<PAGE>
FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended AUGUST 31,1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________________
Commission file number 1-12802
HARVEYS CASINO RESORTS
(Exact Name of Registrant as Specified in its Charter)
NEVADA 88-0066882
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Highway 50 & Stateline Avenue
P.O. Box 128
LAKE TAHOE, NEVADA 89449
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: (775) 588-2411
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No __
The number of shares outstanding of the registrant's Class A Common Stock, $0.01
par value was 39,790 and the number of shares outstanding of the registrant's
Class B Common Stock, $0.01 par value was 3,979,000, each as of October 12,
1999.
<PAGE>
<TABLE>
<CAPTION>
HARVEYS CASINO RESORTS
TABLE OF CONTENTS
PAGE NO.
PART I. FINANCIAL INFORMATION --------
<S> <C>
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets,
August 31, 1999 and November 30, 1998 3
Condensed Consolidated Statements of Operations for the Three
Months Ended August 31, 1999 and 1998, the Period of December
1, 1998 through February 1, 1999, the Period of February 2,
1999 (the date of acquisition) through August 31,1999 and the
Nine Months Ended August 31, 1998 4
Condensed Consolidated Statements of Cash Flows for the Period
of December 1, 1998 through February 1, 1999, the Period of
February 2, 1999 (the date of acquisition) through August 31,
1999 and the Nine Months Ended August 31, 1998 5
Notes to Condensed Consolidated Financial
Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 13
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK 22
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 24
ITEM 2. CHANGES IN SECURITIES 24
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 24
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 24
ITEM 5. OTHER INFORMATION 24
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 24
SIGNATURES 25
2
</TABLE>
<PAGE>
PART I-FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HARVEYS CASINO RESORTS
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
August 31, November 30,
1999 1998
ASSETS ------------- ------------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 26,139 $ 67,299
Marketable securities - 10,657
Accounts and notes receivable, net 5,468 4,566
Prepaid expenses 3,200 3,677
Other current assets 3,677 4,148
------------- -----------
Total current assets 38,484 90,347
Property and equipment (net of accumulated depreciation of
$12,662 and $146,207) 407,489 315,351
Notes receivable 51 1,875
Cost in excess of net assets acquired, net 73,362 -
Other assets 18,488 16,585
------------- -----------
Total assets $ 537,874 $ 424,158
------------- -----------
------------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt $ - $ 220
Accounts and contracts payable 6,817 5,032
Accrued expenses 29,443 24,892
------------- -----------
Total current liabilities 36,260 30,144
Long-term debt, net of current portion 286,646 150,000
Deferred income taxes 53,993 24,948
Other liabilities 21,818 18,612
------------- -----------
Total liabilities 398,717 223,704
------------- -----------
Preferred stock, $.01 par value; 1,000,000 shares authorized, 10 Series A and
99,990 Series B 13 1/2% senior redeemable convertible cumulative shares
outstanding (liquidation value $55,000)
59,436 -
Stockholders' equity
Common stock, $.01 par value; at August 31,1999, 20,000,000 shares authorized
and 4,040,000 shares issued; at November 30, 1998,
30,000,000 shares authorized and 10,079,671 shares issued; 40 101
Additional paid-in capital and other 74,960 43,496
Retained earnings 4,721 157,111
Treasury stock, at cost; 14,560 shares - (254)
------------- -----------
Total stockholders' equity 79,721 200,454
------------- -----------
Total liabilities and stockholders' equity $ 537,874 $ 424,158
------------- -----------
------------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
HARVEYS CASINO RESORTS
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months
ENDED AUGUST 31, Predecessor Company February 2, 1999 Nine Months
----------------------- December 1,1998 to (date of acquisition) Ended
1999 1998 FEBRUARY 1, 1999 TO AUGUST 31, 1999 AUGUST 31, 1998
----- ---- ------------------- --------------------- ----------------
<S> <C> <C> <C> <C> <C>
Revenues
Casino $ 68,301 $ 68,030 $ 41,454 $ 148,705 $ 183,501
Lodging 10,817 10,447 5,958 22,284 26,157
Food and beverage 14,130 13,726 8,108 29,703 35,479
Other 2,228 2,203 1,271 4,813 5,583
Less: Casino promotional allowances (7,106) (6,783) (5,003) (15,638) (17,763)
-------- --------- ----------- ---------- ----------
Total net revenues 88,370 87,623 51,788 189,867 232,957
-------- --------- ----------- ---------- ----------
Costs and expenses
Casino 30,679 30,653 21,146 69,194 86,310
Lodging 3,480 3,673 1,997 7,785 10,299
Food and beverage 8,117 8,305 4,727 17,988 22,664
Other operating 865 808 592 1,935 2,230
Selling, general and administrative 20,368 20,621 13,428 45,551 58,670
Depreciation and amortization 6,243 5,276 3,553 14,476 15,641
Business development costs 33 15 130 2,052 96
Consent fee and merger costs - 1,103 19,879 - 1,103
-------- --------- ----------- ---------- ----------
Total costs and expenses 69,785 70,454 65,452 158,981 197,013
-------- --------- ----------- ---------- ----------
Operating income (loss) 18,585 17,169 (13,664) 30,886 35,944
-------- --------- ----------- ---------- ----------
Other income (expense)
Interest income 28 591 338 73 1,495
Interest expense (6,703) (4,477) (3,016) (15,891) (13,390)
Other, net (51) (63) 77 (23) (123)
-------- --------- ----------- ---------- ----------
Total other income (expense) (6,726) (3,949) (2,601) (15,841) (12,018)
-------- --------- ----------- ---------- ----------
Income (loss) before income taxes and
extraordinary item 11,859 13,220 (16,265) 15,045 23,926
Income tax benefit (provision) (4,641) (5,288) 3,904 (5,888) (9,571)
-------- --------- ----------- ---------- ----------
Income (loss) before extraordinary item 7,218 7,932 (12,361) 9,157 14,355
Loss on early retirement of debt, net of
taxes of $275 - - (869) - -
-------- --------- ----------- ---------- ----------
Net income (loss) $ 7,218 $ 7,932 $ (13,230) $ 9,157 $ 14,355
======== ========= =========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
HARVEYS CASINO RESORTS
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Predecessor Company February 2, 1999 Nine Months
December 1,1998 to (date of acquisition) Ended
FEBRUARY 1, 1999 TO AUGUST 31, 1999 AUGUST 31, 1998
------------------- --------------------- ----------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income (loss) $ (13,230) $ 9,157 $ 14,355
Adjustments to reconcile net income (loss) to net
cash provided by operating activities
Depreciation and amortization 3,553 14,476 15,641
Amortization of restricted stock grants 88 343 135
Loss on early retirement of debt, net of tax 869 - -
Change in income taxes payable (3,904) 5,295 (184)
Accrual of consent fee and merger costs 19,823 - -
Other, net (2,348) (1,378) 5,111
----------- --------- ---------
Net cash provided by operating
activities 4,851 27,893 35,058
----------- --------- ---------
Cash flows from investing activities
Capital expenditures (3,830) (19,068) (13,878)
Net change in construction payables (262) 1,913 838
Proceeds from sale of marketable securities 10,000 657 -
Proceeds from notes receivable - 1,879 -
Other, net (34) 192 98
----------- --------- ---------
Net cash provided by (used in) investing
activities 5,874 (14,427) (12,942)
----------- --------- ---------
Cash flows from financing activities
Proceeds from long-term debt - 217,342 -
Principal payments on long-term debt (220) (259,606) (633)
Dividends paid - - (1,503)
Debt issuance costs - (2,957) (108)
Consent fee and merger costs (56) (19,823) -
Exercise of options to purchase stock - - 3,382
Other, net (31) - (44)
----------- --------- ---------
Net cash provided by (used in) financing
activities (307) (65,044) 1,094
Increase (decrease) in cash and cash equivalents 10,418 (51,578) 23,210
Cash and cash equivalents at beginning of period 67,299 77,717 55,035
----------- --------- ---------
Cash and cash equivalents at end of period $ 77,717 $ 26,139 $ 78,245
----------- --------- ---------
----------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
HARVEYS CASINO RESORTS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In the following footnotes, the words "Harveys," "we," "our" and "us" refer to
Harveys Casino Resorts, a Nevada corporation, and its wholly-owned subsidiaries,
unless the context requires otherwise.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION AND CONSOLIDATION - On February 2, 1999, Harveys
Acquisition Corporation merged with and into Harveys. Harveys Acquisition
Corporation was formed at the direction of Colony Investors III, L.P., a
Delaware limited partnership, solely for the purpose of acquiring Harveys.
Prior to the merger, Harveys was a publicly held company. Following the
merger, the capital stock of Harveys Acquisition Corporation became the
capital stock of Harveys. Consequently, Colony Investors III now owns
approximately 96% of the common equity interests in Harveys. The remaining
common equity interests are owned by Colony HCR Voteco LLC, a Delaware
limited liability company and by certain members of Harveys' management.
Colony HCR Voteco is an affiliate of Colony Investors III. Harveys was the
surviving corporation in the merger and we are continuing our business
operations as conducted prior to the merger. We currently own and operate
Harveys Resort & Casino on the south shore of Lake Tahoe, Nevada, Harveys
Wagon Wheel Hotel/Casino in Central City, Colorado and Harveys Casino Hotel
in Council Bluffs, Iowa.
We accounted for the merger as a purchase. This required us to allocate the
purchase price paid in the merger to the individual assets acquired and
liabilities assumed based on their fair value at the time of the merger. As a
result, our condensed consolidated financial statements for the periods after
the merger are presented on a different basis of accounting from those for
the periods before the merger and, therefore, are not directly comparable.
