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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED NOVEMBER 30, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NUMBER 1-12802
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HARVEYS CASINO RESORTS
(Exact name of registrant as specified in its charter)
NEVADA 88-0066882
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
HIGHWAY 50 & STATELINE AVENUE
P.O. BOX 128 LAKE TAHOE, NEVADA 89449
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (775) 588-2411
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock; par value $0.01 per share
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if the disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. /X/
As of February 25, 1999 all common equity of the registrant was held by
affiliates of the registrant.
The number of shares outstanding of the registrant's Class A Common Stock,
$0.01 par value was 40,000 and the number of shares outstanding of the
registrant's Class B Common Stock, $0.01 par value was 4,000,000, each as of
February 25, 1999.
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PART I
ITEM 1. BUSINESS
Harveys Casino Resorts ( the "Company" or the "Registrant") is an
established owner, operator and developer of high-quality hotel/casinos in
Nevada , Colorado and Iowa. The Company, through its wholly-owned subsidiary
Harveys Tahoe Management Company, Inc. ("HTMC") owns and operates Harveys Resort
Hotel/Casino ("Harveys Resort"), the Lake Tahoe area's largest hotel/casino.
Harveys Resort, in operation since 1944, is situated on the south shore of
scenic Lake Tahoe on the Nevada/California state line. The Company, through its
wholly-owned subsidiary Harveys C. C. Management Company, Inc. ("HCCMC") owns
and operates Harveys Wagon Wheel Hotel/Casino ("Harveys Wagon Wheel") which
opened in December 1994 in Central City, Colorado, as the first major
hotel/casino serving the greater Denver area. The Company, through its
wholly-owned subsidiary Harveys Iowa Mangement Company, Inc. ("HIMC") owns and
operates a riverboat casino and hotel/convention center in Council Bluffs, Iowa
across the Missouri River from Omaha, Nebraska. The Harveys Casino Hotel
riverboat casino opened on January 1, 1996 and is one of only three operators in
the Omaha/Council Bluffs gaming market, which includes one other riverboat
casino and a slot machine operator at the local dogtrack. The adjacent land-
based hotel and convention center facilities opened in May 1996.
Harveys Resort was originally founded on the south shore of Lake Tahoe by
Harvey and Llewellyn Gross in 1944 as a one-room saloon, cafe and casino. The
Company has developed the property into a major hotel/casino consisting of 740
hotel rooms, an 82,000-square foot casino, 23,000 square feet of convention
space, 2,946 parking spaces, the 280-seat Emerald Theater and Cabaret, a wedding
chapel, restaurants and retail shops, a pool, a health club and a video arcade.
Harveys Resort offers its customers high-quality hotel rooms, excellent dining
facilities, an exciting location, entertaining events and a lively gaming
atmosphere.
Through Harveys Wagon Wheel, the Company established the first major
hotel/casino serving the greater Denver area, Colorado's major population center
of more than 2 million people. Harveys Wagon Wheel includes 1,043 slot machines,
14 table games and a six-table poker area, a 118-room hotel and 730 on-site
parking spaces. Other amenities include a Tony Roma's Famous for Ribs restaurant
and a Tony Roma's Express, an entertainment lounge and a video game arcade.
The Harveys Casino Hotel riverboat casino accommodates 2,352 passengers and
is berthed on the Missouri River directly across from Omaha, in Council Bluffs,
Iowa. The riverboat casino has 28,250 square feet of casino space on three decks
and contains 1,088 slot machines, 51 table games and a seven-table poker area.
The land-based amenities, which opened in May 1996, include surface parking for
approximately 2,300 cars and a 14-story, 251-room hotel with a 21,000-square
foot convention center.
RECENT DEVELOPMENT
On February 2, 1999, Harveys Acquisition Corporation, a Nevada corporation
("HAC") which was formed at the direction of Colony Investors III, L.P., a
Delaware limited partnership ("Colony III") and an affiliate of Colony Capital,
Inc. ("Colony Capital") of Los Angeles, California, merged with and into the
Company (the "Merger").
The Merger occurred pursuant to an Agreement and Plan of Merger dated as of
February 1, 1998 (the "Merger Agreement") between the Company and HAC. In the
Merger, each share of common stock of the Company outstanding at the time the
Merger became effective (the "Effective Time") (other than shares of common
stock held in the Company's treasury) was converted into the right to receive
$28.7343 in cash as provided in the Merger Agreement. At the Effective Time,
shareholders of the Company had a right to receive an aggregate amount equal to
approximately $289.3 million and certain members of management received an
aggregate of $10.0 million in consideration of the cancellation of stock
options. The capital stock of HAC prior to the Merger became the capital stock
of the Company after the Merger. The
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Company was the surviving corporation in the Merger and is continuing its
business operations as conducted prior to the Merger.
Prior to the Merger, the Company was a publicly held company. Following the
Merger, Colony III owns 97% of the outstanding non-voting common stock, which
together with its voting common stock represents approximately 96% of the common
equity interest in the Company. Colony HCR Voteco, LLC, a Delaware limited
liability company ("Voteco") whose sole members are Thomas J. Barrack, Jr., the
Chairman and Chief Executive Officer of the indirect general partner of Colony
III, and Kelvin L. Davis, the President and Chief Operating Officer of the
indirect general partner of Colony III, owns 97% of the voting power in the
Company through the ownership of 97% of the outstanding voting common stock. As
a result, Voteco is able to govern all matters of the Company that are subject
to the vote of stockholders, including the appointment of directors and the
amendment of the Company's Articles of Incorporation and Bylaws. In addition,
Colony III owns 99.99% of the outstanding shares of the Company's preferred
stock and Voteco owns 0.01% of the outstanding shares of preferred stock.
Prior to the Merger, HAC voluntarily registered its voting common stock
(which became the Company's voting common stock pursuant to the Merger) with the
Securities and Exchange Commission (the "SEC") under Section 12(g) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Company is
required to file annual, quarterly and current reports, and other information
with the SEC. You may read and copy any reports, statements or other information
filed by the Company at the SEC's public reference facilities at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
regional offices of the SEC located at 7 World Trade Center, Suite 1300, New
York, New York 10048 and Citicorp Center, Suite 1400, 500 West Madison Street,
Chicago, Illinois 60661. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference rooms. The Company's filings are also
available to the public from commercial document retrieval services and at the
world wide web site maintained by the SEC at http://www.sec.gov.
BUSINESS STRATEGY
The Company's business strategy is to develop premium hotel/casino
facilities in markets in which the Company believes it can establish and
maintain a prominent position or niche. Each of the Company's properties offers
casino gaming and a full range of amenities in a friendly atmosphere that caters
to middle- and upper middle-income customers. This strategy emphasizes the
following elements:
HIGH-QUALITY FACILITIES AND SUPERIOR CUSTOMER SERVICE
As part of its commitment to providing a quality entertainment experience
for its patrons, the Company is dedicated to ensuring a high level of customer
satisfaction and loyalty by providing distinctive and modern accommodations and
attentive customer service in a friendly atmosphere. Management recognizes that
consistent quality and a comfortable atmosphere can differentiate its facilities
from the competition in all of its markets. The Company strives to meet customer
demand by furnishing each of its properties with a variety of restaurants and
non-gaming amenities. To foster a high level of customer satisfaction through
attentive customer service, management plays an active role in the training of
all of its employees at all levels. The Company's goal of becoming a truly
customer-focused organization has been achieved at all the Company's properties
through training programs, role playing and simulations. Management believes
that these programs have evolved to provide the Company's customers with a truly
unique experience. The Company has implemented attractive employee benefit
programs at all of its facilities to recruit and retain friendly, professional
employees.
STRATEGIC LOCATIONS
Management believes that location is the key to attracting customers. South
Lake Tahoe, which draws approximately 2 million visitors per year, is a unique
gaming location because of its natural surroundings
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and variety of outdoor attractions and activities. Harveys Resort is
strategically placed on a site adjacent to the California border in proximity to
more than 6,500 hotel and motel rooms in non-gaming facilities. Harveys Wagon
Wheel is located on a highly visible site in Central City, Colorado, a
picturesque mountain town approximately 35 miles west of Denver. Harveys Casino
Hotel is within a ten-minute drive of the Omaha/Council Bluffs metropolitan
regional airport and is located directly off of Interstates 29, 80 and 480.
TARGETED CUSTOMER BASE
The Company targets middle- to upper middle-income customers who tend to
have more disposable income for gaming and entertainment. Harveys Resort seeks
to attract these customers by offering well-appointed rooms and a "party"
atmosphere for those seeking nightlife and entertainment. The Company also has
established extensive customer databases and uses sophisticated player tracking
systems to award cash rebates or promotional allowances, such as complimentary
rooms, food, beverage and entertainment, when gaming play warrants. Management
believes that by continuing to promote the Company's image, it will increase its
share of higher-income customers attracted to the south Lake Tahoe market.
Harveys Wagon Wheel targets middle- to upper middle-income customers from the
greater Denver area who seek a quality gaming experience, convenient parking and
overnight accommodations. The Company's management believes it has successfully
built a loyal customer base at Harveys Wagon Wheel by being the first full-
service casino with overnight accommodations and full amenities in the Central
City/Black Hawk market. Harveys Wagon Wheel opened a 530-space parking garage in
June 1997, providing a new level of parking convenience for customers. Harveys
Casino Hotel targets frequent, middle income players from Omaha, Council Bluffs
and the surrounding areas. The Company believes that the hotel and convention
facilities, opened in May 1996, attract new players by capturing overnight
guests as well as meetings and small conventions business.
EFFECTIVE MARKETING
The Company aggressively promotes all of its properties through television,
radio, billboard and print advertising. In February 1997, the Company announced
that Bill Cosby agreed to become a spokesperson for the Company. Under a
contractual relationship with the Company, Mr. Cosby is actively involved in
promoting Harveys Casino Resorts through entertainment appearances at the
Company's properties and through advertising messages on television, radio and
billboards. The Company believes that this association has been and will
continue to be helpful in enhancing the national visibility of Harveys Casino
Resorts.
Since 1995, the Company has increased its share of gaming revenues in south
Lake Tahoe from approximately 25.1% to approximately 28.2% in 1998, due largely
to its targeted marketing strategy. The Company attracts customers to Harveys
Wagon Wheel by aggressively promoting the facility's hotel rooms, on-site
parking, quality dining facilities and varied entertainment activities in a
market in which such amenities are a distinct competitive advantage. Harveys
Casino Hotel is marketed as "Harveys, You Can Have It All!" in the Omaha/Council
Bluffs market through the extensive use of television and newspaper
advertisement, billboards, regular promotions and sweepstakes as well as
point-of-sale materials located in local hotels, restaurants and other visitor
attractions.
EMPHASIS ON SLOT PLAY
Responding to the increased popularity of slot machines over the past
several years, the Company has shifted its gaming mix toward slot machines. The
mix of slot machines is closely matched to the demand of the customer base at
each property. Harveys Resort, for instance, now includes a greater percentage
of $1 and higher denominated machines to appeal to the higher-income gaming
clientele of Harveys Resort, including $5, $25 and $100 slot machines offered
within a premium player section. This increase in higher denominated machines
increased win per unit at Harveys Resort by approximately 31.8% between fiscal
years 1988 and 1998. Harveys Wagon Wheel offers 1,043 slot machines, the second
largest selection of slot
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machines currently offered by any gaming facility in the area, and Harveys
Casino Hotel offers 1,088 slot machines. Slot machines, which are less labor
intensive and require less square footage than table games, also generate higher
profit margins compared to table games. The Company monitors payout percentages
closely and ensures that its slot machine payouts are competitive.
THE PROPERTIES
HARVEYS RESORT
Harveys Resort, the largest hotel/casino in the Lake Tahoe area, is located
on approximately 19.8 acres on U.S. Highway 50, the main route through south
Lake Tahoe. The hotel/casino, situated on the south shore of Lake Tahoe with a
panoramic view of the lake and surrounding mountains, is among Lake Tahoe's most
modern facilities. The main structure is a 17-story glass-faced tower completed
in 1991, connected to a 12-story tower which was completely rebuilt in 1982.
Harveys Resort features 740 rooms, 36 of which are luxury suites, and an
82,000-square foot casino containing approximately 2,060 slot machines, 95 table
games, a 13-table poker area, a race and sports book and a keno lounge. Other
amenities include 23,000 square feet of convention space, 2,946 parking spaces,
the 280-seat Emerald Theater and Cabaret, a wedding chapel, restaurants, retail
shops, a pool, a health club and a video arcade. Harveys Resort's eight
restaurants offer a wide variety of high quality food and consist of a coffee
shop, a Mexican restaurant, a seafood and pasta restaurant, a premier
steakhouse, a buffet, a snack bar, Llewellyn's, Harveys Resort's upscale
award-winning restaurant featuring top quality food and a spectacular view of
Lake Tahoe, and a Hard Rock Cafe, located on the casino floor, which is owned
and operated by Hard Rock Cafe International (USA), Inc. In recognition of the
outstanding quality of the facility and its excellent service, Harveys Resort
has received the AAA Four Diamond Award every year for the last 17 years. The
Company has expended approximately $15.9 million on capital improvements at
Harveys Resort in fiscal years 1997 and 1998, and plans to expend approximately
$4.7 million more in fiscal 1999 to increase the Company's market share and to
position the Company to benefit from the ongoing South Lake Tahoe Redevelopment
Project. In 1984, the City of South Lake Tahoe, California, adopted a
redevelopment plan and created the South Tahoe Redevelopment Agency. The
redevelopment plan has resulted in the removal of numerous older motel and
retail properties along Highway 50 through the City of South Lake Tahoe. The
properties were demolished, creating a scenic open space corridor containing
public facilities and wetlands. The redevelopment plan resulted in a 400-room
Embassy Suites hotel on the California-Nevada state line, completed in 1991. It
is anticipated that the next phase of redevelopment will involve the
condemnation of certain older motels and retail establishments located within
one mile of Harveys Resort and the replacement thereof with a regional transit
center including an aerial tram to the Heavenly ski area, parking facilities, a
theater complex, retail space, upscale hotels and vacation interval units. It is
anticipated that the third phase, also to be located immediately adjacent to the
California-Nevada state line, will result in a regional convention facility,
hotel, retail space, regional parking facilities and various public amenities.
The Lake Tahoe area is a unique gaming location because of its natural
surroundings and variety of year-round outdoor recreational activities,
including skiing, boating, fishing and golfing. The south Lake Tahoe area draws
tourists primarily from nearby Reno and Northern California. There are four
major casinos in this market to serve the approximately 2 million annual
visitors. The Tahoe Regional Planning Compact, a compact between the states of
Nevada and California approved by the U.S. Congress, prohibits the addition of
new gaming facilities and limits the expansion of existing casinos in the Lake
Tahoe basin.
HARVEYS WAGON WHEEL
Through Harveys Wagon Wheel, which opened in December 1994, the Company
established the first major hotel/casino serving the greater Denver area.
Harveys Wagon Wheel is located on a highly visible site in Central City,
Colorado, a picturesque mountain town approximately 35 miles west of Denver.
Harveys Wagon Wheel includes approximately 40,000 square feet of casino space,
1,043 slot machines,
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14 table games, a six-table poker area, a 118-room hotel and 730 on-site parking
spaces, including 530 spaces in the market's first self-parking garage which was
completed in June of 1997. Other amenities include a Tony Roma's Famous for Ribs
restaurant and a Tony Roma's Express, an entertainment lounge and a video game
arcade. Harveys Wagon Wheel was the first casino in Central City/Black Hawk area
to offer all of these amenities.
HCCMC also owns approximately 40 acres of undeveloped land adjacent to the
Harveys Wagon Wheel facility.
HARVEYS CASINO HOTEL
On January 1, 1996, the Company opened, as the first phase of Harveys Casino
Hotel, a 2,352-passenger riverboat casino berthed on the Missouri River directly
across from Omaha in Council Bluffs, Iowa. The riverboat has 28,250 square feet
of casino space on three decks and contains 1,088 slot machines, 51 table games
and a seven-table poker area. On May 24, 1996, the Company opened the second
phase of Harveys Casino Hotel, including surface parking for approximately 2,300
cars, and a 14-story, 251-room hotel with a 21,000-square foot convention
center. In fiscal year 1999 the Company recently commenced construction of a
1,630-space parking structure that will feature climate-controlled access to the
adjacent casino.
Harveys Casino Hotel is located on a 61-acre parcel of land which is located
within a ten-minute drive of the Omaha/Council Bluffs regional airport and is
located directly off of Interstates 29, 80 and 480. Approximately 20 acres of
the site are occupied by a municipal nine-hole golf course, which is leased to
the City of Council Bluffs for a nominal fee. This arrangement allows the
Company the option of using this land for future expansion needs. In addition,
the Company has acquired an adjacent 42.5-acre site to accommodate future
expansion or support facilities.
Harveys Casino Hotel's target market is the approximately 760,000 residents
in the greater Omaha/ Council Bluffs metropolitan area and the nearly 3 million
residents within a three-hour drive of the facility. In addition, the casino,
hotel and convention facilities are marketed to the estimated 2.7 million
visitors and tourists who visit the Omaha metropolitan area annually. Harveys
Casino Hotel markets itself as "Harveys, You Can Have It All!" in the
Omaha/Council Bluffs market through the extensive use of television and
newspaper advertisement, billboards, regular promotions and sweepstakes as well
as point-of-sale materials located in local motels, hotels, restaurants and
other visitor attractions. Harveys Casino Hotel targets frequent, middle-income
players from Omaha, Council Bluffs and the surrounding area. The Company
believes that the hotel and convention facilities attract new players by
capturing overnight guests and individuals attending meetings and small
conventions. Management believes its aggressive advertising and targeted
marketing has contributed to making Harveys Casino Hotel the number one
performing riverboat casino (based on gaming revenues) in Iowa for 30
consecutive months, through November 30, 1998.
LAS VEGAS AND OTHER DEVELOPMENT OPPORTUNITIES
In December 1997, the Company entered into an option agreement, subsequently
extended to April 15, 1999, to acquire approximately 33.3 acres of land located
at the intersection of Harmon Avenue and Koval Lane in Las Vegas, which is one
block from the Las Vegas Strip. The option price is $2.36 million per acre. The
Company is currently considering the feasibility of developing a hotel/casino
project on the site. There can be no assurances that the Company will exercise
its option or, if it exercises the option, will successfully develop a project
on the site. Any such development would require substantial financing, which the
Company may not be able to obtain or service. Any development would also require
significant management resources, which could limit the availability of the
Company's existing management for the operation of the Company's current
hotel/casino operations.
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The Company from time to time considers strategic acquisition opportunities
which come to its attention, both in jurisdictions in which it currently
conducts business and in other jurisdictions. There can be no assurance that any
acquisition or other development agreements will be reached.
COMPETITION
The gaming industry is highly competitive. The Company competes for
customers primarily on the basis of location, range and pricing of amenities and
overall atmosphere. Several of the competitors of the Company have substantially
greater name recognition and financial and marketing resources.
LAKE TAHOE
Harveys Resort competes with a number of other hotel/casinos at Lake Tahoe
and, to a lesser extent, with hotel/casino operations located in Reno, Las Vegas
and Laughlin, Nevada and casinos on Native American lands in California. In
south Lake Tahoe, Harveys Resort competes primarily with three other major
casino operations: Harrah's Lake Tahoe, Caesars Tahoe and the Horizon Casino
Resort.
In 1987, the Tahoe Regional Planning Agency, an entity established under a
bi-state compact reached between the states of California and Nevada, placed
restrictions on additional commercial, residential and tourist accommodation
construction at Lake Tahoe in an effort to curb development and to preserve the
local environment. Under the Tahoe Regional Planning Compact and community plan
constraints, future tourist accommodation units added to the market will be
required to mitigate environmental impacts. Such measures may include replacing
an imposed multiple of older tourist accommodation units. The limited number of
rooms available at Lake Tahoe, however, allows Lake Tahoe hotel/casino operators
to achieve much higher nightly room rates than those in most other gaming
jurisdictions. The occupancy rate for the 2,250 upscale rooms in the four major
south Lake Tahoe casinos has historically been between 75% and 80%, while the
occupancy rate in the motels is typically between 40% and 50%. It is estimated
that the average day room rate for the Lake Tahoe hotel/casinos is approximately
$100, compared to average estimated rates of $25-$65 for Las Vegas, Reno and
Laughlin. The Tahoe Regional Planning Agency has imposed significant
restrictions on construction and the Tahoe Regional Planning Compact limits the
expansion of gaming facilities in the Lake Tahoe Basin. These restrictions
prohibit existing casinos from expanding cubic volume of structures housing
gaming and limit expansion of the gaming areas within such structures. The
Company believes that because of such restrictions, it is unlikely that any new
hotel/casinos will commence operations at Lake Tahoe or that any of the smaller
existing casinos will expand to a size that could make them competitive with the
four major casinos; however, the Company expects that the four major
hotel/casinos will continue to compete intensely.
In addition, as a result of the approval of state proposition 5, the
California Indian Self-Reliance Initiative, in California in November 1998,
additional competition could result from an increase in the number of casinos on
Native American lands in California, including on lands that are between Harveys
Resort and major population centers, such as the San Francisco Bay area, and
proximate to Highway 50, the primary road route to south Lake Tahoe.
CENTRAL CITY/BLACK HAWK
Harveys Wagon Wheel competes primarily with the five casinos with the
largest number of gaming devices in Central City and Black Hawk as well as the
25 smaller gaming establishments in operation as of February 1, 1999, in Central
City and Black Hawk. The six largest casinos, including Harveys Wagon Wheel, as
of February 1, 1999 had more than 58% of all gaming devices in the Central
City/Black Hawk area. The adjacent cities of Central City and Black Hawk form
Colorado's primary gaming market. In this market the majority of the existing
gaming establishments lack on-site parking, overnight accommodations and
non-gaming amenities. The Lodge Casino, offering 700 on-site parking spaces
(including 300 spaces shared with the adjacent Gilpin Hotel Casino) and
overnight accommodations in 50 hotel rooms, opened
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in Black Hawk in June 1998. The Isle of Capri opened in Black Hawk on December
30, 1998, with 1,100 parking spaces. A number of other projects are either under
construction, including a casino proposed to have 520 covered self-park spaces
being developed by Riviera Holdings Corporation, or in the planning stages. Some
or all of these projects may include on-site parking spaces and overnight
accommodations or other amenities that would increase competition with Harveys
Wagon Wheel. Substantially all recent casino development in the Central
City/Black Hawk area has occurred in Black Hawk, which visitors from the Denver
area must drive through in order to reach Central City. In addition, from time
to time, the towns of Central City and Black Hawk undertake roadway and other
infrastructure improvements. Because the towns are generally accessible only by
a single road, such infrastructure projects may deter gaming customers from
visiting the Central City/Black Hawk area or traveling through Black Hawk to
Central City. There can be no assurances that the development or concentration
of casinos or infrastructure improvements in Black Hawk will not adversely
affect the number of gaming customers visiting Harveys Wagon Wheel in Central
City. In addition, the municipal governments of Central City and Black Hawk
compete to attract gaming patrons and gaming development to their respective
towns, including by improving road access. Black Hawk's financial resources are
currently substantially greater that Central City's and there can be no
assurance that Black Hawk will not make improvements or provide other
inducements that would result in reduction of the number of gaming patrons
visiting Harveys Wagon Wheel in Central City. Currently, limited stakes gaming
in Colorado is legal in Central City, Black Hawk, Cripple Creek and two Native
American reservations in southwest Colorado. However, there can be no assurances
that limited stakes gaming will not be approved in other Colorado communities in
the future, or in the state generally. For instance, state legislation
permitting video lottery terminals has been proposed from time to time; although
such legislation has failed, there can be no assurance that video lottery
terminals will not be legalized in Colorado. The legalization of gaming in areas
closer than Central City/ Black Hawk to Denver, the major population center of
Colorado, would likely have a material adverse effect on the Company's operation
in Central City.
OMAHA/COUNCIL BLUFFS
Harveys Casino Hotel, with its riverboat casino and the adjacent 251-room
hotel and 21,000-square foot convention center, provided the first of only three
major hotel products in the city. The Company's target markets are the
residential population base (approximately 760,000) of the greater Omaha/Council
Bluffs area, and the nearly 3 million residents within a three-hour drive of the
facility. Additionally, the Company's hotel and convention facilities are
marketed to an estimated 2.7 million visitors and tourists who visit the Omaha
metropolitan area annually, which now offers approximately 7,000 hotel and motel
units and is home to major tourist attractions such as the Henry Doorley Zoo,
museums, a pari-mutuel track and historic monuments. The Company's casino
competes with Ameristar Casino Inc.'s riverboat casino in Council Bluffs, which
opened on January 19, 1996, as well as with the slot machines installed at a
dogtrack in the Council Bluffs area and other amusement attractions.
In Iowa, gaming is subject to approval by county referendum. While gaming is
approved in Pottawattamie County, where Harveys Casino Hotel is located, another
referendum may be held at any time upon satisfactory petition, and another
referendum is required to be held in 2002. There can be no assurance that gaming
would be approved again in any referendum in Pottawattamie County. In addition,
should casino-style gaming be permitted in Nebraska, or should gaming facilities
be opened in Omaha, Harveys Casino Hotel could be materially adversely affected.
EMPLOYEES
As of February 16, 1999 the Company had approximately 4,090 employees.
Management believes that employee relations are good. The Company has entered
into a collective bargaining agreement that covers approximately ten employees.
This agreement relates to stage-hand employees who provide support to
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entertainment facilities at Harveys Resort. None of the Company's other
employees are represented by labor unions.
REGULATORY MATTERS
NEVADA GAMING LAWS AND RELATIONS
The ownership and operation of casino gaming facilities in Nevada are
subject to the Nevada Gaming Control Act and the regulations promulgated
thereunder (collectively, "Nevada Act") and various local regulations. The
Company's gaming operations are subject to the licensing and regulatory control
of the Nevada State Gaming Control Board (the "Nevada Board"), the Nevada Gaming
Commission (the "Nevada Commission" and together with the Nevada Board, the
"Nevada Gaming Authorities").
The laws, regulations and supervisory procedures of the Nevada Gaming
Authorities are based upon declarations of public policy which are concerned
with, among other things: (i) the prevention of unsavory or unsuitable persons
from having a direct or indirect involvement with gaming at any time or in any
capacity; (ii) the establishment and maintenance of responsible accounting
practices and procedures; (iii) the maintenance of effective controls over the
financial practices of licensees, including the establishment of minimum
procedures for internal fiscal affairs and the safeguarding of assets and
revenues, providing reliable record keeping and requiring the filing of periodic
reports with the Nevada Gaming Authorities; (iv) the prevention of cheating and
fraudulent practices; and (v) to provide a source of state and local revenues
through taxation and licensing fees. Change in such laws, regulations and
procedures could have an adverse effect on the Company's gaming operations.
