awards made to Named Executive Officers in the last
fiscal year under the Company's Long-Term Incentive Plan.
LONG-TERM INCENTIVE PLANS--AWARDS IN FISCAL YEAR 1997
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS UNDER
NUMBER OF SHARES PERFORMANCE OR NON-STOCK PRICE-BASED PLANS
UNITS OR OTHER PERIOD UNTIL -----------------------------------
NAME OTHER RIGHTS MATURATION OR PAYOUT THRESHOLD TARGET MAXIMUM
- ----------------------------- --------------------- ----------------------------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
Charles W. Scharer........... -- Three years ending November $ 32,135 $ 64,269 $ 96,404
30, 1997
-- Three years ending November 32,135 64,269 96,404
30, 1998
-- Three years ending November 32,135 64,269 96,404
30, 1999
Stephen L. Cavallaro......... -- Three years ending November 19,452 38,904 58,356
30, 1997
-- Three years ending November 19,452 38,904 58,356
30, 1998
-- Three years ending November 19,452 38,904 58,356
30, 1999
John J. McLaughlin........... -- Three years ending November -- -- --
30, 1997
-- Three years ending November 11,067 22,135 33,202
30, 1998
-- Three years ending November 11,067 22,135 33,202
30, 1999
Gary D. Armentrout........... -- Three years ending November -- -- --
30, 1997
-- Three years ending November 11,730 23,460 35,190
30, 1998
-- Three years ending November 11,730 23,460 35,190
30, 1999
Kevin O. Servatius........... -- Three years ending November -- -- --
30, 1997
-- Three years ending November 13,442 26,885 40,327
30, 1998
-- Three years ending November 13,442 26,885 40,327
30, 1999
Thomas M. Yturbide........... -- Three years ending November 30,000 60,000 90,000
30, 1997
-- Three years ending November -- -- --
30, 1998
-- Three years ending November -- -- --
30, 1999
</TABLE>
Mr. Yturbide does not participate in the Company's Long-term Incentive Plan
beyond the three-year cycle ending November 30, 1997. Benefits received by
participants under this plan are based on the Company's achieving specified
levels of cash flow and return on equity over three-year periods. The target
amount of the incentive is earned if the average of the percentage of
achievement of the two goals equals 100%. The threshold amount is earned if the
average of the percentage of achievement of the two goals
34
<PAGE>
equals 80% and the maximum amount is earned if the average of the percentage of
achievement of the two goals equals or exceeds 120%.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
The tables below set forth total benefits payable to executive employees,
including Named Executive Officers, who participate in the Company's
Supplemental Executive Retirement Plan (the "SERP"). Amounts shown represent the
aggregate amounts to which such employees are entitled under the SERP.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN TABLE
(SEVEN YEAR VESTING)
<TABLE>
<CAPTION>
ESTIMATED ANNUAL BENEFITS AT AGE 65
FOR REPRESENTATIVE YEARS OF SERVICE ($)
AVERAGE BASE COMPENSATION -----------------------------------------------------
FOR FINAL FIVE YEARS ($) 3 4 5 6 7
- ------------------------------------------------------------ --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
125,000..................................................... 12,500 25,000 37,500 50,000 62,500
150,000..................................................... 15,000 30,000 45,000 60,000 75,000
175,000..................................................... 17,500 35,000 52,500 70,000 87,500
200,000..................................................... 20,000 40,000 60,000 80,000 100,000
225,000..................................................... 22,500 45,000 67,500 90,000 112,500
250,000..................................................... 25,000 50,000 75,000 100,000 125,000
300,000..................................................... 30,000 60,000 90,000 120,000 150,000
400,000..................................................... 40,000 80,000 120,000 160,000 200,000
450,000..................................................... 45,000 90,000 135,000 180,000 225,000
500,000..................................................... 50,000 100,000 150,000 200,000 250,000
</TABLE>
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN TABLE
(20 YEAR VESTING)
<TABLE>
<CAPTION>
ESTIMATED ANNUAL BENEFITS AT AGE 65
FOR REPRESENTATIVE YEARS OF SERVICE($)
AVERAGE BASE COMPENSATION ------------------------------------------
FOR FINAL FIVE YEARS ($) 5 10 15 20
- ----------------------------------------------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
125,000................................................................ 15,625 31,250 46,875 62,500
150,000................................................................ 18,750 37,500 56,250 75,000
175,000................................................................ 21,875 43,750 65,625 87,500
200,000................................................................ 25,000 50,000 75,000 100,000
225,000................................................................ 28,125 56,250 84,375 112,500
250,000................................................................ 31,250 62,500 93,750 125,000
300,000................................................................ 37,500 75,000 112,500 150,000
400,000................................................................ 50,000 100,000 150,000 200,000
450,000................................................................ 56,250 112,500 168,750 225,000
500,000................................................................ 62,500 125,000 187,500 250,000
</TABLE>
On November 20, 1997 the SERP was amended by the Board of Directors to,
among other things, limit participation to employees, (a) whose positions are
classified as members of the Executive Committee of the Company, (b) whose
participation has been recommended by the President and Chief Executive Officer,
(c) whose participation has been approved and confirmed by the Committee, and
(d) who don't participate in the Senior Supplemental Retirement Plan. See
"--Alternative Defined Benefit Plans". Those employees who were participating in
the SERP prior to November 20, 1997, and had partially or fully vested but do
not meet the amended participation requirements after November 20, 1997 will
continue to participate in the SERP.
35
<PAGE>
The seven year vesting SERP presently covers approximately 21 current or
former executive employees. The 20 year vesting SERP, for those who began
participation after October 1, 1994, covers approximately 8 executive employees.
SERP benefits are based on a percentage of average base compensation earned
during the participant's last five years of service. Base compensation is the
participant's annual salary (but not bonuses or incentive compensation), which
is the same as compensation depicted as salary in the Summary Compensation
Table. Benefits are generally computed as a straight-life annuity, and are not
subject to any deduction for social security benefits. Participants are entitled
to receive SERP benefits upon attaining age 65 (age 63 for Mr. Yturbide) and
having become vested in the SERP. Participants in the seven year vesting SERP
become 20% vested after having accumulated at least three years of service with
the Company and vesting continues in 20% increments each year thereafter, with
100% vesting occurring upon completion of seven years of service. Participants
in the 20 year vesting SERP become 25% vested after having accumulated at least
five years of service with the Company and vesting continues in 5% increments
each year thereafter, with 100% vesting occurring upon completion of 20 years of
service. Amounts shown for seven years or 20 years of service in the respective
tables above represent the maximum annual payments a participant may receive
under the SERP. Benefits under the SERP are payable for a period of 15 years.
Messrs. Scharer and Yturbide are fully vested under the terms of the seven
year vesting plan. Mr. Cavallaro has four years of credited service under the
terms of the seven year vesting plan. Mr. Armentrout has approximately three
years of credited service under the terms of the twenty year vesting plan. Mr.
McLaughlin and Mr. Servatius each have approximately two and one-half years of
credited service under the terms of the twenty year vesting plan.
ALTERNATIVE DEFINED BENEFIT PLANS
Certain executives are entitled to participate in a Senior Supplemental
Executive Retirement Plan ("SSERP") that provides for benefits based on a
percentage of the salary that was being paid as of January 1, 1991 and computed
as a straight-life annuity. Benefits under the SSERP are payable commencing one
month after retirement and continuing until the recipient reaches age 80.
Messrs. Kudrna and William Ledbetter are fully vested in the SSERP, and will
each be entitled to annual benefits of $200,000 commencing one month after
retirement.
See "Honorary Director Program" for a discussion of a special defined
benefit plan designed to compensate Vera Gross for her many years of service to
the Company.
EMPLOYMENT CONTRACTS
Charles W. Scharer serves as President and Chief Executive Officer under an
employment contract with the Company. The term of the contract began on December
1, 1995 and was extended in fiscal year 1997 to run through November 30, 2002.
The agreement provides that Mr. Scharer's salary during the term of the
agreement will be subject to annual review by the Compensation Committee of the
Board of Directors. Mr. Scharer's salary was increased to $467,500 per year
beginning December 1, 1997. The agreement also provided for the award of options
to purchase shares of the Company's Common Stock. The contract is terminable at
any time (upon ninety days notice) by Mr. Scharer or the Company. If the
agreement is terminated by the Company for reason other than cause, Mr. Scharer
is entitled to receive the full value of his salary and other benefits for the
remainder of the agreement.
Stephen L. Cavallaro serves as Chief Operating Officer of Subsidiary
Operations under an employment contract with the Company effective as of
February 1, 1996. The term of the contract was extended on February 10, 1997 and
terminates on January 31, 2000. Mr. Cavallaro's annual salary established by the
contract is subject to annual review and adjustment. Mr. Cavallaro's current
salary is $360,000 per year. The contract also provided for the award of options
to purchase shares of the Company's Common Stock. The contract is terminable at
any time (upon ninety days notice) by Mr. Cavallaro or the Company. If the
36
<PAGE>
contract is terminated by the Company for reasons other than cause, Mr.
Cavallaro is entitled to receive the full value of his salary and other benefits
for the remainder of the contract term.
Mr. McLaughlin serves as Senior Vice President, Chief Financial Officer and
Treasurer under an employment contract with the Company effective as of August
14, 1995 and extending to September 17, 2000. Mr. McLaughlin's annual salary
established by the contract is subject to annual review and adjustment. Mr.
McLaughlin's current salary is $250,000 per year. The contract also provided for
the award of options to purchase shares of the Company's Common Stock and the
award of restricted shares of the Company's Common Stock. The contract is
terminable at any time (upon ninety days notice) by Mr. McLaughlin or the
Company. If the contract is terminated by the Company for reasons other than
cause, Mr. McLaughlin is entitled to receive the full value of his salary and
other benefits for the remainder of the contract term.
Mr. Armentrout serves as Senior Vice President of Business Development and
Government Relations under an employment contract with the Company effective as
of May 9, 1995 and extending to May 9, 1999. Mr. Armentrout's annual salary
under the contract is currently $231,000. The contract also provided for the
award of options to purchase shares of the Company's Common Stock and the award
of restricted shares of the Company's Common Stock. The contract is terminable
at any time (upon ninety days notice) by Mr. Armentrout or the Company. If the
contract is terminated by the Company for reasons other than cause, Mr.
Armentrout is entitled to receive the full value of his salary and other
benefits for the remainder of the contract term.
Mr. Servatius serves as Senior Vice President and General Manager-Harveys
Resort Hotel/Casino under an employment contract with the Company effective as
of August 14, 1995. The term of the contract runs for five years, terminating on
August 13, 2000. Mr. Servatius' annual salary is currently $280,000. The
contract also provided for the award of restricted shares of the Company's
Common Stock and options to purchase shares of the Company's Common Stock. The
contract is terminable at anytime (upon ninety days notice) by Mr. Servatius or
the Company. If the contract is terminated by the Company for reasons other than
cause, Mr. Servatius is entitled to receive the full value of his salary and
other benefits for the remainder of the contract term.
Thomas M. Yturbide serves as Consultant to the President and Chief Executive
Officer under an employment contract with the Company. The term of the agreement
began as of December 1, 1995 and ends on May 31, 1998. His annual salary under
this agreement is $400,000. The agreement also provided Mr. Yturbide options to
purchase shares of the Company's Common Stock. The contract is terminable at any
time (upon ninety days notice) by Mr. Yturbide or the Company. If the agreement
is terminated by the Company for reason other than cause, Mr. Yturbide is
entitled to receive the full value of his salary and other benefits for the
remainder of the term of the agreement.
Mr. Scharer, Mr. Cavallaro and Mr. McLaughlin have entered into the MOU,
pursuant to which they will enter into new five-year employment agreements with
the Company upon consummation of the Merger. See "Interest of Certain Persons in
the Transaction."
EMPLOYEE BENEFIT PLANS
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 "Incentive Plan"). The Incentive Plan was adopted to further and promote
the interests of the Company, its subsidiaries and its stockholders by enabling
the Company to attract, retain and motivate key employees or prospective
employees, and to align the interests of such individuals and the stockholders
of the Company. The Incentive Plan is administered by the Compensation
Committee, which is authorized to construe and interpret the Incentive Plan and
to promulgate, amend and rescind rules and regulations relating to the
implementation, administration and maintenance of the
37
<PAGE>
Incentive Plan, including selecting the Incentive Plan's participants, making
awards of stock options, stock appreciation rights, restricted stock grants
and/or performance units (each an "Award," and collectively, "Awards") in such
amounts and form as the Compensation Committee determines and imposing any
restrictions, terms and conditions upon such Awards as the Compensation
Committee deems appropriate.
The maximum number of shares of Common Stock authorized for issuance under
the 1993 Plan, other than shares of Common Stock issued pursuant to Awards and
subsequently reacquired by the Company, is 915,219. The maximum number of shares
of Common Stock authorized for issuance under the 1996 Plan, other than shares
of Common Stock issued pursuant to Awards and subsequently reacquired by the
Company, is 500,000. No Awards may be granted or shares of Common Stock issued
under the 1993 Plan or the 1996 Plan after 10 years from the date of adoption of
such plan; provided that shares of Common Stock may be issued thereafter
pursuant to Awards granted prior to such date. Awards granted prior to such date
may be amended after such date, so long as there is no increase in the number of
shares of Common Stock subject to or comprising that Award.
Any Award that constitutes a derivative security (as defined in Rule
16a-1(c) under the Exchange Act) and is granted to or held by a person subject
to Section 16 of the Exchange Act shall be subject to the restrictions on
exercisability and on transfer set forth in or pursuant to Rule 16b-3 of the
Exchange Act. The Incentive Plan is intended to satisfy the requirements of Rule
16b-3 under Section 16 of the Exchange Act in the case of recipients subject to
such Section 16.
In the event of a stock split, the declaration of a stock dividend, the
exchange or conversion of securities of the class subject to an Award into cash,
property or different kinds of securities pursuant to a merger, reorganization
or otherwise, or the sale of substantially all of the assets of the Company or
if an extraordinary dividend is declared, adjustments will be made in (i) the
number and type of share or other securities or cash or other property that may
be acquired pursuant to each Award, (ii) the maximum number and type of shares
or other securities that may be issued pursuant to other Awards thereafter
granted under the Incentive Plan, and (iii) any other terms as are necessarily
affected by such event.
1993 NON-EMPLOYEE DIRECTORS STOCK OPTION PROGRAM
The purpose of the Company's 1993 Non-Employee Directors Stock Option
Program (the "Program") is to promote the interests of the Company and its
stockholders by strengthening the Company's ability to attract and retain the
services of experienced and knowledgeable non-employee directors and by
encouraging such directors to acquire an increased proprietary interest in the
Company.
The total number of shares of Common Stock for which options may be granted
under the Program shall not exceed 60,000 subject to automatic adjustments for
stock splits and certain other corporate transactions and/or recapitalization.
An initial grant of options to acquire 4,500 shares has been awarded to each
current non-employee director. Pursuant to the Program, initial awards of
options to acquire 4,500 shares will be granted to any new non-employee director
immediately following the first annual meeting after such non-employee director
is first elected or appointed to the Board of Directors. Subsequent annual
grants of options to acquire 1,500 shares will be made immediately following
each annual meeting to all non-employee directors who had previously received
initial grants.
The Board of Directors may amend the Program, provided that no amendment
which would change the amount, price or timing of the initial and annual grants
may be made more often than once every six months, and provided, further, that
certain other material changes may not be made to the Program without
stockholder approval.
Options granted under the Program become exercisable in three installments,
33 1/3% on the date of grant and 33 1/3% on each of the next two anniversaries
of grant. Each option granted expires ten years from the date of its grant. The
Program continues in effect until it is terminated by action of the Board of
Directors or the stockholders.
38
<PAGE>
If a non-employee director voluntarily terminates his or her board
membership at any time, the options granted to such director shall automatically
expire and be forfeited as of the effective date of such service termination.
For purposes of the Program, a "voluntary termination" will occur only if a non-
employee director resigns (other than due to death, disability or retirement (as
defined in the Program)) or refuses to stand for election to the Board of
Directors if nominated (other than due to death, disability or retirement). If
the director's membership on the Board of Directors is terminated for any other
reason, including a failure to be reelected by the stockholders of the Company,
the options will become fully exercisable as of the date of such termination and
each option shall expire two years after the date of any such termination (but
not beyond the expiration of the stated option term).
1993 EMPLOYEE STOCK GRANT PROGRAM
In November 1993, the Company adopted the 1993 Employee Stock Grant Program
(the "Employee Stock Program") providing for a one-time grant of shares of
Common Stock to persons who had been employed by the Company for at least one
year and were not otherwise stockholders in the Company or eligible to
participate in any of the Company's other benefit plans providing for stock
ownership. Under the Employee Stock Program, each eligible employee on the date
of grant received one share of Common Stock for each full year of past service
to the Company plus five additional shares of Common Stock for every five years
of past service to the Company. The Company granted 20,133 shares of Common
Stock under the Employee Stock Program.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Articles of Incorporation contain, pursuant to Nevada law,
provisions for indemnification of officers and directors of the Company and in
certain cases employees and other persons. In addition, the Company's Bylaws
require the Company to indemnify such persons to the full extent permitted by
Nevada law. Each such person will be indemnified in any proceeding if he or she
acted in good faith and in a manner which he or she reasonably believed to be
in, or not opposed to, the best interests of the Company. Indemnification would
cover expenses, including attorneys' fees, judgments, fines and amounts paid in
settlement. The Company's Bylaws also provide that the Company's Board of
Directors may cause the Company to purchase and maintain insurance on behalf of
any present or past director or officer insuring against any liability asserted
against such person incurred in the capacity of director or officer or arising
out of such status, whether or not the Company would have the power to indemnify
such person. The Company maintains directors' and officers' liability insurance.
The Company has also entered into separate indemnification agreements with
its directors and officers. Each indemnification agreement provides for, among
other things (i) indemnification against any and all expenses, judgments, fines,
penalties and amounts paid in settlement of any claim against an indemnified
party unless it is determined, as provided in the indemnification agreement,
that indemnification is not permitted under law and (ii) prompt advancement of
expenses to any indemnitee in connection with his or her defense against any
claim.
COMPENSATION COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
COMPENSATION PHILOSOPHIES
It is the responsibility of the Compensation Committee (the "Committee") to
establish and review the Company's executive compensation programs and policies,
to monitor performance and make recommendations concerning executive
compensation and benefits to the Board of Directors.
The Committee's philosophy and policies are to provide a total compensation
program which will enable the Company to attract, retain, and motivate an
outstanding management team. The Committee strongly believes that stock
ownership and incentive programs, based on above-average corporate performance,
will encourage management to best serve the interests of our shareholders.