Our condensed consolidated financial statements include the accounts of
Harveys and its wholly-owned subsidiaries. We eliminated all significant
intercompany accounts and transactions.
We prepared our condensed consolidated balance sheet as of November 30, 1998
from our audited financial statements as of that date. We prepared the
accompanying condensed consolidated financial statements without audit,
according to the rules and regulations of the Securities and Exchange
Commission. Accordingly, we have condensed or omitted certain information and
footnote disclosures that are normally included in financial statements that
are prepared in accordance with generally accepted accounting principles.
Certain reclassifications have been made to prior periods to conform to the
current quarter presentation. These reclassifications had no effect on net
income (loss).
In our opinion, we have included all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of our financial
condition, results of operations
6
<PAGE>
and cash flows. You should not consider our results of operations for
interim periods to be indicative of our results for a full fiscal year.
You should read these financial statements in conjunction with the
financial statements and footnotes included in our Annual Report on
Form 10-K for the year ended November 30, 1998.
COST IN EXCESS OF NET ASSETS ACQUIRED - We have recorded the net assets
acquired in the merger at our preliminary evaluation of their fair value at
the time of the merger. We have not finalized our allocation of the purchase
price to the assets acquired and liabilities assumed, however, our
preliminary allocation follows (in thousands of dollars):
<TABLE>
<S> <C>
Merger consideration paid for outstanding common stock $289,252
Merger consideration paid for stock options 9,998
Direct costs of the merger 6,647
---------
Allocated purchase cost 305,897
---------
Fair value of:
Assets acquired 511,449
Liabilities assumed 279,978
---------
Net assets acquired 231,471
---------
Cost in excess of net assets acquired $ 74,426
=========
</TABLE>
We are amortizing the cost in excess of net assets acquired over a 40 year
period. Accumulated amortization through August 31, 1999 amounted to
approximately $1.1 million.
LONG-LIVED ASSETS - We periodically review the carrying amount and related
amortization periods of long-lived assets, including related intangible
assets such as the cost in excess of net assets acquired. We conduct these
reviews whenever current events or changes in circumstances indicate that an
adjustment to the carrying value or estimated useful life may be necessary.
Our reviews consist of our projection of the undiscounted amount of cash flow
we expect over the remaining useful life of the long-lived asset or related
intangible asset. If our review indicates that the asset is impaired, we
write the carrying amount of the asset down to its estimated fair value.
2. EFFECTS OF THE MERGER FINANCING
Harveys Acquisition Corporation financed the merger and paid related fees and
expenses with the following:
* Proceeds of $75 million from the issuance of its Class A Common
Stock (voting) to Colony HCR Voteco and its Class B Common Stock
(nonvoting) to Colony Investors III.
7
<PAGE>
* Proceeds of $55 million from the issuance of its 13 1/2% Series A
Senior Redeemable Convertible Cumulative Preferred Stock to Colony
HCR Voteco and its 13 1/2% Series B Senior Redeemable Convertible
Cumulative Preferred Stock to Colony Investors III.
* Borrowings of $172 million from a consortium of banks led by
Wells Fargo Bank, National Association.
* Harveys' available cash.
After the merger, we granted approximately 3% of the outstanding shares of
each class of our common stock to certain of our executive officers.
Currently, Colony Investors III owns 97% of our nonvoting common stock,
which represents approximately 96% of our common equity interest. Colony HCR
Voteco, whose sole members, owners and managers are officers of the indirect
general partner of Colony Investors III, owns 97% of our voting common
stock. As a result, Colony HCR Voteco can govern all matters of Harveys that
are subject to a vote of our shareholders, including the appointment of our
directors and the amendment of our Articles of Incorporation and Bylaws.
Additionally, Colony Investors III owns 99.99% of our outstanding preferred
stock and Colony HCR Voteco owns the remaining .01%.
At the time of the merger, the two directors of Harveys Acquisition
Corporation became directors of Harveys. The chairman of the board,
president and chief executive officer of Harveys before the merger was
appointed as a director, president and chief executive officer of Harveys
after the merger.
3. PREFERRED STOCK
Our Series A Preferred Stock and Series B Preferred Stock each have a
liquidation value of $550 per share. Both series of preferred stock are
entitled to quarterly dividends at an annual rate of 13 1/2 % of the
liquidation value. If we don't pay the dividends in cash when due, they will
cumulate and compound at an annual rate of 13 1/2%. We must redeem all the
outstanding preferred stock on February 1, 2011, for cash, at the
liquidation value plus any accrued and unpaid dividends. We have the right
to redeem our preferred stock, at any time, at the liquidation value plus
any accrued and unpaid dividends. Our Series A Preferred Stock and our
Series B Preferred Stock are convertible into corresponding shares of our
Class A Common Stock and Class B Common Stock. The conversion rate is
28.7309164 shares of common stock per share of preferred stock and is
subject to customary antidilution adjustments. The conversion of our
preferred stock to common stock would require the approval of all applicable
gaming authorities. At the time of conversion, we would have the
option of satisfying any accrued and unpaid dividends due on the preferred
stock being converted by paying cash or issuing additional shares of the
corresponding Class A Common Stock or Class B Common Stock.
The documents governing our preferred stock contain covenants which limit
our ability to make restricted payments or investments, limit consolidation,
merger and the sale of assets, require us to provide certain financial
reports and limit our business activities. For the periods ended August 31,
1999, we were in compliance with these covenants.
8
<PAGE>
The combined liquidation value of our Series A Preferred Stock and Series B
Preferred Stock at August 31, 1999 was $55 million. Additionally, on that
date, there were approximately $4.4 million of accrued and unpaid dividends
on our preferred stock.
4. LONG-TERM DEBT
NOTE PAYABLE TO BANKS -Immediately following the merger, we borrowed an
initial amount of $172 million under a new credit agreement with a
consortium of banks led by Wells Fargo Bank, National Association. We used
the borrowings to repay the $172 million that Harveys Acquisition
Corporation had borrowed to partially finance the merger.
Our bank facility provides us a revolving loan facility, a swingline
facility that allows us to borrow money on same-day notice and a letter of
credit facility. We can borrow up to $5 million under the swingline facility
and can have up to $5 million committed under outstanding letters of
credit. The maximum available to us under the bank facility, including
amounts outstanding under the swingline facility and the letter of credit
facility is $185 million. The permitted principal balance will be reduced
quarterly, beginning August 31, 2000. Amounts outstanding under our bank
facility will mature and be fully due and payable on February 2, 2004. At
August 31, 1999 we had $129.7 million in outstanding borrowings and
approximately $0.8 million in letter of credit exposure under the bank
facility. We pay interest on our outstanding borrowings at a base rate plus
an applicable margin. The base rate is equal to the higher of the prime rate
or the federal funds rate plus one-half of one percent. We may, at our
option and under certain circumstances, elect to pay interest based on the
London Interbank Offered Rate ("LIBOR") plus an applicable margin. The
applicable margins are based on the ratio of our total funded debt to our
earnings before deductions for interest, taxes, depreciation and
amortization ("EBITDA"). The applicable margins are determined quarterly and
are subject to change. At August 31, 1999 the applicable margin relative to
the base rate was 1.0% and the applicable margin relative to the LIBOR was
2.25%.
The amounts the banks lend us under our bank facility are secured by
substantially all of our assets including a pledge of the capital stock of
our subsidiaries.
Our bank facility contains a number of covenants that restrict our ability
to dispose of assets, incur additional indebtedness, prepay our 10 5/8%
Senior Subordinated Notes, pay dividends, create liens on assets, make
investments, loans or advances, engage in mergers or consolidations,
change our business, engage in certain transactions with affiliates and
engage in certain corporate activities. We are required to maintain
specified financial ratios and net worth requirements, satisfy specified
financial tests, including interest coverage tests, and maintain certain
levels of annual capital expenditures. We are prohibited from paying cash
dividends on our preferred stock unless our leverage ratio is less than
or equal to 3 to 1. Our leverage ratio is calculated by reference to our
ratio of total indebtedness to EBITDA. For the periods ended August 31,
1999 we were in compliance with these covenants.
Our bank facility replaced a credit agreement we had in place before the
merger. Consequently, at the time of the merger, we expensed all unamortized
loan fees and other
9
<PAGE>
financing costs related to the prior credit agreement. This expense is
reflected in our income statement as an extraordinary item, net of tax.
We are amortizing new loan fees and other financing costs over the term
of the bank facility.
SENIOR SUBORDINATED NOTES - Before the merger, we sought and received the
consent of the holders of our 10 5/8% Senior Subordinated Notes, due June 1,
2006, to amend the indenture that governs these notes. The amendments
included:
* A one-time waiver of the applicability of the governing indenture to
the merger, which included waivers of provisions that might have
restricted the financing of the merger and related transactions.
* A change in the definition in the indenture of "Consolidated Cash
Flow" that allows us to add back certain costs related to the merger
when calculating Consolidated Cash Flow.
Immediately after the merger, the fair market value of our senior
subordinated notes was 105% of the principal amount. Accordingly, when we
applied purchase method accounting to the merger, we recorded a premium of
$7.5 million relative to the senior subordinated notes. We are amortizing
the premium as a reduction of interest expense over the remaining term of
the notes.
5. EMPLOYEE BENEFIT PLANS
LONG-TERM INCENTIVE PLAN - At the time of the merger, we terminated our
Long-Term Incentive Plan. We paid participants in the plan a one-time lump
sum of approximately $3.1 million, in the aggregate.