Any company that operates a Nevada gaming casino is required to be licensed
by the Nevada Gaming Authorities. The gaming license requires the periodic
payment of fees and taxes and is not transferable. The Company is registered by
the Nevada Commission as a publicly traded corporation ("Registered
Corporation") and as such, it is required periodically to submit detailed
financial and operating reports to the Nevada Commission and furnish any other
information which the Nevada Commission may require. The Company has obtained
from the Nevada Gaming Authorities the various registrations, approvals, permits
and licenses required in order to engage in gaming activities in Nevada.
The Nevada Gaming Authorities may investigate any individual who has a
material relationship to, or material involvement with, the Company in order to
determine whether such individual is suitable or should be licensed as a
business associate of a gaming licensee. Officers, directors and certain key
employees of the Company must file applications with the Nevada Gaming
Authorities and may be required to be licensed or found suitable by the Nevada
Gaming Authorities. The Nevada Gaming Authorities may deny an application for
licensing for any cause which they deem reasonable. A finding of suitability is
comparable to licensing, and both require submission of detailed personal and
financial information followed by a thorough investigation. The applicant for
licensing or a finding of suitability must pay all the costs of the
investigation. Changes in licensed positions must be reported to the Nevada
Gaming Authorities and in addition to their authority to deny an application for
a finding of suitability or licensure, the Nevada Gaming Authorities have
jurisdiction to disapprove a change in a corporate position.
If the Nevada Gaming Authorities were to find an officer, director or key
employee unsuitable for licensing or unsuitable to continue having a
relationship with the Company, the companies involved would have to sever all
relationships with such person. In addition, the Nevada Commission may require
the Company to terminate the employment of any person who refuses to file
appropriate applications. Determinations of suitability or of questions
pertaining to licensing are not subject to judicial review in Nevada.
The Company is required to submit detailed financial and operating reports
to the Nevada Commission. Substantially all material loans, leases, sales of
securities and similar financing transactions by the Company must be reported
to, or approved by, the Nevada Commission.
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If it were determined that the Nevada Act was violated by the Company, the
gaming licenses it holds could be limited, conditioned, suspended or revoked,
subject to compliance with certain statutory and regulatory procedures. In
addition, the Company, and the persons involved, could be subject to substantial
fines of up to $250,000 for each separate violation of the Nevada Act at the
discretion of the Nevada Commission. Further, a supervisor could be appointed by
the Nevada Commission to operate the Company's gaming properties and, under
certain circumstances, earnings generated during the supervisor's appointment
(except for the reasonable rental value of the Company's gaming properties)
could be forfeited to the State of Nevada. Limitation, conditioning or
suspension of any gaming license or the appointment of a supervisor could (and
revocation of any gaming license would) materially adversely affect the
Company's gaming operations.
Any beneficial holder of the Company 's voting securities, regardless of the
number of shares owned, may be required to file an application, be investigated,
and have such holder's suitability as a beneficial holder of the Company's
voting securities determined if the Nevada Commission has reason to believe that
such ownership would otherwise be inconsistent with the declared policies of the
State of Nevada. The applicant must pay all costs of investigation incurred by
the Nevada Gaming Authorities in conducting any such investigation.
The Nevada Act requires any person who acquires more than 5% of the
Company's voting securities to report the acquisition to the Nevada Commission
and may be required to be found suitable. The Nevada Act requires that
beneficial owners of more than 10% of the Company's voting securities apply to
the Nevada Commission for a finding of suitability within thirty days after the
Chairman of the Nevada Board mails the written notice requiring such filing.
Under certain circumstances, an "institutional investor," as defined in the
Nevada Act, which acquires more than 10%, but not more than 15%, of the
Company's voting securities may apply to the Nevada Commission for a waiver of
such finding of suitability if such institutional investor holds the voting
securities for investment purposes only. An institutional investor shall not be
deemed to hold voting securities for investment purposes unless the voting
securities were acquired and are held in the ordinary course of business as an
institutional investor and not for the purpose of causing, directly or
indirectly, the election of a majority of the members of the board of directors
of the Company, any change in the Company's corporate charter, bylaws,
management, policies or operations of the Company, or any of its gaming
affiliates, or any other action which the Nevada Commission finds to be
inconsistent with holding the Company's voting securities for investment
purposes only. Activities which are not deemed to be inconsistent with holding
voting securities for investment purposes only include: (i) voting on all
matters voted on by stockholders; (ii) making financial and other inquiries of
management of the type normally made by securities analysts for informational
purposes and not to cause a change in its management, policies or operations;
and (iii) such other activities as the Nevada Commission may determine to be
consistent with such investment intent. If the beneficial holder of voting
securities who must be found suitable is a corporation, partnership or trust, it
must submit detailed business and financial information including a list of
beneficial owners. The applicant is required to pay all costs of investigation.
Any person who fails or refuses to apply for a finding of suitability or a
license within thirty days after being ordered to do so by the Nevada Commission
or the Chairman of the Nevada Board, may be found unsuitable. The same
restrictions apply to a record owner if the record owner, after request, fails
to identify the beneficial owner. Any stockholder found unsuitable and who
holds, directly or indirectly, any beneficial ownership of the common stock of a
Registered Corporation beyond such period of time as may be prescribed by the
Nevada Commission may be guilty of a criminal offense. The Company is subject to
disciplinary action if, after it receives notice that a person is unsuitable to
be a stockholder or to have any other relationship with the Company, the Company
(i) pays that person any dividend or interest upon voting securities of the
Company, (ii) allows that person to exercise, directly or indirectly, any voting
right conferred through securities held by that person, (iii) pays remuneration
in any form to that person for services rendered or otherwise, or (iv) fails to
pursue all lawful efforts to require such unsuitable person to relinquish his
voting securities for cash at fair market value.
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The Nevada Commission may, in its discretion, require the holder of any debt
security of a Registered Corporation to file applications, be investigated and
be found suitable to own the debt security of a Registered Corporation. If the
Nevada Commission determines that a person is unsuitable to own such security,
then pursuant to the Nevada Act, the Registered Corporation can be sanctioned,
including the loss of its approvals, if without the prior approval of the Nevada
Commission, it: (i) pays to the unsuitable person any dividend, interest, or any
distribution whatsoever; (ii) recognizes any voting right by such unsuitable
person in connection with such securities; (iii) pays the unsuitable person
remuneration in any form; or (iv) makes any payment to the unsuitable person by
way of principal, redemption, conversion, exchange, liquidation, or similar
transaction.
The Company is required to maintain a current stock ledger in Nevada which
may be examined by the Nevada Gaming Authorities at any time. If any securities
are held in trust by an agent or by a nominee, the record holder may be required
to disclose the identity of the beneficial owner to the Nevada Gaming
Authorities. A failure to make such disclosure may be grounds for finding the
record holder unsuitable. The Company is also required to render maximum
assistance in determining the identity of the beneficial owner. The Nevada
Commission has the power to require the Company's stock certificates to bear a
legend indicating that the securities are subject to the Nevada Act. However, to
date, the Nevada Commission has not imposed such a requirement on the Company.
The Company may not make a public offering of its securities without the
prior approval of the Nevada Commission if the securities or the proceeds
therefrom are intended to be used to construct, acquire or finance gaming
facilities in Nevada, or to retire or extend obligations incurred for such
purposes. Such approval, if given, does not constitute a finding, recommendation
or approval by the Nevada Commission or the Nevada Board as to the accuracy or
adequacy of the prospectus or the investment merits of the securities. Any
representation to the contrary is unlawful.
Changes in control of the Company through merger, consolidation, stock or
asset acquisitions, management or consulting agreements, or any act or conduct
by a person whereby the person obtains control, may not occur without the prior
approval of the Nevada Gaming Authorities. Entities seeking to acquire control
of a Registered Corporation must satisfy the Nevada Board and Nevada Commission
in a variety of stringent standards prior to assuming control of such Registered
Corporation. The Nevada Commission may also require controlling stockholders,
officers, directors and other persons having a material relationship or
involvement with the entity proposing to acquire control to be investigated and
licensed as part of the approval process relating to the transaction.
The Nevada legislature has declared that some corporate acquisitions opposed
by management, repurchases of voting securities and corporate defense tactics
affecting Nevada gaming licensees, and Registered Corporations that are
affiliated with those operations, may be injurious to stable and productive
corporate gaming. The Nevada Commission has established a regulatory scheme to
ameliorate the potentially adverse effects of these business practices upon
Nevada's gaming industry and to further Nevada's policy to: (i) assure the
financial stability of corporate gaming operators and their affiliates; (ii)
preserve the beneficial aspects of conducting business in the corporate form;
and (iii) promote a neutral environment for the orderly governance of corporate
affairs. Approvals are, in certain circumstances, required from the Nevada
Commission before the Company can make exceptional repurchases of voting
securities above the current market price thereof and before a corporate
acquisition opposed by management can be consummated. The Nevada Act also
requires prior approval of a plan of recapitalization proposed by the Company's
Board of Directors in response to a tender offer made directly to the Registered
Corporation's stockholders for the purposes of acquiring control of the
Registered Corporation.
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License fees and taxes, computed in various ways depending on the type of
gaming or activity involved, are payable to the State of Nevada and to the
counties and cities in which the Nevada licensee's respective operations are
conducted. Depending upon the particular fee or tax involved, these fees and
taxes are payable either monthly, quarterly or annually and are based upon
either: (i) a percentage of the gross revenues received; (ii) the number of
gaming devices operated; or (iii) the number of table games operated. A casino
entertainment tax is also paid by casino operations where entertainment is
furnished in connection with the selling of food or refreshments. Nevada
licensees that hold a license as an operator of a slot route, or a
manufacturer's or distributor's license, also pay certain fees and taxes to the
State of Nevada.
Any person who is licensed, required to be licensed, registered, required to
be registered, or is under common control with such persons (collectively,
"Licensees"), and who proposes to become involved in a gaming venture outside of
Nevada is required to deposit with the Nevada Board, and thereafter maintain, a
revolving fund in the amount of $10,000 to pay the expenses of investigation of
the Nevada Board of their participation in such foreign gaming. The revolving
fund is subject to increase or decrease in the discretion of the Nevada
Commission. Thereafter, Licensees are required to comply with certain reporting
requirements imposed by the Nevada Act. A licensee is also subject to
disciplinary action by the Nevada Commission if it knowingly violates any laws
of the foreign jurisdiction pertaining to the foreign gaming operation, fails to
conduct the foreign gaming operation in accordance with the standards of honesty
and integrity required of Nevada gaming operations, engages in activities that
are harmful to the State of Nevada or its ability to collect gaming taxes and
fees, or employs a person in the foreign operation who has been denied a license
or finding of suitability in Nevada on the ground of personal unsuitability.
COLORADO GAMING LAWS AND REGULATIONS
The State of Colorado created the Division of Gaming (the "Division") within
the Department of Revenue to license, implement, regulate and supervise the
conduct of limited gaming under the Colorado Limited Gaming Act. The Director of
the Division, under the supervision of a five-member Colorado Limited Gaming
Control Commission (the "Colorado Commission"), has been granted broad power to
ensure compliance with the Colorado gaming regulations (the "Colorado
Regulations"). The Director may inspect, without notice, impound or remove any
gaming device. He may examine and copy any licensee's records, may investigate
the background and conduct of licensees and their employees, and may bring
disciplinary actions against licensees and their employees. He may also conduct
detailed background investigations of persons who loan money to the Company.
The Colorado Commission is empowered to issue five types of gaming and
gaming-related licenses. The licenses are revocable and non-transferable. The
failure or inability of the Company, HCCMC, Harveys Wagon Wheel or others
associated with Harveys Wagon Wheel, to maintain necessary gaming licenses will
have a material adverse effect on the operations of the Company. All persons
employed by the Company, HCCMC or Harveys Wagon Wheel and involved, directly or
indirectly, in gaming operations in Colorado also are required to obtain a
Colorado gaming license. All licenses must be renewed annually.
As a general rule, under the Colorado Regulations, it is a criminal
violation for any person to have a legal, beneficial, voting or equitable
interest, or right to receive profits, in more than three retail gaming licenses
in Colorado. The Colorado Commission has ruled that a person does not have an
interest in a licensee for purposes of the multiple license prohibition if: (i)
such person has less than a five percent (5%) interest in an institutional
investor which has an interest in a publicly traded licensee or publicly traded
company affiliated with a licensee (such as the Company); (ii) a person has a
five percent (5%) or more financial interest in an institutional investor, but
the institutional investor has less than a five percent (5%) interest in a
publicly traded licensee or publicly traded company affiliated with a licensee;
(iii) an institutional investor has less than a five percent (5%) financial
interest in a publicly traded licensee or publicly traded company affiliated
with a licensee; (iv) an institutional investor possesses securities in a
fiduciary capacity for another person, and does not exercise voting control over
five percent (5%) or more
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of the outstanding voting securities of a publicly traded licensee or of a
publicly traded company affiliated with a licensee; (v) a registered broker or
dealer retains possession of securities of a publicly traded licensee or of a
publicly traded company affiliated with a licensee for its customers in street
name or otherwise, and exercises voting rights for less than five percent (5%)
of the publicly traded licensee's voting securities or of a publicly traded
company affiliated with a licensee; (vi) a registered broker or dealer acts as a
market maker for the stock of a publicly traded licensee or of a publicly traded
company affiliated with a licensee and possesses a voting interest in less than
five percent (5%) of the stock of the publicly traded licensee or of a publicly
traded company affiliated with a licensee; (vii) an underwriter is holding
securities of a publicly traded licensee or of a publicly traded company
affiliated with a licensee as part of an underwriting for no more than 90 days
if it exercises voting rights of less than five percent (5%) of the outstanding
securities of a publicly traded licensee or of a publicly traded company
affiliated with a licensee; (viii) a stock clearinghouse holds voting securities
for third parties, if it exercises voting rights with respect to less than five
percent (5%) of the outstanding securities of a publicly traded licensee or of a
publicly traded company affiliated with a licensee; or (ix) a person owns less
than five percent (5%) of the voting securities of the publicly traded licensee
or publicly traded company affiliated with a licensee. Hence, the Company's and
its stockholders' business opportunities in Colorado are limited to such
interests that comply with the statute and the Colorado Commission's rule.
Although attorneys for the Colorado legislature initially expressed concern
that the promulgation of the above-described regulation was beyond the Colorado
Commission's statutory delegated authority, they appear to have retreated from
this position. Therefore, unless the Colorado legislature repeals the
regulation, it is likely that it will continue in effect.
In addition, pursuant to the Colorado Regulations, no manufacturer or
distributor of slot machines may have an interest in any casino operator, allow
any of its officers to have such an interest, employ any person if such person
is employed by a casino operator, or allow any casino operator or person with a
substantial interest therein to have an interest in a manufacturer's or
distributor's business. The Colorado Commission has ruled that a person does not
have a "substantial interest" if it directly or indirectly has less than five
percent (5%) of such voting securities of a licensee.
Under the Colorado Regulations, any person or entity having any direct or
indirect interest in a gaming licensee or an applicant for a gaming license,
including, but not limited to, the Company and stockholders of the Company, may
be required to supply the Colorado Commission with substantial information,
including, but not limited to, background information, source of funding
information, a sworn statement that such person or entity is not holding his
interest for any other party, and fingerprints. Such information, investigation
and licensing as an "associated person" automatically will be required of all
persons (other than certain institutional investors discussed below) which
directly or indirectly own ten percent (10%) or more of a direct or indirect
legal, beneficial or voting interest in Harveys Wagon Wheel, through their
ownership in the Company. Such persons must report their interest and file
appropriate applications within 45 days after acquiring such interest. Persons
directly or indirectly having a five percent (5%) or more interest (but less
than 10%) in Harveys Wagon Wheel, through their ownership in the Company, must
report their interest to the Colorado Commission within ten (10) days after
acquiring such interest and may be required to provide additional information
and to be found suitable. If certain institutional investors provide certain
information to the Colorado Commission, such investors, at the Colorado
Commission's discretion, may be permitted to own up to 14.99% of Harveys Wagon
Wheel, through their ownership in the Company, before being required to be found
suitable. All licensing and investigation fees will have to be paid by the
person in question. The associated person investigation fee currently is $53 per
hour.
The Colorado Commission also has the right to request information from any
person directly or indirectly interested in, or employed by, a licensee, and to
investigate the moral character, honesty, integrity, prior activities, criminal
record, reputation, habits and associations of (i) all persons licensed pursuant
to the Colorado Limited Gaming Act, (ii) all officers, directors and
stockholders of a licensed
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privately held corporation, (iii) all officers, directors and stockholders
holding either a five percent (5%) or greater interest or a controlling interest
in a licensed publicly traded corporation, (iv) all general partners and all
limited partners of a licensed partnership, (v) all persons which have a
relationship similar to that of an officer, director or stockholder of a
corporation (such as members and managers of a limited liability company), (vi)
all persons supplying financing or loaning money to any licensee connected with
the establishment or operation of limited gaming, and (vii) all persons having a
contract, lease or ongoing financial or business arrangement with any licensee,
where such contract, lease or arrangement relates to limited gaming operations,
equipment, devices or premises.
In addition, under the Colorado Regulations, every person who is a party to
a "gaming contract" with an applicant for a license, or with a licensee, upon
the request of the Colorado Commission or the Director, must promptly provide to
the Colorado Commission or Director all information which may be requested
concerning financial history, financial holdings, real and personal property
ownership, interests in other companies, criminal history, personal history and
associations, character, reputation in the community, and all other information
which might be relevant to a determination whether a person would be suitable to
be licensed by the Colorado Commission. Failure to provide all information
requested constitutes sufficient grounds for the Director or the Colorado
Commission to require a licensee or applicant to terminate its "gaming contract"
(as defined below) with any person who failed to provide the information
requested. In addition, the Director or the Colorado Commission may require
changes in "gaming contracts" before an application is approved or participation
in the contract is allowed. A "gaming contract" is defined as an agreement in
which a person does business with or on the premises of a licensed entity.
An application for licensure or suitability may be denied for any cause
deemed reasonable by the Colorado Commission or the Director, as appropriate.
Specifically, the Colorado Commission and the Director must deny a license to
any applicant who (i) fails to prove by clear and convincing evidence that the
applicant is qualified; (ii) fails to provide information and documentation
requested; (iii) fails to reveal any fact material to qualification, or supplies
information which is untrue or misleading as to a material fact pertaining to
qualification; (iv) has been, or is any director, officer, general partner,
stockholder, limited partner or other person who has a financial or equity
interest in the applicant who has been, convicted of certain crimes, including
the service of a sentence upon conviction of a felony in a correctional
facility, city or county jail, or community correctional facility or under the
state board of parole or any probation department within ten years prior to the
date of the application, gambling-related offenses, theft by deception or crimes
involving fraud or misrepresentation, is under current prosecution for such
crimes (during the pendency of which license determination may be deferred), is
a career offender or a member or associate of a career offender cartel, or is a
professional gambler; or (v) has refused to cooperate with any state or federal
body investigating organized crime, official corruption or gaming offenses.
If the Colorado Commission determines that a person or entity is unsuitable
to own interests in the Company, then the Company, HCCMC or Harveys Wagon Wheel
may be sanctioned, which may include the loss by the Company, HCCMC or Harveys
Wagon Wheel of their respective approvals and licenses.
The Colorado Commission does not need to approve in advance a public
offering of securities but rather requires a filing of notice and additional
documents with regard to such public offering prior to such public offering.
Under the regulations, the Colorado Commission may, in its discretion, require
additional information and prior approval of such public offering.
In addition, the Colorado Regulations prohibit a licensee or affiliated
company thereof, such as the Company, from paying dividends, interest or other
remuneration to any unsuitable person, or recognizing the exercise of any voting
rights by any unsuitable person. Further, the Company may repurchase the shares
of anyone found unsuitable at the lesser of the cash equivalent to the original
investment in the Company or the current market price. Further, the regulations
require anyone with a material involvement
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with a licensee, including a director or officer of a holding company, such as
the Company, to file for a finding of suitability if required by the Colorado
Commission.
In addition to its authority to deny an application for a license or
suitability, the Colorado Commission has jurisdiction to disapprove a change in
corporate position of a licensee and may have such authority with respect to any
entity which is required to be found suitable by the Colorado Commission. The
Colorado Commission has the power to require the Company, HCCMC and Harveys
Wagon Wheel to suspend or dismiss managers, officers, directors and other key
employees or sever relationships with other persons who refuse to file
appropriate applications or whom the authorities find unsuitable to act in such
capacities; and may have such power with respect to any entity which is required
to be found suitable.
A person or entity may not sell, lease, purchase, convey or acquire a
controlling interest in the Company without the prior approval of the Colorado
Commission. The Company may not sell any interest in HCCMC or Harveys Wagon
Wheel without the prior approval of the Colorado Commission.
Harveys Wagon Wheel must meet certain architectural requirements, fire
safety standards and standards for access for disabled persons. Harveys Wagon
Wheel also must not exceed certain gaming square footage limits as a total of
each floor and the full building. The casino at Harveys Wagon Wheel may operate
only between 8:00 a.m. and 2:00 a.m., and may permit only individuals 21 years
or older to gamble in the casino. It may permit slot machines, blackjack and
poker, with a maximum single bet of $5.00. Harveys Wagon Wheel may not provide
credit to its gaming patrons.
The Colorado Regulations permit gaming only in a limited number of cities
and certain commercial districts.
The Colorado Constitution permits a gaming tax of up to 40% on adjusted
gross gaming proceeds. The Colorado Commission has set a gaming tax rate of 2%
on adjusted gross gaming proceeds of up to and including $2 million, 4% over $2
million up to and including $4 million, 14% over $4 million up to and including
$5 million, 18% over $5 million up to and including $10 million and 20% on
adjusted gross gaming proceeds in excess of $10 million. The Colorado Commission
also has imposed an annual device fee of $75 per gaming device. The Colorado
Commission may revise the gaming tax rate and device fee from time to time.
Central City has imposed an annual device fee of $1,265 per gaming device and
may revise the same from time to time.
The sale of alcoholic beverages is subject to licensing, control and
regulation by the Colorado Liquor Agencies. All persons who directly or
indirectly own 10% or more of Harveys Wagon Wheel, through their ownership of
the Company, must file applications and possibly be investigated by the Colorado
Liquor Agencies. The Colorado Liquor Agencies also may investigate those persons
who, directly or indirectly, loan money to or have any financial interest in
liquor licensees. All licenses are revocable and not transferable. The Colorado
Liquor Agencies have the full power to limit, condition, suspend or revoke any
such license and any such disciplinary action could (and revocation would) have
a material adverse effect upon the operations of the Company. Harveys Wagon
Wheel holds a hotel and restaurant liquor license for its casino, hotel and
restaurant operations, rather than a gaming tavern license. Accordingly, no
person with an interest in the Company can have an interest in a liquor licensee
which holds anything other than a hotel and restaurant liquor license, and
specifically cannot have an interest in an entity which holds a gaming tavern
license.
IOWA GAMING LAWS AND REGULATIONS
The State of Iowa first authorized excursion gambling boat activities in
1989. The Iowa Racing and Gaming Commission (the "Iowa Commission") has the
authority to grant and review licenses to owners and operators of excursion
gambling boats and has the further authority to adopt and enforce rules
governing a broad range of subjects dealing with excursion gambling boat
facilities and operations. The Iowa
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Commission consists of five members who are appointed by the governor and
confirmed by the state senate. Members serve a term not to exceed three years at
the pleasure of the governor.
Under Iowa law, only non-profit organizations may receive a license to own
gambling game operations; for profit organizations may receive a license for
their management and operation. The Company, through HIMC, together with Iowa
West, a qualified non-profit organization, have been granted the necessary
licenses to own and operate the current gambling facilities and activities on
the riverboat casino at Harveys Casino Hotel. The present licenses have a term
expiring March 31, 1999. The licenses are granted upon the condition that the
license holders accept, observe and enforce all applicable laws, regulations,
ordinances, rules and orders. Any violation by a license holder, including
violations by its officers, employees or agents, may result in disciplinary
action, including the suspension or revocation of the license.
HIMC and Iowa West have entered into an excursion sponsorship and operating
agreement dated August 22, 1994 (the "Operating Agreement") pursuant to which
Iowa West authorizes HIMC to operate the excursion gambling boat activities on
the riverboat casino under Iowa West's gaming license. The Operating Agreement's
initial term continues through December 31, 2002 and during such term HIMC has
agreed to pay Iowa West a fee equal to $1.50 for each adult passenger embarking
upon the excursion gambling boat. HIMC further agrees to pay, and hold Iowa West
harmless from, the admission fees payable to the Iowa Commission and the local
municipality and the wagering tax imposed by Iowa law. Following the expiration
of the initial term of the Operating Agreement, HIMC may extend its provisions
for five successive three-year periods, except that the admission fees payable
by HIMC to Iowa West for each such period shall be adjusted to reflect increases
in the consumer price index.
Excursion boat gambling licenses may be granted by the Iowa Commission only
in those counties that have approved the conduct of gambling games in a
county-wide referendum. Gambling has been approved by the county electorate in
Pottawattamie County, Iowa, the location of Harveys Casino Hotel, but another
referendum requested by petition can be held and there can be no assurance that
gambling would again be approved. If licenses to conduct gambling games and to
operate an excursion gambling boat are in effect at the time gambling is
disapproved by a referendum of the county electorate, the licenses remain valid
and may, at the discretion of the Iowa Commission, be renewed for a total of
nine years from the date of the original issue.
Following the issuance of a gaming license, the Iowa Commission monitors and
supervises the activities of the excursion gambling boat and its licenses.
Material contracts to be entered into by the licensee, changes in ownership of
the licensee and acquisitions of interests in other gambling activities by the
licensee or its owners must all be reported to, and approved by, the Iowa
Commission. Further, the Iowa Commission has the authority to determine the
payouts from the gambling games, to set the payout rate for all slot machines,
to establish minimum charges for admission to excursion gambling boats and
regulate the number of free admissions and to define the excursion season and
the duration of an excursion.
Iowa law authorizes the imposition of an admission fee, set by and payable
to the Iowa State Treasurer, on each person embarking on an excursion gambling
boat. An additional admission fee may be imposed by the municipality in which
the gambling operation is located. In practice, the Iowa Commission has not
imposed a per-person admission fee, but rather imposed a fee on each excursion
gambling boat based upon the estimated costs of supervision and enforcement to
be incurred by the Iowa Commission for the ensuing fiscal year. For the fiscal
year beginning July 1, 1998, the fee is $303,680, payable in weekly installments
of $5,840. A $0.50 per person admission fee is also payable to the City of
Council Bluffs, Iowa. Further, Iowa law imposes an annual wagering tax ranging
from five percent on the first million of adjusted gross receipts from gambling
games to 20 percent on adjusted gross receipts in excess of $3 million.
The Company's excursion gambling boat activities are also subject to safety
and inspection requirements of the State of Iowa and the U.S. Coast Guard. These
requirements set limits on the operation of
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the vessel; mandate that it must be operated by a minimum complement of licensed
personnel; establish periodic inspections, including the physical inspection of
the outside hull requiring the vessel to be drydocked every five years; and
establish other mechanical and operational rules.