39
<PAGE>
EXECUTIVE COMPENSATION
Compensation paid to executive officers includes an industry competitive
salary, a management incentive cash bonus, which relates to the Company's annual
achievement of financial performance goals and individual performance, a
long-term incentive plan based on cash flow and return on equity goals, and
stock options which align management's interests with stockholders' interests.
In determining compensation levels, the Board of Directors and the
Compensation Committee consider, among other things, 1) the financial
performance of the Company during the past year; 2) recommendations of the
Company's Chief Executive Officer, based on his evaluation of the breadth of
duties of the executive officers and their contribution to the Company; 3)
extraordinary performance during the year; 4) levels at which the Company's
competitors compensate their executive officers; and 5) relative stock
performance vs. comparable gaming companies. Executive officers also participate
in benefit plans generally available to employees including a medical plan, a
401(k) plan, and group life insurance. Additional benefits available to the
executive officers include deferred compensation and a supplemental executive
retirement program.
Executive compensation is evaluated annually. Existing compensation levels
are compared with compensation levels of executives in similar capacities with
other publicly-held gaming companies. The Company's current financial position
and performance for the past year is reviewed, including growth in revenues,
operating cash flow generated, and earnings per share. In addition, plans for
performance for the upcoming year and future periods are reviewed as to revenue
growth and earnings. An evaluation is made as to the degree that the executive,
including the Chief Executive Officer, contributes to the achievement of the
Company's results and other Company goals. Based on these factors, the Committee
makes recommendations to the Board of Directors regarding changes to executive
compensation.
The 1993 and 1996 Omnibus Incentive Plans authorizes the Compensation
Committee to make awards of stock options, stock appreciation rights, restricted
stock grants and performance units. The size of grants and stock options are
determined by a number of factors, including comparable grants to executive
officers and employees by other gaming companies which compete in the gaming
industry.
1997 CHIEF EXECUTIVE OFFICER COMPENSATION
The same philosophies described above for executive compensation were used
by the Compensation Committee to determine the compensation of the Company's
Chairman, President and Chief Executive Officer, Charles W. Scharer. The
Compensation Committee established Mr. Scharer's annual base salary of $425,000
for the fiscal year 1997 based upon a review of compensation by gaming companies
having similar revenues and scopes of operations, together with an evaluation of
the Company's results in fiscal year 1996, and the degree of progress made in
implementing the Company's strategic plans. Mr. Scharer also received a bonus of
$168,000 paid in fiscal year 1997 and a payout of $81,384 under the Long-term
Incentive Plan.
SECTION 162(m) OF THE INTERNAL REVENUE CODE
Section 162(m) of the Internal Revenue Code disallows a deduction for
federal income tax purposes of most compensation exceeding $1,000,000 in any
year paid to the Company's Chief Executive Officer and the four other most
highly compensated executive officers of a publicly traded corporation. The
Company was not impacted by Section 162(m) in fiscal 1997. In future years, the
Compensation Committee intends to take into account the effect of Section 162(m)
if the compensation payable to any executive officer approaches $1,000,000.
Respectfully Submitted,
HARVEYS CASINO RESORTS COMPENSATION COMMITTEE
<TABLE>
<S> <C>
Eugene R. White [Chair] Luther Mack, Jr.
Jessica L. Ledbetter Franklin K. Rahbeck
William B. Ledbetter
</TABLE>
40
<PAGE>
STOCK PERFORMANCE GRAPH
The graph below compares the cumulative total stockholder return of the
Company, with the cumulative total return of the Standard & Poor's 500 Stock
Index ("S&P 500") and the cumulative total return of the Dow Jones Entertainment
& Leisure-Casinos Index ("DJ Casinos"). The performance graph assumes that $100
was invested on February 15, 1994 in each of the Company's Common Stock, the S&P
500 and the DJ Casinos. The stock price performance shown in this graph is
neither necessarily indicative of nor intended to suggest future stock price
performance.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
HARVEYS CASINO RESORTS STANDARD & POOR'S 500 DOW JONES CASINOS
<S> <C> <C> <C>
2/15/94 $100 $100 $100
Nov-94 $97 $98 $61
Nov-95 $109 $134 $94
Nov-96 $124 $172 $107
Nov-97 $147 $221 $95
</TABLE>
CERTAIN TRANSACTIONS
Wells Fargo Bank, N. A., Jessica L. Ledbetter, Kirk B. Ledbetter and
Franklin K. Rahbeck 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. Prior to fiscal 1995 the Company paid the premiums on the
life insurance policies. The Company has no further obligation to pay such
premiums. On November 15, 1993 the Trust issued a note payable to the Company
for the amounts of the premiums previously paid by the Company. On January 31,
1994, the Trust issued a note payable to the Company for the amount of a premium
paid by the Company in 1994. The notes are in the principal amounts of
$1,376,995 and $455,275 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. The Trust has requested an extension
of time to April 30, 1998 to pay the interest due December 31, 1996 and 1997.
The Company has approved the Trust's request.
41
<PAGE>
SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has selected Deloitte & Touche LLP to serve as the
Company's independent public accountants to audit the financial statements of
the Company for the 1998 fiscal year. Deloitte & Touche LLP has served as the
Company's independent public accountants since 1996. A representative of
Deloitte & Touche LLP will attend the Annual Meeting, will be given an
opportunity to make a statement and will be available to answer appropriate
questions.
On June 27, 1996, Grant Thornton LLP, who had previously been engaged as the
independent public accountants to audit the financial statements of The Company
was dismissed as the Company's certifying accountant.
Grant Thornton LLP's reports on the financial statements of the Company for
the fiscal years ended November 30, 1994 and 1995 did not contain an adverse
opinion or a disclaimer of opinion, nor were the opinions qualified or modified
as to uncertainty, audit scope, or accounting principles.
The decision to change accountants was recommended by the Audit Committee of
the Board of Directors of the Company and was approved by the Company's Board of
Directors.
During the Company's two fiscal years and the subsequent interim period
preceding the change in accountants there were no disagreements with Grant
Thornton LLP on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which disagreement, if not
resolved to the satisfaction of Grant Thornton LLP would have caused them to
make reference to the subject matter of the disagreement in connection with
their report.
During the Company's two fiscal years and the subsequent interim period
preceding the change in accountants there were no "reportable events" as listed
in paragraph (a) (1) (v) of Item 304 of Regulation S-K.
On June 27, 1996, Deloitte & Touche LLP was selected as the principal
accountant to audit the Company's financial statements.
OTHER MATTERS
The Board of Directors is not aware of any other matters to be presented at
the meeting. If any other matters should properly come before the meeting, the
persons named in the proxy will vote the proxies according to their best
judgment.
STOCKHOLDER PROPOSALS
Stockholder proposals, if any, which may be considered for inclusion in the
Company's proxy materials for the 1999 Annual Meeting must be received by the
Company at its offices at Highway 50 & Stateline Avenue, Lake Tahoe, Nevada
89449 not later than December 1, 1998.
ANNUAL REPORT
The Annual Report to Stockholders for fiscal 1997 accompanies this proxy
statement.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files periodic reports, proxy statement and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information concerning the Company may be inspected and
copied at the Commission's Public Reference Section, Room 1024, 450 Fifth
Street, N.W., Judiciary Plaza, Washington, D.C. 20549, where copies may be
obtained at prescribed rates, as well as at the following regional offices:
Northeast Regional Office, 7 World Trade Center, Suite 1300, New York, New York
10048; Midwest Regional Office, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. The Commission
42
<PAGE>
maintains a web site (http://www.sec.gov) that contains reports, proxy
statements and other information regarding the Company. The Common Stock is
traded on the NYSE.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed with the Commission by the Company (File No.
1-12802) are incorporated in this Proxy Statement by reference:
1. Annual Report on Form 10-K for the fiscal year ended November 30,
1997
2. Current Report on Form 8-K filed February 3, 1997
All reports and documents filed by the Company after the date of this Proxy
Statement pursuant to section 13(a), 13(c), 14 or 15(d) of the Exchange Act and
prior to the date of the Annual Meeting shall be deemed to be incorporated by
reference herein and to be a part hereof from the dates of filing of such
reports or documents. Any statement contained herein or in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for the purposes of this Proxy Statement to the extent
that a statement contained herein or in another document that also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this Proxy Statement.
This Proxy Statement incorporates documents by reference, which are not
presented herein or delivered herewith. These documents (other than exhibits to
such documents unless such exhibits are specifically incorporated herein by
reference) are available, without charge, upon request from the Company, P.O.
Box 128, Highway 50 & Stateline Avenue, Lake Tahoe, Nevada 89449, Attention:
Corporate Secretary, telephone: (702) 586-2411. Copies of documents so requested
will be sent by first-class mail, postage paid, within one business day of
receipt of such request.
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, as 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, proxy statements and periodic reports on Forms
10-K and 10-Q 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 proxy
statement 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; sever 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.
43
<PAGE>
HARVEYS CASINO RESORTS
PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR THE
ANNUAL MEETING OF STOCKHOLDERS MAY 14, 1998
The undersigned hereby appoints William B. Ledbetter and Luther Mack,
Jr., and each of them, the proxies and attorneys-in-fact of the undersigned,
with full power of substitution in each, for and in the name of the
undersigned to attend the Annual Meeting of Stockholders of Harveys Casino
Resorts to be held May 14, 1998 at 10:00 a.m. local time at Harveys Resort
Hotel/Casino, U.S. Highway 50 and Stateline Avenue, Lake Tahoe, Nevada, and
any and all adjournments thereof, and to vote thereat the number of shares of
Common Stock which the undersigned would be entitled to vote if then
personally present as follows:
(Continued and to be signed on the reverse side)
A /X/ Please mark your
votes as in this
example
Management recommends a vote FOR Item I and FOR Item II.
FOR AGAINST ABSTAIN
Item I. To adopt the Merger Agreement and / / / / / /
approve the Merger.
IF NO SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED FOR THE
ADOPTION OF THE MERGER AGREEMENT AND APPROVAL OF THE
MERGER AND ELECTION OF THE PROPOSED DIRECTORS.
______________________________________________________________
For all nominees WITHHOLD
listed at right except AUTHORITY
as indicated to the to vote for all nominees
contrary below) listed at right
Nominees: Richard F. Kudrna, Sr.
Jessica L. Ledbetter
Franklin k. Rahbeck
Item II. To elect three
Directors to
serve a term / / / /
of three years
until the 2001 Annual Meeting of Stockholders, if the
Merger is not approved, or until the effective time of
the Merger, if the Merger is approved.
INSTRUCTIONS: To withhold authority to vote for any individual
nominee, write the nominee name here:
______________________________________________________________
If any other business is presented at the annual meeting, the proxy will be
voted in accordance with the recommendations of management.
I PLAN ON ATTENDING THE MEETING. / /
PLEASE SIGN AND RETURN PROMPTLY IN THE SELF-ADDRESSED
ENVELOPE.
SIGNATURE_____________________________ DATE_____________________
SIGNATURE_____________________________ DATE_____________________
NOTE: Signature of stockholder should correspond exactly with the name shown
herein. Corporate officers, attorneys, trustees, executors, administrators,
guardians, and others should designate their full titles. Joint owners should
each sign.
<PAGE>
- --------------------------------------------------------------------------------
Harveys Casino Resorts
1998 Annual Meeting of Stockholders
Harveys Resort Hotel/Casino
U.S. Highway 50 and Stateline Avenue
Lake Tahoe, Nevada
May 14, 1998
10:00 a.m.
ADMITTANCE TICKET
This ticket entitles you and one guest to attend the Annual Meeting.
For room reservations call 1-800-HARVEYS and ask for the
"Shareholder's Special Offer".
CAMERAS AND RECORDING DEVICES WILL NOT BE ALLOWED AT THE MEETING.
- --------------------------------------------------------------------------------
Dear Stockholder:
The 1998 Annual Meeting of Stockholders of Harveys Casino Resorts will be
held at Harveys Resort Hotel/Casino, U.S. Highway 50 and Stateline Avenue,
Lake Tahoe, Nevada on May 14, 1998 at 10:00 a.m., Local Time. At the meeting,
stockholders will be asked to act on those items described in the enclosed
proxy statement.
Your vote is important. Whether or not you plan to attend the meeting, please
review the enclosed proxy statement, complete the proxy form and return it
promptly in the envelope provided.
If you plan to attend the annual meeting in person, please note that
attendance at the meeting will be limited to you and one guest.
Sincerely,
Charles W. Scharer
Chairman of the Board of Directors
President and Chief Executive Officer
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF MERGER
Dated as of February 1, 1998
between
HARVEYS ACQUISITION CORPORATION
and
HARVEYS CASINO RESORTS
<PAGE>
TABLE OF CONTENTS
PAGE
----
ARTICLE I
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II
THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 2.01. THE MERGER . . . . . . . . . . . . . . . . . . . 8
SECTION 2.02. CLOSING. . . . . . . . . . . . . . . . . . . . . 8
SECTION 2.03. EFFECTIVE TIME . . . . . . . . . . . . . . . . . 9
SECTION 2.04. EFFECTS OF THE MERGER. . . . . . . . . . . . . . 9
SECTION 2.05. ARTICLES OF INCORPORATION AND BY-LAWS. . . . . . 9
SECTION 2.06. DIRECTORS. . . . . . . . . . . . . . . . . . . . 9
SECTION 2.07. OFFICERS . . . . . . . . . . . . . . . . . . . .10
SECTION 2.08. FURTHER ACTIONS. . . . . . . . . . . . . . . . .10
ARTICLE III
CONVERSION OF SHARES. . . . . . . . . . . . . . . . . . . . . . . .10
SECTION 3.01. EFFECT ON CAPITAL STOCK. . . . . . . . . . . . .10
SECTION 3.02. EXCHANGE OF CERTIFICATES . . . . . . . . . . . .12
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF TARGET . . . . . . . . . . . . . .14
SECTION 4.01. ORGANIZATION, STANDING AND CORPORATE POWER . . .14
SECTION 4.02. SUBSIDIARIES . . . . . . . . . . . . . . . . . .14
SECTION 4.03. CAPITAL STRUCTURE. . . . . . . . . . . . . . . .15
SECTION 4.04. AUTHORITY; NONCONTRAVENTION. . . . . . . . . . .15
SECTION 4.05. OPINION OF FINANCIAL ADVISOR . . . . . . . . . .17
SECTION 4.06. SEC DOCUMENTS; FINANCIAL STATEMENTS. . . . . . .17
SECTION 4.07. ABSENCE OF CERTAIN CHANGES OR EVENTS . . . . . .18
SECTION 4.08. LITIGATION . . . . . . . . . . . . . . . . . . .19
i
<PAGE>
SECTION 4.09. ABSENCE OF CHANGES IN BENEFIT PLANS. . . . . . .19
SECTION 4.10. EMPLOYEE BENEFITS; ERISA . . . . . . . . . . . .19
SECTION 4.11. TAXES. . . . . . . . . . . . . . . . . . . . . .22
SECTION 4.12. ENVIRONMENTAL MATTERS. . . . . . . . . . . . . .23
SECTION 4.13. PERMITS; COMPLIANCE WITH GAMING LAWS . . . . . .25
SECTION 4.14. STATE TAKEOVER STATUTES; CHARTER PROVISIONS. . .26
SECTION 4.15. BROKERS. . . . . . . . . . . . . . . . . . . . .27
SECTION 4.16. TRADEMARKS, ETC. . . . . . . . . . . . . . . . .27
SECTION 4.17. TITLE TO PROPERTIES. . . . . . . . . . . . . . .28
SECTION 4.18. INSURANCE. . . . . . . . . . . . . . . . . . . .28
SECTION 4.19. CONTRACTS; DEBT INSTRUMENTS. . . . . . . . . . .28
SECTION 4.20. LABOR RELATIONS. . . . . . . . . . . . . . . . .29
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF ACQ CORP. . . . . . . . . . . . . .29
SECTION 5.01. ORGANIZATION, STANDING AND CORPORATE POWER . . .29
SECTION 5.02. AUTHORITY; NONCONTRAVENTION. . . . . . . . . . .30
SECTION 5.03. INTERIM OPERATIONS OF ACQ CORP . . . . . . . . .31
SECTION 5.04. SUFFICIENT FUNDS.. . . . . . . . . . . . . . . .31
ARTICLE VI
COVENANTS RELATING TO CONDUCT OF BUSINESS. . . . . . . . . . . . . .32
SECTION 6.01. CONDUCT OF BUSINESS . . . . . . . . . . . . . . .32
SECTION 6.02. ADVICE OF CHANGES. . . . . . . . . . . . . . . .37
SECTION 6.03. NO SOLICITATION. . . . . . . . . . . . . . . . .37
ARTICLE VII
ADDITIONAL AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . .39
SECTION 7.01. STOCKHOLDERS MEETING . . . . . . . . . . . . . .39
SECTION 7.02. PROXY STATEMENT AND OTHER FILINGS; REGISTRATION
STATEMENT; AUDITOR'S LETTER. . . . . . . . . . .40
ii
<PAGE>
SECTION 7.03. ACCESS TO INFORMATION; CONFIDENTIALITY . . . . .41
SECTION 7.04. REASONABLE EFFORTS; NOTIFICATION . . . . . . . .42
SECTION 7.05. STOCK OPTION PLANS; CHANGE OF CONTROL PLAN . . .44
SECTION 7.06. INDEMNIFICATION AND INSURANCE. . . . . . . . . .45
SECTION 7.07. FEES AND EXPENSES. . . . . . . . . . . . . . . .46
SECTION 7.08. PUBLIC ANNOUNCEMENTS . . . . . . . . . . . . . .47
SECTION 7.09. TITLE POLICIES . . . . . . . . . . . . . . . . .47
SECTION 7.10. TRANSFER TAXES . . . . . . . . . . . . . . . . .48
SECTION 7.11. MAINTENANCE OF COMMITMENT. . . . . . . . . . . .48
ARTICLE VIII
CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . . .48
SECTION 8.01. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT
THE MERGER . . . . . . . . . . . . . . . . . . .48
SECTION 8.02. CONDITIONS TO OBLIGATIONS OF ACQ CORP. . . . . .49
SECTION 8.03. CONDITIONS TO OBLIGATIONS OF TARGET. . . . . . .50
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER . . . . . . . . . . . . . . . . .51
SECTION 9.01. TERMINATION. . . . . . . . . . . . . . . . . . .51
SECTION 9.02. EFFECT OF TERMINATION. . . . . . . . . . . . . .52
SECTION 9.03. AMENDMENT. . . . . . . . . . . . . . . . . . . .52
SECTION 9.04. EXTENSION; WAIVER. . . . . . . . . . . . . . . .52
SECTION 9.05. PROCEDURE FOR TERMINATION, AMENDMENT, EXTENSION
OR WAIVER. . . . . . . . . . . . . . . . . . . .52
ARTICLE X
GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . .53
SECTION 10.01. NONSURVIVAL OF REPRESENTATIONS. . . . . . . . .53
SECTION 10.02. NOTICES . . . . . . . . . . . . . . . . . . . .53
SECTION 10.03. INTERPRETATION. . . . . . . . . . . . . . . . .55
SECTION 10.04. COUNTERPARTS. . . . . . . . . . . . . . . . . .55
SECTION 10.05. ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES.55
iii
<PAGE>
SECTION 10.06. GOVERNING LAW . . . . . . . . . . . . . . . . .55
SECTION 10.07. GAMING LAWS . . . . . . . . . . . . . . . . . .55
SECTION 10.08. ASSIGNMENT. . . . . . . . . . . . . . . . . . .55
SECTION 10.09. ENFORCEMENT . . . . . . . . . . . . . . . . . .56
iv
<PAGE>
SCHEDULES
EXHIBITS
Exhibit A Voting and Profit Sharing Agreement
Exhibit B Non-Competition and Trade Secrets Agreement
v
<PAGE>
AGREEMENT AND PLAN OF MERGER dated as of February 1, 1998 (this
"AGREEMENT"), among HARVEYS ACQUISITION CORPORATION, a Nevada corporation ("ACQ
CORP"), and HARVEYS CASINO RESORTS, a Nevada corporation ("TARGET").