SUPPLEMENTAL RETIREMENT PLANS AND POSTRETIREMENT BENEFITS - At the time of
the merger, we terminated the rights of certain executives to participate in
a supplemental executive retirement plan. We agreed with each of the
executives on the amount due under the plan. The aggregate amount agreed
upon totaled approximately $2.6 million. We paid one-half of the amount due
each executive in a lump sum. The remaining amounts due were deemed to be
distributed to each executive and invested pursuant to certain deferred
compensation agreements entered into between us and each of the executives.
OUTSIDE DIRECTORS' RETIREMENT PLAN - At the time of the merger, members of
Harveys' board of directors who were asked to resign were paid a lump sum
payment of the compensation due under our Outside Directors' Retirement
Plan. The aggregate of the lump sum payments was $750,000.
Purchase method accounting for the merger required us to recognize a
liability to the extent the projected benefit obligation of our pension
plans exceeded our plan assets. We eliminated any previously existing
unrecognized net gain or loss, unrecognized prior-service cost and
unrecognized net obligation. Likewise, we recognized a liability for the
accumulated postretirement benefit obligation in excess of the fair value of
the assets of our postretirement medical benefit plans. As a result, we
recorded an increase of approximately $7.2 million in the net liability
attributable to our supplemental retirement plans and postretirement medical
10
<PAGE>
benefit plans.
6. CONSENT FEE AND MERGER RELATED COSTS
At the time of the merger, we recognized approximately $19.9 million of
expense related to:
* A consent fee paid to the consenting holders of our senior
subordinated notes.
* Compensation and pension benefits due to certain members of management
and the board of directors due to the change of control resulting from
the merger.
* Financial advisory services and other costs related to the merger.
7. BUSINESS DEVELOPMENT COSTS
In the second quarter of fiscal 1999, we reviewed our business development
plans as they related to Las Vegas, Nevada. We decided not to continue with
our development plans in Las Vegas at this time and we expensed
approximately $2.0 million of real estate options, legal and other costs
that we previously deferred.
8. RECENT DEVELOPMENT
On August 31, 1999, HBR Realty Company, Inc., a Nevada corporation and our
wholly-owned subsidiary, entered into an agreement to purchase the greyhound
racetrack and land-based casino in Council Bluffs, Iowa from Iowa West
Racing Association, Nonprofit Corporation, an Iowa nonprofit corporation. On
October 6, 1999, we completed the purchase. HBR Realty Company paid Iowa
West Racing Association approximately $115 million for the property known as
Bluffs Run Casino. We may pay additional consideration up to $50 million
pending the results of a required referendum on the continuation of gaming
at pari-mutuel racetracks to be decided in 2002 by the voters of
Pottawattamie County, Iowa. We will account for the transaction using
purchase method accounting. Immediately after closing of the transaction,
HBR Realty Company leased the Bluffs Run Casino facilities back to Iowa West
Racing Association for an initial term of 25 years. Additionally, Harveys BR
Management Company, Inc., a Nevada corporation and our wholly-owned
subsidiary, assumed management of Bluffs Run Casino. Iowa West Racing
Association will continue to hold the pari-mutuel and gaming licenses.
Through our wholly-owned subsidiaries, we will receive management fees and
lease income generally equal to the ongoing cash flow from the operations of
Bluffs Run Casino.
We financed the acquisition of Bluffs Run Casino by increasing the maximum
available balance under our bank facility by an additional $150 million. Of
the $165 million purchase price, $50 million will be held back pending the
results of the referendum. We entered into a letter of credit agreement to
support $45 million of the $50 million holdback. The letter of credit
exposure reduces the amount available to us under the bank facility.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
In the following discussion, the words "Harveys," "company," "we," "our" and
"us" refer to Harveys Casino Resorts, a Nevada corporation and its wholly-owned
subsidiaries, unless the context requires otherwise.
Harveys is an established owner and operator of casino entertainment facilities.
We have been engaged in the gaming industry for over 50 years. Our business
activities consist of the ownership and operation of the following:
*Harveys Resort & Casino on the south shore of Lake Tahoe, Nevada
*Harveys Wagon Wheel Hotel/Casino in Central City, Colorado
*Harveys Casino Hotel in Council Bluffs, Iowa
RESULTS OF OPERATIONS
The table on the following page presents certain of our operating results. For
comparative purposes, we have presented results for the first nine months of
fiscal 1999 on a combined nine-month basis by aggregating our results for the
period December 1, 1998 through February 1, 1999 with our results for the period
from the acquisition date, February 2, 1999, through August 31, 1999. Our
results for periods after the merger are presented on a different basis of
accounting from those for periods before the merger, due to purchase method
accounting. However, we believe that comparisons of the financial results for
the three-month and nine-month periods can still provide a meaningful discussion
of our financial performance. The items of comparability most affected by the
merger are depreciation and amortization, the one time consent fee and
transaction costs incurred in connection with the merger, interest expense and
income taxes.
12
<PAGE>
Selected Operating Results
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ ------------------
AUGUST 31, 1999 AUGUST 31, 1998 AUGUST 31, 1999 AUGUST 31, 1998
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Results of Operations (Dollars in thousands)
Net Revenues
Harveys Resort & Casino $ 42,441 $ 42,287 $ 105,964 $ 101,739
Harveys Wagon Wheel Hotel/Casino 14,875 16,263 42,782 47,035
Harveys Casino Hotel - Iowa 31,054 29,073 92,910 84,183
--------- ---------- ---------- ----------
$ 88,370 $ 87,623 $ 241,656 $ 232,957
--------- ---------- ---------- ----------
--------- ---------- ---------- ----------
Operating Income (Loss)
Harveys Resort & Casino $ 12,481 $ 11,967 $ 20,944 $ 19,424
Harveys Wagon Wheel Hotel/Casino 2,741 3,593 7,635 11,002
Harveys Casino Hotel - Iowa 6,164 5,772 19,431 15,928
Corporate (2,768) (3,045) (8,726) (9,211)
--------- ---------- ---------- ----------
18,618 18,287 39,284 37,143
Business Development (33) (15) (2,182) (96)
Consent Fee and Merger Costs - (1,103) (19,879) (1,103)
--------- ---------- ---------- ----------
$ 18,585 $ 17,169 $ 17,223 $ 35,944
--------- ---------- ---------- ----------
--------- ---------- ---------- ----------
EBITDA (1)
Harveys Resort & Casino $ 15,013 $ 14,274 $ 28,226 $ 26,529
Harveys Wagon Wheel Hotel/Casino 3,800 4,493 10,630 13,716
Harveys Casino Hotel - Iowa 8,147 7,701 25,555 21,340
Corporate (1,996) (2,874) (6,668) (8,666)
--------- ---------- ---------- ----------
$ 24,964 $ 23,594 $ 57,743 $ 52,919
--------- ---------- ---------- ----------
--------- ---------- ---------- ----------
Income (Loss) before Income Taxes
and Extraordinary Items
Harveys Resort & Casino $ 12,481 $ 11,905 $ 20,944 $ 19,325
Harveys Wagon Wheel Hotel/Casino 2,741 3,581 7,635 10,990
Harveys Casino Hotel - Iowa 6,180 5,766 19,907 15,921
Corporate (2,835) (3,028) (9,149) (9,216)
Interest Expense, net (2) (6,675) (3,886) (18,496) (11,895)
--------- ---------- ---------- ----------
11,892 14,338 20,841 25,125
Business Development (33) (15) (2,182) (96)
Consent Fee and Merger Costs - (1,103) (19,879) (1,103)
--------- ---------- ---------- ----------
$ 11,859 $ 13,220 ($ 1,220) $ 23,926
--------- ---------- ---------- ----------
--------- ---------- ---------- ----------
</TABLE>
Notes to the operating results
(1) EBITDA (operating income plus depreciation and amortization and excluding
non-recurring items) should not be construed as an indicator of our
operating performance, or as an alternative to cash flows from operating
activities as a measure of liquidity. We have presented EBITDA solely as
supplemental disclosure because we believe that it allows for a more
complete analysis of results of operations. Because companies do not
calculate EBITDA identically, the presentation of EBITDA herein is not
necessarily comparable to similarly entitled measures of other companies.
EBITDA is not intended to represent and should not be considered more
meaningful than, or an alternative to, measures of operating performance as
determined in accordance with generally accepted accounting principles.
EBITDA excludes the amortization of restricted stock grants. These non-cash
expenses are included in general and administrative expense and amounted to
approximately $103,000 and $31,000 for the quarters ended August 31, 1999
and 1998, respectively, and approximately $431,000 and $135,000 for the
nine months ended August 31, 1999 and 1998, respectively.
(2) Net of interest income and capitalized interest.
13
<PAGE>
SUMMARY - Meaningful comparisons of our overall financial results for the third
quarter and first nine months of fiscal 1999 and 1998 can be difficult because
of the inclusion of business development write offs, the consent fee and
merger-related costs and the extraordinary loss on the early retirement of debt.
The following summary discussion of our consolidated financial results excludes
the effects of those charges from all periods.
Our consolidated net revenues for the third quarter of fiscal 1999 amounted to
$88.4 million, an increase of $0.7 million, or 0.9%, over our net revenues for
the third quarter of fiscal 1998. Improvement in net revenues from our Council
Bluffs property mitigated our declining net revenues from the increasingly
competitive Central City/Black Hawk, Colorado market. Operating income, adjusted
to exclude our business development write-offs, amounted to $18.6 million for
the third quarter of fiscal 1999. This was a $331,000, or 1.8%, improvement from
the prior year period. Our current year period includes an increase of
approximately $1.0 million in depreciation and amortization charges, primarily
the result of purchase method accounting applied to the merger. Our income
before income taxes was $11.9 million for the third quarter of fiscal 1999,
compared to approximately $14.3 million for our third quarter of fiscal 1998.