ENVIRONMENTAL MATTERS
The Company is subject to various Federal, state and local laws, ordinances
and regulations which (i) govern activities or operations that may have adverse
environmental effects, such as discharges to air and water, as well as handling
and disposal of solid and hazardous toxic wastes, or (ii) may impose liability
on property owners and operators for the costs of removal or remediation of
certain hazardous substances released on their property. The Company's
management believes it is in material compliance with these laws.
Harveys Wagon Wheel is in the vicinity of the Central City/Clear Creek
Superfund Site (the "Superfund Site") as designated by the Environmental
Protection Agency (the "EPA") pursuant to the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended ("CERCLA" or
"Superfund"). The Superfund Site, the overall boundaries of which have not been
explicitly defined, includes numerous specifically identified areas of mine
tailings and other waste piles from former gold mine operations that are the
subject of ongoing investigation and cleanup by the EPA and the State of
Colorado. CERCLA requires cleanup of sites from which there has been a release
or threatened release of hazardous substances and authorizes the EPA to take any
necessary response actions at Superfund sites, including ordering potentially
responsible parties ("PRPs") to clean up or contribute to the cleanup of a
Superfund site. PRPs are broadly defined under CERCLA, and include past and
present owners and operators of a site. Courts have interpreted CERCLA to impose
strict, joint and several liability upon all persons liable for response costs.
In the course of developing Harveys Wagon Wheel, investigations at the site
were conducted in accordance with requirements of governmental authorities as a
prerequisite to obtaining necessary development permits. The investigations have
been completed and the requisite permits issued. Currently, the EPA has not
identified any mine tailings or other waste piles at Harveys Wagon Wheel.
Nonetheless, there is the potential that the EPA or other governmental
authorities could broaden their investigations and identify additional areas,
including the Harveys Wagon Wheel site, for cleanup as part of the Superfund
Site. If the Harveys Wagon Wheel site were included in the EPA's investigation
and designated as an additional area within the Superfund Site, the Company may
be identified as a PRP and any liability of the Company related to the Superfund
Site could have a material adverse effect on the Company.
ITEM 2. PROPERTIES
Harveys Resort comprises approximately 1,020,000 square feet on
approximately 19.8 acres, of which the Company owns approximately 5.4 acres and
leases approximately 14.4 acres pursuant to several ground leases that expire in
2045. A 973,000-square foot parking garage and certain other amenities are
located on the leased property.
The Harveys Wagon Wheel hotel and casino facility encompasses approximately
200,000 square feet on approximately 1.1 acres and a 530-space self-parking
garage on a contiguous 8 acre parcel. Additionally, HCCMC owns approximately 40
acres of undeveloped land adjacent to the Harveys Wagon Wheel facility.
Harveys Casino Hotel is located on approximately 36 acres of land owned by
the Company. The land-based amenities, including a covered "skywalk" to the
riverboat casino, are comprised of a hotel, convention center, and passenger
staging area, totaling nearly 300,000 square feet. Contiguous thereto is a
24-acre leasehold parcel which contains the boat docking facility and additional
parking. This parcel is subject to a long term lease with the City of Council
Bluffs for a nominal annual sum. In fiscal 1999, the Company commenced
construction of a 1,630 space parking structure that will feature
climate-controlled
17
<PAGE>
access to the adjacent casino. Additionally, the Company owns an adjacent
44-acre parcel suitable for expansion or support facilities.
ITEM 3. LEGAL PROCEEDINGS
The Company is a defendant in various lawsuits relating to routine matters
incidental to its business. Management does not believe that the outcome of any
such litigation, in the aggregate, will have a material adverse effect on the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter of fiscal 1998.
18
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Prior to the Merger the Company was a publicly held company and the $0.01
par value per share common stock of the Company (the "Common Stock") was traded
on the New York Stock Exchange (the "NYSE") under the symbol "HVY." Following
the Merger, there is no public market for the Company's common equity
securities.
As of February 25, 1999, there were ten holders of the Company's Class A
Common Stock and ten holders of the Company's Class B Common Stock.
For the two fiscal years prior to the Merger the Company paid regular
quarterly dividends of $0.05 per share of Common Stock. Following the Merger,
the leverage and fixed charge obligations of the Company were substantially
increased. In addition, the certificates of designation (the "Certificates of
Designation") of the Company's 13 1/2% Series A Senior Redeemable Convertible
Cumulative Preferred Stock and 13 1/2% Series B Senior Redeemable Convertible
Cumulative Preferred Stock collectively, the "Preferred Stock" prohibit the
Company from paying cash dividends on its Common Stock unless full cumulative
dividends on all outstanding Preferred Stock due for past periods have been
declared and paid in cash, or a sufficent sum for the payment thereof
irrevocably set apart in trust. Consequently, it is unlikely that the Company
will pay any cash dividends on its Common Stock before 2011, the mandatory
redemption date for the Preferred Stock. See "ITEM 7. MANAGEMENT'S DISCUSSION
AND ANALYSIS OF THE COMPANY'S FINANCIAL CONDITIONS AND RESULTS OF
OPERATIONS--Liquidity and Capital Resources".
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data of the
Company for the years ended November 30, 1994 through November 30, 1998. The
statement of income and balance sheet data are derived from the Company's
audited Consolidated Financial Statements for the years ended November 30, 1994
through November 30, 1998. Deloitte & Touche LLP's report with respect to the
financial statements for the fiscal years ended November 30, 1996, 1997 and 1998
is included elsewhere in this report. The Selected Consolidated Financial Data
is not necessarily indicative of the Company's future results of operations or
financial condition, and should be read in conjunction with "Management's
Discussion and
19
<PAGE>
Analysis of the Company's Financial Condition and Results of Operations" and the
Company's Consolidated Financial Statements, including the Notes thereto, and
the other financial and statistical information appearing elsewhere in this
report.
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
YEARS ENDED NOVEMBER 30,
------------------------------------------------------
1998 1997 1996 1995 1994
---------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF INCOME DATA
Revenues
Casino............................................. $ 244,784 $ 216,564 $ 186,369 $ 121,369 $ 83,991
Lodging............................................ 34,273 32,175 28,746 25,499 21,870
Food and beverage.................................. 47,079 44,406 39,852 33,970 29,768
Other.............................................. 7,111 7,277 6,402 6,287 5,599
Management fees and joint venture.................. -- 4,507 5,023 1,669 --
Less casino promotional allowances................. (23,738) (21,366) (18,643) (15,594) (12,942)
---------- --------- --------- --------- ---------
Total net revenues............................... 309,509 283,563 247,749 173,200 128,286
---------- --------- --------- --------- ---------
Costs and expenses
Casino............................................. 115,837 100,500 86,732 57,520 40,999
Lodging............................................ 13,710 13,374 11,677 9,458 7,429
Food and beverage.................................. 30,143 29,886 24,797 20,280 17,401
Other operating.................................... 2,885 2,811 2,813 2,838 2,557
Selling, general and administrative................ 78,987 73,945 67,128 50,270 39,813
Depreciation and amortization...................... 20,796 19,077 16,482 12,333 9,704
Business development costs......................... 96 2,690 -- -- --
Pre-opening expenses............................... -- -- 4,099 2,147 --
Merger related costs............................... 1,218 -- -- -- --
---------- --------- --------- --------- ---------
Total costs and expenses......................... 263,672 242,283 213,728 154,846 117,903
---------- --------- --------- --------- ---------
Operating income..................................... 45,837 41,280 34,021 18,354 10,382
Interest expense, net(1)............................. 15,576 18,892 14,195 7,960 2,886
Gain on sale of interests in unconsolidated
affiliate.......................................... -- 27,422 -- -- --
Life insurance benefits.............................. -- -- -- 2,246 371
Other income (expense), net.......................... (142) (137) (221) 605 (230)
---------- --------- --------- --------- ---------
Income before income taxes and extraordinary item.... 30,119 49,673 19,605 13,245 7,638
Income tax provision................................. (11,417) (18,898) (7,791) (3,900) (2,500)
---------- --------- --------- --------- ---------
Income before extraordinary item..................... 18,702 30,775 11,814 9 ,345 5,138
Loss on early retirement of debt, net of taxes....... -- -- 522 -- --
---------- --------- --------- --------- ---------
Net income........................................... $ 18,702 $ 30,775 $ 11,292 $ 9,345 $ 5,138
---------- --------- --------- --------- ---------
---------- --------- --------- --------- ---------
Net income per common share--Basic
Income before extraordinary item................... $ 1.87 $ 3.13 $ 1.22 $ 1.00 $ 0.58
Extraordinary item................................. -- -- (0.06) -- --
---------- --------- --------- --------- ---------
Net income......................................... $ 1.87 $ 3.13 $ 1.16 $ 1.00 $ 0.58
---------- --------- --------- --------- ---------
---------- --------- --------- --------- ---------
Net income per common share--Diluted
Income before extraordinary item................... $ 1.83 $ 3.13 $ 1.22 $ 0.99 $ 0.58
Extraordinary item................................. -- -- (0.06) -- --
---------- --------- --------- --------- ---------
Net income......................................... $ 1.83 $ 3.13 $ 1.16 $ 0.99 $ 0.58
---------- --------- --------- --------- ---------
---------- --------- --------- --------- ---------
Dividend on common stock........................... $ 0.20 $ 0.20 $ 0.18 $ 0.16 $ 0.13
Weighted average common shares used in calculating
income per common share
Basic.............................................. 10,023,113 9,826,636 9,645,708 9,364,520 8,885,496
Diluted............................................ 10,220,476 9,843,871 9,698,500 9,456,051 8,885,525
OTHER OPERATING DATA
EBITDA(2).......................................... $ 67,947 $ 63,047 $ 54,602 $ 35,080 $ 20,458
Net cash provided by operating activities.......... 38,388 44,637 39,768 19,594 14,106
Net cash provided by (used in) investing
activities....................................... (27,590) 24,428 (55,502) (70,433) (33,505)
Net cash provided by (used in) financing
activities....................................... 1,467 (35,151) 26,363 53,886 15,506
Capital expenditures(3)............................ 17,681 22,532 72,395 74,418 35,593
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED NOVEMBER 30,
------------------------------------------------------
1998 1997 1996 1995 1994
---------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.......................... $ 67,299 $ 55,035 $ 21,121 $ 10,493 $ 7,446
Total assets....................................... 424,158 403,465 393,768 313,244 238,544
Long-term debt, net................................ 150,000 150,220 181,354 126,676 64,896
Stockholders' equity............................... 200,454 179,358 149,763 132,301 123,611
</TABLE>
- ------------------------------
Notes to Selected Consolidated Financial Data:
(1) Net of amounts capitalized and interest income.
(2) EBITDA (operating income plus depreciation and amortization and adjusted for
certain non-recurring items) should not be construed as an indicator of the
Company's operating performance, or as an alternative to cash flows from
operating activities as a measure of liquidity. The Company has presented
EBITDA solely as supplemental disclosure because the Company believes that
it 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
prinicples. For fiscal 1998, EBITDA has been adjusted to exclude
approximately $96,000 of business development costs and $1.2 million of
expensed merger related costs; 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.
(3) Of amounts shown, approximately $8.1 million for fiscal 1998, $11.6 million
in fiscal 1997, $7.2 million in fiscal 1996, $4.6 million in fiscal 1995 and
$4.4 million in fiscal 1994 related to recurring capital expenditures for
maintenance of the current facilities.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE COMPANY'S FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company currently owns and operates (i) Harveys Resort on the south
shore of Lake Tahoe, Nevada, (ii) Harveys Wagon Wheel in Central City, Colorado,
and (iii) Harveys Casino Hotel in Council Bluffs, Iowa. Until October 24, 1997,
the Company, through its wholly-owned subsidiary, Harveys L. V. Management
Company, Inc. ("HLVMC"), owned 40% of the equity interest in Hard Rock Hotel,
Inc. ("HRHC") which owns the Hard Rock Hotel and Casino in Las Vegas, Nevada.
HLVMC managed the Las Vegas hotel and casino pursuant to a contract with HRHC.
On October 24, 1997, the Company sold its 40% equity interest and its interest
in the management contract to HRHC (the "Hard Rock Sale").
The following table presents certain operating results for the Company's
properties. The operating results for Harveys Resort, which, since June 1, 1997,
has been owned and operated by HTMC, have been presented, for all periods,
excluding the effects of corporate and future business development expenses.
Those expenses have been presented under the caption "Corporate and
Development." On April 30, 1996, the Company acquired all of the 30% minority
interest in Harveys Wagon Wheel Casino Limited Liability Company ("HWW") which
owned Harveys Wagon Wheel. Since that time Harveys Wagon Wheel has been wholly
owned by the Company. The riverboat casino portion of Harveys Casino Hotel
opened on January 1, 1996 and the land-based facilities opened on May 24, 1996.
The operating results of HLVMC include the fees earned by such entity for
managing the operations of Hard Rock Hotel and Casino and the
21
<PAGE>
40% equity interest in the income of the Hard Rock Hotel and Casino from the
date that property opened, March 9, 1995, through the Hard Rock Sale.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Net Revenues
Harveys Resort............................................................. $ 133,454 $ 129,970 $ 130,535
Harveys Wagon Wheel........................................................ 62,514 49,445 43,128
Harveys Casino Hotel....................................................... 113,541 99,641 69,063
Harveys Las Vegas Management Co............................................ -- 4,507 5,023
---------- ---------- ----------
Total Net Revenues....................................................... $ 309,509 $ 283,563 $ 247,749
---------- ---------- ----------
---------- ---------- ----------
Operating Income (Loss)(1)
Harveys Resort............................................................. $ 23,768 $ 23,674 $ 23,585
Harveys Wagon Wheel........................................................ 14,107 9,848 8,652
Harveys Casino Hotel....................................................... 21,824 17,630 8,016
Harveys Las Vegas Management Co............................................ -- 4,308 4,800
Corporate and Development.................................................. (13,862) (14,180) (11,032)
---------- ---------- ----------
Total Operating Income................................................... $ 45,837 $ 41,280 $ 34,021
---------- ---------- ----------
---------- ---------- ----------
EBITDA(2)
Harveys Resort............................................................. $ 33,160 $ 32,125 $ 32,127
Harveys Wagon Wheel........................................................ 17,731 13,114 11,564
Harveys Casino Hotel....................................................... 29,065 24,285 16,849
Harveys Las Vegas Management Co............................................ -- 4,507 5,021
Corporate and Development.................................................. (12,009) (10,984) (10,959)
---------- ---------- ----------
Total EBITDA............................................................. $ 67,947 $ 63,047 $ 54,602
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
- ------------------------
(1) For fiscal year 1998 and 1997 the operating loss for Corporate and
Development includes a write-off of business development costs of
approximately $96,000 and $2.7 million, respectively. For fiscal year 1998
the operating loss for Corporate and Development includes merger related
costs of approximately $1.2 million. For fiscal year 1996 operating income
includes approximately $4.1 million of pre-opening expenses related to
Harveys Casino Hotel.
(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 EBITDA solely as supplemental
disclosure because the Company believes that it allows for a more complete
analysis of results of operations. Because companies do not calcuate 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. For fiscal year
1998 and 1997, EBITDA for Corporate and Development excludes the write-off
of approximately $96,000 and $2.7 million of business development costs,
respectively. For fiscal year 1998, EBITDA for Corporate and Development
excludes approximately $1.2 million of merger related costs. For fiscal year
1996, Harveys Casino Hotel's EBITDA excludes approximately $4.1 million of
pre-opening expenses.
FISCAL YEAR ENDED NOVEMBER 30, 1998 COMPARED TO FISCAL YEAR ENDED NOVEMBER 30,
1997
The Company's consolidated net revenues for fiscal 1998 were $309.5 million,
an increase of $25.9 million, or 9.1%, from the $283.6 million recorded in
fiscal 1997. The improvement was attributable to an increase in net revenues at
all of the Company's properties. Net revenues at Harveys Casino Hotel in Iowa
improved by $13.9 million due, in part, to the casino expansion which opened
near the end of the first
22
<PAGE>
quarter of fiscal 1998. Harveys Wagon Wheel Hotel/Casino experienced an increase
in net revenues of $13.1 million. The increased net revenues from the Colorado
property demonstrated the value of a full year of availability of additional
on-site parking added by the opening of the 530-space parking garage in June
1997. Net revenues from the Company's Lake Tahoe property increased by
approximately $3.5 million due, in part, to a decrease in weather-related road
closures or controls in the first quarter of 1998 compared to 1997. The revenue
contribution from the management fees and equity in earnings from the Hard Rock
Hotel and Casino decreased approximately $4.5 million, as a result of the Hard
Rock Sale.
CASINO. Fiscal 1998 casino revenues increased $28.2 million, up 13.0% from
fiscal 1997 casino revenues of $216.6 million to $244.8 million. Gaming activity
in Iowa produced an increase of approximately $13.4 million in casino revenues.
Harveys Wagon Wheel produced an increase of approximately $13.2 million in
casino revenues. The Company's Lake Tahoe casino revenues improved by
approximately $1.6 million. Casino costs and expenses also increased, up $15.3
million to $115.8 million for the 1998 fiscal year. The Council Bluffs casino
accounted for $8.8 million of the increase in costs and expenses while the
Colorado operations accounted for approximately $6.0 million of the increase.
The Lake Tahoe operations increased $0.5 million. The increase in casino costs
and expenses at Iowa and Colorado properties was attributable to increases in
payroll and related costs, gaming taxes and license fees and an increase in
promotional expenses at both of the properties (a consequence of increased
casino revenues).
LODGING. Lodging revenues of $34.3 million for fiscal 1998 increased $2.1
million, or 6.5%, from fiscal 1997. The hotel facility at Lake Tahoe contributed
$1.6 million of the lodging revenues improvement and the Council Bluffs hotel
contributed approximately $0.5 million of the lodging revenues improvement.
Lodging profits improved by approximately $1.8 million. The improvement in
lodging profit margins was the result of an increase in revenue per available
room at all properties.
FOOD AND BEVERAGE. Food and beverage revenues improved by 6.0% , up $2.7
million to $47.1 million. Food and beverage revenues from the Council Bluffs
property contributed an increase of approximately $1.4 million, and the Lake
Tahoe property contributed an increase of approximately $1.2 million. The
Central City property contributed an increase of $0.1 million in beverage
revenues. Food and beverage profits and margins improved for the year-to-year
comparison due to increased revenues at all operating properties and the
controlling of related costs.
OTHER REVENUES. The combination of other revenues and the contribution from
management fees and equity in the earnings from the Hard Rock Hotel and Casino
amounted to $7.1 million, a decrease of $4.7 million, or 39.7%, primarily as a
result of the Hard Rock Sale.
SG&A, DEPRECIATION AND AMORTIZATION, NET INTEREST EXPENSE. Consolidated
selling, general and administrative expense increased 6.8%, up $5.1 million to
$79.0 million for fiscal 1998. The operations in Council Bluffs experienced an
increase of approximately $0.8 million in selling, general and administrative
expenses. The Lake Tahoe operations recognized an increase in overall selling,
general and administrative expenses of approximately $0.7 million from fiscal
1997 to fiscal 1998. Selling, general and administrative expenses increased by
$2.6 million at the Central City property as a result of an increase in
promotional costs. Depreciation and amortization expenses increased by $1.7
million, or 9.0%. The increase in depreciation expense at the Lake Tahoe
property included a charge of approximately $0.4 million related to the disposal
of assets necessary to facilitate the construction of a Hard Rock Cafe on the
casino floor, which opened early in the third quarter of fiscal 1998. The
balance of the increase in depreciation was attributable to the completion of
the parking garage in Central City and replacements and improvements at the
operating properties. Interest expense, net of interest income and interest
capitalized, decreased by approximately $3.3 million to $15.6 million for fiscal
1998. The decrease was attributable to the use of a portion of the proceeds from
the Hard Rock Sale to pay the outstanding balance under the Company's credit
facility, thereby reducing interest expenses. The balance of the proceeds was
invested in cash equivalents, resulting in an increase in interest income.
Approximately $0.4 million of interest expense was capitalized during the first
nine months of fiscal 1997 in connection with the construction of the parking
facility in Central City. No interest was capitalized during fiscal 1998.
23
<PAGE>
BUSINESS DEVELOPMENT COSTS. In the fourth quarter of fiscal 1998, the
Company reviewed and evaluated certain capitalized costs relative to business
development efforts in specific geographic areas where there was a potential for
approval of casino gaming. As a result of the review process approximately
$96,000 of amounts previously capitalized was written off. The amount expensed
for fiscal 1997 was $2.7 million. The amount of such costs that continued to be
deferred at November 30, 1998 was approximately $3.1 million.
SALE OF INTERESTS IN UNCONSOLIDATED AFFILIATE. In the fourth quarter of
fiscal 1997, as a result of the Hard Rock Sale, the Company received $45.0
million cash and an additional $1.2 million cash in satisfaction of a note and
other amounts due the Company at the time of the sale. The Company recognized a
gain of approximately $27.4 million on the transaction.
NET INCOME. Net income for fiscal 1998 amounted to approximately $18.7
million including after-tax write downs of approximately $0.8 million relative
to business development costs and merger related costs. Net income for fiscal
1997 amounted to approximately $30.8 million, including the after-tax gain of
approximately $17.4 million attributable to the Hard Rock Sale and the after-tax
write-down of approximately $1.7 million related to certain business development
costs.
FISCAL YEAR ENDED NOVEMBER 30, 1997 COMPARED TO FISCAL YEAR ENDED NOVEMBER 30,
1996
The Company's consolidated net revenues for fiscal 1997 were $283.6 million,
an increase of $35.9 million, or 14.5%, from the $247.7 million recorded in
fiscal 1996. The improvement was substantially attributable to the $30.6 million
increase in net revenues produced by Harveys Casino Hotel. Net revenues for
fiscal 1997 from the Council Bluffs, Iowa property included a full twelve months
of operations of the complete facility while fiscal 1996 included only eleven
months of revenues from the riverboat casino and six full months of revenues
from the land-based facilities. Net revenues from the Company's Lake Tahoe
property declined by approximately $0.5 million, the result of adverse first
quarter weather conditions and severe flooding in northern Nevada and in many of
the northern California communities that provide many of the Lake Tahoe
property's customers. Mud slides triggered by the inclement weather closed U. S.
Highway 50, the major link between the south shore of Lake Tahoe and northern
California, for 42 days of the first quarter. Harveys Wagon Wheel experienced an
increase in net revenues of $6.3 million, a substantial portion of which was
recognized in the third and fourth quarters, after the opening of that
property's new parking garage. The revenue contribution from the management fees
and equity in earnings from the Hard Rock Hotel and Casino decreased
approximately $0.5 million, as a result of the Hard Rock Sale.
CASINO. Fiscal 1997 casino revenues increased $30.2 million, up 16.2% from
fiscal 1996 casino revenues of $186.4 million to $216.6 million. The twelve
months of gaming activity in Iowa produced an increase of approximately $23.6
million in casino revenues compared to those produced at the Council Bluffs
property during the initial eleven months of operations in fiscal 1996. The
Company's Lake Tahoe property suffered a decline in casino revenues of
approximately $0.8 million as a result of the adverse weather and road
conditions experienced in the first quarter. Harveys Wagon Wheel produced an
increase of approximately $7.4 million in casino revenues over the prior year
comparable period. Casino costs and expenses increased for the comparable
periods, up $13.8 million to $100.5 million for the current year period. The
Council Bluffs casino accounted for $10.6 million of the increase while the
Colorado operations accounted for approximately $4.3 million of the increase.
The Lake Tahoe operations produced a $1.1 million improvement in casino costs
due to lower payroll and related costs and the reduction of other operating
costs in reaction to the lower casino volume resulting from the impact of the
first quarter's adverse weather conditions.
24
<PAGE>
LODGING. Lodging revenues of $32.2 million for fiscal 1997 were up $3.5
million, or 11.9%, from fiscal 1996. The hotel facility in Council Bluffs, which
opened at the end of May 1996, contributed an increase of $2.8 million in
lodging revenues during 1997, accounting for the majority of the lodging
revenues improvement. Lodging profits improved by approximately $1.7 million.
The decline in lodging profit margins was the result of the contribution from
the Council Bluffs hotel, which has a lower profit margin than the Lake Tahoe
hotel, becoming a more significant part of lodging profits and of the increase
in promotional costs at the Lake Tahoe hotel.
FOOD AND BEVERAGE. Food and beverage revenues improved by 11.4%, up $4.5
million to $44.4 million. Food and beverage revenues from the Council Bluffs
property, which included revenues from the land-based facilities for all of
1997, compared to six full months of the 1996 period, contributed an increase of
approximately $6.3 million. That increase was offset by declines at Lake Tahoe,
precipitated by the effects of adverse weather, and declines at Central City as
the result of outsourcing, commencing the second quarter of fiscal 1996, the
food service and a portion of the beverage service. Food and beverage profits
and margins declined for the period-to-period comparison primarily as a result
of the decision to attractively price the food and beverage offerings at the
Council Bluffs property to attract local customers.
OTHER REVENUES. Other revenues amounted to $11.8 million in fiscal 1997,
including $4.5 million in management fees and the Company's 40% equity interest
in the earnings from the Hard Rock Hotel and Casino, an improvement of $0.4
million from fiscal 1996. The improvement in other revenues was achieved despite
the fact that the contribution from the Hard Rock Hotel and Casino was
recognized for approximately 11 months of fiscal 1997 compared to a full year's
contribution in fiscal 1996.
SG&A, DEPRECIATION AND AMORTIZATION, NET INTEREST EXPENSE. Consolidated
selling, general and administrative expense increased 10.2%, up $6.8 million to
$73.9 million for fiscal 1997. The operations in Council Bluffs experienced an
increase of approximately $5.0 million in selling, general and administrative
expenses. The increase was attributable, in part, to the fact that the entire
Council Bluffs facility was in operation for all of fiscal 1997 compared to
eleven months and approximately six months of operations for the riverboat
casino and land based facilities, respectively, in fiscal 1996. Additionally,
the assessed value of the property was increased resulting in an increase in
property taxes of approximately $0.9 million. Certain fees required to be paid
on the basis of customer headcounts increased by approximately $1.8 million as
the result of increases in the number of customers visiting the Council Bluffs
property. The Lake Tahoe operations recognized an improvement in overall
selling, general and administrative expenses of approximately $0.1 million from
the fiscal 1996 period to the fiscal 1997 period. Selling, general and
administrative expenses increased by $1.8 million at the Central City property
as a result of an increase in promotional costs and a grand opening event
promoting the new parking garage. Depreciation and amortization expenses
increased by $2.6 million. The increase in depreciation was associated with the
expanded facilities in Council Bluffs and the opening of the Central City
parking garage. Interest expense, net of interest income and interest
capitalized, increased by approximately $4.7 million to $18.9 million for fiscal
1997. The increase was attributable to the senior subordinated notes which were
issued in May 1996, and to the effect of capitalizing approximately $2.6 million
of interest in fiscal 1996 in connection with the construction of the Council
Bluffs facilities compared to the effect of capitalizing approximately $0.4
million of interest in the current year in connection with the construction of
the parking facility in Central City.