W I T N E S S E T H
WHEREAS, the respective Boards of Directors of Acq Corp and Target
have determined that the merger of Acq Corp with and into Target (the "MERGER"),
upon the terms and subject to the conditions set forth in this Agreement, is
advisable and in the best interests of their respective corporations and
stockholders, and have approved this Agreement;
WHEREAS, as a condition for Acq Corp to enter into this Agreement,
those stockholders of Target listed in the signature pages to the Voting
Agreement, as defined below (the "FAMILY"), have entered into the Voting
Agreement as of the date hereof with Acq Corp, which provides, among other
things, that, subject to the terms and conditions thereof, each trustee or
member of the Family will vote its shares of Common Stock, as defined below, in
favor of the Merger and the approval and adoption of this Agreement;
WHEREAS, the Board of Directors of Target has approved the terms of
the Voting Agreement; and
WHEREAS, Acq Corp and Target desire to make certain representations,
warranties, covenants and agreements in connection with the Merger and also to
prescribe various conditions to the Merger.
NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants and agreements contained in this Agreement and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto, intending to be legally bound, agree as
follows:
<PAGE>
ARTICLE I
DEFINITIONS
Capitalized and certain other terms used in this Agreement and not
otherwise defined have the meanings set forth below. Unless the context
otherwise requires, such terms shall include the singular and plural and the
conjunctive and disjunctive forms of the terms defined.
"AFFILIATE" of any Person means another Person that directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, such first Person.
"ARTICLES OF MERGER" has the meaning set forth in Section 2.01.
"AUDIT" means any audit, assessment of Taxes, other examination by any
Tax Authority, proceeding or appeal of such proceeding relating to Taxes.
"BENEFIT PLAN" has the meaning set forth in Section ?(i).
"BUDGET" has the meaning set forth in Section 6.01(a)(v).
"CHANGE OF CONTROL PLAN" means Target's Change of Control Plan dated
November 20, 1997, as in effect on the date hereof.
"CLASS A COMMON STOCK" has the meaning set forth in Section
3.01(a)(i).
"CLASS B COMMON STOCK" has the meaning set forth in Section
3.01(a)(ii).
"CLOSING" has the meaning set forth in Section 2.02.
"CLOSING DATE" has the meaning set forth in Section 2.02.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMON STOCK" means the Common Stock of Target, par value $.01 per
share.
2
<PAGE>
"COMPETITIVE PROPOSAL" means any written proposal made by a third
party, other than any member of either the Family or the Board of Directors of
Target, to acquire, for consideration consisting of cash and/or publicly traded
equity securities, more than 50% of the shares of Common Stock then outstanding
or all or substantially all the assets of Target, with respect to which proposal
(i) the Board of Directors of Target determines in its good faith judgment
(based on the opinion, with only customary qualifications, of an independent
financial advisor of good national reputation in such matters) that (a) the
value of the consideration of such proposal exceeds the value of each of the
Merger Consideration and any alternative proposal presented by Acq Corp or any
of its Affiliates and (b) such proposal is more favorable to Target and Target's
stockholders than the Merger and any alternative proposal presented by Acq Corp
or any of its Affiliates, and (ii) there is no financing condition and
financing, to the extent required, is fully committed.
"CONTRACT" means any mortgage, indenture, note, debenture, agreement,
lease, license, permit, franchise or other instrument or obligation, whether
written or oral.
"COVERED PERSON" has the meaning set forth in Section 6.03(a).
"DLJ" means Donaldson, Lufkin & Jenrette Securities Corporation.
"EFFECTIVE TIME" has the meaning set forth in Section 2.03.
"ENVIRONMENTAL CLAIM" has the meaning set forth in Section 4.12(c).
"ENVIRONMENTAL LAWS" has the meaning set forth in Section 4.12(a).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"EXCHANGE FUNDS" has the meaning set forth in Section 3.02(a).
"EXPENSES" has the meaning set forth in Section 7.07(b).
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
3
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"FAMILY" has the meaning set forth in the second recital hereof.
"GAMING AUTHORITY" means any governmental authority or agency with
regulatory control or jurisdiction over the conduct of lawful gaming or
gambling, including, without limitation, the Nevada State Gaming Control Board,
the Nevada Gaming Commission, the Colorado Division of Gaming, the Colorado
Limited Gaming Control Commission and the Iowa Racing and Gaming Commission.
"GAMING LAWS" means any Federal, state, local or foreign statute,
ordinance, rule, regulation, permit, consent, approval, license, judgment,
order, decree, injunction or other authorization governing or relating to the
current or contemplated manufacturing, distribution, casino gambling and gaming
activities and operations of Target, including, without limitation, the Nevada
Gaming Control Act and the rules and regulations promulgated thereunder, the
Colorado Limited Gaming Act and the rules and regulations promulgated thereunder
and chapter 99F of the Code of Iowa and the rules and regulations promulgated
thereunder.
"GOVERNMENTAL ENTITY" means any Federal, state or local government or
any court, administrative or regulatory agency or commission or other
governmental authority or agency, domestic or foreign, including any Gaming
Authority.
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"INDEBTEDNESS" means, with respect to any Person, without
duplication, (A) all obligations of such Person for borrowed money, or with
respect to deposits or advances of any kind, (B) all obligations of such
Person evidenced by bonds, debentures, notes or similar instruments, (C) all
obligations of such Person upon which interest charges are customarily paid
(other than trade payables incurred in the ordinary course of business), (D)
all obligations of such Person under conditional sale or other title
retention agreements relating to property purchased by such Person, (E) all
obligations of such Person issued or assumed as the deferred purchase price
of property or services or for trade or barter arrangements (excluding
obligations of such Person to creditors for raw materials, inventory,
services and supplies incurred in the ordinary course of such Person's
business), (F) all lease obligations of such Person capitalized on the books
and records of such Person, (G) all obligations of others secured by any Lien
on property or assets owned or acquired by such Person, whether or not the
obligations secured thereby have been assumed, (H) all obligations of such
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Person under interest rate, or currency or commodity hedging, swap or similar
derivative transactions (valued at the termination value thereof), (I) all
letters of credit issued for the account of such Person (excluding letters of
credit issued for the benefit of suppliers or lessors to support accounts
payable to suppliers incurred in the ordinary course of business) and (J) all
guarantees and arrangements having the economic effect of a guarantee by such
Person of any other Person.
"INDEMNIFIED PARTIES" has the meaning set forth in Section 7.06(a).
"KNOWLEDGE" of any Person means the current actual knowledge of the
officers and directors of such Person.
"LAW" means any law, statute, ordinance, regulation or rule or any
judgment, decree, order, regulation or rule of any court or governmental
authority or body.
"LIEN" means any mortgage, pledge, assessment, security interest,
lease, sublease, lien, adverse claim, levy, charge, option, right of others or
restriction (whether on voting, sale, transfer, disposition or otherwise) or
other encumbrance of any kind, whether imposed by agreement, understanding, law
or equity, or any conditional sale contract, title retention contract or other
contract to give or to refrain from giving any of the foregoing.
"MATERIAL ADVERSE CHANGE" or "MATERIAL ADVERSE EFFECT" with respect to
any Person means any change or effect (or any development that, insofar as can
reasonably be foreseen, is likely to result in any change or effect) that is
materially adverse to the business, business prospects, properties, assets,
financial condition or results of operations of such Person and its
Subsidiaries, taken as a whole.
"MATERIAL SUBSIDIARY" has the meaning set forth in Section 4.02.
"MAXIMUM PREMIUM" has the meaning set forth in Section 7.06(b).
"MERGER" has the meaning set forth in the first recital hereof.
"MERGER CONSIDERATION" has the meaning set forth in Section 3.01(c).
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"MATERIAL OF ENVIRONMENTAL CONCERN" has the meaning set forth in
Section 4.12(a).
"NRS" means Nevada Revised Statutes.
"NYSE" means the New York Stock Exchange, Inc., or any successor
entity.
"NEVADA MERGER LAW" has the meaning set forth in Section 2.03.
"OPTION AGREEMENT" has the meaning set forth in Section 6.01(b).
"ORDINARY COURSE OF BUSINESS," when used with respect to Target, in
addition to its usual and customary meaning, shall be deemed to mean
transactions in the ordinary course of business consistent with Target's prior
practice.
"PAYING AGENT" has the meaning set forth in Section 3.02(a).
"PERSON" means any natural person, corporation, general partnership,
limited partnership, limited liability company, limited liability partnership,
proprietorship, trust, union, association, court, tribunal, agency, government,
department, commission, self-regulatory organization, arbitrator, board, bureau,
instrumentality or other entity, enterprise, authority or business organization.
"PLAN" has the meaning set forth in Section 4.10.
"PREFERRED STOCK" means the Preferred Stock of Target, par value $.01
per share.
"SEC" means the Securities and Exchange Commission.
"SEC DOCUMENTS" has the meaning set forth in Section 4.06.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"STOCK PURCHASE PLAN" has the meaning set forth in Section 7.05(c)
hereof.
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"SUBSIDIARY" means, with respect to any Person, (i) any corporation
with respect to which such Person, directly or indirectly through one or more
Subsidiaries, (a) owns more than 50% of the outstanding shares of capital
stock having generally the right to vote in the election of directors or (b)
has the power, under ordinary circumstances, to elect, or to direct the
election of, a majority of the board of directors of such corporation, (ii)
any partnership with respect to which (a) such Person or a Subsidiary of such
Person is a general partner, (b) such Person and its Subsidiaries together
own more than 50% of the interests therein, or (c) such Person and its
Subsidiaries have the right to appoint or elect or direct the appointment or
election of a majority of the directors or other Person or body responsible
for the governance or management thereof, (iii) any limited liability company
with respect to which (a) such Person or a Subsidiary of such Person is the
manager or managing member, (b) such Person and its Subsidiaries together own
more than 50% of the interests therein, or (c) such Person and its
Subsidiaries have the right to appoint or elect or direct the appointment or
election of a majority of the directors or other Person or body responsible
for the governance or management thereof, or (iv) any other entity in which
such Person has, and/or one or more of its Subsidiaries have, directly or
indirectly, (a) at least a 50% ownership interest or (b) the power to appoint
or elect or direct the appointment or election of a majority of the directors
or other Person or body responsible for the governance or management thereof.
"SURVIVING CORPORATION" has the meaning set forth in Section 2.01
hereof.
"TAKEOVER PROPOSAL" means (a) any proposal or offer from any Person
relating to any direct or indirect acquisition or purchase of a material
amount of assets of Target or any of its Subsidiaries or of over 10% of any
class of equity securities of Target or any of its Subsidiaries or which
would require approval under any Gaming Law, or any tender offer or exchange
offer that if consummated would result in any Person beneficially owning 10%
or more of any class of equity securities of Target or any of its
Subsidiaries or which would require approval under any Gaming Law, or any
merger, consolidation, business combination, sale of all or substantially all
assets, recapitalization, liquidation, dissolution or similar transaction
involving Target or any of its Subsidiaries other than the transactions
contemplated by this Agreement, or any other transaction the consummation of
which would reasonably be expected to impede, interfere with, frustrate,
prevent, nullify or materially delay the Merger or which would reasonably be
expected to dilute materially the benefits to Acq Corp of the transactions
contemplated hereby. Notwithstanding the foregoing, a transaction or
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series of related transactions involving the sale, transfer or other
disposition of Reno Projects, Inc. or a material amount of the assets thereof
(substantially as such assets consist on the date hereof) for consideration
not to exceed $2 million shall not be deemed to constitute a Takeover
Proposal.
"TAX" or "TAXES" means all Federal, state, local and foreign taxes and
other assessments and governmental charges of a similar nature (whether imposed
directly or through withholdings), including any interest, penalties and
additions to Tax applicable thereto.
"TAX AUTHORITY" means the Internal Revenue Service and any other
domestic or foreign governmental authority responsible for the administration of
any Taxes.
"TAX RETURNS" means all Federal, state, local and foreign returns,
declarations, statements, reports, schedules, forms and information returns
relating to Taxes, and all amendments thereto.
"TERMINATION FEE" has the meaning set forth in Section 7.07(b).
ARTICLE II
THE MERGER
SECTION 2.01. THE MERGER. Upon the terms and subject to the
conditions set forth in this Agreement and in the articles of merger or other
appropriate documents (in any such case, the "ARTICLES OF MERGER") required
by law in connection with the Merger, and in accordance with the applicable
provisions of Nevada law, Acq Corp shall be merged with and into Target.
Following the Merger, Target shall continue as the surviving corporation (the
"SURVIVING CORPORATION") and the separate existence of Acq Corp will cease.
SECTION 2.02. CLOSING. The closing (the "CLOSING") of the Merger
will take place at 10:00 a.m. on a date (the "CLOSING DATE") to be specified
by Acq Corp, which may be on, but shall be no later than the third business
day after, the day on which there shall have been satisfaction or waiver of
the conditions set forth in Article VIII, at the offices of Skadden, Arps,
Slate, Meagher & Flom LLP, 919 Third
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Avenue, New York, New York 10022, unless another time date or place is
agreed to in writing by the parties hereto.
SECTION 2.03. EFFECTIVE TIME. On the Closing Date, or as soon as
practicable thereafter, the parties shall file the Articles of Merger with the
Secretary of State of the State of Nevada (the "NEVADA SECRETARY OF STATE") in
accordance with the provisions of NRS section 92A.005 ET SEQ. (the "NEVADA
MERGER LAW") and make all other filings or recordings required by law in
connection with the Merger. The Merger shall become effective at such time as
the Articles of Merger are duly filed with the Nevada Secretary of State, or at
such other later time (which shall not be more than 90 days after the Articles
of Merger are filed) as Acq Corp and Target shall agree and specify in the
Articles of Merger (the time the Merger becomes effective being the "EFFECTIVE
TIME").
SECTION 2.04. EFFECTS OF THE MERGER. The Merger shall have the
effects set forth in the Nevada Merger Law. Without limiting the generality
of the foregoing, and subject thereto, at the Effective Time, all the
properties, rights, privileges, powers and franchises of Target and Acq Corp
shall vest in the Surviving Corporation, and all debts, liabilities and
duties of Target and Acq Corp shall become the debts, liabilities and duties
of the Surviving Corporation.
SECTION 2.05. ARTICLES OF INCORPORATION AND BY-LAWS. The Articles
of Incorporation of Acq Corp, as in effect immediately prior to the Effective
Time of the Merger, shall become the Articles of Incorporation of the
Surviving Corporation after the Effective Time, except that such Articles of
Incorporation shall be amended to provide that the name of the Surviving
Corporation shall be "Harveys Casino Resorts," and thereafter may be amended
in accordance with its terms and as provided by law. The By-laws of Acq Corp
as in effect on the Effective Time shall become the By-laws of the Surviving
Corporation and thereafter may be amended in accordance with its terms and as
provided by law.
SECTION 2.06. DIRECTORS. The directors of Acq Corp immediately
prior to the Effective Time shall become the directors of the Surviving
Corporation, and shall serve in such capacity until the earlier of their
resignation or removal or until their respective successors are duly elected
and qualified, as the case may be.
SECTION 2.07. OFFICERS. The officers of Target immediately prior
to the Effective Time shall become the officers of the Surviving Corporation,
and shall
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serve in such capacity until the earlier of their resignation or removal or
until their respective successors are duly elected and qualified, as the case
may be.
SECTION 2.08. FURTHER ACTIONS. At and after the Effective Time,
the Surviving Corporation shall take all action as shall be required in
connection with the Merger, including, but not limited to, the execution and
delivery of any further deeds, assignments, instruments or documentation as
are necessary or desirable to carry out the provisions of this Agreement.
ARTICLE III
CONVERSION OF SHARES
SECTION 3.01. EFFECT ON CAPITAL STOCK. As of the Effective Time,
by virtue of the Merger and without any action on the part of the holder of
any shares of Common Stock or any shares of capital stock of Acq Corp:
(a) CAPITAL STOCK OF ACQ CORP.
(i) Each share of the Class A Common Stock, par
value $.01 per share ("CLASS A COMMON STOCK"), of Acq Corp issued and
outstanding immediately prior to the Effective Time shall be converted
into and become one fully paid and nonassessable share of Class A
Common Stock, par value $.01 per share, of the Surviving Corporation.
(ii) Each share of the Class B Common Stock, par
value $.01 per share (the "CLASS B COMMON STOCK"), of Acq Corp issued
and outstanding immediately prior to the Effective Time shall be
converted into and become one fully paid and nonassessable share of
Class B Common Stock, par value $.01 per share, of the Surviving
Corporation.
(iii) Each share of the Series A Preferred Stock,
par value $.01 per share, of Acq Corp issued and outstanding
immediately prior to the Effective Time shall be converted into and
become one fully paid and nonassessable share of Series A Preferred
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Stock, par value $.01 per share, of the Surviving Corporation.
(b) CANCELLATION OF TREASURY STOCK AND ACQ CORP OWNED STOCK.
Each share of Common Stock that is owned by Target or by any Subsidiary of
Target and each share of Common Stock that is owned by Acq Corp shall
automatically be canceled and retired and shall cease to exist, and no
payment shall be made in exchange therefor.