Our 1999 results include the effects of the $1.0 million increase in
depreciation and amortization and an increase of $2.8 million in our net
interest expense as a result of the merger financing.
Our consolidated net revenues for the first nine months of fiscal 1999 were
$241.7 million, an $8.7 million, or 3.7%, improvement over the prior year
period. Substantial growth in net revenues from our Lake Tahoe property in the
first quarter of fiscal 1999, along with moderate second and third quarter
growth and the continuing strong revenues from our Council Bluffs operations
more than offset declines from our Central City property. Our operating income,
excluding our business development write-offs, the consent fee and
merger-related costs, was $39.3 million for the first nine months of fiscal
1999. This was an improvement of $2.1 million, or 5.8%, over the comparable
period of the prior year and was achieved despite a $2.4 million increase in
depreciation and amortization charges. For the comparable nine month periods,
our income before income taxes and an extraordinary item declined $4.3 million,
or 17.0%, and amounted to $20.8 million. Our results for the first nine months
of fiscal 1999 include the effects of the $2.4 million increase in depreciation
and amortization and an increase of $6.6 million in our net interest expense.
LAKE TAHOE, NEVADA - Our Lake Tahoe property produced net revenues for the
quarter of $42.4 million, an increase of $154,000, or 0.4%, over our net
revenues for the third quarter of fiscal 1998. Revenues improved as a result of
increased wagering volume, hotel occupancy and food covers. Our operating profit
of $12.5 million increased by $514,000, or 4.3%, primarily as a result of
improvements in casino and lodging profit margins.
Our net revenues from Lake Tahoe for the nine months ended August 31, 1999
amounted to $106.0 million, an increase of $4.2 million, or 4.2%, over our net
revenues recorded for the same
14
<PAGE>
period of fiscal 1998. All operating areas experienced revenue improvements,
primarily as a result of strong first quarter wagering volume and hotel
occupancy. Our Lake Tahoe operating profit of $20.9 million for the first
nine months of fiscal 1999 improved by $1.5 million, or 7.8%, as a result of
our improved first and third quarters.
CENTRAL CITY, COLORADO - Net revenues from our Central City property amounted to
$14.9 million for the quarter, a decrease of $1.4 million, or 8.5%, from our net
revenues recorded in the third quarter of fiscal 1998. The decrease was
primarily in casino revenues resulting from additional competition in nearby
Black Hawk, Colorado. Our operating profit of $2.7 million declined by $852,000,
or 23.7%, primarily as a result of the decline in our casino revenues and
profits and an increase in our marketing and advertising expenditures in
response to the new competition.
Our net revenues from Central City for the nine months ended August 31, 1999
amounted to $42.8 million, a decrease of $4.3 million, or 9.0%, from our net
revenues recorded in the same period of fiscal 1998. Approximately $4.0 million
of the revenue decline was in our casino revenues and is principally the result
of the opening of new competition in Black Hawk in late December 1998.
Construction of another new casino has commenced in Black Hawk with expected
completion in late 1999. Our Central City operating profit of $7.6 million
declined $3.4 million, or 30.6%, principally as a result of the decline in our
casino revenues and profits and the increased marketing and advertising
expenditures.
COUNCIL BLUFFS, IOWA - Our Council Bluffs property provided net revenues for the
quarter of $31.1 million, an increase of $2.0 million, or 6.8%, over our net
revenues recorded in the third quarter of fiscal 1998. All operating areas
showed revenue improvements as a result of increased wagering volume, hotel
occupancy and food covers. Our Council Bluffs operating profit of $6.2 million
increased by $392,000, or 6.8%, as a result of the improved revenues.
Our net revenues from Council Bluffs for the nine months ended August 31, 1999
amounted to $92.9 million, an increase of $8.7 million, or 10.4%, over our net
revenues recorded in the same period of fiscal 1998. Revenue improvements were
the result of increased wagering volume, hotel occupancy and food covers. Our
Council Bluffs operating profit of $19.4 million improved by $3.5 million, or
22.0%, driven primarily by casino revenues and profits.
We have constructed a new parking facility at our Council Bluffs property that
offers 1,630 parking spaces and features climate-controlled access to the
adjacent casino. We opened the new parking facility ahead of schedule in early
October.
OTHER FACTORS AFFECTING RESULTS OF OPERATIONS - Our results for the third
quarter and first nine months of fiscal 1999 were affected by several other
factors, including: the write-off of certain business development costs,
increases in depreciation and amortization, decreases in corporate expenses,
increases in interest expense, the expense of a consent fee and merger-related
costs, an
15
<PAGE>
extraordinary loss on the early retirement of debt, and changes in our
effective tax rate.
In the second quarter of fiscal 1999, we decided not to pursue our current
business development plans in Las Vegas, Nevada and wrote off approximately $2.0
million of costs we had previously deferred. This write-off and other minor
business development charges amounted to approximately $2.2 million in the first
nine months of fiscal 1999.
Depreciation and amortization expense amounted to approximately $6.2 million in
the third quarter of fiscal 1999 compared to approximately $5.3 million in the
third quarter of the prior year. This increase included approximately $456,000
of amortization of the cost in excess of net assets acquired in the merger. For
the first nine months of fiscal 1999, our depreciation and amortization expense
increased approximately $2.4 million to $18.0 million. Approximately $1.1
million of this increase was attributable to the write-off of the cost in excess
of net assets acquired. The balance of the increase for the third quarter and
first nine months of fiscal 1999 was primarily the result of the change in the
accounting basis for property and equipment brought on by the merger.
We have recognized some third quarter savings in corporate expense, comparing
fiscal 1999 to fiscal 1998. For the third quarter of fiscal 1999, corporate
expense, excluding depreciation and amortization, amounted to approximately $2.1
million compared to approximately $2.9 million for the same period last year.
The savings were principally the result of the elimination of our long-term
incentive plan, the elimination of compensation paid to non-employee members of
our board of directors and the reduction in the amount of expense we recognize
in relation to our pension and postretirement benefit plans. These eliminations
and reductions were a result of the merger. Our corporate expense for the first
three quarters of fiscal 1999 amounted to approximately $7.1 million, excluding
depreciation and amortization, compared to approximately $8.8 million for the
fiscal 1998 period. The savings for the nine month period were also primarily
the result of the eliminations and reductions as a product of the merger.
As a result of the merger financing, our debt and fixed charge obligations
increased. In February 1999, we borrowed $172 million under our bank facility.
We used that initial borrowing to repay the $172 million that Harveys
Acquisition Corporation had borrowed to partially finance the merger.
Subsequently, we used our available short-term cash equivalent investments to
repay a portion of our borrowings. Consequently, we have experienced a decrease
in our interest income and an increase in our interest expense. For the third
quarter of fiscal 1999, our interest expense, net of capitalized interest of
approximately $167,000 and interest income, amounted to $6.7 million compared to
$3.9 million for the third quarter of fiscal 1998. For the first nine months of
fiscal 1999, our net interest expense was approximately $18.5 million versus
approximately $11.9 million for the first nine months of the prior year.
In connection with our entering into the bank facility, our existing credit
agreement was retired. Upon retirement, we expensed all unamortized loan fees
and other financing costs related to the prior credit agreement. That expense of
approximately $869,000, net of tax of $275,000, was included as an extraordinary
item in our results for the first nine months of fiscal 1999.
Our results for the first nine months were also diminished by the effects of the
consent fee and
16
<PAGE>
merger-related costs of approximately $19.9 million incurred at
the time of the merger.
We believe some portion of the merger-related expenses are not tax deductible.
This reduced the effective tax rate applied to our loss for the period prior to
the merger (December 1, 1998 through February 1, 1999) to approximately 24%. The
reduced tax rate, compared to our more typical effective rate of approximately
39%, had the effect of reducing the tax benefit we expect from the pre-merger
period loss by approximately $2.4 million. We anticipate an effective tax rate
of approximately 39.1% for the post-merger period of fiscal 1999. For the three
months and nine months ended August 31, 1998, we experienced an effective tax
rate of approximately 40%.
LIQUIDITY AND CAPITAL RESOURCES
During the first nine months of this fiscal year, cash flow from operations
amounted to approximately $32.7 million. Additionally, we received approximately
$10.7 million from the sale of marketable securities and we collected
approximately $1.8 million in full payment of notes due to us from a related
party trust. At the time of the merger, we borrowed $172 million under our bank
facility. We used these sources of cash and our existing cash to:
* Repay the $172 million Harveys Acquisition Corporation borrowed to
partially finance the merger.
* Pay approximately $19.9 million of consent fee and merger-related
costs.
* Pay approximately $3.0 million of debt issuance costs relative to the
bank facility.
* Pay approximately $21.2 million for capital improvements and
replacements, including approximately $8.5 million paid on the
construction of our parking garage in Council Bluffs, Iowa.
* Reduce, by approximately $42.5 million, our outstanding indebtedness
under the bank facility.
The above sources and uses of cash reduced our cash and cash equivalents by
$41.2 million, from $67.3 million at November 30, 1998 to $26.1 million at
August 31, 1999. Additionally, our outstanding debt increased from $150 million
at fiscal year-end to $279.7 million at August 31, 1999, excluding the
unamortized premium on our senior subordinated notes. Our debt at August 31,
1999 consisted of $150 million of senior subordinated notes and $129.7 million
outstanding under the bank facility.
In addition to our debt, we were obligated at August 31, 1999 for an aggregate
of approximately $59.4 million on our outstanding Series A Preferred Stock and
Series B Preferred Stock and accrued and unpaid dividends thereon.