BUSINESS DEVELOPMENT COSTS. In the fourth quarter of fiscal 1997, the
Company reviewed and evaluated certain capitalized costs relative to business
development efforts in specific geographical areas where there was a potential
for approval of casino gaming. As a result of the review process, amounts
previously capitalized with respect to real estate options, joint ventures,
legal and other costs were written off or revalued. The amount expensed in the
fourth quarter was approximately $2.7 million. The amount of such costs that
continued to be deferred at November 30, 1997 was approximately $0.9 million.
SALE OF INTERESTS IN UNCONSOLIDATED AFFILIATE. In the fourth quarter of
fiscal 1997, the Company sold its 40% equity interest in HRHC and all of the
Company's rights under a management agreement to manage
25
<PAGE>
the operations of the Hard Rock Hotel and Casino. The Company received $45.0
million cash for its equity interest and the rights under the management
agreement and an additional $1.2 million cash in satisfaction of a note and
other amounts due the Company at the time of the sale. The Company recognized a
gain of approximately $27.4 million on the transaction.
NET INCOME. Net income for fiscal 1997 amounted to approximately $30.8
million, including the after-tax gain of approximately $17.4 million
attributable to the sale of the Company's interests in the Hard Rock Hotel and
Casino and the after-tax write-down of approximately $1.7 million related to
certain business development costs, compared to $11.3 million of net income for
fiscal 1996.
LIQUIDITY AND CAPITAL RESOURCES
EFFECTS OF THE MERGER FINANCING. At the Effective Time the leverage and
fixed charge obligations of the Company substantially increased. HAC financed
the Merger with (i) proceeds of approximately $75 million from the issuance of
its Class A Common to Voteco and its Class B Common to Colony III, (ii) proceeds
of approximately $55 million from the issuance of its 13 1/2% Series A Senior
Redeemable Convertible Cumulative Preferred Stock (the "Series A Preferred") to
Voteco and its 13 1/2% Series B Senior Redeemable Convertible Cumulative
Preferred Stock (the "Series B Preferred" and, together with the Series A
Preferred, the "Preferred Stock") to Colony III, (iii) borrowings of $172
million by the Company under a $185 million credit facility (the "Amended and
Restated Credit Facility"), and (iv) the Company's available cash (collectively,
the "Merger Financing").
A portion of the Merger Financing was initially provided pursuant to a loan
(the "Loan") from a group of banks led by Wells Fargo Bank, National Association
("Wells Fargo") to HAC. Upon consummation of the Merger, the Loan was refinanced
principally through the Amended and Restated Credit Facility pursuant to an
Amended and Restated Credit Agreement among the Company, HCCMC, HIMC, HTMC and
HCR Services Company Inc. ("HCRSC"), as borrowers (the "Borrowers"), Wells
Fargo, as swingline lender, letter of credit issuer and agent and the lenders
party thereto. The Amended and Restated Credit Facility replaced the Company's
existing credit facility upon consummation of the Merger.
The Amended and Restated Credit Facililty is secured by substantially all of
the Company's and the other Borrowers' assets including, subject to applicable
gaming approvals, a pledge of all of the capital stock of each of the Borrowers
(other than the Company's), mortgages on all material real property owned or
leased by the Borrowers and the accounts receivable, inventory, equipment and
intangibles of the Borrowers. The Amended and Restated Credit Facillity will
mature and be fully due and payable five years from the date of the Merger. The
permitted principal balance of the Amended and Restated Credit Facility will
reduce on a quarterly basis, commencing on the last day of the seventh fiscal
quarter following the date of the Merger. Interest on borrowings outstanding
under the Amended and Restated Credit Facility will be payable, at the Company's
option, at either the London Inter-Bank Offering Rate ("LIBOR") or an
alternative base rate, in each case plus an applicable margin. In the future,
the applicable margins may be changed, based on the ratio of the Borrowers'
total funded debt to EBITDA. The Amended and Restated Credit Facility contains a
number of covenants that, among other things, subject to applicable gaming
approvals, restrict the ability of the Company and the other Borrowers to
dispose of assets, incur additional indebtedness, prepay any of the Company's
$150 million, 10 5/8% Senior Subordinated Notes, due 2006 (the "Senior
Subordinated Notes"), pay dividends, create liens on assets, make investments,
loans or advances, engage in mergers or consolidations, change the business
conducted by the Company or the other Borrowers or engage in certain
transactions with affiliates and otherwise restrict certain corporate
activities. In addition, under the Amended and Restated Credit Facility, the
Company and the other Borrowers 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. The Amended and Restated Credit Facility contains events of
default customary for facilities of this nature. Specifically, the Amended and
Restated Credit Facility prohibits the payment of cash dividends on the
Preferred Stock, unless the Leverage Ratio is less than or equal to 3 to 1.
"Leverage Ratio" is
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<PAGE>
calculated by reference to the Company, HCCMC, HIMC, HLVMC and HTMC and any
other subsidiaries of the Company subsequently designated under the Amended and
Restated Credit Facility and refers to the ratio of total indebtedness to
EBITDA.
The Senior Subordinated Notes are governed by an indenture (the "Indenture")
and are general unsecured obligations of the Company, subordinated in right of
payment to all existing and future Senior Debt of the Company (as defined in the
Indenture). The Senior Subordinated Notes are guaranteed by each of the
Restricted Subsidiaries of the Company (as defined in the Indenture). Each
guarantee is a general unsecured obligation of the guaranteeing Restricted
Subsidiary, subordinated in right of payment to all existing and future Senior
Debt of each guaranteeing Restricted Subsidiary. The guaranteeing Restricted
Subsidiaries are HCCMC, HIMC, HLVMC and HTMC.
Interest on the Senior Subordinated Notes is payable semi-annually on June 1
and December 1 of each year. The Senior Subordinated Notes will mature on June
1, 2006. The Senior Subordinated Notes are redeemable at the option of the
Company, in whole or in part, at any time on or after June 1, 2001 at prices
ranging from 105.313% of the principal amount plus accrued and unpaid interest,
to 100% of the principal amount plus accrued and unpaid interest beginning June
1, 2004 and thereafter.
The Company recently amended the Indenture with the changes becoming
operative at the Effective Time. The Company sought and received the consent of
the holders of its Senior Subordinated Notes to: (i) the one-time waiver of the
applicability of the Indenture to the Merger, including the waivers of (a) the
change of control covenant in the Indenture and (b) the "Merger, Consolidation
or Sale of Assets" provision in the Indenture that might have restricted the
financing of the Merger and related transactions, and (ii) the amendment of the
definition of "Consolidated Cash Flow" in the Indenture to add back certain
costs related to the Merger. The Company paid a consent fee to consenting
holders of the Senior Subordinated Notes equal to 9% of the principal amount of
the holders' Senior Subordinated Notes.
The Indenture contains certain covenants that impose limitations on, among
other things, (i) the incurrence of additional indebtedness by the Company or
any Restricted Subsidiary, (ii) the payment of dividends, (iii) the repurchase
of capital stock and the making of certain other Restricted Payments and
Restricted Investments (as defined in the Indenture) by the Company or any
Restricted Subsidiary, (iv) mergers, consolidations and sales of assets by the
Company or any Restricted Subsidiary, (v) the creation or incurrence of liens on
the assets of the Company or any Restricted Subsidiary, and (vi) transactions by
the Company or any of its subsidiaries with Affiliates (as defined in the
Indenture). These limitations are subject to a number of qualifications and
exceptions as described in the Indenture.
The Series A Preferred and Series B Preferred are entitled to quarterly
dividends at an annual rate of 13 1/2% of the $550 per share liquidation value
(the "Liquidation Value"). To the extent not paid in cash, dividends will
cumulate and compound quarterly at an annual rate of 13 1/2% of the Liquidation
Value. The Series A Preferred and Series B Preferred are subject to mandatory
redemption on February 1, 2011 for cash at the Liquidation Value plus any
accrued and unpaid dividends, out of any funds legally available therefor. The
Company has the right to redeem the Series A Preferred and the Series B
Preferred at any time for cash at the Liquidation Value plus any accrued and
unpaid dividends. If a Change of Control (as defined in the Certificates of
Designation for the Preferred Stock) of the Company occurs, the Company will be
required to offer to purchase all outstanding shares of the Series A Preferred
and Series B Preferred (the "Change of Control Offer") for cash at a price of
101% of the Liquidation Value plus any accrued and unpaid dividends. However,
the Company will not be required to make the Change of Control Offer on or prior
to the earlier of (i) the date on which all of the Company's Senior Subordinated
Notes have been repaid, repurchased or redeemed in full, and (ii) June 1, 2006,
the date the Senior Subordinated Notes mature. The Certificates of Designation
contain covenants which limit restricted payments or investments; limit
consolidation, merger and the sale of assets; mandate the provision of financial
reports; and limit business activities. In the event of a sale or other
disposition of all but not less than all of the Series A Preferred and Series B
Preferred by the original holders and/or certain related parties (but not
27
<PAGE>
any other transferees) to one or more persons other than the original holders
and certain related parties, the dividend rate and other rights, preferences and
privileges of the Series A Preferred and Series B Preferred may, at the election
of the holders of a majority of the Series A Preferred, be amended so that the
Series A Preferred and Series B Preferred would, in the opinion of an
independent financial advisor chosen by the electing holders, have a market
value of 100% of the Liquidation Value thereof plus any accrued and unpaid
dividends; PROVIDED that in no event shall the reset dividend rate exceed
15 1/2% per annum. Alternatively, the electing holders may effectuate the
foregoing by exchanging all of the Series A Preferred and Series B Preferred for
a new class of preferred stock having terms to which the Series A Preferred and
Series B Preferred would have been reset as aforesaid. Upon the receipt of all
applicable gaming approvals the Series A Preferred and Series B Preferred are
convertible, at the per share rate of 28.7309164 shares of the Class A Common
and Class B Common, respectively, subject to customary anti-dilution
adjustments. Any accrued and unpaid dividends at the time of a conversion will
be required to be paid in cash or, at the Company's election, may be satisfied
with additional shares of the New Common Stock in an amount to be determined in
accordance with the conversion rate.
Immediately following the Effective Time, the Company used $22.0 million of
its available cash to pay down the outstanding balance under the Amended and
Restated Credit Facility. After that payment, the Company had $300.0 million in
long-term debt consisting of $150.0 million of Senior Subordinated Notes and
$150.0 million outstanding under the Amended and Restated Credit Facility. After
the payment, the Company had approximately $27.0 million in cash and cash
equivalents and approximately $34.2 million available under the Amended and
Restated Credit Facility, net of an outstanding letter of credit and subject to
compliance with certain financial covenants.
As of the Effective Time, the Company was in compliance with the covenants
under the Amended and Restated Credit Facility, the Indenture and the
Certificates of Designation.
The Company has budgeted $18.6 million for maintenance capital expenditures
and property improvements and approximately $15.0 million for the construction
of a parking garage at the Council Bluffs property in fiscal 1999. The Company
believes that its existing cash and cash equivalents, cash flows from operations
and its borrowing capacity under the Amended and Restated Credit Facility will
be sufficient to meet the cash requirements of its existing operations during at
the least the next twelve months, including capital improvements and
replacements at the operating properties and debt service requirements. The
Company currently believes that its capital expenditures beyond the next twelve
months will consist of debt service requirements and capital improvements and
replacements in the ordinary course, which the Company expects to be met by
then-existing cash, cash flows from operations and borrowing capacity under the
Amended and Restated Credit Facility. The Company does not currently anticipate
incurring material capital expenditures, balloon or other extraordinary payments
on long-term obligations or any other extraordinary demands or commitments
beyond the next twelve months. The Company does not expect that cash dividends
will be paid on the Preferred Stock prior to 2004 because of, among other
reasons, restrictions in the Amended and Restated Credit Facility and the
Indenture on the payment of cash dividends.
Set forth below is a description of the Company's historical liquidity and
capital resources.
YEAR ENDED NOVEMBER 30, 1998. The Company's primary sources of liquidity
and capital resources during fiscal 1998 were cash flow from operations of
approximately $38.4 million and the proceeds of approximately $4.3 million from
the exercise of options to purchase shares of the Common Stock.
During fiscal 1998, the Company expended approximately $17.7 million in cash
for income taxes. Additionally, the Company made cash payments for dividends of
approximately $2.0 million during the year and incurred additional cash
expenditures of approximately $17.1 million in connection with capital
improvements and replacements, approximately $5.0 million of which was related
to casino expansion and remodeling in Council Bluffs, which was completed near
the end of the first quarter of fiscal 1998.
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<PAGE>
YEAR ENDED NOVEMBER 30, 1997. In addition to cash flows from operations and
borrowings under a $115 million reducing, revolving credit agreement (the
"Credit Facility"), in fiscal 1997, the Company received $46.2 million when it
sold its interests in HRHC and approximately $3.7 million form the sale of other
assets.
Cash flow from operations for fiscal year 1997 was approximately $44.6
million. On October 24, 1997 the Company received $45.0 million cash when it
sold: (i) all of the capital stock of HRHC held by the Company, representing 40%
of the then outstanding capital stock of HRHC, and (ii) all of the Company's
rights under a management agreement between HRHC and HLVMC relating to the
management and operations of the Hard Rock Hotel and Casino. The Company also
received approximately $1.2 million cash in satisfaction of a note and other
amounts due the Company from HRHC as of October 24, 1997. Additionally, the
Company sold, in separate transactions in fiscal year 1997, a note receivable
from an unrelated party and the Company's airplane, realizing net proceeds of
approximately $3.7 million from these transactions.
During fiscal year 1997, the Company expended approximately $1.5 million in
cash relative to construction payables and retentions associated with the
construction of the hotel and convention center portion of Harveys Casino Hotel
in Council Bluffs and expended approximately $7.6 million in cash relative to
the construction of a parking garage at Harveys Wagon Wheel in Central City,
Colorado. Additionally, the Company made cash payments for dividends of
approximately $2.0 million during the period, incurred additional cash
expenditures of approximately $16.9 million in connection with capital
improvements and replacements and made net cash payments of approximately $33.3
million reducing the Company's outstanding borrowings.
YEAR ENDED NOVEMBER 30, 1996. During fiscal year 1996, the Company
completed the construction of the Council Bluffs project, expending $36.8
million in cash and financing the acquisition of the riverboat and equipment
through a $20 million riverboat financing agreement. Additionally, the Company
made cash payments for dividends of approximately $1.7 million during the year
and incurred additional cash expenditures of approximately $11.6 million in
connection with capital improvements and replacements at the operating
properties and corporate offices.
On April 30, 1996, the Company paid the holders of approximately $11.9
million of 12% subordinated notes payable by HWW (the "HWW Notes") $6 million in
cash and issued an aggregate of $8 million in subordinated notes in exchange for
all of the outstanding HWW Notes and unpaid interest accrued thereon (the "Debt
Exchange"). On such date, the Company also exchanged 382,500 shares of the
Company's common stock for: (i) 30% of the equity interests of HWW, (ii) the
rights to an approximately $3 million priority return from HWW, and (iii) an
option to acquire an additional 5% of the equity interests in HWW (the "Equity
Exchange").
On May 22, 1996, the Company completed its public debt offering of $150
million of Senior Subordinated Notes. The proceeds, $145.5 million net of
underwriting discounts and commissions, were used to: (i) pay off a $10 million
note payable to a private investor, (ii) retire the $19 million principal
balance of the note payable under a riverboat financing agreement, (iii) redeem,
for $7.8 million plus accrued and unpaid interest, the $8 million aggregate
principal amount of subordinated notes issued in the Debt Exchange, and (iv)
reduce the outstanding principal balance under the Credit Facility.
YEAR 2000
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 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".
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The Company has established a task force to coordinate its response to the
Year 2000 Problem. This task force includes the Company's Chief Executive
Officer, Chief Financial Officer, Corporate Director of Internal Audit, and the
Director of Information Services as well as support staff. An outside consultant
was also engaged who assisted in establishing a Year 2000 compliance program for
the Company.
The Year 2000 compliance programs developed for the Company consist of the
following phases: (i) compilation of an inventory of systems and equipment that
may cause a Year 2000 Disruption ("Critical Systems and Equipment"), (ii)
identification and priorization of the Critical Systems and Equipment from the
inventory compiled and inquiries of third parties with whom the Company does
significant business (i.e., vendors and suppliers) as to the state of their Year
2000 readiness, (iii) 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, and (iv) repair or
replacement and testing of noncompliant 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.
The Company is not currently planning to use any independent verification
and validation process to assure the reliability of their risk and cost
estimates. However, this position will continue to be reevaluated as the Year
2000 compliance programs proceed at the Company's facilities.
The Company also initiated a more limited review of the Year 2000 Problem as
it relates to business associates of the Company, including material vendors,
suppliers, financial institutions and utility and communications providers. The
scope of the review was generally limited to inquiries of such business
associates. Based on the responses received, the Company is not aware of any
Year 2000 Problem impact on a material business associate that would have a
material adverse affect of the Company's business operations. However, there can
be no assurances that all of the Company's material business associates will be
Year 2000 compliant in a timely manner.
The Company relies on systems in many areas of its business operations
("Systems") including casino operations, retail outlets, hotel operations,
accounting and finance, facilities and environmental, communications and
administration. The Company has not developed a comprehensive contingency plan,
although a number of Systems are "backed up" by manual procedures that have been
employed during times Systems have been unavailable. The Company will continue
to assess the need for a comprehensive contingency plan as implementation of the
corrective action plan continues and as the review of business associates'
readiness progresses.
The Company is in the process of implementing its corrective action plan.
The Company is utilizing internal resources and external resources to achieve
the plan objectives. The Company anticipates that the required modifications,
upgrades and replacements of Systems will most likely be completed in the second
quarter of fiscal year 1999, allowing for additional testing and revisions, if
necessary, before the year 2000. The Company believes that its corrective action
plan, including the timelines, is adequate and realistic. Nevertheless, if one
or more of the Company's Systems has been overlooked or if implementation of the
corrective action plan fails to achieve Year 2000 compliance for one or more
Systems, or if a key business associate fails to provide necessary products or
services due to Year 2000 Problem business disruptions, there could be a
material adverse impact on the Company's business operations or financial
performance. With respect to the Company's Systems, the most reasonable likely
worst case scenario if a Year 2000 Problem occurred would be the necessity to
perform manually those procedures customarily performed by a noncompliant
System. This could result in a slowdown of normal business operations and would
likely be more costly. The performing of procedures manually would continue
until such time as the noncompliant System could be made complaint or a suitable
alternative could be found and installed. With respect to a key business
associate, the most reasonable likely worst case scenario if a Year 2000 Problem
occurred would be the failure to deliver to the Company essential utilities,
which could result in the inability of one
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or more of the Company's hotel/casinos to operate and require the affected
property or properties to close until such utilities could be restored.
The Company estimates that the costs to achieve Year 2000 compliance,
including those costs that are capitalizable, will be approximately $4.4 million
and will be expended through 2000. The Company incurred costs of approximately
$1.0 million in fiscal year 1998, including approximately $0.7 million that was
capitalized. The Company expects to incur an additional cost of approximately
$3.4 million in fiscal 1999, approximately $3.0 million of which will be for
capital acquisitions. The Company believes that its expenditures in fiscal 2000
will not be material. These estimates are based on the Company's evaluation and
experience to date and are subject to modification as implementation of the
corrective action plan progresses. There can be no assurances that the estimated
costs are adequate or achievable, and actual costs could materially differ from
the estimate.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk from changes in interest rates. The
Company had no variable rate debt at November 30, 1998 and 1997. However, the
fair value of its fixed rate long-term debt is sensitive to differences between
market interest rates and rates at the inception of the debt obligation. A
hypothetical immediate 100 basis point increase in interest rates at November
30, 1998 and 1997 would have decreased the market value of the Company's fixed
rate long-term debt by approximately $12.1 million at each of those dates.
Conversely, a 100 basis point decrease in interest rates would be have increased
the market value of the Company's outstanding long-term debt at both November
30, 1998 and 1997 by approximately $15.6 million.
The Company did not enter into any derivative financial contracts in fiscal
1998 or 1997. The Company may use derivative financial instruments in the future
as a risk management tool. The Company does not use derivative financial
instruments for speculative or trading purposes.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and supplementary data are as set
forth in the "INDEX TO CONSOLIDATED FINANCIAL STATEMENTS" on page 47.
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
Not applicable
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
The table below sets forth the directors and executive officers of the
Company as of the date hereof:
<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------------------- --- --------------------------------------------------------------------
<S> <C> <C>
Thomas J. Barrack, Jr................. 51 Chairman of the Board of Directors
Charles W. Scharer.................... 43 President and Chief Executive Officer; Director
Stephen L. Cavallaro.................. 41 Executive Vice President and Chief Operating Officer
John J. McLaughlin.................... 43 Senior Vice President, Chief Financial Officer, Secretary and
Treasurer
Gary D. Armentrout.................... 51 Senior Vice President--Business Development and Government Relations
James J. Rafferty..................... 43 Senior Vice President--Corporate Marketing
Edward B. Barraco..................... 54 Senior Vice President and General Manager--Harveys Wagon Wheel
Kevin O. Servatius.................... 46 Senior Vice President and General Manager--Harveys Resort
Verne H. Welch, Jr.................... 61 Senior Vice President and General Manager--Harveys Casino Hotel
John R. Bellotti...................... 41 Corporate Vice President of Human Resources
Kelvin L. Davis....................... 35 Director
</TABLE>
THOMAS J. BARRACK, JR. serves as Chairman of the Board of Directors of the
Company. Mr. Barrack became a director at the Effective Time pursuant to the
Merger Agreement and was appointed Chairman of the Board at the Effective Time.
Mr. Barrack also holds a minority membership interest in Voteco. Mr. Barrack has
served as Chairman and Chief Executive Officer of each of Colony Capital and
Colony Advisors, Inc. ("Colony Advisors") since August 1997. Colony Capital and
Colony Advisors are international real estate investment and management firms.
Mr. Barrack served as President of Colony Capital and Colony Advisors from
August 1992 and September 1991, respectively, until August 1997. Mr. Barrack is
a Director of Continental Airlines, Inc., a commercial airline, Public Storage,
Inc., a developer, owner and operator of self-storage facilities, and
Kennedy-Wilson, Inc., a worldwide real estate marketing, brokerage and
investment services company.
CHARLES W. SCHARER serves as a Director and President and Chief Executive
Officer of the Company. He was appointed President and Chief Executive Officer
of the Company effective December 1, 1995. He has served as a director of the
company since April 1995 and served as Chairman of the Board of Directors from
May 1, 1997 to the Effective Time. Prior to becoming President and Chief
Executive Officer of the company, Mr. Scharer served as Executive Vice President
from August 1995. He was appointed Chief Financial Officer in July 1993 and
Treasurer in September 1993.
STEPHEN L. CAVALLARO serves as Executive Vice President and Chief Operating
Officer and as a non-voting observer on the Board of Directors of the Company.
Prior to the Effective Time, he served as Chief Operating Officer of Subsidiary
Operations of the Company since February 1996. In this position he has had
operational responsibility for Harveys Wagon Wheel in Central City Colorado and
Harveys Casino Hotel in Council Bluffs, Iowa. Until October 24, 1997, when the
Hard Rock Sale was consummated, Mr. Cavallaro also had operational
responsibility 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, he served as Vice President and General Manager of the
Palace Station.
JOHN J. MCLAUGHLIN serves as Senior Vice President, Chief Financial Officer,
Secretary and Treasurer. He was appointed Senior Vice President, Chief Financial
Officer and Treasurer of the Company in
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March 1996. Mr. McLaughlin became Secretary of the Company as of the Effective
Time. He joined the Company in September 1995 as Chief Financial Officer. From
January 1993 until September 1995, he was Chief Financial Officer of President
Riverboat Casino, Inc. Mr. McLaughlin is a Certified Public Accountant.
GARY D. ARMENTROUT serves as Senior Vice President--Business Development and
Government Relations. He has served as Senior Vice President--Business
Development and Government Relations of the Company since May 1995. In this
position he has been responsible for identifying and pursuing the development of
new projects for the Company. 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 was appointed Vice
President--Gaming Development.
JAMES J. RAFFERTY serves as Senior Vice President--Corporate Marketing. He
was appointed Corporate Vice President of Marketing of the Company in December
1995 and was promoted to Senior Vice President of Corporate Marketing in 1997.
Mr. Rafferty served as Vice President, Marketing--Lake Tahoe from 1992 to 1995.
EDWARD B. BARRACO serves as Senior Vice President and General
Manager--Harveys Wagon Wheel. He has served as the Company's Senior Vice
President and General Manager--Harveys Wagon Wheel since July 1995. 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 serves as Senior Vice President and General
Manager--Harveys Resort. He was appointed Senior Vice President and General
Manager--Harveys Resort in August 1995. From March 1993 to August 1995, Mr.
Servatius was Senior Vice President and General Manager of Harrah's--Lake Tahoe.
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. serves as Senior Vice President and General
Manager--Harveys Casino Hotel. He has served as Senior Vice President and
General Manager--Harveys Casino Hotel since September 1995. Prior to moving to
the Council Bluffs property, Mr. Welch served as Senior Vice President and
General Manager--Lake Tahoe from December 1993 to September 1995. From 1988 to
December 1993, he served as Vice President--Casino Operations.
JOHN R. BELLOTTI serves as Corporate Vice President of Human Resources. He
was appointed Corporate Vice President of Human Resources of the Company in
August 1997. Prior to joining the Company in August 1997, Mr. Bellotti was
employed by Hyatt Hotels Corporation, serving most recently as Assistant Vice
President of Human Resources from 1993 to 1997.
KELVIN L. DAVIS serves as a Director. Mr. Davis became a director at the
Effective Time pursuant to the Merger Agreement. Mr. Davis also holds a majority
membership interest in Voteco. Mr. Davis has served as President and Chief
Operating Officer of each of Colony Capital and Colony Advisors since August
1997. He served as Executive Vice President of Colony Capital and Colony
Advisors from August 1992 and September 1991, respectively, to August 1997. Mr.
Davis is a director of Franchise Finance Corporation of America, a specialty
real estate financing company.
Mark Hedstrom, Chief Financial Officer of Colony Capital, serves as a
non-voting observer on the Board of Directors.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES AND EXCHANGE ACT
Section 16(a) of 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 SEC to furnish the
Company with copies of all Forms 3, 4 and 5 they file.
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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 1998.
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, 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.
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation paid by the Company during
the three fiscal years ended November 30, 1998 to the Chief Executive Officer of
the Company and each of the four other most highly compensated executive
officers of the Company (the "Named Executive Officers"). Messrs. Scharer,
Cavallaro, McLaughlin, Armentrout and Servatius continued to serve in identical
positions with the Company as of the Effective Time, in certain cases pursuant
to new employment agreements and new benefit plans, except that Mr. Scharer
serves as a director of the Company, but not as Chairman of the Board following
the Effective Time and Mr. McLaughlin also serves as Secretary following the
Effective Time. See "ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS".