(c) CONVERSION OF COMMON STOCK. Each issued and outstanding
share of Common Stock (other than shares to be canceled in accordance with
Section 3.01(b)) shall be converted into the right to receive from the
Surviving Corporation $28.00 in cash, without interest, plus the additional
consideration, if any, contemplated by the next following sentence
(collectively, the "MERGER CONSIDERATION"). If the Closing shall not have
occurred on or before August 31, 1998 as a result of the failure of Acq
Corp to cause the conditions specified in Section 8.03 to be satisfied due
to the failure of Acq Corp or its directors or officers to be licensed or
found suitable under any applicable Gaming Law, the per share Merger
Consideration shall include an amount in cash, without interest, equal to
the difference, if positive, of (i) the product of (A) $1.96 times (B) a
fraction the numerator of which shall be the number of days elapsed from
and including September 1, 1998 to and excluding the Closing Date and the
denominator of which shall be 365, minus (ii) the quotient of (1) the
aggregate amount of all cash dividends on the Common Stock paid during the
period from and including September 1, 1998 to and excluding the Closing
Date, divided by (2) the number of shares of Common Stock upon which the
Merger Consideration is paid pursuant to this Section 3.01(c) plus the
number of shares of Common Stock underlying the stock options, warrants and
other rights to acquire Common Stock cancelled in connection with the
Merger pursuant to Section 7.05. As of the Effective Time, all shares of
Common Stock upon which the Merger Consideration is payable pursuant to
this Section 3.01(c) shall no longer be outstanding and shall automatically
be canceled and retired and shall cease to exist, and each holder of a
certificate representing any such shares of Common Stock shall cease to
have any rights with respect thereto, except the right to receive the
Merger Consideration, without interest.
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SECTION 3.02. EXCHANGE OF CERTIFICATES.
(a) PAYING AGENT. Immediately prior to the Effective Time,
Acq Corp shall designate a bank or trust to act as paying agent in the
Merger (the "PAYING AGENT"), and, from time to time on, prior to or after
the Effective Time, Acq Corp shall make available, or cause the Surviving
Corporation to make available, to the Paying Agent immediately available
funds (the "EXCHANGE FUNDs") in amounts and at the times necessary for the
payment of the Merger Consideration upon surrender of certificates
representing Common Stock as part of the Merger pursuant to Section 3.01,
it being understood that any and all interest earned on the Exchange Fund
shall be turned over to Acq Corp.
(b) EXCHANGE PROCEDURE. As soon as reasonably practicable after
the Effective Time, the Surviving Corporation shall cause the Paying Agent
to mail to each holder of record of a certificate or certificates which
immediately prior to the Effective Time represented outstanding shares of
Common Stock (the "CERTIFICATES") whose shares were converted into the
right to receive the Merger Consideration pursuant to Section 3.01, (i) a
letter of transmittal (which shall specify that delivery shall be effected,
and risk of loss and title to the Certificates shall pass, only upon
delivery of the Certificates to the Paying Agent and shall be in such form
and have such other provisions as the Surviving Corporation may reasonably
specify) and (ii) instructions for use in effecting the surrender of the
Certificates in exchange for the Merger Consideration. Upon surrender of a
Certificate for cancellation to the Paying Agent or to such other agent or
agents as may be appointed by the Surviving Corporation, together with such
letter of transmittal, duly executed, and such other documents as may
reasonably be required by the Paying Agent, the holder of such Certificate
shall be entitled to receive in exchange therefor the amount of cash into
which the shares of Common Stock theretofore represented by such
Certificate shall have been converted pursuant to Section 3.01, and the
Certificate so surrendered shall forthwith be cancelled. In the event of a
transfer of ownership of Common Stock which is not registered in the
transfer records of Target, payment may be made to a Person other than the
Person in whose name the Certificate so surrendered is registered, if such
Certificate shall be properly endorsed or otherwise be in proper form for
transfer and the Person requesting such payment shall pay any transfer or
other taxes required
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by reason of the payment to a Person other than the registered holder
of such Certificate or establish to the satisfaction of
the Surviving Corporation that such tax has been paid or is not applicable.
Until surrendered as contemplated by this Section 3.02, each Certificate
shall be deemed at any time after the Effective Time to represent only the
right to receive upon such surrender the amount of cash, without interest,
into which the shares of Common Stock theretofore represented by such
Certificate shall have been converted pursuant to Section 3.01. No
interest will be paid or will accrue on the cash payable upon the surrender
of any Certificate.
(c) NO FURTHER OWNERSHIP RIGHTS IN COMMON STOCK. All cash paid
upon the surrender of Certificates in accordance with the terms of this
Article III shall be deemed to have been paid in full satisfaction of all
rights pertaining to the shares of Common Stock theretofore represented by
such Certificates, and there shall be no further registration of transfers
on the stock transfer books of the Surviving Corporation of the shares of
Common Stock which were outstanding immediately prior to the Effective
Time. If, after the Effective Time, Certificates are presented to the
Surviving Corporation or the Paying Agent for any reason, they shall be
cancelled and exchanged as provided in this Article III, except as
otherwise provided by law.
(d) TERMINATION OF EXCHANGE FUNDS. Any portion of the Exchange
Funds which remains undistributed to the holders of the Certificates for
six months after the Effective Time shall be delivered to an entity
identified in writing to Target by Colony Capital, Inc., upon demand, and
any holders of the Certificates who have not theretofore complied with this
Article III shall thereafter look only to such identified entity for
payment of their claim for the Merger Consideration, and any cash or
dividends or distributions payable to such holders pursuant to this Article
III.
(e) NO LIABILITY. None of Acq Corp, Target, the Surviving
Corporation or the Paying Agent shall be liable to any Person in respect of
any cash delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF TARGET
Target represents and warrants to Acq Corp as follows:
SECTION 4.01. ORGANIZATION, STANDING AND CORPORATE POWER. Each of
Target and each of its Subsidiaries is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction in which it is
organized and has the requisite corporate power and authority to carry on its
business as now being conducted. Each of Target and its Subsidiaries is duly
qualified or licensed to do business and is in good standing in each
jurisdiction in which the nature of its business or the ownership or leasing of
its properties makes such qualification or licensing necessary, other than in
such jurisdictions where the failure to be so qualified or licensed
(individually or in the aggregate) would not have a material adverse effect on
Target or any Material Subsidiary. Target has made available to Acq Corp
complete and correct copies of the Restated Articles of Incorporation and By-
laws of the corporation, in each case as amended to the date of this Agreement,
and will make available immediately following the date of this Agreement the
certificates of incorporation and by-laws or other organizational documents of
its Subsidiaries, in each case as amended to the date of this Agreement. The
respective certificates of incorporation and by-laws or other organizational
documents of the Subsidiaries of Target do not contain any provision limiting or
otherwise restricting the ability of Target to control such Subsidiaries.
SECTION 4.02. SUBSIDIARIES. The Subsidiaries of Target identified on
Schedule 4.02(a) (collectively, the "MATERIAL SUBSIDIARIES") own or lease all of
the material assets, hold all material Permits and conduct all of the material
business and operations of Target and its Subsidiaries, taken as a whole
(including, without limitation, all business and operations associated with
Target's Lake Tahoe, Colorado and Iowa casino resorts and related facilities).
Each Subsidiary of Target that is not a Material Subsidiary is identified on
Schedule 4.02(b). All the outstanding shares of capital stock of each
Subsidiary are owned by Target, by another wholly owned Subsidiary of Target or
by Target and another wholly owned Subsidiary of Target, free and clear of all
Liens, except as set forth on Schedule 4.02(c). There are no proxies with
respect to any shares of any such Subsidiary.
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SECTION 4.03. CAPITAL STRUCTURE. The authorized capital stock of
Target consists of 30,000,000 shares of Common Stock and 5,000,000 shares of
Preferred Stock. At the close of business on January 27, 1998, (i) 9,906,869
shares of Common Stock and no shares of Preferred Stock were issued and
outstanding, (ii) 12,792 shares of Common Stock were held by Target in its
treasury, and (iii) 950,543 shares of Common Stock were reserved for issuance
upon exercise of outstanding Stock Options (as defined in Section 7.05). Except
as set forth above, as of the date of this Agreement, no shares of capital stock
or other voting securities of Target were issued or outstanding. Except as set
forth in Schedule 4.03, as of the date of this agreement, there are no
outstanding stock appreciation rights, restricted stock grants or contingent
stock grants and there are no other outstanding contractual rights to which
Target is a party, the value of which is derived from the value of shares of
Common Stock. All outstanding shares of capital stock of Target are, and all
shares which may be issued will be, when issued, duly authorized, validly
issued, fully paid and nonassessable and not subject to preemptive rights.
There are no bonds, debentures, notes or other indebtedness of Target having the
right to vote (or convertible into, or exchangeable for, securities having the
right to vote) on any matters on which stockholders of Target may vote. Except
as set forth above, as of the date of this Agreement, there are no outstanding
securities, options, warrants, calls, rights, commitments, agreements,
arrangements or undertakings of any kind to which Target or any of its
Subsidiaries is a party or by which any of them is bound obligating Target or
any of its Subsidiaries to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of capital stock or other voting securities
of Target or of any of its Subsidiaries or obligating Target or any of its
Subsidiaries to issue, grant, extend or enter into any such security, option,
warrant, call, right, commitment, agreement, arrangement or undertaking.
SECTION 4.04. AUTHORITY; NONCONTRAVENTION. Target has the requisite
corporate power and authority to enter into this Agreement and, subject to
approval of this Agreement by the holders of at least two-thirds of the
outstanding shares of Common Stock, to consummate the transactions contemplated
by this Agreement. The execution and delivery of this Agreement by Target and
the consummation by Target of the transactions contemplated by this Agreement
have been duly authorized by all necessary corporate action on the part of
Target, subject, in the case of this Agreement, to approval of this Agreement by
the holders of at least two-thirds of the outstanding shares of Common Stock.
This Agreement has been duly executed and delivered by Target and, assuming this
Agreement constitutes the valid and binding obligation of Acq Corp, constitutes
the valid and binding obligation of Target,
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enforceable against Target in accordance with its terms. The execution and
delivery of this Agreement do not, and the consummation of the transactions
contemplated by this Agreement and compliance with the provisions of this
Agreement will not, conflict with, or result in any violation of, or default
(with or without notice or lapse of time, or both) under, or give rise to a
right of termination, cancellation or acceleration of any obligation or to
loss of a material benefit under, or result in the creation of any Lien upon
any of the properties or assets of Target or any of its Subsidiaries under,
(i) the Restated Articles of Incorporation or By-laws of Target or the
comparable charter or organizational documents of any of its Subsidiaries,
(ii) other than subject to the governmental filings and other matters
referred to in the following sentence and except as set forth on Schedule
4.04(a), any loan or credit agreement, note, bond, mortgage, indenture, lease
or other agreement, instrument, permit, concession, franchise or license
applicable to Target or any of its Subsidiaries or their respective
properties or assets (including all agreements described pursuant to Section
4.19) or (iii) subject to the governmental filings and other matters referred
to in the following sentence, any judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Target or any of its Subsidiaries
or their respective properties or assets, other than, in the case of clauses
(ii) or (iii), any such conflicts, violations, defaults, rights or Liens that
individually or in the aggregate would not (x) have a material adverse effect
on Target or any Material Subsidiary, (y) impair in any material respect the
ability of Target to perform its obligations under this Agreement or (z)
prevent or impede, in any material respect, the consummation of any of the
transactions contemplated by this Agreement. No consent, approval, order or
authorization of, or registration, declaration or filing with, any
Governmental Entity is required by Target or any of its Subsidiaries in
connection with the execution and delivery of this Agreement by Target or the
consummation by Target of the transactions contemplated by this Agreement,
except for (i) the filing of a premerger notification and report form by
Target under the HSR Act, (ii) the filing with the SEC of such reports under
Section 13(a) of the Exchange Act as may be required in connection with this
Agreement and the transactions contemplated by this Agreement, (iii) the
filing of the Articles of Merger with the Nevada Secretary of State and
appropriate documents with the relevant authorities of other states in which
Target is qualified to do business, (iv) the licensing, permitting,
registration or other approval of, or written consent or no action letter
from, each Gaming Authority within each municipality, state, or commonwealth,
or subdivision thereof, wherein Target or any of its Subsidiaries conducts
business on the date hereof and as of the Effective Date, each of which
licenses, permits, registrations or other approvals, consents or no action
letters are set forth in Schedule 4.04(b) hereto, (v) such filings as may be
required by any applicable
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state securities or "blue sky" laws, and (vi) such other consents, approvals,
orders, authorizations, registrations, declarations and filings the failure
of which to be obtained or made would not, individually or in the aggregate,
(x) have a material adverse effect on Target or any Material Subsidiary, (y)
impair, in any material respect, the ability of Target to perform its
obligations under this Agreement or (z) prevent or delay the consummation of
the transactions contemplated by this Agreement.
SECTION 4.05. OPINION OF FINANCIAL ADVISOR. The Board of
Directors of Target has received the opinion of DLJ, dated February 1, 1998
(the "FAIRNESS OPINION"), to the effect that, as of such date, the Merger
Consideration is fair to the stockholders of Target, from a financial point
of view, and a copy of the Fairness Opinion has been delivered to Acq Corp.
SECTION 4.06. SEC DOCUMENTS; FINANCIAL STATEMENTS. Target files and
has filed all required reports, proxy statements, forms, and other documents
with the SEC since February 1, 1994 (the "SEC DOCUMENTS"). Schedule 4.06(a)
hereto sets forth a complete list of all the SEC Documents through the date
hereof. True and complete copies of all such SEC Documents have been delivered
to Acq Corp. As of their respective dates, (i) the SEC Documents complied in
all material respects with the requirements of the Securities Act or the
Exchange Act, as the case may be, and the rules and regulations of the SEC
promulgated thereunder applicable to such SEC Documents, and (ii) none of the
SEC Documents contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading. Except to the extent that information contained in any
SEC Document has been revised or superseded by a later filed SEC Document filed
and publicly available prior to the date of this Agreement, none of the SEC
Documents contains any untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The financial statements of Target included in the SEC
Documents comply as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto, have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis during the periods involved and fairly
present the consolidated financial position of Target and its consolidated
Subsidiaries as of the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments). Except as set
forth in the SEC
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Documents filed and publicly available prior to the date of this Agreement
and in Schedule 4.06(b), and except for liabilities and obligations incurred
in the Ordinary Course of Business since the date of the most recent
consolidated balance sheet included in the SEC Documents filed and publicly
available prior to the date of this Agreement (the "BASE BALANCE SHEET"),
neither Target nor any of its Subsidiaries has any liabilities or obligations
of any nature (whether accrued, absolute, contingent or otherwise) required
by generally accepted accounting principles to be set forth on a consolidated
balance sheet of Target and its consolidated Subsidiaries or in the notes
thereto.
SECTION 4.07. ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as
disclosed in SEC Documents filed and publicly available during the year ended
November 30, 1997 (the "1997 SEC DOCUMENTS"), Target and its Material
Subsidiaries have conducted their respective businesses only in the Ordinary
Course of Business, and there has not been (i) any material adverse change in
Target, (ii) any declaration, setting aside or payment of any dividend or other
distribution with respect to its capital stock, except for the declaration and
payment of regular quarterly cash dividends on the Common Stock in an amount not
to exceed $.05 per share for each of Target's fiscal quarters, (iii) any split,
combination or reclassification of any of its capital stock or any issuance or
the authorization of any issuance of any other securities in respect of, in lieu
of or in substitution for shares of its capital stock, (iv) except as set forth
in Schedule 4.07, (x) any granting by Target or any of its Subsidiaries to any
officer of Target or any of its Subsidiaries of any increase in compensation,
except in the Ordinary Course of Business (including in connection with
promotions) or as was required under employment agreements in effect as of the
date of the Base Balance Sheet, (y) any granting by Target or any of its
Subsidiaries to any such officer of any increase in severance or termination
pay, except as part of a standard employment package to any Person promoted or
hired, or as was required under employment, severance or termination agreements
in effect as of the date of the Base Balance Sheet or (z) any entry by Target or
any of its Subsidiaries into any employment, severance or termination agreement
with any executive officer of Target, (v) any damage, destruction or loss,
whether or not covered by insurance, that has or reasonably could be expected to
have a material adverse effect on Target or any Material Subsidiary or (vi) any
change in accounting methods, principles or practices by Target materially
affecting its assets, liabilities or business.
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SECTION 4.08. LITIGATION. There is no suit, action or proceeding
pending or, to the Knowledge of Target, threatened against Target or any of its
Subsidiaries that, individually or in the aggregate, could reasonably be
expected to have a material adverse effect on Target or any Material Subsidiary,
including any affecting its licenses, permits, registration or other gaming
approvals under the Gaming Laws, nor is there any judgment, decree, injunction,
rule or order of any Governmental Entity or arbitrator outstanding against
Target or any of its Subsidiaries that, individually or in the aggregate, could
reasonably be expected to have such an effect.
SECTION 4.09. ABSENCE OF CHANGES IN BENEFIT PLANS. Except as
disclosed in the 1997 SEC Documents, as set forth in Schedule 4.09 or as
otherwise expressly permitted hereunder, there has not been any adoption or
amendment in any material respect by Target or any of its Subsidiaries of any
Plan since August 31, 1997. All employment, consulting, severance, termination
or indemnification agreements, arrangements or understandings between Target or
any of its Subsidiaries which are required to be disclosed in the SEC Documents
have been disclosed therein.
SECTION 4.10. EMPLOYEE BENEFITS; ERISA.
(a) Schedule 4.10(a) contains a true and complete list of each
employment, consulting, bonus, deferred compensation, incentive
compensation, stock purchase, stock option, stock appreciation right or
other stock-based incentive, severance, change-in-control or termination
pay, hospitalization or other medical, disability, life or other insurance,
supplemental unemployment benefits, profit-sharing, pension, or retirement
plan, program, agreement or arrangement, and each other employee benefit
plan, program, agreement or arrangement, sponsored, maintained or
contributed to or required to be contributed to by Target or any of its
Subsidiaries, or by any trade or business, whether or not incorporated,
that together with Target or any of its Subsidiaries would be deemed to
comprise a controlled group or affiliated service group or be deemed to be
under common control or otherwise aggregated for purposes of Sections
414(b), (c), (m) or (o) of the Code (an "ERISA AFFILIATE"), for the benefit
of any current or former employee or director of Target, or any of its
Subsidiaries or any ERISA Affiliate (the "PLANS"). Schedule 4.10(a)
identifies each of the Plans that is an "employee welfare benefit plan," or
"employee pension benefit plan" as such terms are defined in Sections 3(1)
and 3(2) of ERISA (such plans being hereinafter referred to collectively as
the "ERISA PLANS").