An August 31, 1999, HBR Realty Company, Inc., a Nevada corporation and our
wholly-owned subsidiary, entered into an agreement to purchase the greyhound
racetrack and land-based casino in Council Bluffs, Iowa from Iowa West Racing
Association, Nonprofit Corporation, an Iowa nonprofit corporation. On October 6,
1999, we completed the purchase. HBR Realty Company
17
<PAGE>
paid Iowa West Racing Association approximately $115 million for the property
known as Bluffs Run Casino. We may pay additional consideration up to $50
million pending the results of a required referendum on the continuation of
gaming at pari-mutuel racetracks to be decided in 2002 by the voters of
Pottawattamie County, Iowa. We will account for the transaction using
purchase method accounting. Immediately after closing of the transaction, HBR
Realty Company leased the Bluffs Run Casino facilities back to Iowa West
Racing Association for an initial term of 25 years. Additionally, Harveys BR
Management Company, Inc., a Nevada corporation and our wholly-owned
subsidiary, assumed management of Bluffs Run Casino. Iowa West Racing
Association will continue to hold the pari-mutuel and gaming licenses.
Through our wholly-owned subsidiaries, we will receive management fees and
lease income generally equal to the ongoing cash flow from the operations of
Bluffs Run Casino.
We financed the acquisition of Bluffs Run Casino by increasing the maximum
available balance under our bank facility by an additional $150 million. Of the
$165 million purchase price, $50 million will be held back pending the results
of the referendum. We entered into a letter of credit agreement to support $45
million of the $50 million holdback. The letter of credit exposure reduces the
amount available to us under the bank facility.
After amending our bank facility and completing the purchase of Bluffs Run
Casino, we had approximately $46.1 million available under the bank facility,
net of outstanding letters of credit and subject to compliance with certain
financial covenants. We believe that our borrowing capacity under the bank
facility and cash flows from operations will be sufficient to meet our cash
requirements at existing operations, including Bluffs Run Casino, for the next
twelve months, at least, including capital improvements and debt service
requirements. We believe that our cash needs beyond the next twelve months will
consist of debt service requirements and ordinary capital improvements and
replacements, which we expect to meet with our then-existing cash, cash flows
from operations and our borrowing capacity under the bank facility. We do not
currently anticipate incurring any unscheduled balloon or other extraordinary
payments on long-term obligations or any other extraordinary cash demands or
commitments beyond the next twelve months. We do not expect to pay cash
dividends on our preferred stock prior to 2004 because of, among other reasons,
restrictions in our various debt agreements on the payment of cash dividends.
YEAR 2000 UPDATE
Many technological systems (including those that employ embedded technology such
as microcontrollers) rely on hardware, software and components that were
originally designed to recognize a date by using the last two digits of a four
digit year. Tasks performed by technological systems using these truncated
fields may not work properly for dates from 2000 and beyond. This could result
in system failures or miscalculations causing disruptions of, or the inability
to engage in, normal business operations. This is generally known as the "Year
2000 Problem".
18
<PAGE>
We established a task force to coordinate our response to the Year 2000 Problem.
This task force includes our Chief Executive Officer, Chief Financial Officer,
and Director of Information Services as well as support staff. Our Year 2000
corrective action plan includes the following phases:
Phase 1. Compilation of an inventory of systems and equipment that may
cause a Year 2000 Problem ("Critical Systems and Equipment").
Phase 2. Identification and prioritization of the Critical Systems and
Equipment from the inventory compiled and inquiries of third
parties with whom we do significant business (i.e., vendors and
suppliers) as to the state of their Year 2000 readiness.
Phase 3. Analysis of the identified Critical Systems and Equipment to
determine which systems and equipment are not Year 2000 compliant
and evaluation of the costs to repair or replace those systems.
Phase 4. Repair or replacement and testing of non-compliant Critical
Systems and Equipment and the testing of Critical Systems and
Equipment for which representation as to Year 2000 compliance has
not been received or for which representation has been received
but has not been confirmed.
We are nearly complete in the implementation of our corrective action plan. We
have completed Phases 1 through 3 and have substantially completed Phase 4. We
completed nearly all required modifications, upgrades and replacements of
mission-critical technological systems by the end of the second quarter of our
fiscal year. One environmental system is in the process of being replaced with
anticipated completion before our fiscal year end. We continue to use internal
resources to evaluate our effectiveness in achieving our corrective action plan
objectives. Additional testing and revisions of systems, if necessary, will be
completed before 2000.
Steps included in our corrective action plan as it relates to our business
associates, including material vendors, suppliers, financial institutions and
utility and communications providers, was generally limited to inquiries of such
business associates. Based on the responses we have received to our inquiries,
we are not aware of any Year 2000 Problem impact on a material business
associate that would have a material adverse affect on our business operations.
However, we can make no assurances that all of our material business associates
will be Year 2000 compliant in a timely manner.
We rely on technological systems in many areas of our business operations
including casino operations, retail outlets, hotel operations, accounting and
finance, facilities and environmental, communications and administration. While
we have not developed a comprehensive contingency plan, we do have manual
procedures that we have used in the past when a technological system has been
temporarily unavailable. We will continue to assess the need for a comprehensive
contingency plan.
We believe that our corrective action plan, including the timelines, is and has
been adequate and realistic. Nevertheless, if one or more of our technological
systems has been overlooked or if the
19
<PAGE>
implementation of our corrective action plan fails to achieve Year 2000
compliance for one or more of our technological systems, there could be a
material adverse impact on our business operations or financial performance.
Additionally, if a material business associate fails to provide necessary
products or services due to Year 2000 Problem business disruptions, there
could be a material adverse impact on our business operations or financial
performance. With respect to our technological systems, the most reasonable
likely worst case scenario if a Year 2000 Problem occurred would be the
necessity for us to perform manually those procedures customarily performed
by a non-compliant technological system. This could result in a slowdown of
our normal business operations and would likely be more costly. We would have
to continue performing the manual procedures until we could make the
technological system Year 2000 compliant or until we could find and install a
suitable alternative system. With respect to a material business associate,
the most reasonable likely worst case scenario if a Year 2000 Problem
occurred would be the failure to deliver essential utilities, which could
result in the inability of one or more of our hotel/casinos to operate and
require us to close the affected property or properties until such utilities
could be restored.
We estimate that our cost to achieve Year 2000 compliance, including those costs
that we capitalize, will be approximately $4.4 million and will be expended
through 2000. We incurred costs of approximately $1.0 million in fiscal year
1998, including approximately $0.7 million that we capitalized. We expended
approximately $3.1 million in the first nine months of fiscal 1999 of which we
capitalized approximately $2.7 million. We believe that our expenditures in
fiscal 2000 will not be material. Our estimates are based on our evaluation and
experience to date and are subject to modification as we conclude implementation
of our corrective action plan. We can make no assurances that our estimated
costs are adequate or achievable or that our actual costs will not materially
differ from our estimate.
20
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk from changes in interest rates. We had no variable
rate debt at November 30, 1998, however, as a result of the financing of the
merger in part through the bank facility, we now have variable rate debt. The
amount outstanding under the bank facility at August 31, 1999 was $129.7
million, subject to a weighted-average interest rate of 7.53%. Assuming an
identical outstanding balance for the remainder of the fiscal year, a
hypothetical immediate 100 basis point increase in interest rates would increase
interest expense for the remainder of the year by approximately $324,000.
Additionally, the fair value of our fixed rate long-term debt, consisting of the
$150 million of senior subordinated notes and the $6.9 million unamortized
premium on the senior subordinated notes at August 31, 1999, and the fair value
of our fixed rate preferred stock issued as part of the merger financing, are
sensitive to differences between market interest rates and rates at the time of
issuance. A hypothetical immediate 100 basis point increase in interest rates at
August 31, 1999 would have decreased the fair value of our fixed rate long-term
debt by approximately $14.1 million. Conversely, a 100 basis point decrease in
interest rates would have increased the fair value of our outstanding long-term
debt at August 31, 1999 by approximately $17.1 million. A hypothetical immediate
100 basis point increase in interest rates would have decreased the fair value
of our fixed rate preferred stock by approximately $3.9 million at August 31,
1999. Conversely, a 100 basis point decrease in interest rates would have
increased the fair value of the preferred stock by approximately $4.5 million.
We did not enter into any derivative financial contracts in fiscal 1998 or
during the first nine months of fiscal 1999. We may use derivative financial
instruments in the future as a risk management tool. We do not use derivative
financial instruments for speculative or trading purposes.
21
<PAGE>
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995.
This document includes various "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Sections 21E of
the Securities Exchange Act of 1934, as amended, which represent our
expectations or beliefs concerning future events. Statements containing
expressions such as "believes," "anticipates," or "expects" used in our press
releases and periodic reports on Forms 10-K and 10-Q filed with the Securities
and Exchange Commission are intended to identify forward-looking statements. All
forward-looking statements involve risks and uncertainties. Although we believe
our expectations are based upon reasonable assumptions within the bounds of our
knowledge of our business and operations, there can be no assurances that actual
results will not materially differ from expected results. We caution you that
these and similar statements included in this report and in previously filed
periodic reports, including reports filed on Forms 10-K and 10-Q, are further
qualified by important factors that could cause actual results to differ
materially from those in the forward-looking statements. Such factors include,
without limitation, the following: increased competition in existing markets or
the opening of new gaming jurisdictions; a decline in the public acceptance of
gaming; the limitation, conditioning or suspension of any of our gaming
licenses; increases in or new taxes imposed on gaming revenues or gaming
devices; a finding of unsuitability by regulatory authorities with respect to
our officers, directors or key employees; loss or retirement of key executives;
significant increases in fuel or transportation prices; adverse economic
conditions in our key markets; severe and unusual weather in our 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. We undertake no obligation to publicly release any revision to
such forward-looking statements to reflect events or circumstances after the
date thereof.