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM AWARDS
ANNUAL COMPENSATION ----------------------
SECURITIES
YEAR -------------------- UNDERLYING LTIP ALL OTHER
ENDED SALARY BONUS OPTIONS PAYOUTS COMPENSATION
NAME AND PRINCIPAL POSITION NOVEMBER 30, ($) ($) (#) ($) ($)(1)
- --------------------------------------------- --------------- --------- --------- ----------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Charles W. Scharer(2)........................ 1998 467,500 448,800 -- 118,034 17,400
Chairman of the Board, President 1997 428,462 360,000 183,500 81,384 11,067
and Chief Executive Officer 1996 347,400 168,000 135,000 -- 8,845
Stephen L. Cavallaro(3)...................... 1998 351,346 263,630 -- 80,964 12,905
Chief Operating Officer of 1997 333,462 240,000 48,800 61,718 9,115
Subsidiary Operations 1996 267,785 120,000 28,000 -- 3,873
John J. McLaughlin(4)........................ 1998 250,000 179,250 -- -- 4,800
Senior Vice President, Chief 1997 221,346 165,000 41,000 -- 6,735
Financial Officer and Treasurer 1996 175,000 70,000 10,000 -- 808
Gary D. Armentrout........................... 1998 236,359 128,510 -- -- 4,800
Senior Vice President--Business 1997 234,598 130,000 41,000 -- 5,512
Development and Government Relations 1996 210,384 67,735 10,000 -- 3,081
Kevin O. Servatius........................... 1998 280,000 80,460 -- -- 6,045
Senior Vice President and General 1997 268,846 105,000 51,000 -- 8,037
Manager--Harveys Resort 1996 231,538 100,000 10,000 -- 1,828
</TABLE>
- ------------------------
(1) 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 1998 the Company's 401(k) Plan contributions were
$4,800 for each of the Named Executive Officers. In fiscal 1998, the Company
paid a premium of $1,130 on a term life insurance policy insuring the life
of Mr. Scharer. In
34
<PAGE>
fiscal 1998, the above-market rate interest earned by Mr. Scharer, Mr.
Cavallaro and Mr. Servatius on deferred compensation amounted to $11,470,
$8,105 and $1,245, respectively.
(2) On December 1, 1995, Mr. Scharer became the Company's President and Chief
Executive Officer and on May 1, 1997 was elected Chairman of the Board of
Directors.
(3) On February 1, 1996, Mr. Cavallaro became Chief Operating Officer of
Subsidiary Properties.
(4) Mr. McLaughlin was appointed Chief Financial Officer on September 18, 1995,
and was elected Senior Vice President, Chief Financial Officer and Treasurer
in March 1996.
OPTION GRANTS
There were no options granted to the Named Executive Officers during fiscal
year 1998.
OPTION EXERCISES AND HOLDINGS
The table below sets forth information concerning the exercise of options
during the fiscal year ended November 30, 1998 and unexercised options held at
the end of such year by the Named Executive Officers.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUE
<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT FISCAL YEAR END FISCAL YEAR END($)(1)
SHARES ACQUIRED ON AGGREGATE VALUE -------------------------- -------------------------
NAME EXERCISE(#) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------- ------------------- ----------------- ----------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Charles W. Scharer....... -- -- 56,500 159,000 1,509,612 4,248,289
Stephen L. Cavallaro..... -- -- 46,265 32,535 1,236,145 869,296
John J. McLaughlin....... -- -- 13,665 27,335 365,112 730,358
Gary D. Armentrout....... -- -- 13,665 27,335 365,112 730,358
Kevin O. Servatius....... -- 17,000 34,000 454,220 908,439
</TABLE>
- ------------------------
(1) Options are in-the-money if the fair market value of the underlying
securities exceeds the exercise price of the options.
The Merger Agreement provided that each outstanding option to acquire the
Common Stock be cancelled immediately prior to the Effective Time in exchange
for a cash payment equal to the product of the number of shares of Common Stock
subject to such option and the excess of the consideration payable per share of
Common Stock in the Merger over the per share exercise price of such option. See
"ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS".
35
<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 1998
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS UNDER
NUMBER OF SHARES NON-STOCK PRICE-BASED PLANS
UNITS OR OTHER PERFORMANCE OR OTHER PERIOD UNTIL -----------------------------------
NAME RIGHTS MATURATION OR PAYOUT THRESHOLD TARGET MAXIMUM
- ----------------------- ------------------- ---------------------------------------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
Charles W. Scharer..... -- Three years ending November 30, 1998 $ 35,063 $ 70,125 $ 105,188
-- Three years ending November 30, 1999 $ 35,063 $ 70,125 $ 105,188
-- Three years ending November 30, 2000 $ 58,438 $ 85,708 $ 120,771
Stephen L. Cavallaro... -- Three years ending November 30, 1998 $ 20,505 $ 41,009 $ 61,514
-- Three years ending November 30, 1999 $ 20,505 $ 41,009 $ 61,514
-- Three years ending November 30, 2000 $ 20,505 $ 41,009 $ 61,514
John J. McLaughlin..... -- Three years ending November 30, 1998 $ 12,500 $ 25,000 $ 37,500
-- Three years ending November 30, 1999 $ 12,500 $ 25,000 $ 37,500
-- Three years ending November 30, 2000 $ 12,500 $ 25,000 $ 37,500
Gary D. Armentrout..... -- Three years ending November 30, 1998 $ 11,804 $ 23,608 $ 35,412
-- Three years ending November 30, 1999 $ 11,804 $ 23,608 $ 35,412
-- Three years ending November 30, 2000 $ 11,804 $ 23,608 $ 35,412
Kevin O. Servatius..... -- Three years ending November 30, 1998 $ 14,000 $ 28,000 $ 42,000
-- Three years ending November 30, 1999 $ 14,000 $ 28,000 $ 42,000
-- Three years ending November 30, 2000 $ 14,000 $ 28,000 $ 42,000
</TABLE>
Upon consummation of the Merger, the Long-Term Incentive Plan was
terminated, and Messrs. Scharer, Cavallaro and McLaughlin each received lump sum
payments at maximum in connection therewith. See "ITEM 13. CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS". Pursuant to the Company's Change of Control Plan (the
"Change of Control Plan"), Messrs. Armentrout and Servatius similarly received
lump sum payments at maximum.
36
<PAGE>
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
The tables below set forth total benefits payable to executive employees,
including the 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 (i) whose positions are
classified as members of the Executive Committee of the Company, (ii) whose
participation has been recommended by the President and Chief Executive Officer,
(iii) whose participation has been approved and confirmed by the Committee, and
(iv) who do not participate in the Senior Supplemental Retirement Plan. 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.
37
<PAGE>
The seven year vesting SERP presently covers approximately 19 current or
former executive employees. The 20 year vesting SERP, for those who began
participation after October 1, 1994, covers approximately 7 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-line annuity, and are not
subject to any deduction for social security benefits. Participants are entitled
to receive SERP benefits upon attaining age 65 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 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.
Prior to the Effective Time, Mr. Scharer was fully vested under the terms of
the seven year vesting plan. Mr. Cavallaro had approximately five years of
credited service under the terms of the seven year vesting plan and Mr.
McLaughlin had approximately three years of credited service under the terms of
the twenty year vesting plan. Mr. Armentrout has approximately three and
one-half years of credited service and Mr. Servatius has approximately three
years of credited service, each under the terms of the twenty year vesting plan.
Upon consummation of the Merger, the rights of Mr. Scharer, Mr. Cavallaro
and Mr. McLaughlin to participate in the SERP were terminated, and they received
lump sum payments in connection therewith. See "ITEM 13. CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS." In accordance with the Change of Control Plan, upon
consummation of the Merger, Messrs. Armentrout and Servatius received two
additional years of vesting credit under the SERP.
COMPENSATION OF DIRECTORS
In fiscal 1998, 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 expenses incurred in connection with
attending meetings of the Board of Directors and Committees thereof.
The Company established an Outside Directors' Retirement Plan pursuant to
which each outside director and any employee-director who was not covered under
the Company's Supplemental Executive Retirement Plan or Senior Supplemental
Executive Retirement Plan and who had served five or more years, or his or her
beneficiaries as applicable, was entitled to receive $25,000 per year for up to
ten years upon such director's retirement, death or disability. The plan also
provided for continuing medical insurance coverage under the Company's executive
health plan for a period of up to ten years.
Pursuant to the Change of Control Plan (i) all options granted to directors
under the 1993 Non-Employee Director Stock Option Plan vested upon consummation
of the Merger, and (ii) members of the Board who were asked to resign as a
result of the Merger were paid their annual compensation for the balance of the
term for which they were elected and were paid a lump sum payment of the
compensation due under the Outside Directors' Retirement Plan.
Directors who are also employees may be eligible to participate in the
Company's employee incentive plans.
38
<PAGE>
EMPLOYMENT CONTRACTS AND CHANGE OF CONTROL AGREEMENTS
Prior to the Effective Time, Charles W. Scharer served as Chairman of the
Board, President and Chief Executive Officer under an employment contract with
the Company. At the Effective Time the existing contract was terminated and Mr.
Scharer and the Company entered into a new employment contract. See "ITEM
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS." Mr. Sharer serves as
President and Chief Executive Officer under the new employment contract with the
Company. The term of the contract began on February 2, 1999 and ends on February
2, 2004. The contract provides that Mr. Scharer's salary during the term will be
$520,000 per year. The contract also provides that Mr. Scharer is eligibile to
participate in the Company's Management Incentive Plan (the "MIP") or an
equivalent annual bonus plan providing for payment of an annual bonus with
thresholds and triggering events for payment based on the achievements of the
Company's annual budget and other business plan targets determined by the Board
of Directors. Under the contract, Mr. Scharer's maximum annual bonus will not be
less than $360,000. Concurrent with the execution of the contract, Mr. Scharer
also received an advance cash payment equal to 25% of his maximum bonus for
fiscal 1999, which amount the Company and Mr. Scharer agreed to be $130,000.
Following the end of fiscal 1999, the Board of Directors will determine Mr.
Scharer's annual bonus in the ordinary course using the financial targets
established by the Board of Directors; any such bonus deemed payable will be
reduced by the advance. Also concurrent with the execution of the contract, Mr.
Scharer received a restricted stock award consisting of 270 shares of Class A
Common and 27,000 shares of Class B Common and a stock option to purchase 360
additional shares of Class A Common and 36,000 additional shares of Class B
Common, each at a price of $20.06 per share, subject in all respects to the
Company's 1999 Omnibus Incentive Plan (the "Plan"), a Stock Option and
Restricted Stock Agreement between Mr. Scharer and the Company dated February 2,
1999 and a Stockholders Agreement dated as of February 2, 1999 (the
"Stockholders Agreement") among the Company, Voteco, Colony III and certain
other security holders of the Company. The employment contract is terminable at
any time (upon 30 days prior written notice) by Mr. Scharer or the Company. If
the contract is terminated by the Company for reason other than cause, Mr.
Scharer is entitled to receive a lump sum payment in an amount equal to the sum
of his then base salary and his annual target bonus increased by a multiplier as
well as certain other benefits for a period following termination. The contract
provides that if Mr. Scharer's employment with the Company is terminated as a
result of or in connection with a change of control of the Company, Mr. Scharer
is entitled to a lump sum payout at a maximum of the bonus otherwise payable to
him with respect to the then current fiscal year under the Company's annual
bonus plan, prorated through the effective date of such termination of
employment. Under the contract, Mr. Scharer is also entitled to a lump sum
payout at a maximum of the otherwise payable bonus should the Company's annual
bonus plan be terminated or amended so as to materially adversely affect him.
Prior to the Effective Time, Stephen L. Cavallaro served as Chief Operating
Officer of Subsidiary Operations under an employment contract with the Company.
At the Effective Time the existing contract was terminated and Mr. Cavallaro and
the Company entered into a new employment contract. See "ITEM 13. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS." Mr. Cavallaro serves as Executive Vice
President and Chief Operating Officer under the new employment contract with the
Company. The term of the contract began as of February 2, 1999 and terminates on
February 2, 2004. Mr. Cavallaro's annual salary established by the contract is
$400,000 per year. The contract also provides that Mr. Cavallaro is eligibile to
participate in the Company's MIP or an equivalent annual bonus plan providing
for payment of an annual bonus with thresholds and triggering events for payment
based on the achievement of the Company's annual budget and other business plan
targets determined by the Board of Directors. Mr. Cavallaro's maximum annual
bonus will not be less than $240,000. Concurrent with the execution of the
contract, Mr. Cavallaro also received an advance cash payment equal to 25% of
his maximum bonus for fiscal 1999, which amount the Company and Mr. Cavallaro
agreed to be $73,750. Following the end of fiscal 1999, the Board of Directors
will determine Mr. Cavallaro's annual bonus in the ordinary course using the
financial targets established by the Board of Directors; any such bonus deemed
39
<PAGE>
payable will be reduced by the advance. Also concurrent with the execution of
the contract, Mr. Cavallaro received a restricted stock award consisting of 210
shares of Class A Common and 21,000 shares of Class B Common and a stock option
to purchase 280 additional shares of Class A Common and 28,000 shares of Class B
Common each at a price of $20.06 per share, subject in all respects to the Plan,
a Stock Option and Restricted Stock Agreement between Mr. Cavallaro and the
Company dated February 2, 1999 and the Stockholders Agreement. The contract is
terminable at any time (upon 30 days prior written notice) by Mr. Cavallaro or
the Company. If the contract is terminated by the Company for reason other than
cause, Mr. Cavallaro is entitled to receive a lump sum payment in an amount
equal to the sum of his then base salary and his annual target bonus increased
by a multiplier as well as certain other benefits for a period following
termination. The contract provides that if Mr. Cavallaro's employment with the
Company is terminated as a result of or in connection with a change of control
of the Company, Mr. Cavallaro is entitled to a lump sum payout at a maximum of
the bonus otherwise payable to him with respect to the then current fiscal year
under the Company's annual bonus plan, prorated through the effective date of
such termination of employment. Under the contract Mr. Cavallaro is also
entitled to a lump sum payout at a maximum of the otherwise payable bonus should
the Company's annual bonus plan be terminated or amended so as to materially
adversely affect him.
Prior to the Effective Time, John J. McLaughlin served as Senior Vice
President, Chief Financial Officer and Treasurer under an employment contract
with the Company. At the Effective Time the existing contract was terminated and
Mr. McLaughlin and the Company entered into a new employment contract. See "ITEM
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS." Mr. McLaughlin serves as
Senior Vice President, Chief Financial Officer and Treasurer under the new
employment contract with the Company. As of the Effective Time, Mr. McLaughlin
was also appointed Secretary of the Company. The term of the contract began as
of February 2, 1999 and terminates on February 2, 2004. Mr. McLaughlin's annual
salary established by the contract is $300,000 per year. The contract also
provides Mr. McLaughlin eligibility to participate in the Company's MIP or an
equivalent annual bonus plan providing for payment of an annual bonus with
thresholds and triggering events for payment based on the achievement of the
Company's annual budget and other business plan targets determined by the Board
of Directors. Mr. McLaughlin's maximum annual bonus will not be less than
$165,000. Concurrent with the execution of the contract, Mr. McLaughlin also
received an advance cash payment equal to 25% of his maximum bonus for fiscal
1999, which amount the Company and Mr. McLaughlin agreed to be $55,625.
Following the end of fiscal 1999, the Board of Directors will determine Mr.
McLaughlin's annual bonus in the ordinary course using the financial targets
established by the Board of Directors; any such bonus deemed payable will be
reduced by the advance. Also concurrent with the execution of the contract, Mr.
McLaughlin received a restricted stock award consisting of 180 shares of Class A
Common and 18,000 shares of Class B Common and a stock option to purchase 240
additional shares of Class A Common and 24,000 shares of Class B Common each at
a price of $20.06 per share, subject in all respects to the Plan, a Stock Option
and Restricted Stock Agreement between Mr. McLaughlin and the Company dated
February 2, 1999 and the Stockholders Agreement. The contract is terminable at
any time (upon 30 days prior written notice) by Mr. McLaughlin or the Company.
If the contract is terminated by the Company for reason other than cause, Mr.
McLaughlin is entitled to receive a lump sum payment in an amount equal to the
sum of his then base salary and his annual target bonus increased by a
multiplier as well as certain other benefits for a period following termination.
The contract provides that if Mr. McLaughlin's employment with the Company is
terminated as a result of or in connection with a change of control of the
Company, Mr. McLaughlin is entitled to a lump sum payout at a maximum of the
bonus otherwise payable to him with respect to the then current fiscal year
under the Company's annual bonus plan, prorated through the effective date of
such termination of employment. Under the contract Mr. McLaughlin is also
entitled to a lump sum payout at a maximum of the otherwise payable bonus should
the Company's annual bonus plan be terminated or amended so as to materially
adversely affect him.
40
<PAGE>
Gary D. Armentrout serves as Senior Vice President, Business Development and
Government
Relations under an employment agreement with the Company effective as of May 9,
1995. Said employment agreement was extended for additional one year periods on
August 23, 1996, September 8, 1997 and October 26, 1998. The term of the
agreement, as extended, runs through and includes May 8, 2000. Mr. Armentrout's
current salary under the agreement is $240,000 annually. The agreement is
terminable at any time (upon 90 days notice) by Mr. Armentrout or the Company.
If the agreement is terminated by the Company for reasons other than for cause,
Mr. Armentrout is entitled to receive the full value of his salary and other
benefits for the remainder of the agreement term. The Company has also granted
to Mr. Armentrout a restricted stock award consisting of 90 shares of Class A
Common and 9,000 shares of Class B Common and a stock option to purchase 90
additional shares of Class A Common and 9,000 additional shares of Class B
Common, each at a price of $20.06 per share.
Kevin O. Servatius serves as Senior Vice President and General Manager of
Harveys Resort under an employment agreement with the Company effective as of
August 14, 1995. The term of the agreement runs for five years, terminating
August 14, 2000. Mr. Servatius' current salary under the agreement is $280,000
annually. The agreement is terminable at any time (upon 90 days notice) by Mr.
Servatius or the Company. If the agreement is terminated by the Company for
reasons other than for cause, Mr. Servatius is entitled to receive the full
value of his salary and other benefits for the remainder of the agreement term.
The Company has also granted to Mr. Servatius a restricted stock award
consisting of 90 shares of Class A Common and 9,000 shares of Class B Common and
a stock option to purchase 90 additional shares of Class A Common and 9,000
additional shares of Class B Common, each at a price of $20.06 per share.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The following individuals, all members of the Company's Board of Directors
prior to the Effective Time, served on the Compensation Committee during fiscal
year 1998: 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 1998, 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 1998.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of February 25, 1999, beneficial ownership
of the Company's Class A Common (the only class of voting securities of the
Company) by (i) all persons who are beneficial owners of more than five percent
of the Class A Common, (ii) each director, (iii) the Company's Chief Executive
Officer and four most highly compensated executive officers other that the Chief
Executive Officer, in each case who were serving in such capacity on behalf of
the Company at the end of the last fiscal year and (iv) all directors and
executive officers, as a group. Except as otherwise indicated, the Company
believes that the beneficial owners of the Class A Common listed below, based on
information furnished by such owners, have sole investment and voting power with
respect to such shares, subject to community property laws where applicable.
Unless otherwise indicated the business address of such persons is Highway 50
and Stateline Avenue, P. O. Box 128, Lake Tahoe, Nevada 89449. As of February
25, 1999 40,000 shares of Class A Common were outstanding. All holders of Class
A Common hold a number of shares of Class B
41
<PAGE>
Common such that their holdings of Class A Common and Class B Common each bear
the same proportion to the total outstanding shares of each such class.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY PERCENT OF
NAME OF BENEFICIAL OWNER OWNED(1) CLASS
- ------------------------------------------------------------------- ----------- ------------
<S> <C> <C>
Colony HCR Voteco, LLC
1999 Avenue of the Stars, Suite 1200
Los Angeles, California 90067.................................... 38,800 97.0%
Thomas J. Barrack, Jr. (2)......................................... 38,800 97.0
Kelvin L. Davis (2)................................................ 38,800 97.0
Charles W. Scharer................................................. * *
Stephen L. Cavallaro............................................... * *
John J. McLaughlin................................................. * *
Gary D. Armentrout................................................. * *
Kevin O. Servatius................................................. * *
All directors and executive officers as a group (11 persons) (2)... 40,000 100.0%
</TABLE>
- ------------------------
* Less than one percent
(1) Beneficial ownership is determined in accordance with the rules of the SEC
and excludes grants of phantom stock and options that are not exercisable
currently or within 60 days.
(2) Messrs. Barrack and Davis are the Managers of Voteco, and thereby each may
be deemed to have beneficial ownership of the Class A Common owned of record
by Voteco. Messrs. Barrack and Davis each disclaim beneficial ownership of
such shares of Class A Common.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
At the time HAC and the Company entered into the Merger Agreement, HAC also
entered into a memorandum of understanding (the "MOU") with Messrs. Scharer,
Cavallaro and McLaughlin (the "Executives"). At the Effective Time, pursuant to
the MOU, each of the Executives remained in the offices they held in the Company
before the Effective Time. Mr. Scharer continued to serve as a director, and Mr.
Cavallaro was appointed a non-voting observer to the Company's Board of
Directors. In addition, purusant to the MOU, the Company entered into the
following agreements and other arrangements immediately following the Effective
Time:
- The Company granted to Mr. Scharer, Mr. McLaughlin and Mr. Cavallaro 270,
210 and 180 shares of Class A Common and 27,000, 21,000 and 18,000 shares
of Class B Common, respectively, and the Company committed to grant to
each of Mr. Armentrout, Mr. Rafferty, Mr. Barraco, Mr. Servatius, Mr.
Welch and Mr. Bellotti (collectively, the "Qualified Executives") 90
shares of Class A Common and 9,000 shares of Class B Common. Such shares
represent in the aggregate three precent of the Class A Common and Class B
Common outstanding at the Effective Time.
- The Company reserved 800 shares of Class A Common and 80,000 shares of
Class B Common for grant to the Executives, the Qualified Executives and
such others as are mutually determined by the Chief Executive Officer and
the Board of Directors, if the Company achieves certain performance goals
in connection with the opening or acquisition of new gaming facilities
before February 2, 2004.
- The Company granted to Mr. Scharer, Mr McLaughlin and Mr. Cavallaro
options to acquire, at a price of $20.06 per share, 360, 280 and 240
shares of Class A Common and 36,000, 28,000 and
42
<PAGE>
24,000 shares of Class B Common, respectively, and the Company committed
to grant to each of the Qualified Executives options to acquire, at a
price of $20.06 per share, 90 shares of Class A Common and 9,000 shares of
Class B Common. In addition, the Company reserved for grant to the
Qualified Executives options to acquire, at a price of $20.06 per share,
180 shares of Class A Common and 18,000 shares of Class B Common, and
reserved for grant to members of senior management of the Company (other
than the Executives and the Qualified Executives) options to acquire, at a
price of $20.06 per share, 400 shares of Class A Common and 40,000 shares
of Class B Common. The shares underlying the foregoing options represent
in the aggregate five percent of the Class A Common and Class B Common
outstanding at the Effective Time.
Pursuant to the MOU, the Executives received payments at the Effective
Time as follows:
- Each option to purchase the Common Stock held by the Executives prior to
the Merger was cancelled in exchange for payments equal to the product of
(i) the number of shares of Common Stock subject to such option and (ii)
the excess, if any, of (a) the price per share of the Common Stock paid in
the Merger for a share of the Company's Common Stock over (b) the exercise
price per share of Common Stock of such option. Messrs. Scharer, Cavallaro
and McLaughlin received payments of $2,727,960, $1,042,113 and $504,169,
respectively, in consideration for cancellation of such options.
- The Long-Term Incentive Plan and the rights of Messrs. Scharer, Cavallaro
and McLaughlin to participate therein were terminated in exchange for lump
sum payments of $965,373, $479,270 and $311,195, respectively.
- The rights of the Executives to participate in the SERP were terminated,
and the accrued SERP benefits for Messrs. Scharer, Cavallaro and
McLaughlin as of the consummation of the Merger were $1,399,435, $781,878
and $450,000, respectively. One-half of each such amount was paid in a
lump sum to Messrs. Scharer, Cavallaro and McLaughlin, and the remaining
amounts were deemed to be distributed to each Executive and invested
pursuant to certain deferred compensation agreements entered into between
the Company and each of the Executives.
- The Company permitted the Executives to remain eligible to participate in
the MIP, and in respect of fiscal year 1999, Messrs Scharer, Cavallaro and
McLaughlin received advances of amounts payable to them pursuant to the
MIP of $130,000, $73,750 and $55,625, respectively.
At the Effective Time, the employment contracts in effect immediately prior
to the Effective Time between the Company and each of the Executives were
terminated, and each of the Executives entered into a new employment contract
with the Company. The new employment contracts have terms of five years from the
Effective Time and provide for, among other benefits, (i) annual base salaries
of $520,000, $400,000 and $300,000 for Messrs. Scharer, Cavallaro and
McLaughlin, respectively, (ii) annual year-end incentive payments under the MIP
or other equivalent plan, (iii) the continuation of perquisites in effect with
respect to Messrs. Scharer, Cavallaro and McLaughlin prior to the Merger, (iv)
the immediate vesting of all options and restricted stock grants upon a change
of control, and (v) the vesting of that portion of options and restricted stock
grants due to vest over the lesser of (a) (1) eighteen months (with respect to
Messrs. Cavallaro and McLaughlin) or (2) two years (with respect to Mr. Scharer)
or (b) the remainder of the employment agreement term (in each case, the
"Period"), and the provision of severance for the applicable Period (in each
case consisting of the terminated Executive's then applicable base salary, bonus
and benefits, which serverance is the exclusive serverance payable to such
Executive and shall supersede and replace any severance that might otherwise be
due under the Company's Change of Control Plan) upon a termination of the
Executives other than for cause.
At the Effective Time, members of the Board who were asked to resign as a
result of the Merger were paid their annual compensation for the balance of the
term for which they were elected and were paid a lump sum payment of the
compensation due under the Outside Directors' Retirement Plan. Payments for
43
<PAGE>
annual compensation were made to Richard Kudrna, Jessica Ledbetter and Franklin
Rahbeck in the amount of $75,000 each. Payments for benefits due under the
Outside Directors' Retirement Plan were made to Jessica Ledbetter, Kirk
Ledbetter and Franklin Rahbeck in the amount of $250,000 each.
At the time the Merger Agreement was signed HAC, William Ledbetter, Jessica
Ledbetter and Kirk Ledbetter, who together with a trust affiliated with the
Ledbetter family owned approximately 41% of the Company's equity prior to the
Effective Time, entered into a Noncompetition and Trade Secret Agreement. This
agreement provides that for a period of three years following the Merger, none
of the Ledbetters shall compete with the Company (except for certain permitted
activities). The agreement also (i) provides that William Ledbetter is entitled
to participate in the Company's Senior Supplemental Executive Retirement Plan
and to receive the perquisites provided for in his employment agreement dated
November 12, 1993 until he reaches age 80; (ii) designates Jessica Ledbetter a
Director Emerita of the Company and entitles her to complimentary services of up
to $8,000 per year at Company facilities; and (iii) provides that Kirk Ledbetter
will receive a payment of $195,000 and will have a life insurance policy
maintained by the Company until the tenth anniversary of the closing of the
Merger, and entitles him and his immediate family to complimentary services of
up to $8,000 per year at Company facilities.