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None of Target, any of its Subsidiaries nor any ERISA Affiliate has any
formal plan or commitment, whether legally binding or not, to create any
additional Plan or modify or change any existing Plan that would affect
any current or former employee or director of Target, any of its
Subsidiaries or any ERISA Affiliate.
(b) With respect to each of the Plans, Target has heretofore
delivered or as promptly as practicable after the date hereof shall deliver
to Acq Corp true and complete copies of each of the following documents, as
applicable:
(i) a copy of the Plan documents (including all
amendments thereto) for each written Plan or a written description of
any Plan that is not otherwise in writing;
(ii) a copy of the annual report or Internal
Revenue Service Form 5500 Series, if required under ERISA, with
respect to each ERISA Plan for the last three Plan years ending prior
to the date of this Agreement for which such a report was filed;
(iii) a copy of the actuarial report, if required
under ERISA, with respect to each ERISA Plan for the last three Plan
years ending prior to the date of this Agreement;
(iv) a copy of the most recent Summary Plan
Description ("SPD"), together with all Summaries of Material
Modification issued with respect to such SPD, if required under ERISA,
with respect to each ERISA Plan, and all other material employee
communications relating to each ERISA Plan;
(v) if the Plan is funded through a trust or any
other funding vehicle, a copy of the trust or other funding agreement
(including all amendments thereto) and the latest financial statements
thereof, if any;
(vi) all contracts relating to the Plans with
respect to which Target, any of its Subsidiaries or any ERISA
Affiliate may have any liability, including insurance contracts,
investment
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management agreements, subscription and participation
agreements and record keeping agreements; and
(vii) the most recent determination letter
received from the IRS with respect to each Plan that is intended to be
qualified under Section 401(a) of the Code.
(c) Neither Target, nor any Subsidiary nor any current or former
ERISA Affiliate has at any time sponsored, maintained, contributed to or
been required to contribute to any "employee pension benefit plan" (as
defined in Section 3(2) of ERISA) subject to Title IV of ERISA, including
without limitation any "multiemployer plan" (as defined in Sections 3(37)
and 4001(a)(3) of ERISA). No liability under Title IV of ERISA has been
incurred by Target, any of its Subsidiaries or any ERISA Affiliate since
the effective date of ERISA, and no condition exists that presents a
material risk to Target, any of its Subsidiaries or any ERISA Affiliate of
incurring any liability under such Title.
(d) None of Target, any of its Subsidiaries, any ERISA
Affiliate, any of the ERISA Plans, any trust created thereunder, nor to
Target's Knowledge, any trustee or administrator thereof has engaged in a
transaction or has taken or failed to take any action in connection with
which Target, any of its Subsidiaries or any ERISA Affiliate could be
subject to any material liability for either a civil penalty assessed
pursuant to Section 409 or 502(i) of ERISA or a tax imposed pursuant to
Section 4975(a) or (b), 4976 or 4980B of the Code.
(e) All contributions which Target, any of its Subsidiaries or
any ERISA Affiliate is required to pay under the terms of each of the ERISA
Plans have, to the extent due, been paid in full or properly recorded on
the financial statements or records of Target or its Subsidiaries.
(f) Each of the Plans has been operated and administered in all
material respects in accordance with applicable Laws, including but not
limited to ERISA and the Code.
(g) Each of the ERISA Plans that is intended to be "qualified"
within the meaning of Section 401(a) of the Code is so qualified.
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Target has applied for and received a currently effective determination
letter from the IRS stating that it is so qualified, and no event has
occurred which would affect such qualified status.
(h) No Plan provides benefits, including without limitation
death or medical benefits (whether or not insured), with respect to current
or former employees of Target, its Subsidiaries or any ERISA Affiliate
after retirement or other termination of service (other than (i) coverage
mandated by applicable Laws, (ii) death benefits or retirement benefits
under any "employee pension plan," as that term is defined in Section 3(2)
of ERISA, (iii) deferred compensation benefits accrued as liabilities on
the books of Target, any of its Subsidiaries or an ERISA Affiliate, or
(iv) benefits, the full direct cost of which is borne by the current or
former employee (or beneficiary thereof)).
(i) Except pursuant to the Plans set forth in Schedule 4.10(i),
the consummation of the transactions contemplated by this Agreement will
not (i) entitle any current or former employee, officer or director of
Target, any of its Subsidiaries or any ERISA Affiliate to severance pay,
unemployment compensation or any other similar termination payment, or (ii)
accelerate the time of payment or vesting, or increase the amount of or
otherwise enhance any benefit due any such employee, officer or director.
(j) There are no pending or, to Target's Knowledge, threatened
or anticipated claims by or on behalf of any Plan, by any employee or
beneficiary under any such Plan or otherwise involving any such Plan (other
than routine claims for benefits).
SECTION 4.11. TAXES.
(a) Each of Target and its Subsidiaries has timely filed (or has
had timely filed on its behalf) or will file or cause to be timely filed,
all material Tax Returns required by applicable law to be filed by it prior
to or as of the Closing Date. All such Tax Returns and amendments thereto
are, or will be before the Closing Date, true, complete and correct in all
material respects.
(b) Each of Target and its Subsidiaries has paid (or has had
paid on its behalf), or where payment is not yet due, has established (or
has had established on its behalf and for its sole benefit and recourse),
or will
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establish or cause to be established on or before the Closing Date,
an adequate accrual in accordance with generally accepted accounting
principles for the payment of, all Taxes due with respect to any period
ending prior to or as of the Closing Date.
(c) Except as set forth in Schedule 4.11(c), no Audit by a Tax
Authority is pending or threatened with respect to any material Taxes due
from Target or any of its Subsidiaries. There are no outstanding waivers
extending the statutory period of limitation relating to the payment of
material Taxes due from Target or any of its Subsidiaries for any taxable
period ending prior to the Closing Date which are expected to be
outstanding as of the Closing Date. No issue has been raised by any Tax
Authority in any Audit of Target or any of its Subsidiaries that if raised
with respect to any other period not so audited could be expected to result
in a proposed deficiency for any period not so audited.
(d) No deficiency or adjustment for any Taxes has been proposed,
asserted or assessed against Target or any of its Subsidiaries that has not
been resolved or paid or for which an adequate accrual has not been
established in accordance with generally accepted accounting principles.
There are no Liens for Taxes upon the assets of Target or any of its
Subsidiaries, except Liens for current Taxes not yet due and for which
adequate accruals have been established in accordance with generally
accepted accounting principles.
(e) All Tax sharing agreements, Tax indemnity agreements and
similar agreements to which Target or any of its Subsidiaries is a party
are disclosed in the 1997 SEC Documents.
SECTION 4.12. ENVIRONMENTAL MATTERS.
(a) Each of Target and the Material Subsidiaries is in full
compliance with all Federal, state, local and foreign laws and regulations
relating to pollution or protection of human health or the environment,
including, without limitation, ambient air, surface water, ground water,
land surface or subsurface strata, and natural resources (together
"ENVIRONMENTAL LAWS" and including, without limitation, laws and
regulations relating to emissions, discharges, releases or threatened
releases of chemicals, pollutants, contaminants, wastes, toxic or hazardous
substances or wastes, petroleum and
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petroleum products, polychlorinated biphenyls (PCBs), or asbestos or
asbestos-containing materials ("MATERIALS OF ENVIRONMENTAL CONCERN")),
or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of Materials of
Environmental Concern. Such compliance includes, but is not limited to,
the possession by Target and the Material Subsidiaries of all permits
and other governmental authorizations required under all applicable
Environmental Laws, and compliance with the terms and conditions
thereof. All permits and other governmental authorizations currently
held by the Target and the Material Subsidiaries pursuant to the
Environmental Laws are identified in Schedule 4.12(a).
(b) Neither Target nor any of its Subsidiaries has received any
communication (written or oral), whether from a governmental authority,
citizens group, employee or otherwise, that alleges that Target or any
such Subsidiary is not in full compliance with any Environmental Laws, and
there are no circumstances that may prevent or interfere with such full
compliance in the future. Target has provided to Acq Corp all information
that is in the possession of or reasonably available to Target regarding
environmental matters pertaining to the environmental condition of Target's
and its Subsidiaries' business, or Target's and its Subsidiaries'
compliance (or noncompliance) with any Environmental Laws.
(c) There is no claim, action, cause of action, investigation or
notice (written or oral) (together, "ENVIRONMENTAL CLAIM") by any Person or
entity alleging potential liability (including, without limitation,
potential liability for investigatory costs, cleanup costs, governmental
response costs, natural resources damages, property damages, personal
injuries, or penalties) arising out of, based on or resulting from (a) the
presence, or release into the environment, of any Material of Environmental
Concern at any location, whether or not owned or operated by Target or (b)
circumstances forming the basis of any violation, or alleged violation, of
any Environmental Law, that in either case is pending or threatened against
Target or any of its Subsidiaries or against any Person or entity whose
liability for any Environmental Claim Target or any of its Subsidiaries has
retained or assumed either contractually or by operation of law.
(d) There are no past or present actions, activities,
circumstances, conditions, events or incidents, including, without
limitation,
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the release, emission, discharge, presence or disposal of any
Material of Environmental Concern, that could form the basis of any
Environmental Claim against Target or any of its Subsidiaries or, to
Target's best Knowledge after due inquiry, against any Person or entity
whose liability for any Environmental Claim Target or any of its
Subsidiaries has retained or assumed either contractually or by operation
of law.
(e) Without in any way limiting the generality of the foregoing,
(i) all on-site and off-site locations where Target or any of its
Subsidiaries has (previously or currently) stored, disposed or arranged for
the disposal of Materials of Environmental Concern are identified in
Schedule 4.12(e), (ii) all underground storage tanks, and the capacity and
contents of such tanks, located on any property owned, leased, operated or
controlled by Target or any of its Subsidiaries are identified in Schedule
4.12(e), (iii) except as set forth in Schedule 4.12(e), there is no
asbestos contained in or forming part of any building, building component,
structure or office space owned, leased, operated or controlled by Target
or any of its Subsidiaries, and (iv) except as set forth in Schedule
4.12(e), no PCBs or PCB-containing items are used or stored at any property
owned, leased, operated or controlled leased by Target or any of its
Subsidiaries.
(f) Neither Target nor any Material Subsidiary is subject to any
Environmental Laws requiring the performance of site assessments for
Materials of Environmental Concern, or the removal or remediation of
Materials of Environmental Concern, or the giving of notice to any
governmental agency or the recording or delivery to other Persons or an
environmental disclosure document or statement by virtue of the
transactions set forth herein and contemplated hereby, or as a condition to
the effectiveness of any transactions contemplated hereby.
SECTION 4.13. PERMITS; COMPLIANCE WITH GAMING LAWS.
(a) Each of Target, its Subsidiaries and their respective
officers, directors and other personnel has in effect all Federal, state,
local and foreign governmental approvals, authorizations, certificates,
filings, franchises, orders, registrations, findings of suitability,
licenses, notices, permits, applications and rights, including all
authorizations under Gaming Laws ("PERMITS"), necessary for Target and its
Subsidiaries to own, lease or operate
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their properties and assets and to carry on their business as now
conducted, other than such Permits the absence of which would not,
individually or in the aggregate, have a material adverse effect on
Target or any Material Subsidiary, and there has occurred no default
under any such Permit other than such defaults which, individually or
in the aggregate, would not have a material adverse effect on Target or
any Subsidiary, result in a limitation or condition on any Permit or
result in the imposition of a fine or penalty in excess of $25,000 against
Target or any Subsidiary. All such Permits are held only by Target or a
Material Subsidiary. Except as disclosed in the 1997 SEC Documents, Target
and its Subsidiaries are in compliance with all applicable statutes, laws,
ordinances, rules, orders and regulations of any Governmental Entity,
except for possible noncompliance which individually or in the aggregate
would not have a material adverse effect on Target or any Material
Subsidiary. The preceding sentence of this Section 4.13(a) does not
apply to matters specifically covered by Sections ?, 4.10, 4.12 or
4.13(b).
(b) Each of Target and its Subsidiaries is in compliance with
all applicable Gaming Laws, except for possible noncompliance which,
individually or in the aggregate, would not have a material adverse effect
on Target or any Material Subsidiary, result in a limitation or condition
on any Permit or result in the imposition of a fine or penalty in excess of
$25,000 against Target or any Subsidiary.
(c) Neither Target, any Subsidiary or Target nor any officer or
director of Target or any Subsidiary of Target has received any written
claim, demand, notice, complaint, court order or administrative order from
any Governmental Entity in the past three years, asserting that a Permit of
it or them, as applicable, under any Gaming Laws should be limited, revoked
or suspended.
SECTION 4.14. STATE TAKEOVER STATUTES; CHARTER PROVISIONS. The Board
of Directors of Target has approved the Merger, this Agreement and the Voting
Agreement and, (a) by virtue of NRS Section 78.3783(2)(b)(4), the control share
statutes (including, without limitation, the provisions of NRS Sections 78.378
to 78.3793) and, (b) by virtue of NRS Section 78.438(1), the business
combination statutes (including, without limitation, the provisions of NRS
Sections 78.411 to 78.444), and (c) by virtue of NRS Section 92A.390, the fair
price or value or dissenters' rights statutes (including, without limitation,
the provisions of NRS Sections 92A.300 to 92A.500) of the State of Nevada do
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not apply to the Merger, this Agreement or the Voting Agreement or to the
transactions contemplated thereby or hereby. In addition, such approval is
sufficient to render inapplicable to the Merger, this Agreement and the
Voting Agreement the provisions of Article VIII of Target's Restated Articles
of Incorporation.
SECTION 4.15. BROKERS. No broker, investment banker, financial
advisor or other Person, other than DLJ, is entitled to any broker's, finder's,
financial advisor's or other similar fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of Target. Target has provided Acq Corp true and correct copies of
all agreements between Target and DLJ.
SECTION 4.16. TRADEMARKS, ETC. The material patents, trademarks
(registered or unregistered), trade names, service marks and copyrights and
applications therefor owned, used or filed by or licensed to Target and the
Material Subsidiaries (collectively, "INTELLECTUAL PROPERTY RIGHTS") are
sufficient to allow each of Target and the Material Subsidiaries exclusive
use thereof and to conduct, and continue to conduct, its business as
currently conducted or as Target proposes to conduct such business. Each of
Target and the Material Subsidiaries owns or has unrestricted right to use
the Intellectual Property Rights in order to allow it to conduct, and
continue to conduct, its business as currently conducted or as Target
proposes to conduct such business, and the consummation of the transactions
contemplated hereby will not alter or impair such ability in any respect
which individually or in the aggregate would be reasonably likely to have a
material adverse effect on Target or any Material Subsidiary. Neither Target
nor any of its Subsidiaries has received any oral or written notice from any
other Person pertaining to or challenging the right of Target or any of its
Subsidiaries to use any of the Intellectual Property Rights, which challenge
or other assertion, if upheld or successful, individually or in the aggregate
would be reasonably likely to have a material adverse effect on Target or any
Material Subsidiary. No claims are pending by any Person with respect to the
ownership, validity, enforceability or use of any such Intellectual Property
Rights challenging or questioning the validity or effectiveness of any of the
foregoing which claims would reasonably be expected to have a material
adverse effect on Target or any Material Subsidiary. Neither Target nor any
of its Subsidiaries has made any claim of a violation or infringement by
others of its rights to or in connection with the Intellectual Property
Rights in any such case where such claims (individually or in the aggregate)
would reasonably be expected to have a material adverse effect on Target or
any Material Subsidiary.
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SECTION 4.17. TITLE TO PROPERTIES. To the Knowledge of Target, each
of Target and each of its Subsidiaries has sufficiently good and valid title to,
or an adequate leasehold interest in, its material tangible properties and
assets in order to allow it to conduct, and continue to conduct, its business as
currently conducted or as Target proposes to conduct such business. Such
material tangible assets and properties are sufficiently free of Liens to allow
each of Target and each of its Subsidiaries to conduct, and continue to conduct,
its business as currently conducted, or as Target proposes to conduct such
business and, to the Knowledge of Target, the consummation of the transactions
contemplated by this Agreement will not alter or impair such ability in any
respect which individually or in the aggregate would be reasonably likely to
have a material adverse effect on Target or any Material Subsidiary. To the
Knowledge of Target, each of Target and each of its Subsidiaries enjoys peaceful
and undisturbed possession under all material leases, except for such breaches
of the right to peaceful and undisturbed possession that do not materially
interfere with the ability of Target and its Subsidiaries to conduct its
business as currently conducted. Target and its Subsidiaries have no Knowledge
of any pending or contemplated condemnation, eminent domain or similar
proceeding or special assessment which would affect any of their properties or
leases or any part thereof in any way whatsoever. Schedule 4.17 sets forth a
complete list of all material real property and material interests in real
property owned in fee by Target or one of its Subsidiaries and sets forth all
material real property and interests in real property leased by Target or any of
its Subsidiaries as of the date hereof.
SECTION 4.18. INSURANCE. To the Knowledge of Target, Target and its
Subsidiaries have obtained and maintained in full force and effect insurance
with responsible and reputable insurance companies or associations in such
amounts, on such terms and covering such risks, including fire and other risks
insured against by extended coverage, as is reasonably prudent, and each has
maintained in full force and effect public liability insurance, insurance
against claims for personal injury or death or property damage occurring in
connection with any of activities of Target or its Subsidiaries or any of any
properties owned, occupied or controlled by Target or its Subsidiaries, in such
amount as reasonably deemed necessary by Target or its Subsidiaries.
SECTION 4.19. CONTRACTS; DEBT INSTRUMENTS. Except as set forth in
the 1997 SEC Documents or in Schedule 4.19, there are no (i) agreements of
Target or any of its Subsidiaries containing an unexpired covenant not to
compete or similar
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restriction applying to Target or any of its Subsidiaries, (ii) interest
rate, currency or commodity hedging, swap or similar derivative transactions
to which Target is a party or (iii) other contracts or amendments thereto
that would be required to be filed as an exhibit to a Form 10-K filed by
Target with the SEC as of the date of this Agreement. Each of the material
agreements to which target or any of its Subsidiaries is a party is a valid
and binding obligation of Target or its Subsidiary, as the case may be, and,
to Target's Knowledge, of each other party thereto, and each such agreement
is in full force and effect and is enforceable by Target or its Subsidiary in
accordance with its terms, except that (i) such enforcement may be subject to
bankruptcy, insolvency, reorganization, moratorium or other similar laws now
or hereafter in effect relating to creditors' rights generally and (ii) the
remedy of specific performance and injunctive relief may be subject to
equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought. There are no existing defaults (or
circumstances or events that, with the giving of notice or lapse of time or
both would become defaults) of Target or any of its Subsidiaries (or, to the
Knowledge of Target, any other party thereto) under any of such material
agreements except for defaults that have not and would not, individually or
in the aggregate, have a material adverse effect on Target or any Material
Subsidiary.