22
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not Applicable
ITEM 2. CHANGES IN SECURITIES
Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
Not Applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
See attached Exhibit Index
(b) Reports on Form 8-K
None
23
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HARVEYS CASINO RESORTS
Registrant
Date: October 14, 1999 /S/ JOHN J. MCLAUGHLIN
--------------------------------------------
John J. McLaughlin,
Senior Vice President,
Chief Financial Officer and Treasurer
(Authorized Officer and Principal Financial
Officer)
24
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------------------------------------------------------------
3.1 Amendments to Articles of Incorporation of Harveys Casino Resorts as
Surviving Constituent Entity (filed as Exhibit A to Articles of
Merger of Harveys Acquisition Corporation into Harveys Casino
Resorts). (4) (Articles of Incorporation are incorporated herein by
reference to Harveys Acquisition Corporation's Registration
Statement on Form 10 (File No. 0-25093), filed November 20,1998).
3.2 Certificate of Designation of the 13-1/2% Series A Senior Redeemable
Convertible Cumulative Preferred Stock ($0.01 par value per share)
and the 13-1/2% Series B Senior Redeemable Convertible Cumulative
Preferred Stock ($0.01 par value per share) of Harveys Casino
Resorts. (4)
3.3 Eighth Amended and Restated Bylaws of the Registrant. (5)
4.1 Form of Stock Certificate of the Registrant. (5)
4.2 Indenture, dated as of May 15, 1996 ( the "Original Indenture"), by
and among the Registrant, Harveys Wagon Wheel Casino Limited
Liability Company, Harveys C. C. Management Company, Inc., Harveys
Iowa Management Company, Inc. and Harveys L. V. Management Company,
Inc. (the "Guarantors") and IBJ Schroder Bank & Trust Company as
Trustee (including form of Note). (1)
4.3 First Supplemental Indenture, dated as of June 5, 1996, supplementing
the Original Indenture. (2)
4.4 Second Supplemental Indenture, dated as of May 22, 1997,
supplementing the Original Indenture. (3)
4.5 Third Supplemental Indenture, dated as of December 24, 1998, among
the Registrant, Harveys Tahoe Management Company, Inc., Harveys C. C.
Management Company, Inc., Harveys Iowa Management Company, Inc.,
Harveys L. V. Management Company, Inc. and IBJ Schroder Bank and
Trust Company, supplementing the Original Indenture. (5)
4.6 Fourth Supplemental Indenture, dated as of December 24, 1998, among
the Registrant, Harveys Tahoe Management Company, Inc., Harveys C. C.
Management Company, Inc., Harveys Iowa Management Company, Inc.,
Harveys L. V. Management Company, Inc. and IBJ Schroder Bank and
Trust Company, supplementing the Original Indenture. (5)
10.1 Purchase and Sale Agreement and Joint Escrow Instructions dated
August 31, 1999 by and between HBR Realty Company, Inc., a Nevada
corporation and Iowa West Racing Association, Nonprofit Corporation,
an Iowa nonprofit corporation.(6)
10.2 Employment Agreement made and entered into on August 17, 1999 by and
between Harveys Casino Resorts and Verne Welch. (7)
10.3 Agreement and Covenant not to Compete or Use or Disclose Trade
Secrets made and entered into on August 17, 1999 by and between Verne
Welch and Harveys Casino Resorts. (7)
27 Financial Data Schedule. (7)
-----------------------------------------------
(1) Incorporated herein by reference to Registration Statement No.
333-3576.
(2) Incorporated herein by reference to Registrant's Current Report on
Form 8-K filed June 14, 1996.
(3) Incorporated herein by reference to Registrant's Quarterly Report
on Form 10-Q for the period ended August 31, 1997.
25
<PAGE>
(4) Incorporated herein by reference to Registrant's Current Report on
Form 8-K filed February 16, 1999.
(5) Incorporated herein by reference to the Registrant's Annual Report
on Form 10-K for the period ended November 30, 1998.
(6) Incorporated herein by reference to the Registrants Current Report
on Form 8-K filed September 3, 1999.
(7) Filed herewith.
26
<PAGE>
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
THIS AGREEMENT (the "Agreement") is made and entered into this 17th
day of August, 1999, by and between HARVEYS CASINO RESORTS, a Nevada
corporation, hereinafter referred to as "HARVEYS" and/or "EMPLOYER," and
VERNE WELCH, hereinafter referred to as "EMPLOYEE":
W I T N E S S E T H:
WHEREAS, HARVEYS desires to continue to secure the benefits of
EMPLOYEE's background, knowledge, experience, ability, expertise and industry
to promote and maintain HARVEYS stability, growth, viability and
profitability; and
WHEREAS, HARVEYS desires to continue to engage the services of EMPLOYEE,
who is desirous of being employed by HARVEYS under the terms and conditions
as herein set out; and
NOW, THEREFORE, in consideration of the mutual promises, covenants and
agreements herein contained, together with other good and valuable
consideration the receipt of which is hereby acknowledged, the parties hereto
do hereby agree as follows:
I
DEFINITIONS
1.01 EMPLOYEE shall at all times mean VERNE WELCH.
1.02 EMPLOYER shall at all times mean HARVEYS CASINO RESORTS, a Nevada
corporation, and its Successors in Interest together with its subsidiaries.
1
<PAGE>
1.03 HARVEYS shall at all times mean HARVEYS CASINO RESORTS, a Nevada
corporation, and its Successors-in-Interest together with its subsidiaries.
1.04 Successor in Interest shall mean any entity which is the successor
or assign of HARVEYS, at law or at equity, and shall include without
limitation, any entity into which HARVEYS is merged or consolidated, and any
entity to which all or substantially all of the assets or businesses of
HARVEYS are transferred.
II
NATURE OF EMPLOYMENT AND DUTIES OF EMPLOYEE
2.01 Effective upon the Commencement Date of this Agreement, EMPLOYEE
shall remain Senior Vice-President/General Manager of HARVEYS CASINO/HOTEL in
HARVEYS Council Bluffs, Iowa facility, or assume such other position as
determined by the President/Chief Executive Officer of HARVEYS. EMPLOYEE
shall do and perform all services, acts, or things necessary or advisable to
assist in the management and conduct of the business of EMPLOYER, subject
always to the policies as set forth by the Board of Directors.
2.02 EMPLOYEE shall be responsible for directing the operation of
Harveys Council Bluffs by working within the overall company strategic and
policy framework; directing operating departments for successful
implementation of business policies and plans for the property; providing
support in the conceptual,
2
<PAGE>
strategic, and policy formulation functions of the business; directing and
coordinating property activities to obtain optimum efficiency and economy of
operations and to maximize profits, and such other responsibilities or duties
that HARVEYS may assign from time to time.
2.03 EMPLOYEE has reviewed and concurs with his responsibilities and
duties as set forth in Section 2.02 above.
2.04 EMPLOYEE shall devote his entire productive time, ability and
attention to the business of EMPLOYER during the term of this Agreement.
EMPLOYEE shall not directly or indirectly render any service of a business,
commercial or professional nature, to any other person or organization,
whether for compensation or otherwise, without the prior written consent of
the President/Chief Executive Officer of HARVEYS except that EMPLOYEE shall
not be precluded from involvement in charitable or civic activities or his
personal financial investments provided the same do not interfere with
EMPLOYEE's time or attention to the business of EMPLOYER.
2.05 EMPLOYEE agrees, to the best of his ability and experience, to at
all times conscientiously perform all of the duties and obligations expressly
required of EMPLOYEE.
3
<PAGE>
III
TERM OF EMPLOYMENT
3.01 EMPLOYER hereby employs EMPLOYEE, and EMPLOYEE hereby agrees to be
employed by EMPLOYER for a period of at least two (2) years commencing on the
1st day of July, 1999,(the "Commencement Date") and terminating on the 30th
day of June, 2001. This Agreement may be terminated earlier as hereinafter
provided or may be extended or modified only by written document signed by
both parties hereto specifically referencing this instrument.
IV
TERMINATION OF EMPLOYMENT WITHOUT CAUSE
4.01 EMPLOYEE may be terminated at any time, without cause, or as
referenced in paragraph 5 herein, by EMPLOYER on thirty (30) days' prior
written notice to EMPLOYEE. In the event of such termination without cause,
EMPLOYEE shall continue to be paid EMPLOYEE's annual salary as set forth in
Paragraph 6.01, as such salary may be modified from time to time, and
continue to receive medical, vision and dental benefits as set forth in
Paragraph 7.06 for the balance of the contract term, or twelve (12) months,
whichever is lesser.
4.02 EMPLOYEE may, at EMPLOYEE's option and right, terminate this
Agreement at any time by giving HARVEYS thirty (30) days prior written
notice. Upon any such termination of this Agreement by EMPLOYEE, EMPLOYER
shall be under no obligation to EMPLOYEE except to pay EMPLOYEE's then annual
salary and perquisites for services
4
<PAGE>
performed up to the effective date of termination.
4.03 If during the term hereof EMPLOYEE shall die or become disabled,
EMPLOYEE shall be entitled to such death and/or disability benefits that may
be due EMPLOYEE under any benefit plans of EMPLOYER in effect from time to
time in which EMPLOYEE is eligible to participate.