Wells Fargo, Jessica L. Ledbetter, Kirk B. Ledbetter and Franklin K.
Rahbeck, a director of the Company prior to the Effective Time, 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 earn
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. On February 3, 1999, the Trust retired the notes by paying the
Company the principal amounts plus all accrued and unpaid interest to the date
of payment.
The Merger Agreement provides that directors and officers liability
insurance coverage will be provided to those directors and officers of the
Company prior to the Effective Time for a term of six years following the
Effective Time.
44
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) Financial Statements.
The consolidated financial statements of the Company are set forth in the
"INDEX TO CONSOLIDATED FINANCIAL STATEMENTS" on page 47.
(2) Financial Statement Schedules.
Schedules have been omitted because they are not applicable, are not
required or because the information is included elsewhere in the Consolidated
Financial Statements or the notes thereto.
(3) Exhibits are set forth in the "EXHIBIT INDEX" on page 75.
(b) Reports on Form 8-K filed during the last quarter of fiscal 1998.
None
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
This document includes various "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Sections
21E of the Securities Exchange Act of 1934, as amended, which represent the
Company's expectations or beliefs concerning future events. Statements
containing expressions such as "believes", "anticipates" or "expects" used in
the Company's press releases and periodic reports on Forms 10-K and 10-Q filed
with the Securities and Exchange Commission are intended to identify
forward-looking statements. All forward-looking statements involve risks and
uncertainties. Although the Company believes its expectations are based upon
reasonable assumptions within the bounds of its knowledge of its business and
operations, there can be no assurances that actual results will not materially
differ from expected results. The Company cautions that these and similar
statements included in this report and in previously filed periodic reports,
including reports filed on Forms 10-K and 10-Q, are further qualified by
important factors that could cause actual results to differ materially from
those in the forward-looking statements. Such factors include, without
limitation, the following: increased competition in existing markets or the
opening of new gaming jurisdictions; a decline in the public acceptance of
gaming; the limitation, conditioning or suspension of any of the Company's
gaming licenses; increases in or new taxes imposed on gaming revenues or gaming
devices; a finding of unsuitability by regulatory authorities with respect to
the Company's officers, directors or key employees; loss or retirement of key
executives; significant increases in fuel or transportation prices; adverse
economic conditions in the Company's key markets; severe and unusual weather in
the Company's key markets; adverse results of significant litigation matters.
Readers are cautioned not to place undue reliance on forward-looking statements,
which speak only as of the date thereof. The Company undertakes no obligation to
publicly release any revisions to such forward-looking statements to reflect
events or circumstances after the date hereof.
45
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of
1934, as amended, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized this 26th day of February,
1999.
<TABLE>
<S> <C> <C>
HARVEYS CASINO RESORTS
By: /s/ CHARLES W. SCHARER
-----------------------------------------
Charles W. Scharer
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed by the following persons on behalf of the
registrant in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ THOMAS J. BARRACK, JR.
- ------------------------------ Chairman of the Board and February 26, 1999
Thomas J. Barrack, Jr. Director
President, Chief Executive
/s/ CHARLES W. SCHARER Officer and Director
- ------------------------------ (Principal Executive February 26, 1999
Charles W. Scharer Officer)
/s/ KELVIN L. DAVIS
- ------------------------------ Director February 26, 1999
Kelvin L. Davis
Senior Vice President,
/s/ JOHN J. MCLAUGHLIN Chief Financial Officer,
- ------------------------------ Secretary and Treasurer February 26, 1999
John J. McLaughlin (Principal Financial
Officer)
/s/ JOHN P. HEWITT Corporate Controller
- ------------------------------ (Principal Accounting February 26, 1999
John P. Hewitt Officer)
</TABLE>
46
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
Report of Deloitte & Touche LLP, Independent Auditors..................... 48
Consolidated Balance Sheets as of November 30, 1998 and 1997.............. 49
Consolidated Statements of Income for the Years Ended November 30, 1998,
1997 and 1996........................................................... 50
Consolidated Statements of Stockholders' Equity for the Years Ended
November 30, 1998, 1997 and 1996........................................ 51
Consolidated Statements of Cash Flows for the Years Ended November 30,
1998, 1997 and 1996..................................................... 52
Notes to Consolidated Financial Statements................................ 53
</TABLE>
47
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Harveys Casino Resorts:
We have audited the accompanying consolidated balance sheets of Harveys
Casino Resorts and subsidiaries (the "Company") as of November 30, 1998 and
1997, and the related consolidated statements of income, stockholders' equity
and cash flows for each of the three years in the period ended November 30,
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of November 30,
1998 and 1997, and the results of its operations and its cash flows for the
three years in the period ended November 30, 1998 in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
Reno, Nevada
January 5, 1999
48
<PAGE>
HARVEYS CASINO RESORTS
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
NOVEMBER 30,
----------------------------
1998 1997
------------- -------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents............................................. $ 67,299,230 $ 55,034,861
Marketable securities................................................. 10,657,245 --
Accounts receivable, net of allowances for doubtful accounts of
$127,410 and $100,724............................................... 4,566,169 5,263,837
Inventories........................................................... 3,621,568 3,658,746
Prepaid expenses and other current assets............................. 3,677,022 3,446,870
Deferred income taxes................................................. 525,416 651,965
------------- -------------
Total current assets................................................ 90,346,650 68,056,279
------------- -------------
Property and equipment
Land.................................................................. 20,717,873 20,717,863
Buildings and improvements............................................ 263,522,463 260,327,007
Leasehold improvements................................................ 21,151,757 21,191,721
Equipment, furniture and fixtures..................................... 153,559,283 144,126,256
Construction in progress.............................................. 2,607,324 16,791
------------- -------------
461,558,700 446,379,638
Less: Accumulated depreciation and amortization....................... (146,207,321) (128,109,637)
------------- -------------
315,351,379 318,270,001
------------- -------------
Notes receivable-related parties........................................ 1,874,831 1,875,765
Other assets............................................................ 16,585,545 15,263,376
------------- -------------
Total assets........................................................ $ 424,158,405 $ 403,465,421
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt..................................... $ 220,304 $ 633,354
Accounts and contracts payable........................................ 5,031,996 5,990,363
Income taxes payable.................................................. -- 7,056,237
Accrued expenses...................................................... 24,892,096 20,945,046
------------- -------------
Total current liabilities........................................... 30,144,396 34,625,000
Long-term debt, net of current portion.................................. 150,000,000 150,220,304
Deferred income taxes................................................... 24,948,131 23,022,615
Other liabilities....................................................... 18,612,243 16,239,952
------------- -------------
Total liabilities................................................... 223,704,770 224,107,871
------------- -------------
Commitments and contingencies (see note 8)
Stockholders' equity
Preferred stock, $.01 par value; 5,000,000 shares authorized; none
issued.............................................................. -- --
Common stock, $.01 par value; 30,000,000 shares authorized; issued
10,079,671 and 9,853,488............................................ 100,797 98,535
Additional paid-in capital and other.................................... 43,501,375 39,191,390
Treasury stock, at cost; 14,560 shares and 12,516 shares................ (253,532) (199,672)
Deferred compensation................................................... (5,725) (148,069)
Retained earnings....................................................... 157,110,720 140,415,366
------------- -------------
Total stockholders' equity.......................................... 200,453,635 179,357,550
------------- -------------
Total liabilities and stockholders' equity.......................... $ 424,158,405 $ 403,465,421
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these statements.
49
<PAGE>
HARVEYS CASINO RESORTS
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED NOVEMBER 30,
-------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Revenues
Casino................................................................ $244,784,494 $216,564,140 $186,368,776
Lodging............................................................... 34,272,546 32,175,206 28,745,686
Food and beverage..................................................... 47,078,908 44,405,880 39,851,616
Other................................................................. 7,111,072 7,276,772 6,402,770
Management fees and joint venture..................................... -- 4,507,159 5,023,381
Less: Casino promotional allowances................................... (23,738,316) (21,365,746) (18,643,497)
----------- ----------- -----------
Total net revenues.................................................. 309,508,704 283,563,411 247,748,732
----------- ----------- -----------
Costs and expenses
Casino................................................................ 115,836,815 100,500,468 86,732,228
Lodging............................................................... 13,710,144 13,373,681 11,677,166
Food and beverage..................................................... 30,142,182 29,886,093 24,796,962
Other operating....................................................... 2,885,443 2,811,332 2,812,983
Selling, general and administrative................................... 78,986,651 73,945,020 67,126,744
Depreciation and amortization......................................... 20,796,922 19,077,058 16,482,145
Business development costs............................................ 95,961 2,689,875 --
Merger related costs.................................................. 1,217,720 -- --
Pre-opening expenses.................................................. -- -- 4,099,490
----------- ----------- -----------
Total costs and expenses............................................ 263,671,838 242,283,527 213,727,718
----------- ----------- -----------
Operating income........................................................ 45,836 866 41,279,884 34,021,014
----------- ----------- -----------
Other income (expense)
Interest income....................................................... 2,258,771 509,620 903,975
Interest expense...................................................... (17,835,647) (19,401,110) (15,098,509)
Gain on sale of interests in unconsolidated affiliate................. -- 27,422,228 --
Other, net............................................................ (141,059) (137,448) (221,048)
----------- ----------- -----------
Total other income (expense)........................................ (15,717,935) 8,393,290 (14,415,582)
----------- ----------- -----------
Income before income taxes and extraordinary item....................... 30,118,931 49,673,174 19,605,432
Income tax provision.................................................... (11,417,279) (18,898,553) (7,791,497)
----------- ----------- -----------
Income before extraordinary item........................................ 18,701,652 30,774,621 11,813,935
Loss on early retirement of debt, net of taxes.......................... -- -- (521,705)
----------- ----------- -----------
Net income.............................................................. $18,701,652 $30,774,621 $11,292,230
----------- ----------- -----------
----------- ----------- -----------
Net income per common share--Basic
Income before extraordinary item...................................... $ 1.87 $ 3.13 $ 1.22
Extraordinary item.................................................... -- -- (0.06)
----------- ----------- -----------
Net income............................................................ $ 1.87 $ 3.13 $ 1.16
----------- ----------- -----------
----------- ----------- -----------
Net income per common share--Diluted
Income before extraordinary item...................................... $ 1.83 $ 3.13 $ 1.22
Extraordinary item.................................................... -- -- (0.06)
----------- ----------- -----------
Net income............................................................ $ 1.83 $ 3.13 $ 1.16
----------- ----------- -----------
----------- ----------- -----------
Weighted average common shares used in calculating income per common
share:
Basic................................................................. 10,023,113 9,826,636 9,645,708
----------- ----------- -----------
----------- ----------- -----------
Diluted............................................................... 10,220,476 9,843,871 9,698,500
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
50
<PAGE>
HARVEYS CASINO RESORTS
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
YEARS ENDED NOVEMBER 30,
------------------------------------------------
1998 1997 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Common stock
Balance at beginning of year
Shares: 9,853,488 in 1998, 9,818,322
in 1997, and 9,402,657 in 1996.... $ 98,535 $ 98,183 $ 94,026
Issuance of restricted stock, Shares:
1,500 in 1996....................... -- -- 15
Issuance of stock in acquisition of
minority interest of subsidiary
Shares: 382,500 in 1996............. -- -- 3,825
Stock options exercised, Shares:
226,183 in 1998, 35,166 in 1997 and
31,665 in 1996...................... 2,262 352 317
-------------- -------------- --------------
Balance at end of year, Shares:
10,079,671 in 1998, 9,853,488 in
1997 and 9,818,322 in 1996.......... 100,797 98,535 98,183
-------------- -------------- --------------
Additional paid-in capital and other
Balance at beginning of year.......... 39,191,390 38,634,439 31,419,882
Issuance of restricted stock.......... 26,798
Issuance of stock in acquisition of
minority interest of subsidiary, net
of issuance costs of $507,098....... -- -- 6,660,952
Stock options exercised............... 4,309,985 531,920 447,568
Other................................. -- 25,031 79,239
-------------- -------------- --------------
Balance at end of year................ 43,501,375 39,191,390 38,634,439
-------------- -------------- --------------
Treasury stock
Balance at beginning of year.......... (199,672) (151,276) (79,733)
Forfeiture of restricted stock........ - (40,250) (49,000)
Acquisition of treasury stock......... (53,860) (8,146) (22,543)
-------------- -------------- --------------
Balance at end of year................ (253,532) (199,672) (151,276)
-------------- -------------- --------------
Deferred compensation
Balance at beginning of year.......... (148,069) (425,187) (1,196,828)
Issuance of restricted stock.......... -- -- (26,814)
Amortization of deferred
compensation........................ 142,344 236,868 749,455
Forfeiture of restricted stock........ -- 40,250 49,000
-------------- -------------- --------------
Balance at end of year................ (5,725) (148,069) (425,187)
-------------- -------------- --------------
Retained earnings
Balance at beginning of year.......... 140,415,366 111,606,913 102,063,739
Net income............................ 18,701,652 30,774,621 11,292,230
Cash dividends declared............... (2,006,298) (1,966,168) (1,749,056)
-------------- -------------- --------------
Balance at end of year................ 157,110,720 140,415,366 111,606,913
-------------- -------------- --------------
Total Stockholders' Equity............ $ 200,453,635 $ 179,357,550 $ 149,763,072
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
The accompanying notes are an integral part of these statements.
51
<PAGE>
HARVEYS CASINO RESORTS
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED NOVEMBER 30,
-------------------------------------------------
1998 1997 1996
-------------- -------------- ---------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income.............................. $ 18,701,652 $ 30,774,621 $ 11,292,230
Adjustments to reconcile net income to
net cash provided by operating
activities
Depreciation and amortization......... 20,796,922 19,077,058 16,482,145
Gain on sale of interests in
unconsolidated affiliate............ -- (27,422,228) --
Equity in income of unconsolidated
affiliate........................... -- (1,665,880) (1,720,710)
Amortization of deferred
compensation........................ 142,344 236,868 749,455
Amortization of debt issuance costs... 1,078,423 1,042,668 1,719,218
Deferred income taxes................. 2,052,065 6,515,243 2,439,759
Other................................. 98,808 162,369 126,726
(Increase) decrease in assets
Accounts receivable, net............ 697,668 2,984,090 (1,020,290)
Inventories......................... 37,178 (369,346) (750,456)
Prepaid expenses and other current
assets............................ (265,162) (235,227) 1,388,880
Other assets........................ (2,648,391) 74,573 (315,760)
Increase (decrease) in liabilities
Accounts and contracts payable...... (1,567,028) 236,936 2,897,695
Accrued expenses.................... 3,970,058 4,433,595 5,285,369
Income taxes payable................ (7,056,237) 7,056,237 --
Other liabilities................... 2,349,282 1,734,973 1,193,685
-------------- -------------- ---------------
Net cash provided by operating
activities...................... 38,387,582 44,636,550 39,767,946
-------------- -------------- ---------------
Cash flows from investing activities
Proceeds from disposition of assets... 138,463 3,716,157 198,920
Capital expenditures.................. (17,680,546) (22,531,641) (51,395,297)
Proceeds from sale of marketable
securities.......................... -- 498,032 1,833,202
Purchase of marketable securities..... (10,657,245) (27,751) (132,592)
Purchase of notes and accrued interest
of consolidated subsidiary.......... -- -- (6,000,000)
Loan to unconsolidated affiliate...... -- -- (200,000)
Advances to employees................. (78,796) (173,510) --
Proceeds from notes receivable........ 79,730 168,910 193,608
Proceeds from sale of interests in
unconsolidated affiliate............ -- 46,226,920 --
Increase (decrease) in construction
payables............................ 608,660 (3,448,828) --
-------------- -------------- ---------------
Net cash provided by (used in)
investing activities............ (27,589,734) 24,428,289 (55,502,159)
-------------- -------------- ---------------
Cash flows from financing activities
Net borrowings under short-term credit
agreements.......................... -- (340,335) (335,019)
Proceeds from long-term debt.......... -- 11,013,876 245,900,000
Principal payments on long-term
debt................................ (633,354) (44,266,675) (210,835,153)
Dividends paid........................ (2,006,298) (1,966,168) (1,749,056)
Debt issuance costs................... (152,214) (116,178) (7,043,342)
Stock options exercised............... 4,312,247 532,272 447,885
Acquisition of treasury stock......... (53,860) (8,146) (22,543)
-------------- -------------- ---------------
Net cash provided by (used in)
financing activities............ 1,466,521 (35,151,354) 26,362,772
-------------- -------------- ---------------
Increase in cash and cash equivalents... 12,264,369 33,913,485 10,628,559
Cash and cash equivalents at beginning
of year............................... 55,034,861 21,121,376 10,492,817
-------------- -------------- ---------------
Cash and cash equivalents at end of
year.................................. $ 67,299,230 $ 55,034,861 $ 21,121,376
-------------- -------------- ---------------
-------------- -------------- ---------------
Supplemental disclosure of cash flows
information
Cash paid for interest, net of amounts
capitalized......................... $ 16,631,889 $ 18,426,216 $ 15,775,000
Cash paid for income taxes............ 17,705,000 3,429,087 6,068,000
Supplemental schedule of non-cash
investing and financing activities
Property and equipment acquired on
contracts........................... -- -- 22,303,908
Acquisition of minority interest in
subsidiary
Fair value of net assets acquired... -- -- 5,480,971
Minority interest................... -- -- 1,690,904
Common stock issued................. -- -- (7,171,875)
Subordinated notes issued in
acquisition of notes and accrued
interest of subsidiary.............. -- -- 8,000,000
</TABLE>
The accompanying notes are an integral part of these statements.
52
<PAGE>
HARVEYS CASINO RESORTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION AND CONSOLIDATION
Harveys Casino Resorts and subsidiaries (the "Company") is engaged in the
casino entertainment industry. In 1996, the Company formed a wholly-owned
subsidiary, Harveys Tahoe Management Company, Inc. ("HTMC"), to own and operate
the Company's resort on the south shore of Lake Tahoe, Nevada. On May 22, 1997,
HTMC was licensed by the Nevada gaming authorities and, on June 1, 1997, the
Company transferred the ownership of Harveys Resort Hotel/Casino to HTMC. The
Company, through its wholly-owned subsidiary, Harveys C. C. Management Company,
Inc. ("HCCMC"), owns and operates Harveys Wagon Wheel Hotel/Casino in Central
City, Colorado. Until April 30, 1996, the Company, through HCCMC, owned 70% of
the equity interest in Harveys Wagon Wheel Casino Limited Liability Company
("HWW") which owned Harveys Wagon Wheel Hotel/Casino. On April 30, 1996, the
Company acquired all of the 30% minority interest in HWW in exchange for common
stock of the Company. On June 1, 1997, the Company contributed its 30% interest
in HWW to HCCMC. Subsequently, HWW was liquidated and HCCMC became the sole
owner and operator of Harveys Wagon Wheel Hotel/Casino. Until October 24, 1997,
the Company, through its wholly-owned subsidiary, Harveys L.V. Management
Company, Inc. ("HLVMC"), owned 40% of the equity interest in Hard Rock Hotel,
Inc. ("HRHC"), which owns the Hard Rock Hotel and Casino in Las Vegas, Nevada.
HLVMC had a contract to manage the Las Vegas hotel and casino. On October 24,
1997 the Company sold its 40% equity interest and its interest in the management
contract to HRHC (see Note 11). Additionally, the Company's wholly-owned
subsidiary, Harveys Iowa Management Company, Inc. ("HIMC"), is the owner and
operator of Harveys Casino Hotel, a riverboat casino, hotel and convention
center complex in Council Bluffs, Iowa. The riverboat casino portion of the
complex opened for business on January 1, 1996 and the land-based hotel opened
for business on May 24, 1996.
The consolidated financial statements include the accounts of Harveys Casino
Resorts and its majority and wholly-owned subsidiaries. In consolidating, all
significant intercompany accounts and transactions have been eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash on hand and in banks, interest
bearing deposits and highly liquid debt instruments purchased with initial
maturities of three months or less. Cash equivalents are carried at cost which
approximates market value.
MARKETABLE SECURITIES
The Company has classified all of its marketable securities as
available-for-sale. Securities that are available-for-sale are stated at market
value, with any unrealized gains or losses excluded from income and reported as
a separate component of stockholders' equity. Market value is determined by the
closing price of the security as of the balance sheet date. Net realized gains
or losses are determined on the average cost method. There were no unrealized
gains or losses as of November 30, 1998.
53
<PAGE>
HARVEYS CASINO RESORTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVENTORIES
Inventories consist primarily of operating supplies and food and beverage
stock and are stated at the lower of weighted-average cost or market.
PROPERTY, EQUIPMENT AND DEPRECIATION
Property and equipment are stated at cost. Interest incurred during
construction is capitalized and amortized over the life of the asset. Costs of
improvements are capitalized. Costs of normal repairs and maintenance are
charged to expense as incurred. Upon the sale or retirement of property and
equipment, the cost and related accumulated depreciation are removed from the
respective accounts, and the resulting gain or loss, if any, is included in
income. Depreciation of property and equipment is provided on the straight-line
method over the estimated useful lives of the respective assets. Leasehold
improvements are amortized over the shorter of the asset life or lease term.
Depreciable lives are as follows:
<TABLE>
<CAPTION>
<S> <C>
Buildings and improvements.................................................. 15 to 45 years
Riverboat................................................................... 20 years
Leasehold improvements...................................................... 5 to 30 years
Equipment, furniture and fixtures........................................... 5 to 10 years
</TABLE>
UNAMORTIZED LOAN COSTS AND DEBT ISSUANCE COSTS
Loan costs incurred in connection with a reducing revolving credit agreement
are amortized to interest expense over the term of the loan on a straight-line
method. Debt issuance costs associated with the Company's senior subordinated
notes are amortized to interest expense over the term of the notes on the
interest method.
FUTURE DEVELOPMENT COSTS
The Company capitalizes costs associated with new gaming projects until (i)
the project is no longer considered viable and the costs are expensed, or (ii)
the likelihood of the project is relatively certain and the costs are
reclassified to pre-opening and expensed when operations commence. Capitalized
future development costs, relating to potential new gaming projects, of
approximately $3.1 million and $907,000 as of November 30, 1998 and 1997,
respectively, are included on the accompanying balance sheet as other assets.
For fiscal 1998 and 1997, the Company expensed approximately $96,000 and $2.7
million, respectively, of future business development costs.
PRE-OPENING EXPENSES
Pre-opening expenses are associated with the acquisition, development and
opening of the Company's new casino resorts. These amounts are expensed when the
casino commences operations and include items that were capitalized as incurred
prior to opening and items that are directly related to the opening of the
property and are nonrecurring in nature. In 1996, approximately $4.1 million was
expensed in conjunction with the Company's opening of the Harveys Casino Hotel
project in Council Bluffs, Iowa.
54
<PAGE>
HARVEYS CASINO RESORTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASINO REVENUES AND PROMOTIONAL ALLOWANCES
In accordance with industry practice, the Company recognizes as casino
revenues the net win from gaming activities, which is the difference between
gaming wins and losses. Promotional allowances consist principally of the retail
value of complimentary rooms, food, beverage, and other promotional allowances
provided to customers without charge. The estimated costs of providing such
complimentary services have been classified as casino operating expenses through
interdepartmental allocations as follows:
<TABLE>
<CAPTION>
YEARS ENDED NOVEMBER 30,
-------------------------------------------
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Hotel........................................... $ 3,247,715 $ 2,743,124 $ 2,454,401
Food and beverage............................... 11,845,611 10,871,776 9,805,175
Other........................................... 80,594 63,505 51,782
------------- ------------- -------------
$ 15,173,920 $ 13,678,405 $ 12,311,358
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
INCOME TAXES
The Company and its subsidiaries file a consolidated federal income tax
return. Income taxes are recorded in accordance with the liability method
specified by Statement of Financial Accounting Standards ("SFAS") No.
109--ACCOUNTING FOR INCOME TAXES. The following basic principles are applied in
accounting for income taxes: (i) a current liability or asset is recognized for
the estimated taxes payable or refundable for the current year; (ii) a deferred
tax liability or asset is recognized for the estimated future tax effects
attributable to temporary differences and carryforwards; (iii) the measurement
of current and deferred tax liabilities and assets is based on the provisions of
the enacted tax law, the effects of future changes in tax laws or rates are not
anticipated; and (iv) the measurement of deferred taxes is reduced, if
necessary, by the amount of any tax benefits that, based upon available
evidence, are not expected to be realized.
NET INCOME PER COMMON SHARE
Basic net income per common share is calculated by dividing net income by
the weighted average number of common shares outstanding during the period.
Diluted net income per common share is calculated by dividing net income by the
weighted average number of common and common equivalent shares outstanding
during the period.
FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107--DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS requires
the determination of fair value for certain of the Company's assets, liabilities
and contingent liabilities. When practicable, the following methods and
assumptions were used to estimate the fair value of those financial instruments
included in the following categories:
Notes receivable: The fair value of notes receivable is based upon projected
cash flows discounted at estimated current market rates of interest. It is not
practicable to estimate the fair value of notes receivable-related parties due
to the related party nature of those instruments.
Long-term debt: The fair value of long-term debt is estimated based on the
current borrowing rates offered to the Company for debt of the same remaining
maturities.
55
<PAGE>
HARVEYS CASINO RESORTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
It is estimated that the carrying amounts of the Company's financial
instruments approximate fair value at November 30, 1998.
CONCENTRATIONS OF CREDIT RISK
The Company maintains its cash in bank deposit accounts which, at times, may
exceed federally insured limits. The Company has not experienced any losses in
such accounts. The Company believes it is not exposed to any significant credit
risk on cash and cash equivalents.
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Company is a party to financial instruments with off-balance-sheet risk
in the normal course of business. These financial instruments consist of standby
letters of credit.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the standby letters of credit is represented by the contractual
amount of those instruments. The Company uses the same credit policies in making
commitments and conditional obligations as it does for on-balance-sheet
instruments. The Company does not have collateral or other security to support
financial instruments with off-balance-sheet credit risk.
LONG-LIVED ASSETS
In accordance with the provisions of SFAS No. 121--ACCOUNTING FOR THE
IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, the
Company reviews the carrying amount of long-lived assets and certain
identifiable intangibles whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Such reviews have
not had a material effect on the Company's results of operations or financial
position.
RECENTLY ISSUED ACCOUNTING STANDARDS
The FASB has issued SFAS No. 130--REPORTING COMPREHENSIVE INCOME, which
establishes standards for reporting and display of comprehensive income and its
components. SFAS No. 130 requires that an enterprise classify items of other
comprehensive income by their nature in a financial statement and display the
accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a statement of
financial position. SFAS No. 130 will be effective for the Company beginning
December 1, 1998. Management intends to comply with the disclosure requirements
of SFAS No. 130.