SECTION 4.20. LABOR RELATIONS. No strike or other labor dispute
involving Target or any of its Subsidiaries is pending or, to the Knowledge of
Target, threatened, and, to the Knowledge of Target, there is no activity
involving any unorganized employees of Target or any of its Subsidiaries seeking
to certify a collective bargaining unit or engaging in any other organization
activity. Except as set forth in Schedule 4.20 and as disclosed in the 1997 SEC
Documents, since August 31, 1997, there has not been any adoption or amendment
in any material respect by Target or any of its Subsidiaries of any collective
bargaining agreement. Other than those filed as exhibits to the 1997 SEC
Document, Schedule 4.20 lists all collective bargaining agreements to which
Target or any of its Subsidiaries is a party.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF ACQ CORP
Acq Corp represents and warrants to Target as follows:
SECTION 5.01. ORGANIZATION, STANDING AND CORPORATE POWER. Acq
Corp is a corporation duly organized, validly existing and in good standing
under the
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laws of the jurisdiction in which it is incorporated and has the requisite
corporate power and authority to carry on its business as now being conducted.
Acq Corp is duly qualified or licensed to do business and is in good standing in
each jurisdiction in which the nature of its business or the ownership or
leasing of its properties makes such qualification or licensing necessary, other
than in such jurisdictions where the failure to be so qualified or licensed
(individually or in the aggregate) would not have a material adverse effect on
Acq Corp. Acq Corp will make available to Target complete and correct copies of
its articles of incorporation and by-laws in effect on the date of this
Agreement.
SECTION 5.02. AUTHORITY; NONCONTRAVENTION. Acq Corp has the
requisite corporate power and authority to enter into this Agreement and to
consummate the transactions contemplated by this Agreement. The execution
and delivery of this Agreement by Acq Corp and the consummation by Acq Corp
of the transactions contemplated by this Agreement have been duly authorized
by all necessary corporate action on the part of Acq Corp. This Agreement
has been duly executed and delivered by Acq Corp and, assuming this Agreement
constitutes the valid and binding obligation of Target, constitutes a valid
and binding obligation of Acq Corp, enforceable against Acq Corp in
accordance with its terms. The execution and delivery of this Agreement do
not, and the consummation of the transactions contemplated by this Agreement
will not, conflict with, or result in any violation of, or default (with or
without notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of any obligation or to loss of a
material benefit under, or result in the creation of any Lien upon any of the
properties or assets of Acq Corp under, (i) the articles of incorporation or
by-laws of Acq Corp, (ii) subject to the governmental filings and other
matters referred to in the following sentence, any loan or credit agreement,
note, bond, mortgage, indenture, lease or other agreement, instrument,
permit, concession, franchise or license applicable to Acq Corp or (iii)
subject to the governmental filings and other matters referred to in the
following sentence, any judgment, order, decree, statute, law, ordinance,
rule or regulation applicable to Acq Corp or its properties or assets, other
than, in the case of clauses (ii) or (iii), any such conflicts, violations,
defaults, rights or Liens that individually or in the aggregate would not (x)
have a material adverse effect on Acq Corp, (y) impair in any material
respect the ability of Acq Corp to perform its obligations under this
Agreement or (z) prevent or impede the consummation of any of the
transactions contemplated by this Agreement. No consent, approval, order or
authorization of, or registration, declaration or filing with, any
Governmental Entity is required by Acq Corp in connection with the execution
and delivery of this Agreement or the consummation by
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Acq Corp of any of the transactions contemplated by this Agreement, except
for (i) the filing of a premerger notification and report form under the HSR
Act, (ii) the filing with the SEC of such reports under the Exchange Act as
may be required in connection with this Agreement and the transactions
contemplated by this Agreement, (iii) the filing of the Articles of Merger
with the Nevada Secretary of State and appropriate documents with the
relevant authorities of other states in which Target is qualified to do
business, (iv) any approvals, licenses, authorizations, orders,
registrations, findings of suitability and filings of notices with Gaming
Authorities under Gaming Laws, (v) such filings as may be required by an
applicable state securities or "blue sky" laws, (vi) in connection with any
state or local tax which is attributable in respect of the beneficial
ownership of real property of Target or its Subsidiaries, (vii) such
immaterial filings and immaterial consents as may be required under any
environmental, health or safety law or regulation pertaining to any
notification, disclosure or required approval triggered by the Merger or the
transactions contemplated by this Agreement, (viii) such immaterial filings,
consents, approvals, orders, registrations and declarations as may be
required under the laws of any foreign country in which the Acq Corp or any
of its Subsidiaries or Target or any of its Subsidiaries conducts any
business or owns any assets, and (ix) such other consents, approvals, orders,
authorizations, registrations, declarations and filings the failure of which
to be obtained or made would not, individually or in the aggregate, (x) have
a material adverse effect on Acq Corp, (y) impair, in any material respect,
the ability of Acq Corp to perform its obligations under this Agreement or
(z) prevent or significantly delay the consummation of the transactions
contemplated by this Agreement.
SECTION 5.03. INTERIM OPERATIONS OF ACQ CORP. Acq Corp was formed
solely for the purpose of engaging in the transactions contemplated hereby and
has not engaged in any business activities or conducted any operations other
than in connection with the transactions contemplated hereby.
SECTION 5.04. SUFFICIENT FUNDS. On the Closing Date, Acq Corp will
have sufficient funds to pay the Merger Consideration. Acq Corp possesses the
means, pursuant to a binding commitment from Colony Investors III, L.P. or
pursuant to another arrangement from a replacement source reasonably acceptable
to Target, to obtain $10 million in cash upon 10 business days' prior notice.
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ARTICLE VI
COVENANTS RELATING TO CONDUCT OF BUSINESS
SECTION 6.01. CONDUCT OF BUSINESS.
(a) During the term of this Agreement, except as specifically
required by this Agreement or permitted under subsection (b) of this
Section 6.01, Target shall and shall cause its Subsidiaries to carry on
their respective businesses in the Ordinary Course of Business and use all
reasonable efforts to preserve intact their current business organizations,
keep available the services of their current officers and employees and
preserve their relationships consistent with past practice with desirable
customers, suppliers, licensors, licensees, distributors and others having
business dealings with them to the end that their goodwill and ongoing
businesses shall be unimpaired in all material respects at the Effective
Time. Except as expressly permitted or contemplated by the terms of this
Agreement, without limiting the generality of the foregoing, Target shall
not, and shall not permit any of its Subsidiaries to (without Acq Corp's
prior written consent, which consent may not be unreasonably withheld):
(i) (A) declare, set aside or pay any dividends
on, or make any other distributions in respect of, any of its capital
stock, other than dividends and distributions by any direct or
indirect wholly owned Subsidiary of Target to its Parent and other
than the declaration and payment of regular quarterly dividends on the
Common Stock in an amount not to exceed $.05 per share for each of
Target's fiscal quarters, (B) split, combine or reclassify any of its
capital stock or issue or authorize the issuance of any other
securities in respect of, in lieu of or in substitution for shares of
its capital stock or (C) except as shall be required under currently
existing terms of any stock-based benefit plan, purchase, redeem or
otherwise acquire or amend any shares of capital stock of Target or
any of its Subsidiaries or any other securities thereof or any rights,
warrants, options to acquire or any securities convertible into or
exchangeable for any such shares or other securities (other than (x)
redemptions, purchases or other acquisitions required by applicable
provisions under Gaming Laws and (y) issuances or redemptions of
capital stock of wholly owned
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Subsidiaries occurring between Target and any of its wholly owned
Subsidiaries or occurring between wholly owned Subsidiaries of Target);
(ii) issue, deliver, sell, pledge or otherwise
encumber or amend any shares of its capital stock, any other voting
securities or any securities convertible or exchangeable into, or any
rights, warrants or options to acquire, any such shares, voting
securities or convertible or exchangeable securities (other than the
issuance of Common Stock upon the exercise of employee stock options
and contingent incentive plans (including with respect to contingent
shares of Common Stock) outstanding on the date of this Agreement in
accordance with their present terms);
(iii) amend its Restated Articles of
Incorporation, By-laws or other comparable charter or organizational
documents;
(iv) take any action that would result in the
failure to maintain the listing of Common Stock on the NYSE;
(v) develop, acquire or agree to develop or
acquire any projects, assets or lines of business, including without
limitation by merging or consolidating with, or by purchasing all or a
substantial portion of the assets of, or by any other manner, any
business or any corporation, partnership, joint venture, association
or other business organization or division thereof, or any assets that
are material, individually or in the aggregate, to Target and its
Subsidiaries taken as a whole, except (x) purchases of inventory,
furnishings and equipment in the Ordinary Course of Business or (y)
expenditures consistent with Target's current capital budget, as set
forth in Schedule 6.01(a)(v) (the "BUDGET");
(vi) sell, lease, license, swap, barter, mortgage
or otherwise encumber or subject to any Lien or otherwise dispose of
or prevent from becoming subject to a Lien any of its properties or
assets, except transactions in the Ordinary Course of Business;
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(vii) (A) other than (1) working capital
borrowings in the Ordinary Course of Business, (2) projects approved
prior to the date of this Agreement by the Board of Directors of
Target as set forth in Schedule 6.01(a)(vii), to the extent permitted
by Section 6.01(b), (3) specific projects at existing, operational
facilities referred to in the Budget and (4) other incurrences of
indebtedness which, in the aggregate, do not exceed $10.0 million,
incur any indebtedness, forgive any debt obligations of any Person to
Target or its Subsidiaries, issue or sell any debt securities or
warrants or other rights to acquire any debt securities of Target or
any of its Subsidiaries, guarantee any debt securities of another
Person, enter into any "keep well" or other agreement to maintain any
financial statement condition of another Person or enter into any
arrangement having the economic effect of any of the foregoing or (B)
other than (1) to Target or any direct or indirect wholly owned
Subsidiary of Target, (2) advances to employees, suppliers or
customers in the Ordinary Course of Business, (3) projects approved
prior to the date of this Agreement by the Board of Directors of
Target as set forth in Schedule 6.01(a)(vii), to the extent permitted
by Section 6.01(b), and (4) specific projects referred to in the
Budget, make any loans, advances or capital contributions to, or
investments in, any other Person;
(viii) settle any claim, action, or lawsuit
relating to material Taxes pending as of the date hereof or arising on
or after the date hereof, make any material Tax election, or amend any
material Tax Return in any respect;
(ix) pay, discharge, settle or satisfy any
material claims, liabilities or obligations (absolute, accrued,
asserted or unasserted, contingent or otherwise), other than the
payment, discharge, settlement or satisfaction in the Ordinary Course
of Business or in accordance with their terms of liabilities reflected
or reserved against in the Base Balance Sheet or incurred in the
Ordinary Course of Business, or, except in the Ordinary Course of
Business, waive the benefits of, or agree to modify in any manner, any
confidentiality, standstill or similar agreement to which Target or
any of its Subsidiaries is a party;
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(x) make any change in the compensation payable
or to become payable to any of its officers, directors, employees,
agents or consultants (other than (i) general increases in wages to
employees who are not officers, directors or Affiliates in the
Ordinary Course of Business and (ii) salary increases for officers
other than Target's President pursuant to regular annual reviews in
the Ordinary Course of Business and approved by Target's President
pursuant to previously granted Board authority, PROVIDED that no
compensation described in the clause (ii) shall be in the form of
capital stock of Target or any securities convertible or exchangeable
into, or any rights, warrants or options to acquire, such capital
stock), or to Persons providing management services, enter into or
amend any employment, severance, consulting, termination or other
agreement or employee benefit plan or make any loans to any of its
officers, directors, employees, Affiliates, agents or consultants or
make any change in its existing borrowing or lending arrangements for
or on behalf of any of such Persons pursuant to an employee benefit
plan or otherwise;
(xi) pay or make any accrual or arrangement for
payment of any pension, retirement allowance or other employee benefit
pursuant to any existing plan, agreement or arrangement to any
officer, director, employee or Affiliate or pay or agree to pay or
make any accrual or arrangement for payment to any officers,
directors, employees or Affiliates of Target of any amount relating to
unused vacation days, except payments and accruals made in the
Ordinary Course of Business; adopt or pay, grant, issue, accelerate or
accrue salary or other payments or benefits pursuant to any pension,
profit-sharing, bonus, extra compensation, incentive, deferred
compensation, stock purchase, stock option, stock appreciation right,
group insurance, severance pay, retirement or other employee benefit
plan, agreement or arrangement, or any employment or consulting
agreement with or for the benefit of any director, officer, employee,
agent or consultant, whether past or present, other than as required
under applicable law or the current terms of any plan or agreement
identified in Schedule 4.10(a); or amend in any material respect any
such existing plan, agreement or arrangement in a manner inconsistent
with the foregoing;
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(xii) enter into any collective bargaining
agreement;
(xiii) make any payments (other than regular
compensation payable to officers and employees of Target in the
Ordinary Course of Business), loans, advances or other distributions
to, or enter into any transaction, agreement or arrangement with, any
of Target's Affiliates, officers, directors, stockholders or their
Affiliates, associates or family members or do or enter into any of
the foregoing with respect to employees, agents or consultants other
than in the Ordinary Course of Business;
(xiv) except in the Ordinary Course of Business
and except as otherwise permitted by this Agreement, modify, amend or
terminate any contract or agreement set forth in the 1997 SEC
Documents to which Target or any Subsidiary is a party or waive,
release or assign any material rights or claims; or
(xv) authorize any of, or commit or agree to take
any of, the foregoing actions except as otherwise permitted by this
Agreement.
(b) DEVELOPMENT PROJECT. Target and Acq Corp agree that Target,
without the prior written consent of Acq Corp otherwise required under
Section 6.01(a), (1) may make option payments in the monthly amount of
$37,500.00 until August 15, 1998, and in the monthly amount of $75,000.00
thereafter until October 15, 1998, in accordance with the terms of that
certain Option Agreement made and entered into as of January 8, 1998 (the
"OPTION AGREEMENT"), by and between Target and Grand Plaza Limited
Partnership, a Nevada limited partnership, as such agreement may be amended
and in effect on the date hereof, and (2) may further expend such amounts
as are reasonably necessary in connection with development opportunities
and activities for the parcel of land subject to the Option Agreement as
well as for previously identified development opportunities in
Massachusetts and in Rockford, Illinois, PROVIDED, that this Section
6.01(b) shall not permit Acq Corp to exercise the option pursuant to the
Option Agreement or to acquire (by purchase, lease or otherwise) any fixed
or other tangible assets relating to any
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such project without Acq Corp's consent pursuant to Section 6.01(a).
(c) OTHER ACTIONS. Target shall not, and shall not permit any
of its Subsidiaries to, take any action that would result in any of its
representations and warranties set forth in this Agreement becoming untrue.
SECTION 6.02. ADVICE OF CHANGES. Acq Corp and Target shall promptly
advise the other party orally and in writing of
(a) Any representation or warranty made by it contained in this
Agreement becoming untrue or inaccurate in any respect;
(b) The failure by it to comply with or satisfy in any respect
any covenant, condition or agreement to be complied with or satisfied by it
under this Agreement; or
(c) Any change or event having, or which, insofar as can
reasonably be foreseen, would have, a material adverse effect on such party
and its Subsidiaries taken as a whole or on the truth of their respective
representations and warranties or the ability of the conditions set forth
in Article VI to be satisfied;
PROVIDED, HOWEVER, that no such notification shall affect the representations,
warranties, covenants or agreements of the parties or the conditions to the
obligations of the parties under this Agreement. Additionally, Target shall
furnish to Acq Corp, as promptly as practicable following Acq Corp's request
therefor, all information reasonably necessary for Acq Corp accurately to
determine (i) what amounts, if any, payable under any of the Plans or any other
contract, agreement or arrangement with respect to which Target or any of its
Subsidiaries may have any liability could fail to be deductible for federal
income tax purposes by virtue of section 162(m) or section 280G of the Code, or
(ii) whether Target or any of its Subsidiaries has entered into any contract,
agreement or arrangement that would result in the disallowance of any tax
deductions pursuant to section 280G of the Code.
SECTION 6.03. NO SOLICITATION.
(a) Target shall not, nor shall it permit any of its
Subsidiaries to, nor shall it authorize or permit any affiliate, agent,
partner, officer,
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director or employee of, or any investment banker, attorney or other
advisor or representative of, Target or any of its Subsidiaries to,
directly or indirectly, (i) solicit or initiate, or encourage any
inquiries regarding or the submission of, any Takeover Proposal
(including, without limitation, any proposal or offer to Target's
stockholders) or (ii) participate in any discussions or negotiations
regarding, or furnish to any Person any information with respect to, or
take any other action to facilitate the making of any proposal that
constitutes, or may reasonably be expected to lead to, any such Takeover
Proposal; PROVIDED, if in the opinion of the Board of Directors, after
consultation with outside legal counsel, such failure to act would be
inconsistent with its fiduciary duties to Target's stockholders under
applicable law, Target may, in response to an unsolicited Takeover
Proposal, and subject to compliance with Section 6.03(c), (A) furnish
information with respect to Target to any Person pursuant to an
executed, customary confidentiality and "standstill" agreement and (B)
participate in negotiations regarding such Takeover Proposal. Without
limiting the foregoing, it is understood that any violation of the
restrictions set forth in the preceding sentence by any director or
officer of Target or any of its Subsidiaries (each a "COVERED PERSON"),
whether or not such Person is purporting to act on behalf of Target or
any of its Subsidiaries or otherwise, shall be deemed to be a breach of
this Section 6.03(a) by Target; PROVIDED that it is understood that this
Section 6.03(a) shall not be deemed to have violated if in response to
an unsolicited inquiry, a Covered Person states solely that he or she is
subject to the terms of this Agreement. All Covered Persons shall
immediately cease and cause to be terminated any existing activities,
discussions and negotiations with any parties conducted heretofore with
respect to, or that could reasonably be expected to lead to, any of the
foregoing.