V
TERMINATION OF EMPLOYMENT FOR CAUSE
5.01 EMPLOYER may at any time, at its election, by providing written
notice to EMPLOYEE stating with specificity the reason for the termination,
immediately terminate this Agreement and the employment term should EMPLOYEE:
(a) be negligent or willfully malfeasant in the performance of
EMPLOYEE's duties to EMPLOYER set forth in Article II hereof;
(b) be convicted of any felony or a crime involving moral
turpitude;
(c) be dishonest with respect to EMPLOYER (including without
limitation, fraud);
(d) use or impart any confidential or proprietary information of
EMPLOYER or any of its subsidiaries or affiliates in violation of EMPLOYER's
policy regarding confidentiality or any
5
<PAGE>
confidentiality or proprietary agreement to which EMPLOYER is a party, which
act or actions have a material adverse effect on EMPLOYER; or
(e) fail to obtain or retain any permits, licenses, or approvals
which may be required by any state or local authorities in order to permit
EMPLOYEE to continue employment as contemplated by this Agreement.
Upon the occurrence of any of the above, at EMPLOYER's sole option,
EMPLOYEE's employment shall immediately terminate and EMPLOYER shall be under
no further obligation to EMPLOYEE except to pay EMPLOYEE his annual salary
for such services as may have been performed up to the date of such
termination.
VI
COMPENSATION OF EMPLOYEE
6.01 ANNUAL SALARY - EMPLOYEE shall receive an annual salary of Two
Hundred Ten Thousand Dollars ($210,000.00), payable in at least monthly
installments, less all applicable Federal, State and Local Taxes, Social
Security and any other government mandated deductions. EMPLOYEE's annual
salary shall be subject to an annual review, as determined by EMPLOYEE's
direct supervisor, and the President/Chief Executive Officer of HARVEYS
within the parameters set forth by HARVEYS Board of Directors.
6
<PAGE>
VII
OTHER PERQUISITES
7.01 HARVEYS 401(k) PLAN - During the employment term, EMPLOYEE shall
be allowed to participate in HARVEYS 401(k) Plan as such plan may be in
effect and amended from time to time.
7.02 VACATION - EMPLOYEE shall be entitled to vacation and holiday pay
in accordance with EMPLOYER's policy for EMPLOYEE's position as may be in
place from time to time, with credit being given as of EMPLOYEE's original
hire date.
7.03 COMPLIMENTARY PRIVILEGES - EMPLOYEE shall be entitled to Level I
complimentary privileges as are afforded all other corporate employees of
equal job code.
7.05 MANAGEMENT INCENTIVE PLAN (MIP) - EMPLOYEE shall be eligible to
participate in EMPLOYER's Management Incentive Plan as such plan may be in
effect or amended from time to time.
7.06 MEDICAL, VISION AND DENTAL INSURANCE - EMPLOYER shall provide
medical, vision and dental benefits to EMPLOYEE and EMPLOYEE's spouse and
dependents in accordance with EMPLOYER's Class I coverage under EMPLOYER's
Executive Medical Plan, as such plan may be in effect or amended from time to
time.
7.07 DEFERRED COMPENSATION PROGRAM - EMPLOYEE shall be allowed to
participate in EMPLOYER's Deferred Compensation Program as said program may
be in effect or amended from time to time.
7.08 GROUP LIFE INSURANCE - During the term of this
7
<PAGE>
Agreement, EMPLOYER shall furnish EMPLOYEE with Group Term Life Insurance and
Accidental Death/Dismemberment Insurance with the maximum benefit being equal
to two (2) times EMPLOYEE's annual salary, up to a maximum of $500,000.00.
7.09 GROUP LONG TERM DISABILITY - During the term of this Agreement,
EMPLOYER shall furnish EMPLOYEE with Group Term Disability insurance in
accordance with EMPLOYER's then existing policy. The maximum insurance
benefit to be paid EMPLOYEE shall be sixty percent (60%) of EMPLOYEE's annual
salary to be paid for the duration of EMPLOYEE's permanent disability.
7.10 STOCK OPTIONS AND STOCK GRANTS - EMPLOYEE's rights to stock
options and/or stock grants, are those set forth in the Management Stock
Option and Restricted Stock Agreement, dated as of February 2, 1999, as may
be amended from time to time and as supplemented by action of the Board of
Directors in Resolution 1999-5.
VIII
ARBITRATION
8.01 Except as necessary for EMPLOYER and its subsidiaries, affiliates,
successors or assigns or EMPLOYEE to specifically enforce or enjoin a breach
of this Agreement (to the extent such remedies are otherwise available), the
parties agree that any and all disputes that may arise in connection with,
arising out of or
8
<PAGE>
relating to this Agreement, or any dispute that relates in any way, in whole
or in part, to EMPLOYEE's employment with EMPLOYER or any subsidiary, the
termination of that employment or any other dispute by and between the
parties or their subsidiaries, affiliates, successors or assigns, shall be
submitted to binding arbitration in Douglas County, Nevada according to the
National Employment Dispute Resolution Rules and procedures of the American
Arbitration Association. The parties agree that the prevailing party in any
such dispute shall be entitled to reasonable attorneys' fees, costs and
necessary disbursements in addition to any other relief to which he or it may
be entitled. This arbitration obligation extends to any and all claims that
may arise by and between the parties or their subsidiaries, affiliates,
successors or assigns and expressly extends to, without limitation, claims or
causes of action for wrongful termination, impairment of ability to compete
in the open labor market, breach of an express or implied contract, breach of
the covenant of good faith and fair dealing, breach of fiduciary duty, fraud,
misrepresentation, defamation, slander, infliction of emotional distress,
disability, loss of future earnings and claims under the Nevada Constitution,
the United States Constitution, and applicable state and federal fair
employment laws, federal and state equal employment opportunity laws, and
federal and state labor statutes and regulations, including, but not limited
to, the
9
<PAGE>
Civil Rights Act of 1964, as amended, the Fair Labor Standards Act, as
amended, the Americans With Disabilities Act of 1990, as amended, the
Rehabilitation Act of 1973, as amended, the Employee Retirement Income
Security Act of 1974, as amended, the Age Discrimination in Employment Act of
1967, as amended, and other state or federal law.
IX
MISCELLANEOUS
9.01 This Agreement shall be construed and governed by the laws of the
State of Nevada.
9.02 This Agreement, shall bind and inure to the benefit of the
EMPLOYER, its successors and assigns and EMPLOYEE, his heirs, executors and
administrators. No transfer or assignment of this Agreement shall release
EMPLOYER from any obligation to EMPLOYEE hereunder.
9.03 Notices to or for the respective parties shall be given in writing
and delivered in person or mailed by certified or registered mail, addressed
to the respective party at the address as set out below, or at such other
address as either party may elect to provide in advance in writing, to the
other party:
EMPLOYEE: Verne Welch
110 Norwood Drive
Council Bluffs Iowa 51503
EMPLOYER:
10
<PAGE>
HARVEYS CASINO RESORTS
Attn: CHARLES W. SCHARER
President/Chief Executive Officer
Highway 50 and Stateline Avenue
Post Office Box 128
Stateline, NV 89449
WITH A COPY TO: Ronald D. Alling, Esq.
SCARPELLO & ALLING, LTD.
276 Kingsbury Grade, Suite 2000
Post Office Box 3390
Stateline, NV 89449
9.04 Should any provision of this Agreement be held to be invalid,
illegal, or unenforceable by reason of any rule of law or public policy, all
other provisions of this Agreement shall remain in effect. No provision of
this Agreement shall be deemed dependent on any other provision unless so
expressed herein.
9.05 Nothing contained in this Agreement shall be construed to require
the commencement of any act contrary to law. Should any conflict between any
provision of this Agreement and any statute, law, ordinance, or regulation,
contrary to which the parties have no legal right to contract arise or exist,
then the latter shall prevail; but in such event, the provisions of this
Agreement so affected shall be curtailed and limited only to the extent
necessary to bring it within the legal requirements.
9.06 The several rights and remedies provided for in this Agreement
shall be construed as being cumulative, and no one of
11
<PAGE>
them shall be deemed to be exclusive of the others or of any right or remedy
allowed by law. No waiver by EMPLOYER or EMPLOYEE of any failure by EMPLOYEE
or EMPLOYER, respectively, to keep or perform any provision of this Agreement
shall be deemed to be a waiver of any preceding or succeeding breach of the
same or other provision.
9.07 This Agreement supersedes any and all other agreements, either
oral or in writing, between the parties hereto with respect to the employment
of EMPLOYEE by EMPLOYER along with the other instruments executed
concurrently herewith, contain all of the covenants, conditions and
agreements between the parties with respect to such employment. Each party
to this Agreement acknowledges that no representations, inducements, promises
or other agreements excepting those specifically set forth herein, oral or
otherwise, have been made by any party, or anyone acting on behalf of any
party, which are not embodied herein, and that no other agreement, statement
or promise not contained in this Agreement shall be valid or binding. Any
addendum to or
///
///
///
///
///
modification of this Agreement shall be effective only if it is in
12
<PAGE>
writing and signed by the parties to be charged.
EMPLOYEE:
/s/ VERNE WELCH
---------------------------------------
VERNE WELCH
EMPLOYER:
HARVEYS CASINO RESORTS, A NEVADA
CORPORATION
By: /s/ CHARLES W. SCHARER
------------------------------------
CHARLES W. SCHARER
President/Chief Executive Officer
13
<PAGE>
AGREEMENT AND COVENANT NOT TO COMPETE OR
USE OR DISCLOSE TRADE SECRETS
THIS Noncompetition and Confidentiality Agreement is made and entered
into this 17th day of August, 1999, by and between VERNE WELCH (the
"EMPLOYEE") and HARVEYS CASINO RESORTS, a Nevada corporation, (the
"EMPLOYER"):
RECITALS
WHEREAS, EMPLOYER is one of the limited entities engaged in the hotel
and gaming establishment business in Council Bluffs, Iowa holding a
"Non-restricted License" and hold a excursion boat gambling license under
Chapter 99F of the Iowa Code (the "Business"); and
WHEREAS, EMPLOYEE and EMPLOYER simultaneously herewith have executed an
agreement whereby EMPLOYEE is employed by EMPLOYER as the Senior
Vice-President/General Manager of Harveys Hotel/Casino in Council Bluffs,
Iowa (the "Employment Agreement"); and
WHEREAS, EMPLOYEE acknowledges and agrees that EMPLOYER was induced into
executing the Employment Agreement with EMPLOYEE in material reliance upon
EMPLOYEE'S executing and being bound by this Agreement.
NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants and agreements set forth herein and in the Employment
Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto intending
to be legally
1
<PAGE>
bound hereby, agree as follows:
AGREEMENT
1.01 SCOPE AND TERM. During the term of EMPLOYEE'S employment with
EMPLOYER, and for any period of time thereafter during which EMPLOYEE
receives any compensation, including severance compensation, under the
Employment Agreement, executed simultaneously herewith, or any addition or
extension thereof (the "Restricted Period"), EMPLOYEE warrants, represents and
agrees that he shall not in any city, town, county, parish or other
municipality located within a seventy-five (75) mile radius of Council Bluffs,
Iowa, or Harveys Hotel/Casino located at Council Bluffs, Iowa, where the
EMPLOYER or any of its subsidiaries, affiliates, successors or assigns engages
in the Business directly or indirectly, do any of the following: (A) engage in
the Business for the EMPLOYEE'S OWN ACCOUNT; (B) enter the employ of, or render
any services to or for any entity that is engaged in the Business; and/or (C)
become interested in any such entity in any capacity, including as an employee,
partner, stockholder, officer, principal, agent, trustee or consultant;
provided, however, the EMPLOYEE may own solely as a passive investment,
securities of any entity traded on any national securities exchange or automated
quotation system if the EMPLOYEE is not a controlling person of such entity and
does to beneficially own the percent (3%) or more of any class of securities of
such entity. The duration of the Noncompetition as defined in this paragraph
1.01 shall be extended for an additional period of
2
<PAGE>
365 days if EMPLOYEE terminates pursuant to paragraph 4.02 or EMPLOYER
terminates EMPLOYEE pursuant to paragraph 5.01 of the Employment Agreement
executed simultaneously herewith, or any addition or extension thereof.
1.02. NONINTERFERENCE. During the Restricted Period, EMPLOYEE shall
not directly or indirectly (i) solicit, induce or attempt to solicit or
induce any person known to EMPLOYEE to be an employee of EMPLOYER or any of
its subsidiaries, affiliates, successors or assigns, that is involved in the
Business to terminate his or her employment or other relationship with
EMPLOYER or any of its subsidiaries, affiliates, successors or assigns for
the purpose of associating with (A) any entity of which EMPLOYEE is or
becomes an employee, offer, director, partner, stockholder, agent, trustee or
consultant or (B) any competitor of EMPLOYER or any of its subsidiaries,
affiliates, successors or assigns in the Business; or (C) otherwise encourage
any person to terminate his or her employment or other relationship with
EMPLOYER or any of its subsidiaries, affiliates, successors or assigns for
any other purpose or no purpose.
1.03.NONSOLICITATION. During the Restricted Period, EMPLOYEE shall not,
directly or indirectly, solicit, induce or attempt to solicit or induce any
customers, clients, vendors, suppliers or consultants in the Business then under
contract to EMPLOYER or any of its subsidiaries, affiliates, successors or
assigns (a "Customer or Supplier") to terminate his, her, or its relationship
with
3
<PAGE>
EMPLOYER or any of its subsidiaries, affiliates, successors or assigns for
any purpose, including the purpose of associating with or becoming a customer
or supplier of or consultant to (whether or not exclusive) of EMPLOYEE or any
entity of which EMPLOYEE is or becomes an employee, partner, stockholder,
officer, director, principal, agent, trustee or consultant, or otherwise
solicit, induce or attempt to solicit or induce any such Customer or Supplier
to terminate his, her or its relationship with EMPLOYER or any of its
subsidiaries, affiliates, successors or assigns for any other purpose or no
purpose.
1.04. CONFIDENTIAL INFORMATION. EMPLOYEE acknowledges that he will have
access to proprietary information, trade secrets and confidential material
(including, but not limited to, accounting information, business plans, lists
of key personnel, customers, clients, vendors, suppliers, distributors and
consultants) of the EMPLOYER (the "Confidential Information"), EMPLOYEE
agrees that upon termination of his employment with EMPLOYER, EMPLOYEE shall
not be entitled to keep or preserve any of EMPLOYER'S records, documents or
other materials evidencing Confidential Information. EMPLOYEE further agrees
without limitation in time or until such information shall become public
other than by the EMPLOYEE'S unauthorized disclosure, to maintain the
confidentiality of and refrain from disclosure or otherwise using in any
respect the Confidential Information to the detriment of EMPLOYER.
1.05 REMEDIES UPON BREACH. If EMPLOYEE breaches or threatens
4
<PAGE>
to breach any term, covenant, or provision of this Agreement, EMPLOYEE agrees
that EMPLOYER shall be entitled to injunctive relief, both PENDENTE LITE and
permanently without the requirement of the posting of a bond since the remedy
at law would be inadequate or insufficient. In addition, EMPLOYER shall be
entitled to require the EMPLOYEE to account for and pay to the EMPLOYER all
compensation, profits, monies, accruals, increments or other benefits derived
or received by the EMPLOYEE by reason of such breach.
1.06 SEVERABILITY OF COVENANTS. If any provision of this Agreement, as
applied to any part or to any circumstances, shall be adjudged by a court to
be invalid or unenforceable, the same shall in no way affect any other
provision of this Agreement, the application of such provision in any other
circumstances, or the validity or enforceability of this Agreement. If any
provision, or any part hereof, is held to be unenforceable because of the
duration of such provision or the area covered hereby, the parties hereto
agree that the court making such determination shall have the power to reduce
the duration and/or area of such provisions, and/or to delete specific words
or phrases ("blue-penciling"), and in its reduced or blue-penciled form, such
provision shall then be enforceable and shall be enforced.
1.07 ENFORCEABILITY IN ALL JURISDICTIONS. The parties hereto intend to
and hereby confer jurisdiction to enforce the terms, covenants and provisions
contained herein upon the courts of any
5
<PAGE>
state of the United States and any other governmental jurisdiction within the
geographical scope of such covenants. If the courts of any one or more such
states or jurisdictions shall hold such covenants wholly unenforceable by
reason of the breadth of such scope or otherwise, it is the intention of the
parties hereto that such determination shall not bar or in any way affect
EMPLOYER'S right to the relief provided above in the courts of any other
state or jurisdiction within the geographical scope of such covenants, as to
breaches of such covenants and such respective states or jurisdictions, the
above covenants as they relate to each state or jurisdiction being, for this
purpose, severable into diverse and independent covenants.
1.08 ATTORNEYS' FEES. In the event that action, either legal or
equitable, is instituted by EMPLOYER to enforce and/or interpret this
Agreement, the prevailing party shall be entitled to reimbursement from the
other party hereto of court costs, reasonable attorneys' fees and
accountants' fees incurred in connection therewith.
1.09 ASSIGNMENT. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned in whole or
in part, by the EMPLOYEE without the prior written consent of the EMPLOYER.
The EMPLOYER and any of its subsidiaries, affiliates, and successors may
sell, assign, or otherwise transfer any or all of its or their right and
interest in the Business, whether by operation of law or otherwise, and in
this Agreement, in
6
<PAGE>
which case this Agreement shall remain in full force after such sale,
assignment or other transfer.
1.10 GOVERNING LAW. This Agreement shall be construed, interpreted and
governed in accordance with the laws of the State of Nevada, regardless of
the laws that might otherwise govern under applicable principles of conflicts
of laws thereof.
1.11. ENTIRE AGREEMENT. This Agreement and the Employment Agreement by
and between the EMPLOYEE and the EMPLOYER, dated as of the date hereof,
represent the entire agreement of the parties with respect to the subject
matter hereof and shall supersede any and all previous contracts,
arrangements or understandings between the parties hereto and with respect to
the subject matter hereof. This Agreement may not be modified or amended
except by an instrument in writing signed by each of the parties hereto.
///
///
///
///
IN WITNESS WHEREOF, the undersigned have executed this Agreement.
DATED this _____ day of __________, 1999.
EMPLOYEE:
-------------------------------
VERNE WELCH
EMPLOYER:
7
<PAGE>
HARVEYS CASINO RESORTS,
a Nevada corporation
By: /s/ CHARLES W. SCHARER
-----------------------------
CHARLES W. SCHARER,
President/Chief Executive
Officer
8
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> NOV-30-1999
<PERIOD-START> FEB-02-1999
<PERIOD-END> AUG-31-1999
<CASH> 26,139
<SECURITIES> 0
<RECEIVABLES> 5,636
<ALLOWANCES> 168
<INVENTORY> 3,151
<CURRENT-ASSETS> 38,484
<PP&E> 420,151
<DEPRECIATION> 12,662
<TOTAL-ASSETS> 537,874
<CURRENT-LIABILITIES> 36,260
<BONDS> 286,646
59,436
0
<COMMON> 40
<OTHER-SE> 79,681
<TOTAL-LIABILITY-AND-EQUITY> 537,874
<SALES> 34,516
<TOTAL-REVENUES> 189,867
<CGS> 12,459
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 62,079
<LOSS-PROVISION> 531
<INTEREST-EXPENSE> 15,891
<INCOME-PRETAX> 15,045
<INCOME-TAX> 5,888
<INCOME-CONTINUING> 9,157
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,157
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