The FASB has issued SFAS No. 131--DISCLOSURES ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION, which establishes new standards for
determining a reportable segment and for disclosing information regarding each
such segment. A reportable segment is an operating segment: (i) that engages in
business activities from which it earns revenues and incurs expenses, (ii) whose
operating results are regularly reviewed by the enterprise's chief operating
decision maker in deciding how to allocate resources and in assessing
performance, (iii) for which discrete financial information is available, and
(iv) that exceeds specific quantitative thresholds. SFAS No. 131 will be
effective for the Company beginning December 1, 1998. On adoption, and to the
extent practicable, segment information for earlier comparative years will be
restated. The Company anticipates, with the adoption of SFAS No. 131, it will
expand its segment disclosures relative to its Nevada, Colorado and Iowa
operations. The Company believes the
56
<PAGE>
HARVEYS CASINO RESORTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
segment information required to be disclosed under SFAS No. 131 will have no
effect on the Company's consolidated results of operations, financial position
or cash flows, but will be more comprehensive than previously provided,
including expanded disclosure of income statement and balance sheet items for
each of its reportable operating segments.
The FASB has issued SFAS No. 132--EMPLOYERS' DISCLOSURES ABOUT PENSIONS AND
OTHER POSTRETIREMENT BENEFITS, which revises employers' disclosures about
pensions and other postretirement benefit plans. It does not change the
measurement or recognition of those plans. SFAS No. 132 standardizes the
disclosure requirements for pensions and other postretirement benefits to the
extent practicable, requires additional information on changes in the benefit
obligations and fair value of plan assets that will facilitate financial
analysis, and eliminates certain disclosures that are no longer as useful as
they once were. SFAS No. 132 suggests combined formats for presentation of
pension and other postretirement benefit disclosures. SFAS No. 132 will be
effective for the Company's fiscal year ending November 30, 1999. Management
intends to comply with the disclosure requirements of SFAS No. 132.
The FASB has issued SFAS No. 133--ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND
HEDGING ACITIVITIES, which establishes accounting and reporting standards for
derivative instruments and hedging activities. SFAS No. 133 will be effective
for the Company's fiscal year beginning December 1, 1999. Management believes
that the adoption of this statement will not have a material impact on the
Company's financial condition or results of operations.
The Accounting Standards Executive Committee of the American Institute of
Certified Public Accountants has issued Statement of Position ("SOP") REPORTING
ON THE COSTS OF START-UP ACTIVITIES. SOP 98-5 requires costs of start-up
activities (commonly referred to as pre-opening costs in the gaming industry) to
be expensed as incurred. The Company will be required to adopt SOP 98-5
beginning December 1, 1999, although earlier adoption is encouraged. On
adoption, restatement of previously issued financial statements will not be
permitted. The initial effect of adopting SOP 98-5 will be reported as the
cumulative effect of a change in accounting principle. The Company has not yet
determined if it will elect to adopt SOP 98-5 early nor has it determined what
effect, if any, the adoption of SOP 98-5 will have on the financial position or
results of operations of the Company.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior years' consolidated
financial statements to conform to the current year presentation. These
reclassifications have no effect on net income.
57
<PAGE>
HARVEYS CASINO RESORTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. ACCRUED EXPENSES
Accrued expenses consist of the following as of:
<TABLE>
<CAPTION>
NOVEMBER 30,
----------------------------
1998 1997
------------- -------------
<S> <C> <C>
Provision for progressive jackpot payouts...................... $ 1,676,510 $ 1,458,571
Accrued interest............................................... 167,202 174,706
Accrued salaries, wages and other employee benefits............ 10,204,932 8,301,094
Accrued taxes other than income taxes.......................... 4,947,385 4,462,947
Self-funded workers' compensation and medical claims accrual... 2,395,703 2,368,755
Outstanding gaming chips and tokens............................ 807,936 870,159
Race and sports book futures and unclaimed winners............. 1,087,665 808,903
Other accrued liabilities...................................... 3,604,763 2,499,911
------------- -------------
$ 24,892,096 $ 20,945,046
------------- -------------
------------- -------------
</TABLE>
3. LONG-TERM DEBT
Long-term debt consists of the following as of:
<TABLE>
<CAPTION>
NOVEMBER 30,
------------------------------
1998 1997
-------------- --------------
<S> <C> <C>
10 5/8% senior subordinated notes, due 2006 $ 150,000,000 $ 150,000,000
Notes payable to financing company........................... -- 623,387
Other........................................................ 220,304 230,271
-------------- --------------
150,220,304 150,853,658
Less current portion......................................... 220,304 633,354
-------------- --------------
$ 150,000,000 $ 150,220,304
-------------- --------------
-------------- --------------
</TABLE>
Aggregate annual maturities of long-term debt, based on amounts borrowed as
of November 30, 1998 are as follows:
<TABLE>
<CAPTION>
YEARS ENDING NOVEMBER 30,
- ------------------------------------------------------------------------------
<S> <C>
1999.......................................................................... $ 220,304
2000.......................................................................... --
2001.......................................................................... --
2002.......................................................................... --
2003.......................................................................... --
2004 and thereafter........................................................... 150,000,000
--------------
$ 150,220,304
--------------
--------------
</TABLE>
58
<PAGE>
HARVEYS CASINO RESORTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. LONG-TERM DEBT (CONTINUED)
10 5/8% SENIOR SUBORDINATED NOTES, DUE 2006
On May 22, 1996 the Company issued and sold, pursuant to an underwritten
public offering, $150 million in aggregate principal amount of 10 5/8% senior
subordinated notes due 2006 (the "Senior Subordinated Notes").
The Senior Subordinated Notes are governed by an indenture (the "Indenture")
and are general unsecured obligations of the Company, subordinated in right of
payment to all existing and future Senior Debt of the Company (as defined in the
Indenture). The Senior Subordinated Notes are guaranteed by each of the
Restricted Subsidiaries of the Company ( as defined in the Indenture). Each
guarantee is a general unsecured obligation of the guaranteeing Restricted
Subsidiary, subordinated in right of payment to all existing and future Senior
Debt of each guaranteeing Restricted Subsidiary. The guaranteeing Restricted
Subsidiaries are HCCMC, HIMC, HLVMC and HTMC. Separate financial statements of
the guaranteeing Restricted Subsidiaries have not been included because
management has determined that they are not material to investors.
Interest on the Senior Subordinated Notes is payable semi-annually on June 1
and December 1 of each year. The Senior Subordinated Notes will mature on June
1, 2006. The Senior Subordinated Notes are redeemable at the option of the
Company, in whole or in part, at any time on or after June 1, 2001 at prices
ranging from 105.313% of the principal amount plus accrued and unpaid interest
to 100% of the principal amount plus accrued and unpaid interest beginning June
1, 2004 and thereafter. Upon a Change of Control (as defined in the Indenture)
each holder of the Senior Subordinated Notes will have the right to require the
Company to repurchase such holder's Senior Subordinated Notes at 101% of the
principal amount plus accrued and unpaid interest to the repurchase date.
The Indenture contains certain covenants that impose limitations on, among
other things: (i) the incurrence of additional indebtedness by the Company or
any Restricted Subsidiary, (ii) the payment of dividends in excess of regular
quarterly dividends which are not to exceed $500,000 per quarter, (iii) the
repurchase of capital stock and the making of certain other Restricted Payments
and Restricted Investments (each as defined in the Indenture) by the Company or
any Restricted Subsidiary, (iv) mergers, consolidations and sales of assets by
the Company or any Restricted Subsidiary, (v) the creation or incurrence of
liens on the assets of the Company or any Restricted Subsidiary, and (vi)
transactions by the Company or any of its subsidiaries with Affiliates ( as
defined in the Indenture). These limitations are subject to a number of
qualifications and exceptions as described in the Indenture. The Company was in
compliance with these covenants at November 30, 1998.
NOTE PAYABLE TO BANKS
At November 30, 1998 the Company was party to a reducing revolving credit
agreement with a consortium of banks (the "Credit Facility"). As of November 30,
1998, under the Credit Facility, the Company could borrow up to a maximum
available principal balance of $103.5 million. The maximum available under the
Credit Facility is reduced by the advanced but unpaid principal balance and by
any letter of credit exposure. There were no advances outstanding at November
30, 1998 and 1997. Outstanding letters of credit amounted to approximately $1.2
million at November 30, 1998. The note payable under
59
<PAGE>
HARVEYS CASINO RESORTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. LONG-TERM DEBT (CONTINUED)
the Credit Facility matures in February 2002. Until then, the annual year-end
maximum principal balances are as follows:
<TABLE>
<CAPTION>
NOVEMBER 30,
- -------------------------------------------------------------------------------
<S> <C>
1999........................................................................... $ 92,000,000
2000........................................................................... 74,750,000
2001........................................................................... 57,500,000
</TABLE>
The Company pays quarterly fees at an annual rate varying from three-eights
of one percent (0.375%) to one-half of one percent (0.5%) on the unborrowed
maximum principal balance depending on the Company's ratio of funded debt to
earnings before interest, taxes, depreciation and amortization. The rate in
effect at November 30, 1998 was 0.375%.
Interest is due and payable monthly and is provided at the higher of the
prime rate or the Federal Funds Rate plus one-half of one percent (0.5%), plus
an applicable margin. However, in accordance with the terms of the Credit
Facility, the Company has the option to cause a portion, or all, of the
outstanding principal balance to accrue interest at a rate equal to the London
Inter-Bank Offering Rate ("LIBOR") plus an applicable margin. In each case, the
applicable margin is determined by reference to the Company's ratio of funded
debt to earnings before interest, taxes, depreciation and amortization. The
applicable margins at November 30, 1998 were 1.5%, with respect to LIBOR-based
borrowings, and 0.0%, with respect to prime rate borrowings.
The Credit Facility is secured by all of the real and personal property of:
(i) HTMC, (ii) HIMC, (iii) HCCMC, and (iv) HCR Services Company, Inc. ("HCRSC"),
a Nevada corporation, which is wholly owned by the Company, as well as all of
the contracts the Company has entered into in connection with its ownership and
operation of: (a) HTMC, (b) HIMC, (c) HCCMC, and (d) HCRSC. Additional security
is provided by a pledge of the stock of the following subsidiaries of the
Company: HLVMC, HCCMC, HIMC, HTMC, HCRSC, and Reno Projects, Inc., a Nevada
corporation, which is wholly owned by the Company.
The Credit Facility contains certain financial and other covenants. The
financial covenants prevent the Company from making any investments in or
advances to affiliates without the prior written consent of the lenders under
the Credit Facility. The covenants allow the declaration and payment of
dividends without the prior written consent of the lenders if certain fixed
charge coverage ratios are maintained. The covenants require the Company to
maintain certain set standards with respect to: (i) minimum tangible net worth,
(ii) fixed charge coverage ratios, and (iii) minimum annual capital
expenditures. The financial covenants also limit the Company's ability to incur
additional indebtedness. The Company was in compliance with these covenants at
November 30, 1998.
60
<PAGE>
HARVEYS CASINO RESORTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. OPERATING LEASE COMMITMENTS
The Company's future minimum lease commitments under noncancellable
operating leases (principally for land) as of November 30, 1998 are as follows:
<TABLE>
<CAPTION>
YEARS ENDING NOVEMBER 30,
- -------------------------------------------------------------------------------
<S> <C>
1999........................................................................... $ 2,807,281
2000........................................................................... 2,788,281
2001........................................................................... 2,610,276
2002........................................................................... 2,523,776
2003........................................................................... 2,442,276
2004 and thereafter............................................................ 94,453,959
</TABLE>
Certain leases included above have provisions which require periodic
increases in the rental payments based upon the consumer price index as of
certain dates. In addition, annual lease payments under an obligation on a land
lease are based upon an escalating percentage of gross gaming revenues or all
net revenues, whichever calculation is greater, of Harveys Resort Hotel/Casino.
The percentages applicable to gross gaming revenues and all net revenues in
fiscal 1999 will be 3.35% and 2.25%, respectively. In fiscal 2000 and years
thereafter the percentages are 3.5% and 2.35%, respectively. The actual rent
paid is the greater of the rent calculated as a percentage or a minimum rent, as
adjusted for the consumer price index. In 1997, the expiration of this land
lease was extended to the year 2045. For 1998, 1997 and 1996, the Company
recognized rental expense in connection with the land lease of approximately
$3.5 million, $3.0 million and $3.1 million, respectively, which includes
approximately $863,957, $789,000 and $665,000, respectively, above the minimum
rental amounts. Total rental expense recognized for 1998, 1997 and 1996 amounted
to approximately $3.9 million, $3.7 million and $3.7 million, respectively.
The Company is also a lessor on several noncancellable lease agreements. Of
the rental income recognized for the years ended November 30, 1998, 1997 and
1996, approximately $380,000, $118,000 and $77,000, respectively, represents
rents received as a percentage of gross receipts. The remaining amounts are
attributable to specified minimum rent. Future minimum payments due to the
Company under these noncancellable lease agreements are as follows:
<TABLE>
<CAPTION>
YEARS ENDING NOVEMBER 30,
- ----------------------------------------------------------------------------------
<S> <C>
1999.............................................................................. $ 460,836
2000.............................................................................. 276,975
2001.............................................................................. 184,933
2002.............................................................................. 9,000
2003.............................................................................. 3,000
</TABLE>
61
<PAGE>
HARVEYS CASINO RESORTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED NOVEMBER 30,
------------------------------------------
1998 1997 1996
------------- ------------- ------------
<S> <C> <C> <C>
Current.......................................... $ 9,365,214 $ 12,383,310 $ 5,484,923
Deferred......................................... 2,052,065 6,515,243 2,306,574
------------- ------------- ------------
Income tax provision before extraordinary item... 11,417,279 18,898,553 7,791,497
Income tax benefit of extraordinary item......... -- -- (334,497)
------------- ------------- ------------
Income tax provision............................. $ 11,417,279 $ 18,898,553 $ 7,457,000
------------- ------------- ------------
------------- ------------- ------------
</TABLE>
The difference between the Company's provision for income taxes as presented
in the accompanying consolidated statements of income, and the provision for
income taxes computed at the statutory rate is comprised of the items shown in
the following table as a percent of pre-tax earnings.
<TABLE>
<CAPTION>
YEARS ENDED NOVEMBER 30,
-------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Federal income tax at the statutory rate.......................... 35.0% 35.0% 35.0%
Non-deductible expenses........................................... 2.3 1.2 0.8
Tax credits....................................................... (0.3) (0.5) (1.1)
Tax exempt income................................................. (0.5) -- --
State income tax, net of federal benefit.......................... 1.9 1.7 1.9
Other, net........................................................ (0.5) 0.6 3.1
--- --- ---
37.9% 38.0% 39.7%
--- --- ---
--- --- ---
</TABLE>
62
<PAGE>
HARVEYS CASINO RESORTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. INCOME TAXES (CONTINUED)
The components of the deferred income tax assets and liabilities as
presented in the consolidated balance sheets, are as follows at November 30:
<TABLE>
<CAPTION>
1998 1997
-------------- --------------
<S> <C> <C>
Deferred Tax Asset
Accrued compensation.......................................... $ 6,166,766 $ 5,025,651
Other accrued expenses........................................ 2,259,119 1,861,103
-------------- --------------
8,425,885 6,886,754
Deferred Tax Liability
Prepaid expenses.............................................. (1,587,996) (1,158,799)
Property and equipment........................................ (31,260,604) (28,098,605)
-------------- --------------
Net deferred tax liability.................................... (32,848,600) (29,257,404)
-------------- --------------
$ (24,422,715) $ (22,370,650)
-------------- --------------
-------------- --------------
Current deferred asset........................................ $ 525,416 $ 651,965
Noncurrent deferred liability................................. (24,948,131) (23,022,615)
-------------- --------------
Net deferred tax liability.................................... $ (24,422,715) $ (22,370,650)
-------------- --------------
-------------- --------------
</TABLE>
HWW is currently under examination by the Internal Revenue Service for the
years ended November 30, 1995 and 1996 and the six month period ended May 31,
1997. Although a number of issues for these periods have been resolved, certain
issues still remain in dispute and are being contested by the Company.
Management believes that adequate provision has been made for any adjustments
that may result from tax examinations.
6. STOCK-BASED COMPENSATION
OMNIBUS INCENTIVE PLANS
In November 1993, the Company adopted the 1993 Omnibus Incentive Plan (the
"1993 Plan") and in March 1996, the Company adopted the 1996 Omnibus Incentive
Plan (the "1996 Plan" and together with the 1993 Plan, collectively referred to
as the "Plans"). Under the Plans, shares of the Company's common stock may be
granted to employees or prospective employees of the Company and/or its
subsidiaries who are responsible for the management, growth and protection of
the business of the Company. Issuance of shares of common stock under the Plans
may consist of stock options, stock appreciation rights, restricted stock
grants, performance units and dividend equivalents. The Plans are administered
by a committee of the Board of Directors (the "Committee") whose members
determine who will be awarded stock options, stock appreciation rights,
restricted stock grants, performance units and dividend equivalents.
Under the 1993 Plan, 915,219 shares of the Company's common stock were
reserved for potential awards and under the 1996 Plan, an additional 500,000
shares of the Company's common stock were reserved.
Stock options may be granted alone or in addition to other awards or in
tandem with stock appreciation rights. The exercise price of stock options
granted under the Plans is established by the Committee, but the exercise price
may not be less than the market price of the Company's common stock
63
<PAGE>
HARVEYS CASINO RESORTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. STOCK-BASED COMPENSATION (CONTINUED)
on the date the option is granted. The term of each stock option will be fixed
by the Committee. However, the term of any stock option may not exceed ten
years. Stock options granted under the Plans generally vest ratably over a three
year period from the date of grant.
Stock appreciation rights entitle the holder to receive in cash an amount
equal to the excess of the fair market value of common stock on the date of
exercise over the fair market value of common stock on the date of grant. A
stock appreciation right may be exercised at any time following the date which
is six months after the date of grant, but not prior to the exercisability of
any stock option with which it is granted in tandem. As of November 30, 1998, no
stock appreciation rights had been granted.
Restricted stock grants are awards of shares of common stock granted subject
to such restrictions, terms and conditions as the Committee deems appropriate.
The Committee determines the number of restricted shares to be granted and may
impose different terms and conditions on any particular restricted share grant
made to any employee. The Company has granted a total of 228,500 shares of
restricted common stock. Of the restricted shares granted, in each case, 25% of
the shares vested immediately as of the date of the grant and vest an additional
25% on each of the next three anniversaries of the grant. As of November 30,
1998, grantees of the restricted shares had forfeited 8,375 shares pursuant to
terms of the Plans. The Company has recognized approximately $142,000, $237,000,
and $750,000 as compensation expense in fiscal 1998, 1997, and 1996,
respectively.
At November 30, 1998, 208,859 shares of the Company's common stock were
available for grant under the Plans.
1993 NON-EMPLOYEE DIRECTORS' STOCK OPTION PROGRAM
In November 1993, the Company adopted the 1993 Non-Employee Directors' Stock
Option Program (the "Program") whereby each currently serving non-employee
director was granted an option to purchase 4,500 shares of the Company's common
stock, and will be granted an option to purchase 1,500 shares of common stock
immediately following each annual meeting. Each new non-employee director
receives a grant of an option to purchase 4,500 shares of the Company's common
stock immediately after the first annual meeting of shareholders after any such
director is elected or appointed to the Board of Directors and will receive an
option to purchase 1,500 shares of common stock immediately following each
subsequent annual meeting. Of the options granted, in each case, 33 1/3% vested
immediately on the date of grant and vest an additional 33 1/3% on each of the
next two anniversaries of grant. The exercise price is the fair market value of
the common stock on the date of grant. A total of 60,000 shares have been
reserved for issuance under the Program.
STOCK OPTIONS PURSUANT TO EMPLOYMENT CONTRACTS
Two of the Company's directors, who are also employees, have been granted
options, outside of the Plans or the Program, to purchase 15,000 and 12,500
shares of the Company's common stock, respectively. The stock options were
granted in November 1993 pursuant to employment contracts and in anticipation of
the Company's initial public offering in February 1994. The stock options have
an exercise price of $14.00 per share. None of the stock options have been
exercised. All of the stock options are currently exercisable and expire ten
years from the date of grant.
64
<PAGE>
HARVEYS CASINO RESORTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. STOCK-BASED COMPENSATION (CONTINUED)
The following table summarizes information relative to stock options
granted, exercised, canceled, outstanding and exercisable under the various
plans discussed above:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
OPTIONS EXERCISE PRICE
---------- -----------------
<S> <C> <C>
Options outstanding at December 1, 1995............................................ 519,432 $ 15.32
Options granted.................................................................... 413,580 18.90
Options canceled................................................................... (21,834) 13.81
Options exercised.................................................................. (31,665) 14.14
----------
Options outstanding at November 30, 1996........................................... 879,513 16.96
Options granted.................................................................... 684,193 16.48
Options canceled................................................................... (513,080) 19.04
Options exercised.................................................................. (35,166) 13.77
----------
Options outstanding at November 30, 1997........................................... 1,015,460 15.69
Options granted.................................................................... 17,500 27.16
Options canceled................................................................... (19,515) 17.19
Options exercised.................................................................. (226,183) 14.95
----------
Options outstanding at November 30, 1998........................................... 787,262 16.02
----------
----------
Options exercisable at November 30, 1996........................................... 476,042 $ 15.13
Options exercisable at November 30, 1997........................................... 377,583 14.35
Options exercisable at November 30, 1998........................................... 347,992 15.25
</TABLE>
The following table provides additional information relative to stock
options outstanding at November 30, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-------------------------------------------------- OPTIONS EXERCISABLE
WEIGHTED-AVERAGE -----------------------------
REMAINING WEIGHTED-AVERAGE WEIGHTED-AVERAGE
NUMBER CONTRACTUAL LIFE IN EXERCISABLE NUMBER EXERCISABLE
RANGE OF EXERCISE PRICES OUTSTANDING YEARS PRICE EXERCISABLE PRICE
- --------------------------------------- ----------- ------------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$13.0000-$16.2500...................... 203,000 5.29 $ 14.1103 198,500 $ 14.0807
$16.4375-$16.4375...................... 536,762 8.52 $ 16.4375 126,327 $ 16.4375
$17.1563-$27.1563...................... 47,500 8.42 $ 19.4010 23,165 $ 18.7588
----------- --- -------- ----------- --------
$13.0000-$27.1563...................... 787,262 7.68 $ 16.0162 347,992 $ 15.2477
----------- -----------
----------- -----------
</TABLE>
The FASB has issued SFAS No. 123--ACCOUNTING FOR STOCK-BASED COMPENSATION.
SFAS No. 123 provides, among other things, that companies may elect to either
record expense based on the fair value of stock-based compensation upon issuance
or continue to apply the methods prescribed by Accounting Principles Board
Opinion No. 25 ("APB No. 25") whereby no compensation cost is recognized upon
grant if certain requirements are met. The Company has elected to continue to
account for stock-based compensation in accordance with APB No. 25.
Had the Company recorded stock-based compensation cost consistent with the
provisions of SFAS No. 123, the Company's net income and earnings per share
would have been reduced to the pro forma
65
<PAGE>
HARVEYS CASINO RESORTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. STOCK-BASED COMPENSATION (CONTINUED)
amounts included in the table below. The table also discloses the
weighted-average assumptions used in estimating the fair value of stock options
using the Black-Scholes option pricing model and the weighted-average fair value
of the stock options granted. The Black-Scholes option valuation model was
developed for use in estimating the fair value of traded options, which have no
vesting restrictions and are fully transferable. Additionally, option valuation
models require the input of highly subjective assumptions including the expected
stock price volatility. Because the Company's stock-based compensation has
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of the Company's
stock-based compensation.
<TABLE>
<CAPTION>
YEARS ENDED NOVEMBER 30,
-------------------------------
DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS 1998 1997 1996
- --------------------------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Income before extraordinary item
As reported.................................................................... $ 18,702 $ 30,775 $ 11,814
Pro forma...................................................................... 17,938 30,406 11,465
Net income
As reported.................................................................... $ 18,702 $ 30,775 $ 11,292
Pro forma...................................................................... 17,938 30,406 10,943
Income per share before extraordinary item--basic
As reported.................................................................... $ 1.87 $ 3.13 $ 1.22
Pro forma...................................................................... $ 1.79 $ 3.09 $ 1.19
Net income per share--basic
As reported.................................................................... $ 1.87 $ 3.13 $ 1.16
Pro forma...................................................................... $ 1.79 $ 3.09 $ 1.13
Income per share before extraordinary item--diluted
As reported.................................................................... $ 1.83 $ 3.13 $ 1.22
Pro forma...................................................................... $ 1.76 $ 3.09 $ 1.18
Net income per share--diluted
As reported.................................................................... $ 1.83 $ 3.13 $ 1.16
Pro forma...................................................................... $ 1.77 $ 3.09 $ 1.13
Weighted-average assumptions
Expected stock price volatility................................................ 31.24% 31.70% 32.64%
Risk-free interest rate........................................................ 5.07% 5.20% 5.81%
Expected option lives (years).................................................. 3.44 2.84 3.06
Expected dividend yield........................................................ 0.80% 1.00% 1.00%
Estimated fair value of options granted........................................ $ 6.53 $ 4.05 $ 3.97
</TABLE>
66
<PAGE>
HARVEYS CASINO RESORTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. EMPLOYEE BENEFIT PLANS
401(k) PLAN
The Company maintains a defined contribution retirement savings plan for all
full-time employees who have at least one year of continuous employment and
1,000 hours of service. The Company contributes amounts equal to 50% of each
eligible employee's voluntary contributions. For purposes of determining the
Company's required contribution to the plan, the employee's voluntary
contributions cannot exceed 6% of the employee's qualified compensation. The
Company's contribution to the plan for the years ended November 30, 1998, 1997
and 1996 amounted to approximately $1.4 million, $1.6 million and $1.0 million,
respectively.
LONG-TERM INCENTIVE PLAN
In 1994, the Company adopted a long-term incentive plan for key employees.
Under the plan, incentives are accrued based upon annual operating results;
however, ultimate payment of these incentives is contingent upon the Company
attaining certain financial objectives over consecutive and concurrent
three-year periods. As of November 30, 1998 and 1997, the amount due to plan
participants was approximately $1.6 million and $1.0 million, respectively.
DEFERRED COMPENSATION PLAN
In 1990, the Company established a non-qualified deferred compensation plan
for designated executives and outside directors. Individuals electing to
participate in this plan may voluntarily defer receipt of up to twenty-five
percent (25%) of the participant's annual compensation. The deferred
compensation is credited to each participant's account, and interest on such
amounts is added to the participant's account each quarter. The interest rate
paid on amounts deferred prior to calendar year 1995 is the prime rate at the
beginning of each quarter plus five percent (12.75% at November 30,1998). The
interest rate paid on amounts deferred subsequent to December 31, 1994 is the
prime rate plus two and one-half percent (10.25% at November 30, 1998). The
Company is under no obligation to fund amounts under this plan, and such amounts
are unsecured and treated as general obligations of the Company. As of November
30, 1998 and 1997, the amount due participants in this plan was approximately
$2.9 million and $2.3 million, respectively.