(b) Neither the Board of Directors of Target nor any committee
thereof shall (i) withdraw or modify, or propose to withdraw or, in a
manner adverse to Acq Corp, modify the approval or recommendation by such
Board of Directors or any such committee of this Agreement, the Merger, or
the Voting Agreement, (ii) approve or recommend, or propose to approve or
recommend, any Takeover Proposal or (iii) enter into any agreement with
respect to any Takeover Proposal. Notwithstanding the foregoing, the Board
of Directors, prior to the approval of this Agreement or the Merger
(including as the same may be modified hereafter) by the holders of at
least two-thirds of the outstanding shares of Common Stock, to the extent
required by the fiduciary duties to Target's shareholders under applicable
Law, after consulta-
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tion with outside legal counsel, may, subject to the terms of this and
the following sentences of this Section 6.03(b), withdraw or modify its
approval or recommendation of this Agreement, the Merger or the Voting
Agreement, approve or recommend a Competitive Proposal, or enter into an
agreement with respect to a Competitive Proposal, in each case at any
time after 12:00 noon, Los Angeles time, on the tenth day following Acq
Corp's receipt of written notice (a "NOTICE OF COMPETITIVE PROPOSAL")
advising Acq Corp that the Board of Directors has received a Competitive
Proposal, specifying the material terms and conditions of such
Competitive Proposal and identifying the Person making such Competitive
Proposal. Acq Corp shall have the opportunity, until the end of the
tenth day after it receives a Notice of Competitive Proposal, to make an
offer that the Board of Directors of Target must consider in good faith,
after consultation with its financial advisors, to determine if it is at
least as favorable, from a financial point of view, to the shareholders
of Target as the Competitive Proposal. In addition, if Target enters
into an agreement with respect to any Takeover Proposal, it shall
concurrently with entering into such agreement pay, or cause to be paid,
to Acq Corp the Expenses and the Termination Fee.
(c) In addition to the obligations of Target set forth in
paragraph (b), Target shall advise Acq Corp promptly of any request for
information or of any Takeover Proposal, or any proposal with respect to
any Takeover Proposal, the material terms and conditions of such request or
Takeover Proposal, and the identity of the Person making any such Takeover
Proposal or inquiry. Target will keep Acq Corp fully informed of the
status and details (including amendments or proposed amendments) of any
such request, Takeover Proposal or inquiry.
ARTICLE VII
ADDITIONAL AGREEMENTS
SECTION 7.01. STOCKHOLDERS MEETING. Target will, as soon as
practicable, and in no event later than 120 days after the date hereof, duly
call, give notice of, convene and hold a meeting of the holders of Common Stock
(the "STOCKHOLDERS MEETING"). Subject to the provisions of Section 6.03(b),
Target will, through its Board of Directors, recommend to its stockholders
approval of this
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Agreement, the Merger and the other transactions contemplated by this
Agreement.
SECTION 7.02. PROXY STATEMENT AND OTHER FILINGS; REGISTRATION
STATEMENT; AUDITOR'S LETTER.
(a) If required pursuant to the Exchange Act, Target shall as
promptly as possible after the execution of this Agreement, and in no event
later than 30 days after the date hereof, prepare and file with the SEC a
proxy statement (the "PROXY STATEMENT") in connection with the Merger.
Target shall cause the Proxy Statement to comply as to form in all material
respects with the applicable provisions of the Exchange Act. Target agrees
that the Proxy Statement and each amendment or supplement thereto at the
time it is filed shall not include an untrue statement of material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances in which they
were made, not misleading. As promptly as possible after clearance by the
SEC of the Proxy Statement, Target shall mail the Proxy Statement to its
stockholders.
(b) Target shall fully cooperate with Acq Corp so that Acq Corp
may prepare and file with the SEC a registration statement on Form 10
(together with all amendments thereto, the "REGISTRATION STATEMENT") in
connection with the registration under the Exchange Act of the shares of
Class A Common Stock of Acq Corp, including using Target's best efforts to
obtain and furnish the information required to be included therein and
using its best efforts to respond promptly to any comments made by the SEC
with respect thereto.
(c) As promptly as practicable, Acq Corp and Target each shall
properly prepare and file any other filings required under the Exchange
Act, the Securities Act or any other Laws relating to the Merger, the Proxy
Statement, the registration of any capital stock of Acq Corp and the
transactions contemplated hereby (collectively, "OTHER FILINGS").
(d) Acq Corp and Target shall furnish to each other all
information concerning it as the other may reasonably request in connection
with the preparation of the Proxy Statement, the Registration Statement and
the Other Filings.
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(e) Target shall use its best efforts to cause to be delivered
to Acq Corp a letter of Deloitte & Touche LLP, Target's independent
auditors, dated a date within two business days before the date on which
the Registration Statement shall become effective and addressed to Acq
Corp, customary in form, scope and substance for letters delivered by
independent public accountants in connection with registration statements
similar to the Registration Statement.
SECTION 7.03. ACCESS TO INFORMATION; CONFIDENTIALITY. Target
shall afford to Acq Corp, and to Acq Corp's officers, employees, accountants,
counsel, financial advisers and other representatives, reasonable access
during normal business hours during the period prior to the Effective Time to
all the properties, books, contracts, commitments and records of Target and
its Subsidiaries and, during such period, Target shall furnish promptly to
Acq Corp (a) a copy of each report, schedule, registration statement and
other document filed by it or its Subsidiaries during such period pursuant to
the requirements of Federal or state securities laws and (b) all other
information concerning its or its Subsidiaries' business, properties and
personnel as Acq Corp may reasonably request. Except as otherwise agreed to
by Target, notwithstanding termination of this Agreement, Acq Corp will keep,
and will cause its officers, employees, accountants, counsel, financial
advisers and other representatives and affiliates to keep, all Confidential
Information (as defined below) confidential and not to disclose any
Confidential Information to any Person other than Acq Corp's or Acq Corp's
directors, officers, employees, affiliates or agents, and then only on a
confidential basis; PROVIDED, HOWEVER, that Acq Corp may disclose
Confidential Information (i) as required by law, rule, regulation or judicial
process, including as required to be disclosed in connection with the Merger,
the Registration Statement and the Other Filings, (ii) to its attorneys,
accountants and financial advisors or (iii) as requested or required by any
Governmental Entity. For purposes of this Agreement, "CONFIDENTIAL
INFORMATION" shall include all information about Target which has been
furnished by Target to Acq Corp; PROVIDED, HOWEVER, that Confidential
Information does not include information which (x) is or becomes generally
available to the public other than as a result of a disclosure by Acq Corp,
its attorneys, accountants or financial advisors not permitted by this
Agreement, (y) was available to Acq Corp on a non-confidential basis prior to
its disclosure to Acq Corp by Target or (z) becomes available to Acq Corp on
a non-confidential basis from a Person other than Target who, to the
Knowledge of Acq Corp, is not otherwise bound by a confidentiality agreement
with Target or is not otherwise prohibited from transmitting the relevant
information to Acq Corp. In the event of termination of this Agreement for any
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reason, Acq Corp shall promptly return all Confidential Information to Target.
SECTION 7.04. REASONABLE EFFORTS; NOTIFICATION.
(a) Upon the terms and subject to the conditions set forth in
this Agreement, each of the parties agrees to use all reasonable efforts to
take, or cause to be taken (including through its officers and directors
and other appropriate personnel), all actions, and to do, or cause to be
done, and to assist and cooperate with the other parties in doing, all
things necessary, proper or advisable to consummate and make effective, in
the most expeditious manner practicable, the Merger, the Voting Agreement
and the other transactions contemplated by this Agreement, including (i)
the obtaining of all necessary actions or nonactions, waivers, consents and
approvals from Governmental Entities and the making of all necessary
registrations and filings (including filings with Governmental Entities, if
any) and the taking of all reasonable steps as may be necessary to obtain
Permits or waivers from, or to avoid an action or proceeding by, any
Governmental Entity (including in respect of any Gaming Law), (ii) the
obtaining of all necessary consents, approvals or waivers from third
parties, (iii) the defending of any lawsuits or other legal proceedings,
whether judicial or administrative, challenging this Agreement or the
consummation of any of the transactions contemplated by this Agreement,
including seeking to have any stay or temporary restraining order entered
by any court or other Governmental Entity vacated or reversed and (iv) the
execution and delivery of any additional instruments necessary to
consummate the transactions contemplated by, and to fully carry out the
purposes of, this Agreement. In connection with and without limiting the
foregoing, Target and its Board of Directors shall (including through its
officers and directors and other appropriate personnel) (i) take all action
necessary to ensure that no state takeover, business combination, control
share, fair price or value statute or similar statute or regulation is or
becomes applicable to the Merger, this Agreement, the Voting Agreement or
any of the other transactions contemplated by this Agreement, (ii) if any
state takeover, business combination, control share, fair price or value
statute or similar statute or regulation becomes applicable to the Merger,
this Agreement or the Voting Agreement or any other transaction
contemplated by this Agreement or the Voting Agreement, take all action
necessary to ensure that the Merger and the other transactions contemplated
by this Agreement or the Voting Agreement may be consummated as promptly as
practicable on the terms contemplated by this
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Agreement and the Voting Agreement and otherwise to minimize the effect
of such statute or regulation on the Merger, this Agreement, the Voting
Agreement and the other transactions contemplated by this Agreement and
the Voting Agreement, and (iii) take all action necessary to assist Acq
Corp in connection with efforts reasonably related to obtaining
financing for the Merger and related transactions. Notwithstanding the
foregoing, the parties acknowledge that Acq Corp and its Affiliates are
not obligated by Section 7.04(a) or any other provision of this
Agreement to obtain any consent, approval, license, waiver, order,
decree, determination of suitability or other authorization with respect
to any limited partner of any Affiliate of Acq Corp. Nothing herein
shall be deemed to require Acq Corp or any of its Affiliates to take any
steps (including without limitation the expenditure of funds) or provide
any information to obtain any consent, approval, license, waiver, order,
decree, determination of suitability or other authorization, other than
is customary in the States of Nevada, Iowa and Colorado for such matters.
(b) Target shall give prompt notice to Acq Corp of (i) any
representation or warranty made by it contained in this Agreement becoming
untrue or inaccurate in any respect (including receiving Knowledge of any
fact, event or circumstance which may cause any representation qualified as
to the Knowledge of Target to be or become untrue or inaccurate in any
respect) or (ii) the failure by it to comply with or satisfy in any
material respect any covenant, condition or agreement to be complied with
or satisfied by it under this Agreement; PROVIDED HOWEVER, that no such
notification shall affect the representations, warranties, covenants or
agreements of the parties or the conditions to the obligations of the
parties under this Agreement.
(c) Acq Corp shall give prompt notice to Target of (i) any
representation or warranty made by it contained in this Agreement becoming
untrue or inaccurate in any respect (including receiving Knowledge of any
fact, event or circumstance which may cause any representation qualified as
to the Knowledge of Acq Corp to be or become untrue or inaccurate in any
respect) or (ii) the failure by it to comply with or satisfy in any
material respect any covenant, condition or agreement to be complied with
or satisfied by it under this Agreement; PROVIDED, HOWEVER, that no such
notification shall affect the representations, warranties, covenants or
agreements of the parties or the conditions to the obligations of the
parties under this Agreement.
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SECTION 7.05. STOCK OPTION PLANS; CHANGE OF CONTROL PLAN.
(a) As soon as practicable following the date of this Agreement,
but in any event no later than 30 days before the Closing Date, the Board
of Directors of Target (or, if appropriate, any committee administering the
Stock Option Plans (as defined below)) shall adopt such resolutions or use
its best efforts to take such other actions as are required to provide that
each then outstanding stock option to purchase shares of Common Stock (a
"STOCK OPTION") heretofore granted under any stock option or other stock-
based incentive plan, program or arrangement of Target (collectively, the
"STOCK OPTION PLANS") shall be cancelled immediately prior to the Effective
Time in exchange for payment of an amount in cash equal to the product of
(x) the number of shares of Common Stock subject to such Stock Option
immediately prior to the consummation of the Merger and (y) the excess, if
any, of the Merger Consideration over the per share exercise price of such
Stock Option. A listing of all outstanding Stock Options as of the date
hereof, showing what portions of such Stock Options are exercisable as of
such date, the dates upon which such Stock Options expire, and the exercise
price of such Stock Options, is set forth in Schedule 7.05. Target
represents and warrants that it has the authority to provide for the
cancellation of all Target Stock Options as provided in this Section 7.05
without the need to obtain consents from the holders of any such Stock
Options.
(b) All Stock Option Plans shall terminate as of the Effective
Time, and the provisions in any other Benefit Plan providing for the
issuance, transfer or grant of any capital stock of Target or any interest
in respect of any capital stock of Target shall be deleted as of the
Effective Time. Immediately following the Effective Time no holder of a
Stock Option or any participant in any Stock Option Plan shall have any
right thereunder to acquire any capital stock of Target, Acq Corp or the
Surviving Corporation.
(c) Target shall take all actions necessary to provide that at
or immediately prior to the Effective Time, (i) each then outstanding
option or right to acquire shares of Common Stock under Target's Employee
Stock Purchase Plan (the "STOCK PURCHASE PLAN") shall automatically be
exercised or deemed exercised and (ii) in lieu of issuing certificates for
Common Stock, each option or right holder shall receive an amount in cash
(subject to any applicable withholding tax) equal to the product of (x) the
number of shares of
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Common Stock otherwise issuable upon such exercise and (y) the Merger
Consideration. Target shall use all reasonable efforts to effectuate
the foregoing, including, without limitation, amending the Stock
Purchase Agreement and obtaining any necessary consents from holders of
such options or rights. Target (i) shall not permit the commencement of
any new offering period under the Stock Purchase Plan following the date
hereof, (ii) shall not permit any optionee or right holder to increase
his or her rate of contributions under the Stock Purchase Plan following
the date hereof, (iii) shall terminate the Stock Purchase Plan as of the
Effective Time, and (iv) shall take any other actions necessary to
provide that as of the Effective Time no holder of options or rights
under the Stock Purchase Plan will have any right to receive shares of
common stock of the Surviving Corporation upon exercise of any such
option or right.
(d) As soon as reasonably practicable after the date hereof,
Target shall amend its Change of Control Plan, effective as of the date
hereof, (i) to delete Section 9 thereof (regarding non-competition
provisions) and (ii) to clarify that, except as may be otherwise expressly
agreed to in writing by Acq Corp, no participant in the Change of Control
Plan shall, upon termination of employment, be entitled to receive an
amount in excess of the greater of (x) the amount of such participant's
severance compensation as determined under the Change of Control Plan and
(y) the amount of such participant's severance compensation as determined
under any applicable employment agreement between such participant and
Target; PROVIDED, that the amendments provided for under this Section
7.05(d) shall only apply with respect to a "Change of Control" (as defined
under the Change of Control Plan) resulting from the consummation of the
transactions contemplated hereunder.
SECTION 7.06. INDEMNIFICATION AND INSURANCE.
(a) The indemnification obligations set forth in Target's
Restated Articles of Incorporation and By-laws on the date of this
Agreement shall be duplicated, to the extent permissible under the NRS, in
the Surviving Corporation's Articles of Incorporation and By-laws and shall
not be amended, repealed or otherwise modified for a period of six years
after the Effective Time in any manner that would adversely affect the
rights thereunder of individuals who on or prior to the Effective Time were
directors, officers, employees or agents of Target (the "INDEMNIFIED
PARTIES").
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(b) For six years from the Effective Time, the Surviving
Corporation shall, unless Acq Corp agrees in writing to guarantee the
indemnification obligations set forth in Section 7.06(a), either (x)
maintain in effect Target's current directors' and officers' liability
insurance covering those Persons who are covered on the date of this
Agreement by Target's directors' and officers' liability insurance policy
(a copy of which has been made available to Acq Corp) or (y) procure
directors' and officers' liability insurance to cover those Persons who are
covered on the date of this Agreement by Target's directors' and officers'
liability insurance policy with respect to those matters covered by
Target's directors' and officers' liability policy; PROVIDED that in no
event shall the Surviving Corporation be required to expend to maintain or
procure insurance coverage pursuant to this Section 7.06(b) an amount per
annum in excess of 125% of the current annual premiums for the directors'
and officers' liability insurance policy approved by Target's Board of
Directors on January 22, 1998 (the "MAXIMUM PREMIUM") and, if the cost of
such coverage exceeds the Maximum Premium, the maximum amount of coverage
that shall be required to be purchased or maintained shall be such amount
that may be purchased or maintained for the Maximum Premium.
(c) Section 7.06 shall survive the consummation of the Merger at
the Effective Time, is intended to benefit Target, Acq Corp, the Surviving
Corporation and the Indemnified Parties, and shall be binding on all
successors and assigns of Acq Corp and the Surviving Corporation.
SECTION 7.07. FEES AND EXPENSES.
(a) Except as provided below, all fees and expenses incurred in
connection with the Merger, this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such fees or
expenses, whether or not the Merger is consummated.
(b) Target shall pay, or cause to be paid, in same day funds to
Acq Corp the sum of (x) all of the reasonably documented out-of-pocket
expenses (the "EXPENSES") of Acq Corp and (y) $10,000,000 (the "TERMINATION
FEE") upon demand if (i) Acq Corp terminates this Agreement pursuant to
Section 9.01(d) and prior to such termination a Takeover Proposal shall
have been made; (ii) Target terminates this Agreement pursuant to Section
9.01(e);
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or (iii) prior to any other termination of this Agreement (which
termination does not result from the failure of Acq Corp to cause any
condition specified in Section 8.03 to be satisfied), a Takeover
Proposal shall have been made and within 12 months of such termination,
a transaction constituting a Takeover Proposal is consummated or Target
enters into an agreement with respect to, or the Board of Directors of
Target or a committee thereof approves or recommends a Takeover
Proposal. The amount of Expenses payable under this subsection (b) shall
be the amount set forth in an estimate delivered by Acq Corp or Target,
as the case may be, following the date such expenses become payable,
subject to upward or downward adjustment, upon delivery of reasonable
documentation therefor.
SECTION 7.08. PUBLIC ANNOUNCEMENTS. Acq Corp, on the one hand, and
Target, on the other hand, will consult with each other before issuing, and
provide each other the opportunity to review and comment upon, any press release
or other public statements with respect to the transactions contemplated by this
Agreement, including the Merger, and shall not issue any such press release or
make any such public statement prior to such consultation, except as may be
required by applicable law, court process or by obligations pursuant to any
listing agreement with any national securities exchange or national securities
quotation system (in which case the parties will use reasonable efforts to
cooperate in good faith with respect to such press release or other public
statement). The parties agree that the initial press release to be issued with
respect to the transactions contemplated by this Agreement shall be in the form
heretofore agreed to by the parties.
SECTION 7.09. TITLE POLICIES. Target agrees that, prior to the
Effective Time, it will use its reasonable efforts to cause such officers of
Target and its Subsidiaries, as Acq Corp's or Acq Corp's Title Insurer may
reasonably require, to execute such reasonable and customary affidavits as shall
permit such Title Insurer to issue an endorsement to its title insurance
policies insuring title to the real properties owned or leased by Target or any
of its Subsidiaries to the effect that the Title Insurer will not claim as a
defense under any such policy failure of insured to disclose to the Title
Insurer prior to the date of the relevant policy any defects, Liens,
encumbrances or adverse claims not shown by public records and known to the
insured (but not known to Acq Corp) prior to the Effective Time.
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SECTION 7.10. TRANSFER TAXES. All liability for transfer or other
similar taxes arising out of or related to the sale of Common Stock to the Acq
Corp or the consummation of any other transaction contemplated by this Agreement
("TRANSFER TAXES") shall be borne by Target. Target shall file or cause to be
filed all returns relating to such Transfer Taxes which are due, and, to the
extent appropriate or required by law, the stockholders of Target shall
cooperate with respect to the filing of such returns.
SECTION 7.11. MAINTENANCE OF COMMITMENT. Acq Corp shall maintain in
effect the arrangements contemplated by Section 5.04 until the earlier of (i)
the consummation of the Merger and (ii) subject to the proviso below, six months
following any termination of this Agreement prior to the Effective Time;
PROVIDED that Acq Corp's obligations pursuant to this Section 7.11 shall
terminate if and when (a) Acq Corp terminates this Agreement pursuant to Section
9.01(d) or (b) Target enters into a definitive agreement with respect to a
Takeover Proposal or such a proposal is consummated.
ARTICLE VIII
CONDITIONS PRECEDENT
SECTION 8.01. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGER. The respective obligations of each party to effect the Merger is
subject to the satisfaction or waiver on or prior to the Closing Date of the
following conditions:
(a) STOCKHOLDER APPROVAL. This Agreement shall have been
approved and adopted by the affirmative vote of the holders of at least
two-thirds of all shares of Common Stock entitled to be cast in accordance
with applicable law and Target's Restated Articles of Incorporation.
(b) NO INJUNCTIONS OR RESTRAINTS. No statute, rule, regulation,
executive order, decree, temporary restraining order, preliminary or
permanent injunction or other order enacted, entered, promulgated, enforced
or issued by any Governmental Entity or other legal restraint or
prohibition preventing the consummation of the Merger or the transactions
contemplated thereby shall be in effect; PROVIDED, in the case of a decree,
injunction or other order, each of the parties shall have used their best
efforts to prevent the entry of any such injunction or other order and to
appeal as promptly as possible any
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decree, injunction or other order that may be entered.
SECTION 8.02. CONDITIONS TO OBLIGATIONS OF ACQ CORP. The
obligations of Acq Corp to effect the Merger are further subject to the
satisfaction or waiver on or prior to the Closing Date of the following
conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Target contained herein that are qualified as to materiality
shall be true and accurate, and those not so qualified shall be true and
accurate in all material respects, in each case at and as of the Effective
Time with the same force and effect as though made at and as of the
Effective Time (except to the extent a representation or warranty speaks
specifically as of an earlier date or except as contemplated by this
Agreement), and Acq Corp shall have received certificates signed on behalf
of Target by its President and its Chief Financial Officer to such effect.
(b) AGREEMENTS AND COVENANTS. Target shall have performed, in
all material respects, all obligations and complied, in all material
respects, with all covenants required by this Agreement to be performed or
complied with by it at or prior to the Effective Time, and Acq Corp shall
have received certificates signed on behalf of Target by its President and
its Chief Financial Officer to such effect.
(c) NO MATERIAL ADVERSE EFFECT. From the date hereof through
and including the Effective Time, no event shall have occurred which would
have a material adverse effect on Target or any Material Subsidiary.
(d) CANCELLATION OF STOCK OPTIONS AND SARS. As of the Effective
Time, all Stock Options shall have been cancelled.
(e) GAMING AUTHORITY APPROVAL. All licenses, permits,
registrations, authorizations, consents, waivers, orders, findings of
suitability or other approvals required to be obtained from, and all
filings, notices or declarations required to be made with, any Gaming
Authority to permit Acq Corp to consummate the Merger and to permit it and
each of its Subsidiaries to conduct their businesses in the jurisdictions
regulated by such Gaming Authorities after the Effective Time in the same
manner as conducted by Target and its Subsidiaries prior to the Effective
Time shall have been obtained or
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made, as applicable.
(f) THIRD PARTY CONSENTS. All consents, orders, approvals,
authorizations, registrations, findings of suitability and action of any
Governmental Entity other than a Gaming Authority required to permit the
consummation of the Merger shall have been obtained or made, free of any
condition.
(g) REGISTRATION STATEMENT. The Registration Statement shall
have become effective in accordance with the Exchange Act, and no stop
order suspending such effectiveness shall have been issued and remain in
effect.
SECTION 8.03. CONDITIONS TO OBLIGATIONS OF TARGET. The obligations
of Target to effect the Merger are further subject to the satisfaction or waiver
on or prior to the Closing Date of the following condition:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Acq Corp contained herein that are qualified as to
materiality shall be true and accurate, and those not so qualified shall be
true and accurate in all material respects, in each case at and as of the
Effective Time with the same force and effect as though made at and as of
the Effective Time (except to the extent a representation or warranty
speaks specifically as of an earlier date or except as contemplated by this
Agreement), and Target shall have received certificates signed on behalf of
Acq Corp by its President to such effect.
(b) AGREEMENTS AND COVENANTS. Acq Corp shall have performed, in
all material respects, all obligations and complied, in all material
respects, with all agreements and covenants required by this Agreement to
be performed or complied with by it at or prior to the Effective Time , and
Target shall have received certificates signed on behalf of Acq Corp by its
President to such effect.
(c) GAMING AUTHORITY APPROVAL. All licenses, permits,
registrations, authorizations, consents, waivers, orders, findings of
suitability or other approvals required to be obtained from, and all
filings, notices or declarations required to be made with, any Gaming
Authority to permit Acq Corp to consummate the Merger shall have been
obtained or made, as applicable.
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ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
SECTION 9.01. TERMINATION. This Agreement may be terminated at any
time prior to the Effective Time, whether before or after approval of matters
presented in connection with the Merger by the stockholders of Target:
(a) by mutual written consent of Acq Corp and Target;
(b) by either Acq Corp or Target if any Governmental Entity
shall have issued an order, decree or ruling or taken any other action
permanently enjoining, restraining or otherwise prohibiting the acceptance
for payment of, or payment for, shares of Common Stock pursuant to the
Merger and such order, decree or ruling or other action shall have become
final and nonappealable; PROVIDED, in the case of a order, decree, ruling
or other order, each of the parties shall have used their best efforts to
prevent the entry of any such order, decree, ruling or other order and to
appeal as promptly as possible any order, decree, ruling or other order
that may be entered; PROVIDED FURTHER, the right to terminate this
Agreement pursuant to the foregoing clause shall not be available to any
party that fails to comply with Section 7.04(a);
(c) by either Acq Corp or Target, at any time after February 1,
1999, if the Effective Time shall not have occurred on or prior to such
date; PROVIDED, HOWEVER, in the event that the parties shall have received
from any responsible individual of each Gaming Authority (i) the approval
of which is required to be obtained to permit Acq Corp to consummate the
Merger and (ii) which has not prior to February 1, 1999 finally determined
whether such approval shall be granted, reasonable assurances (written or
oral) that a hearing is scheduled or can reasonably be expected to be
scheduled on or prior to April 1, 1999, then, in such event, neither party
may terminate this Agreement pursuant to this Section 9.01(c) prior to
April 1, 1999;
(d) by Acq Corp, if this Agreement has not been approved by
holders of at least two-thirds of the outstanding shares of Common Stock
within 120 days after the date hereof; or
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(e) by Target in connection with entering into a definitive
agreement in accordance with Section 6.03(b), PROVIDED, it has complied
with all provisions thereof, including the notice provisions therein, and
that it makes simultaneous payment of the Expenses and the Termination Fee.
SECTION 9.02. EFFECT OF TERMINATION. In the event of termination of
this Agreement by either Target or Acq Corp as provided in Section 9.01, this
Agreement shall forthwith become void and have no effect, without any liability
or obligation on the part of Acq Corp or Target, other than the provisions of
Section 7.03, Section 7.07, this Section 9.02 and Article X and except to the
extent that such termination results from the wilful or grossly negligent and
material breach by a party of any of its representations, warranties, covenants
or agreements set forth in this Agreement, in which case each other party shall
be entitled to recover all damages allowable at law and all relief available in
equity.
SECTION 9.03. AMENDMENT. This Agreement may be amended by the mutual
agreement of the parties at any time before or after any required approval of
matters presented in connection with the Merger by the stockholders of Target;
PROVIDED, that after any such approval, there shall not be made any amendment
that by law requires further approval by such stockholders without the further
approval of such stockholders. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties.
SECTION 9.04. EXTENSION; WAIVER. At any time prior to the Effective
Time, the parties may (a) extend the time for the performance of any of the
obligations or other acts of the other parties, (b) waive any inaccuracies in
the representations and warranties of the other party contained in this
Agreement or in any document delivered pursuant to this Agreement or (c) subject
to the proviso of Section 9.03, waive compliance by the other party with any of
the agreements or conditions contained in this Agreement. Any agreement on the
part of a party to any such extension or waiver shall be valid only if set forth
in an instrument in writing signed on behalf of such party. The failure of any
party to this Agreement to assert any of its rights under this Agreement or
otherwise shall not constitute a waiver of those rights.
SECTION 9.05. PROCEDURE FOR TERMINATION, AMENDMENT, EXTENSION OR
WAIVER. A termination of this Agreement pursuant to Section 9.01, an amendment
of this Agreement pursuant to Section 9.03 or an extension or waiver pursuant to
Section 9.04 shall, in order to be effective, require in the case of Acq Corp or
Target, action
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by its Board of Directors or the duly authorized designee of its Board of
Directors.
ARTICLE X
GENERAL PROVISIONS
SECTION 10.01. NONSURVIVAL OF REPRESENTATIONS. Except as otherwise
provided herein, none of the representations and warranties in this Agreement
shall survive the Effective Time. This Section 10.01 shall not limit any
covenant or agreement of the parties which by its terms contemplates performance
after the Effective Time of the Merger.
SECTION 10.02. NOTICES. All notices, requests, claims, demands and
other communications under this Agreement shall be in writing and shall be
deemed given if delivered personally or sent by overnight courier (providing
proof of delivery) to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
(a) if to Acq Corp, to:
c/o Colony Capital, Inc.
1999 Avenue of the Stars, Suite 1200
Los Angeles, California 90067
Telephone: 310-282-8813
Facsimile: 310-282-8813
Attention: Kelvin L. Davis
and
c/o Colony Capital, Inc.
201 Main Street, Suite 2420
Fort Worth, Texas 76102
Telephone: 817-871-4023
Facsimile: 817-871-4088
Attention: Wade Hundley
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with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
300 South Grand Avenue, Suite 3400
Los Angeles, California 90071
Attention: Jonathan H. Grunzweig, Esq.
Telephone: 213-687-5000
Facsimile: 213-687-5600
(b) if to Target, to
Highway 50 and Stateline Avenue
P.O. Box 128
Lake Tahoe, Nevada 89449
Telephone: 702-588-2411
Facsimile:
with a copy to:
Morgan, Lewis & Bockius LLP
300 South Grand Avenue, Suite 2200
Los Angeles, California 90071
Attention: Peter P. Wallace, Esq.
Telephone: 213-612-2500
Facsimile: 213-612-2554
and with a copy to:
Scarpello & Alling, Ltd.
276 Kingsbury Grade, Suite 2000
Post Office Box 3390
Lake Tahoe, Nevada 89449
Attention: Ronald D. Alling, Esq.
Telephone: 702-588-6676
Facsimile: 702-588-4970
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SECTION 10.03. INTERPRETATION. When a reference is made in this
Agreement to an Article, Section or Schedule, such reference shall be to an
Article or Section of or a Schedule to, this Agreement unless otherwise
indicated. The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include," "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation." The Voting Agreement and the consummation of
the transactions contemplated by such Voting Agreement are transactions
contemplated by this Agreement. To the extent any restriction on the activities
of Target or its Subsidiaries under the terms of this Agreement, including with
respect to any negative pledge or other restriction on the ability of Target to
dispose of stock of any Colorado, Iowa or Nevada Subsidiary, requires prior
approval under any Gaming Law, such restriction shall be of no force or effect
unless and until such approval is obtained. If any provision of this Agreement
is illegal or unenforceable under any Gaming Law, such provision shall be void
and of no force or effect.
SECTION 10.04. COUNTERPARTS. This Agreement may be executed in
one or more counterparts, all of which shall be considered one and the same
agreement and shall become effective when one or more counterparts have been
signed by each of the parties and delivered to the other parties.
SECTION 10.05. ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES. This
Agreement and the Voting Agreement constitute the entire agreements, and
supersede all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter of these agreements and are not
intended to confer upon any Person other than the parties any rights or remedies
hereunder.
SECTION 10.06. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEVADA, WITHOUT
REGARD TO ANY APPLICABLE CONFLICTS OF LAW.
SECTION 10.07. GAMING LAWS. Each of the provisions of this Agreement
is subject to and shall be enforced in compliance with the Gaming Laws.
SECTION 10.08. ASSIGNMENT. Neither this Agreement nor any of the
rights, interests or obligations under this Agreement shall be assigned, in
whole or in part, by operation of law or otherwise by any of the parties without
the prior written
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consent of the other parties, except that Acq Corp may assign, in its sole
discretion, any of or all its rights, interests and obligations under this
Agreement to any controlled affiliate of Colony Capital, Inc., PROVIDED such
party assumes Acq Corp's obligations hereunder. Subject to the preceding
sentence, this Agreement will be binding upon, inure to the benefit of, and
be enforceable by, the parties and their respective successors and assigns.
SECTION 10.09. ENFORCEMENT. The parties agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions of this Agreement in any court
of the United States located in the State of Nevada or in Nevada state court,
this being in addition to any other remedy to which they are entitled at law
or in equity. In addition, each of the parties hereto (a) consents to commit
itself to the personal jurisdiction of any Federal court located in the State
of Nevada or any Nevada state court in the event any dispute arises out of
this Agreement or any of the transactions contemplated by this Agreement, (b)
agrees that it will not attempt to deny or defeat such personal jurisdiction
by motion or other request for leave from any such court and (c) agrees that
it will not bring any action relating to this Agreement or any of the
transactions contemplated by this Agreement in any court other than a Federal
or state court sitting in the State of Nevada.
[SIGNATURE PAGES FOLLOW]
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IN WITNESS WHEREOF, Acq Corp and Target have caused this Agreement
to be signed by their respective officers thereunto duly authorized, all as
of the date first written above.
HARVEYS ACQUISITION CORPORATION
By: /s/ KELVIN L. DAVIS
-----------------------------
Name: Kelvin L. Davis
Title: President
HARVEYS CASINO RESORTS
By: /s/ CHARLES W. SCHARER
-----------------------------
Name: Charles W. Scharer
Title: Chairman of the Board,
President and Chief
Executive Officer
<PAGE>
ANNEX B
OPINION OF DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
February 1, 1998
Board of Directors
Harveys Casino Resorts
P.O. Box 128
Stateline, NV 89449
Dear Sirs:
You have requested our opinion as to the fairness from a financial point of
view to the stockholders of Harveys Casino Resorts (the "Company") of the
consideration to be received by such stockholders pursuant to the terms of the
Agreement and Plan of Merger, dated as of February 1, 1998 (the "Agreement"),
between Harveys Acquisition Corporation ("Buyer"), an affiliate of Colony
Capital, Inc., and the Company pursuant to which Buyer will be merged (the
"Merger") with and into the Company.
Pursuant to the Agreement, each share of common stock of the Company will be
converted into the right to receive $28.00 per share in cash subject to increase
in accordance with section 3.01(c) of the Agreement.
In arriving at our opinion, we have reviewed the Agreement and the schedules
and exhibits thereto, as well as other information that was publicly available
or furnished to us by the Company including information provided during
discussions with management. Included in the information provided during
discussions with management were certain financial projections of the Company
for the period beginning December 1, 1997 and ending November 30, 2000 prepared
by the management of the Company. In addition, we have compared certain
financial and securities data of the Company with various other companies whose
securities are traded in public markets, reviewed the historical stock prices
and trading volumes of the common stock of the Company, reviewed prices and
premiums paid in certain other business combinations and conducted such other
financial studies, analyses and investigations as we deemed appropriate for
purposes of this opinion.
In rendering our opinion, we have relied upon and assumed the accuracy and
completeness of all of the financial and other information that was available to
us from public sources, that was provided to us by the Company or its
representatives, or that was otherwise reviewed by us. With respect to the
financial projections supplied to us, we have assumed that they have been
reasonably prepared on the basis reflecting the best currently available
estimates and judgments of the management of the Company as to the future
operating and financial performance of the Company. We have not assumed any
responsibility for making an independent evaluation of any assets or liabilities
or for making any independent verification of any of the information reviewed by
us.
Our opinion is necessarily based on economic, market, financial and other
conditions as they exist on, and on the information made available to us as of
the date of this letter. It should be understood that, although subsequent
developments may affect this opinion, we do not have any obligation to update,
revise or reaffirm this opinion. Our opinion does not address the relative
merits of the Merger and the other business strategies being considered by the
Company's Board of Directors, nor does it address the Board's decision to
proceed with the Merger. Our opinion does not constitute a recommendation to any
stockholder as to how such stockholder should vote on the proposed transaction.
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), as part of its
investment banking services, is regularly engaged in the valuation of businesses
and securities in connection with mergers, acquisitions, underwritings, sales
and distributions of listed and unlisted securities, private placements and
<PAGE>
valuations for corporate and other purposes. DLJ has performed investment
banking and advisory services for the Company in the past, including advising
the Company and providing a fairness opinion regarding the sale of its 40%
interest in the Hard Rock Hotel & Casino in October 1997, lead managing the
Company's issuance of $150 million of 10 5/8% Senior Subordinated Notes due 2006
in June 1996 and advising the Company on its acquisition of a 30% interest in
Harveys Wagon Wheel Hotel & Casino in April 1996, and has received customary
compensation for such services.
Based upon the foregoing and such other factors as we deem relevant, we are
of the opinion that the consideration to be received by the stockholders of the
Company pursuant to the Agreement is fair to such stockholders from a financial
point of view.
Very truly yours,
<TABLE>
<S> <C> <C>
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: /s/ R. SCOTT TURICCHI
-----------------------------------------
R. Scott Turicchi
MANAGING DIRECTOR
</TABLE>