POSTRETIREMENT BENEFITS
The Company provides postretirement medical benefits for certain key
executives and members of the Company's Board of Directors. These plans have
been accounted for in accordance with the provisions of SFAS No. 106--EMPLOYERS'
ACCOUNTING FOR POSTRETIREMENT BENEFITS OTHER THAN PENSIONS. This statement
requires that the cost of these postretirement medical benefits be recognized
under the accrual method of accounting. As permitted by SFAS No. 106, the
Company has elected to amortize over a period of 20 years
67
<PAGE>
HARVEYS CASINO RESORTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. EMPLOYEE BENEFIT PLANS (CONTINUED)
the accumulated postretirement benefit obligation (transition obligation)
related to prior service costs. The components of the periodic expense for
postretirement benefits were as follows:
<TABLE>
<CAPTION>
YEARS ENDED NOVEMBER 30,
----------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Service cost of benefits earned.............................................. $ 78,782 $ 75,219 $ 94,414
Interest cost on liability................................................... 67,884 56,907 55,338
Amortization of transition obligation........................................ 12,197 12,197 12,197
Prior service cost........................................................... 6,683 6,683 6,683
Loss......................................................................... -- -- 3,136
---------- ---------- ----------
Net periodic postretirement benefit cost..................................... $ 165,546 $ 151,006 $ 171,768
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The Company's current policy is to fund the plan as covered benefits are
paid. The actuarial and recorded liabilities for postretirement benefits, none
of which have been funded, were as follows:
<TABLE>
<CAPTION>
NOVEMBER 30,
--------------------------
1998 1997
------------ ------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees............................................................................ $ 131,906 $ 71,761
Fully eligible active plan participants............................................. 164,218 104,182
Other active plan participants...................................................... 847,656 739,129
------------ ------------
1,143,780 915,072
Plan assets at fair value............................................................. -- --
------------ ------------
Accumulated postretirement benefit obligation in excess of plan assets................ 1,143,780 915,072
Prior service cost not recognized in net periodic postretirement benefit cost......... (89,181) (95,864)
Unrecognized net gain (loss).......................................................... (73,418) 13,589
Unrecognized transition obligation.................................................... (170,746) (182,943)
------------ ------------
Postretirement benefit liability recognized in the consolidated balance sheets........ $ 810,435 $ 649,854
------------ ------------
------------ ------------
</TABLE>
A 6% annual rate of increase in the per capita cost of covered health care
benefits was assumed for 1998 and 1997. Increasing the assumed health care cost
trend rates by one percentage point in each year would increase the accumulated
postretirement benefit obligation as of November 30, 1998 and 1997 by
approximately $166,000 and $142,000 , respectively, and increase the service and
interest cost components of net periodic postretirement benefit cost by
approximately $23,000 and $23,000, respectively. The weighted-average discount
rate used to estimate the accumulated postretirement benefit obligation at
November 30, 1998 and 1997 was 6.75% and 7.25%, respectively.
68
<PAGE>
HARVEYS CASINO RESORTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. EMPLOYEE BENEFIT PLANS (CONTINUED)
SUPPLEMENTAL RETIREMENT PLANS
The Company provides noncontributory supplemental executive retirement plans
for certain key executives. Normal retirement under the supplemental executive
retirement plans is age 65, and participants receive benefits based on years of
service and compensation. The Company provides a noncontributory plan for
members of the Company's Board of Directors. Participants in the Board of
Directors plan receive benefits based on years of service, as a non-employee
director, upon retirement from the Board.
The following table sets forth the plan's funded status and amounts
recognized in the Company's balance sheet as of November 30, 1998 and 1997:
ACTUARIAL PRESENT VALUE OF BENEFIT OBLIGATION
<TABLE>
<CAPTION>
NOVEMBER 30,
-----------------------------
1998 1997
-------------- -------------
<S> <C> <C>
Accumulated benefit obligation, including vested benefits of $12,927,244 and
$11,556,484, respectively........................................................ $ 13,853,907 $ 12,038,065
-------------- -------------
-------------- -------------
Projected benefit obligation for service rendered to date.......................... $ 17,841,348 $ 15,133,038
Plan assets at fair value.......................................................... -- --
-------------- -------------
Projected benefit obligation in excess of plan assets.............................. 17,841,348 15,133,038
Unrecognized net loss.............................................................. (3,763,138) (2,639,993)
Prior service cost not yet recognized in net periodic pension cost................. (1,436,155) (1,649,152)
Unrecognized net obligation at adoption date....................................... (1,542,423) (1,714,122)
-------------- -------------
Accrued pension cost recognized.................................................... $ 11,099,632 $ 9,129,771
-------------- -------------
-------------- -------------
Additional liability and intangible asset:
Accumulated benefit obligation..................................................... $ 13,853,907 $ 12,038,065
Less: Plan assets at fair value.................................................... -- --
-------------- -------------
Unfunded accumulated benefit obligation............................................ 13,853,907 12,038,065
Less: Accrued pension cost......................................................... (11,099,632) (9,129,771)
-------------- -------------
Additional liability............................................................... $ 2,754,275 $ 2,908,294
-------------- -------------
-------------- -------------
Intangible asset--limited to unrecognized net obligation plus prior service cost... $ 2,754,272 $ 2,908,294
-------------- -------------
-------------- -------------
</TABLE>
69
<PAGE>
HARVEYS CASINO RESORTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. EMPLOYEE BENEFIT PLANS (CONTINUED)
Pension cost consists of the following components:
<TABLE>
<CAPTION>
YEARS ENDED NOVEMBER 30,
----------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Service cost--benefits earned during the period......................... $ 649,139 $ 502,946 $ 425,334
Interest cost on projected benefit obligation........................... 1,096,557 987,746 907,147
Return on plan assets................................................... -- -- --
Net amortization and deferral........................................... 507,739 496,173 517,165
------------ ------------ ------------
Net periodic pension cost............................................... $ 2,253,435 $ 1,986,865 $ 1,849,646
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The projected benefit obligation for November 30, 1998 and 1997 was
determined using an assumed discount rate of 6.75% and 7.25%, respectively, and
in each case, an assumed salary increase rate of 5%. The Company has recorded
additional liabilities of approximately $2.8 and $2.9, and intangible assets of
approximately $2.8 million and $2.9 million as of November 30, 1998 and 1997,
respectively. As of November 30, 1998 and 1997, a liability of approximately
$13.9 and $12.0 million, respectively, is included in the consolidated balance
sheets under the caption "Other liabilities" for the above plan.
SELF INSURED PLANS
The Company is self insured for employee medical coverage and workers'
compensation for the benefit of its employees. Estimated accrued obligations for
claims under these self-insured plans as of November 30, 1998 and 1997 were
approximately $2.4 million and $2.4 million, respectively. The Company's maximum
liability under both plans is limited by stop-loss agreements with insurance
companies.
8. NET INCOME PER COMMON SHARE
As of December 1, 1997, the Company adopted the provisions of SFAS No.
128--EARNINGS PER SHARE. The Company has restated the prior periods net income
per common share to conform with the provisions of SFAS No. 128. Basic net
income per common share is calculated by dividing net income by the weighted
average number of common shares outstanding during the period. Diluted net
income per common share is calculated by dividing net income by the weighted
average number of common and common equivalent shares outstanding during the
period. Common equivalent shares include restricted stock and stock options
outstanding and exercisable for the purpose of calculating diluted net income
per common share. The Company has no other potentially dilutive securities.
70
<PAGE>
HARVEYS CASINO RESORTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. NET INCOME PER COMMON SHARE (CONTINUED)
A reconciliation of net income and shares for basic and diluted net income
per common share follows:
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30, 1998
----------------------------------------
PER SHARE
INCOME SHARES AMOUNT
------------- ------------ -----------
<S> <C> <C> <C>
Basic net income per common share........................................ $ 18,701,652 10,023,113 $ 1.87
-----
-----
Effect of dilutive securities............................................ 197,363
------------- ------------
Diluted net income per common share...................................... $ 18,701,652 10,220,476 $ 1.83
------------- ------------ -----
------------- ------------ -----
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30, 1997
--------------------------------------
PER SHARE
INCOME SHARES AMOUNT
------------- ---------- -----------
<S> <C> <C> <C>
Basic net income per common share......................................... $ 30,774,621 9,826,636 $ 3.13
-----
-----
Effect of dilutive securities............................................. 17,235
------------- ----------
Diluted net income per common share....................................... $ 30,774,621 9,843,871 $ 3.13
------------- ---------- -----
------------- ---------- -----
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30, 1996
--------------------------------------
PER SHARE
INCOME SHARES AMOUNT
------------- ---------- -----------
<S> <C> <C> <C>
Basic income before extraordinary item per common share................... $ 11,813,935 9,645,708 $ 1.22
-----------
-----------
Effect of dilutive securities............................................. 52,792
------------- ----------
Diluted income before extraordinary item per common share................. $ 11,813,935 9,698,500 $ 1.22
------------- ---------- -----------
------------- ---------- -----------
Extraordinary item, basic................................................. $ (521,705) 9,645,708 $ (0.06)
-----------
-----------
Effect of dilutive securities............................................. 52,792
------------- ----------
Extraordinary item, diluted............................................... $ (521,705) 9,698,500 $ (0.06)
------------- ---------- -----------
------------- ---------- -----------
Basic net income per common share......................................... $ 11,292,230 9,645,708 $ 1.16
-----------
-----------
Effect of dilutive securities............................................. 52,792
------------- ----------
Diluted net income per common share....................................... $ 11,292,230 9,698,500 1.16
------------- ---------- -----------
------------- ---------- -----------
</TABLE>
9. COMMITMENTS AND CONTINGENCIES
LETTERS OF CREDIT
In connection with regulatory requirements, the Company was required to
issue irrevocable standby letters of credit to guarantee the Company's
obligation to satisfy a progressive slot machine jackpot payout
71
<PAGE>
HARVEYS CASINO RESORTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. COMMITMENTS AND CONTINGENCIES (CONTINUED)
and guarantee payment of workers' compensation benefits. Outstanding standby
letters of credit as of November 30, 1998 were as follows:
<TABLE>
<CAPTION>
AMOUNT EXPIRATION DATE
------------ -----------------
<S> <C> <C>
Gaming Patron................................................................... $ 394,603 March 31, 1999
St. Paul Fire and Marine (workers' compensation)................................ 812,500 April 15, 1999
------------
$ 1,207,103
------------
------------
</TABLE>
EMPLOYMENT CONTRACTS
The Company has entered into employment agreements, each of which expires
prior to November 30, 2002, with certain key executives. The employment
agreements provide for, among other things, annual base compensation,
participation in bonus plans, certain stock grants and stock option provisions.
CLAIMS AND LEGAL ACTIONS
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, all pending matters
are either adequately covered by insurance or if not covered by insurance, will
not have a material adverse effect on the Company's financial statements taken
as a whole.
10. RELATED PARTY TRANSACTIONS
NOTES RECEIVABLE FROM RELATED PARTY TRUST
Jessica L. Ledbetter, Kirk B. Ledbetter and Franklin K. Rahbeck, all
directors of the Company, and Wells Fargo Bank, National Association are the
co-trustees of the William B. Ledbetter and Beverlee A. Ledbetter Irrevocable
Trust ("the Trust"). The Trust owns survivorship life insurance policies on the
lives of William B. Ledbetter and Beverlee A. Ledbetter, deceased. William B.
Ledbetter is an officer and director of the Company and until her death on
September 12, 1995, Beverlee A. Ledbetter was the largest shareholder of the
Company. Prior to fiscal 1995, the Company had paid premiums on the life
insurance policies owned by the Trust. The Company has no further obligation to
pay such premiums. The Trust has issued two notes payable to the Company for the
amounts of the premiums previously paid by the Company. The notes are in the
principal amounts of $1,376,995 and $455,272 and bear interest at the rate of
5.84% and 6.30%, respectively. Interest on the notes is payable on December 31
of each year and the entire unpaid principal amount becomes due on the earlier
of November 15, 2001 or the death of William B. Ledbetter.
11. SALE OF INTERESTS IN UNCONSOLIDATED AFFILIATE
Until October 24, 1997, the Company owned a 40% equity interest in HRHC. The
Company accounted for this investment on the equity method. Pursuant to a
management agreement between HRHC and HLVMC, relating to the management and
operations of the Hard Rock Hotel and Casino owned by HRHC (the "Management
Agreement"), the Company earned a base management fee from HRHC of 4% of
adjusted gross revenue, as defined in the Management Agreement, and up to an
additional 2% of adjusted gross revenue if certain financial targets were met.
72
<PAGE>
HARVEYS CASINO RESORTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. SALE OF INTERESTS IN UNCONSOLIDATED AFFILIATE (CONTINUED)
On October 24, 1997, the Company sold all of the capital stock of HRHC held
by the Company, representing 40% of the then outstanding capital stock of HRHC,
and all of the Company's rights under the Management Agreement. The capital
stock and the rights under the Management Agreement were sold to HRHC. The sale
closed pursuant to the terms of a Stock Purchase and Management Buyout Agreement
entered into on July 1, 1997 by and among the Company, HLVMC, Lily Pond
Investments, Inc., a Nevada corporation ("Lily Pond") and HRHC. Upon closing,
the Management Agreement terminated and a stockholders' agreement among the
Company, HRHC and Lily Pond was canceled.
The Company received $45.0 million cash for the capital stock and the
Company's rights under the Management Agreement. The Company received, in
addition, approximately $1.2 million cash in satisfaction of a note and other
amounts due the Company from HRHC as of October 24, 1997.
Summarized statement of income information for HRHC for the year ended
November 30, 1996 and for the period from December 1, 1996 through October 24,
1997 were as follows:
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED
OCTOBER 24, NOVEMBER 30,
1997 1996
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Summarized Statement of Income Information
Revenues....................................................... $ 68,699 $ 77,289
Operating income............................................... 11,323 12,663
Net income..................................................... 4,295 4,467
</TABLE>
12. SUBSEQUENT EVENT (UNAUDITED)
On February 2, 1999, Harveys Acquisition Corporation, a Nevada corporation
("HAC"), which was formed at the direction of Colony Investors III, L.P., a
Delaware limited partnership ("Colony III") and an affiliate of Colony Capital,
Inc. ("Colony Capital") of Los Angeles, California, merged with and into the
Company (the "Merger").
The Merger occurred pursuant to an agreement and Plan of Merger dated as of
February 1, 1998 (the "Merger Agreement") between the Company and HAC. In the
Merger, each share of common stock ("Common Stock") of the Company outstanding
at the time the Merger became effective (the "Effective Time") (other than
shares of Common Stock held in the Company's treasury) was converted into the
right to receive $28.7343 in cash as provided in the Merger Agreement. At the
Effective Time, shareholders of the Company received an aggregate amount equal
to approximately $289.3 million and certain members of management received
compensation in the approximate amount of $10 million as buyout and/or
termination of various stock options. The capital stock of HAC prior to the
Merger became the capital stock of the Company after the Merger. The Company was
the surviving corporation in the Merger and is continuing its business
operations as conducted prior to the Merger. The Merger will be accounted for
using purchase method accounting.
Prior to the Merger, the Company was a publicly held company. Following the
Merger, Colony III owns 97% of the outstanding non-voting common stock, which
together with its voting common stock represents approximately 96% of the common
equity interest in the Company. Colony HCR Voteco, LLC, a Delaware limited
liability company ("Voteco") whose sole members are Thomas J. Barrack, Jr., the
Chairman and Chief Executive Officer of the indirect general partner of Colony
III, and Kelvin L. Davis,
73
<PAGE>
HARVEYS CASINO RESORTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. SUBSEQUENT EVENT (UNAUDITED) (CONTINUED)
the President and Chief Operating Officer of the indirect general partner of
Colony III, owns 97% of the voting power in the Company through the ownership of
97% of the outstanding voting common stock. As a result, Voteco is able to
govern all matters of the Company that are subject to the vote of stockholders,
including the appointment of directors and the amendment of the Company's
Articles of Incorporation and Bylaws. In addition, Colony III owns 99.99% of the
outstanding shares of the Company's preferred stock and Voteco owns 0.01% of the
outstanding shares of preferred stock.
In connection with the Merger, HAC issued shares of its Class A Common Stock
(the "Class A Common") and shares of its 13 1/2% Series A Senior Redeemable
Convertible Cumulative Preferred Stock (the "Series A Preferred") to Voteco, and
shares of its Class B Common Stock (the "Class B Common") and shares of its
13 1/2% Series B Senior Redeemable Cumulative Convertible Preferred Stock (the
"Series B Preferred") to Colony III. Holders of Class A Common are entitled to
one vote per share in all matters to be voted on by stockholders of the Company.
Holders of Class B Common have no voting rights except as required by law. The
Series A Preferred and Series B Preferred are convertible into Class A Common
and Class B Common, respectively, at a conversion rate of 28.7309164 shares of
Class A Common or Class B Common for each share of Series A Preferred or Series
B Preferred, subject to adjustment in customary circumstances to prevent
dilution. The Series A Preferred and Series B Preferred are subject to mandatory
redemption on February 1, 2011 for cash at the $550 per share liquidation value
(the "Liquidation Value") plus any accrued and unpaid dividends, out of any
funds legally available therefor. The Company has the right to redeem the Series
A Preferred and the Series B Preferred at any time for cash at the Liquidation
Value plus any accrued and unpaid dividends.
At the Effective Time, Charles W. Scharer, Chairman of the Board of
Directors, President and Chief Executive Officer of the Company, prior to the
Merger, was appointed a director of the Company. Additionally, at the Effective
Time, the Company granted to certain executive officers of the Company 660
shares of Class A Common and 66,000 shares of Class B Common in the aggregate,
and committed to granting shares to certain other executive officers.
HAC financed the Merger and paid related fees and expenses with (i) proceeds
of approximately $75 million from the issuance of its Class A Common and Class B
Common to Voteco and Colony III, respectively, (ii) proceeds of $55 million from
the issuance of Series A Preferred and Series B Preferred to Voteco and Colony
III, respectively, (iii) borrowings in the amount of $172 million under a loan
agreement dated as of January 28, 1999 (the "HAC Loan") between HAC as borrower
and Wells Fargo Bank, National Association ("Wells Fargo") as lender, and (iv)
the Company's available cash.
Immediately following the Merger, the Company used an initial disbursement
of $172 million under an Amended and Restated Credit Agreement dated December 9,
1998 among the Company and certain of its subsidiaries as borrowers, Wells Fargo
as swingline lender, letter of credit issuer and agent and the lenders party
thereto to repay the $172 million outstanding under the HAC Loan, made for the
purpose of financing a portion of the merger consideration. Interest on the
outstanding principal balance accrues at a base rate equal to the higher of (i)
the prime rate, and (ii) the Federal Funds Rate (as defined in the Amended and
Restated Credit Agreement) plus one-half of one percent; plus an applicable
margin which is initially 1.75%. The Company may under certain circumstances
elect to have interest accrue at LIBOR plus an applicable margin. The $185
million credit facility amends and restates the Company's previously existing
Credit Facility and provides for a revolving loan facility under which the
Company may repay and reborrow amounts outstanding, and a swingline facility and
letter of credit facility under each of which the Company may borrow up to $5
million.
74
<PAGE>
HARVEYS CASINO RESORTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. SUBSEQUENT EVENT (UNAUDITED) (CONTINUED)
Prior to the Effective Time, the Company received the consent of the holders
of the Senior Subordinated Notes to the waiver of provisions of the Indenture
that would have given each holder the right upon consummation of the Merger to
require the Company to repurchase such holder's Senior Subordinated Notes at
101% of the principal amount plus accrued and unpaid interest to the repurchase
date and that may have restricted the financing of the Merger. The Company paid
a consent fee to consenting holders of the Senior Subordinated Notes equal to 9%
of the principal amount of the holders' Senior Subordinated Notes.
13. SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following table sets forth unaudited selected quarterly financial
information for each quarter of fiscal 1998 and 1997. This information, in the
opinion of management, includes only normal recurring adjustments necessary for
a fair representation of the information set forth therein. The operating
results for any quarter are not indicative of results for any future period.
Quarterly results may not be comparative due to the seasonal nature of
operations.
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA) FIRST SECOND THIRD FOURTH
- ---------------------------------------------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Fiscal 1998
Revenue(a).......................................................... $ 68,772 $ 76,552 $ 87,632 $ 76,553
Operating income.................................................... 6,583 12,191 17,169 9,893
Income before income taxes.......................................... 2,551 8,155 13,220 6,193
Net income.......................................................... 1,531 4,892 7,932 4,347
Net income per common share(b)--basic............................... $ 0.15 $ 0.49 $ 0.79 $ 0.43
Net income per common share(b)--diluted............................. 0.15 0.48 0.77 0.42
Fiscal 1997
Revenue............................................................. $ 58,554 $ 71,709 $ 83,676 $ 69,624
Operating income.................................................... 4,599 11,560 17,995 7,126
Income before income taxes(c)....................................... 7 6,683 12,981 30,002
Net income(c)....................................................... 4 3,978 7,724 19,068
Net income per common share(b)(c)--basic............................ $ 0.00 $ 0.41 $ 0.79 $ 1.94
Net income per common share(b)(c)--diluted.......................... $ 0.00 $ 0.40 $ 0.78 $ 1.93
</TABLE>
- ------------------------
(a) Revenues for the second and third quarters of fiscal 1998 differ from the
amount originally reported in the Company's Quarterly Reports on Form 10-Q
for the quarters ended May 31, 1998 and August 31, 1998 due to the
reclassification of telephone commission income at Harveys Casino Hotel.
(b) Net income per share calculations for each quarter are based on the weighted
average number of common stock and common stock equivalents outstanding
during the respective quarters; accordingly, the sum of the quarters does
not equal the full-year income per share.
(c) Income before income taxes, net income and net income per common share for
the fourth quarter of fiscal 1997 include the effect of the gain recognized
on the sale of the Company's interests in the Hard Rock Hotel and Casino.
The gain on the transaction was approximately $27.4 million, before income
taxes, and approximately $17.4 million on an after-tax basis.
75
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
2.1 Stock Purchase Agreement, dated July 2, 1997(9)
2.2 Agreement and Plan of Merger, dated February 1, 1998,(12)
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).(13) (Articles of Incorporation are incorporated herein by reference to Harveys Acquisition
Corporations's Registration Statement of 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 per value per share) and the 13 1/2% Series B Redeemable Convertible Cumulative
Preferred Stock ($0.01 par value per share) of Harveys Casino Resorts(13)
3.3 Eighth Amended and Restated Bylaws of the Registrant(17)
4.1 Form of Stock Certificate of the Registrant(17)
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)(6)
4.3 First Supplemental Indenture, dated as of June 5, 1996, supplementing the Original Indenture(7)
4.4 Second Supplemental Indenture, dated as of May 22, 1997, supplementing the Original Indenture(11)
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(17)
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(17)
10.1 Net Lease Agreement, dated February 28, 1985, between Park Cattle Co. and the Registrant(1)
10.2 Lease, dated July 9, 1973, between Park Cattle Co. and the Registrant(1)
10.3 Supplemental Executive Retirement Plan(1)
10.4 Senior Supplemental Executive Retirement Plan(1)
10.5 Honorary Director Resolution--Vera Gross(1)
10.6 1998 Deferred Compensation Plan Participants(14)
10.7 Form of Indemnification Agreement for Directors and Officers and Schedule of Indemnities(16)
10.8 Excursion Boat Sponsorship and Operations Agreement, dated August 22, 1994, by and between Iowa West
Racing Association and Harveys Iowa Management Company, Inc.(2)
</TABLE>
76
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.9 Employment Agreement dated May 9, 1995 by and between the Registrant and Gary Armentrout(3)
10.10 Employment Agreement dated August 14, 1995, by and between the Registrant and Kevin Servatius(4)
10.11 Employment Agreement dated August 24, 1995, by and between the Registrant and Edward B. Barraco(4)
10.12 Harveys Casino Resorts Management Incentive Plan, approved August 8, 1995.(5)
10.13 1997 Deferred Compensation Participants and Form of Agreement(8)
10.14 Extension to Employment Agreement, dated January 30, 1997 between Edward B. Barraco and the
Registrant(10)
10.15 Employment Agreement, dated June 23, 1997 between James J. Rafferty and the Registrant(11)
10.16 Employment Agreement, dated July 1, 1997 between Verne Welch and the Registrant(11)
10.17 Employment Agreement, dated July 21, 1997 between John R. Bellotti and the Registrant(11)
10.18 Assignment of Leases, effective June 1, 1997, by and between Harveys Casino Resorts, formerly known as
Harvey's Wagon Wheel, Inc., a Nevada corporation, Harveys Tahoe Management Company, Inc., a Nevada
corporation, and Park Cattle Co., a Nevada corporation(11)
10.19 Third Amendment to Lease Agreement, dated June 1, 1997, by and between Park Cattle Co., a Nevada
corporation and Harveys Casino Resorts, formerly known as Harvey's Wagon Wheel, Inc., a Nevada
corporation(11)
10.20 First Amendment to Lease Agreement, dated June 1, 1997, between Park Cattle Co., a Nevada corporation
and Harveys Casino Resorts, formerly known as Harveys Wagon Wheel, Inc., a Nevada corporation (Douglas
County, Nevada property)(11)
10.21 First Amendment to Lease Agreement, dated June 1, 1997, between Park Cattle Co., a Nevada corporation
and Harveys Casino Resorts, formerly known as Harveys Wagon Wheel, Inc., a Nevada corporation (El
Dorado County, California property)(11)
10.22 Asset Transfer Agreement between Harveys Casino Resorts and Harveys Tahoe Management Company, Inc.,
effective June 1, 1997(11)
10.23 Harveys Casino Resorts Change of Control Plan, effective June 1, 1997(16)
10.24 Supplemental Executive Retirement Plan, effective as of November 20, 1997(16)
10.25 Extension of Employment Agreement dated September 8, 1997 between Gary Armentrout and the Registrant(16)
10.26 Amended and Restated Credit Facility dated as of December 9, 1998 among Harveys Casino Resorts, Harveys
C. C. Management Company, Inc., Harveys Iowa Management Company, Inc., Harveys Tahoe Management
Company, Inc., HCR Services Company, Inc., as borrowers, and Wells Fargo Bank, The First National Bank
of Chicago, First Security Bank, N. A., U.S. Bank National Association, Credit Lyonnais Los Angeles
Branch, Societe Generale, Imperial Bank, Hibernia Bank, Bank of the West and First Hawaiian Bank, as
lenders, and Wells Fargo Bank, as swingline lender, L/C issuer and agent bank.(17)
10.27 Employment Agreement made and entered into February 2, 1999 by and between Harveys Casino Resorts and
Charles W. Scharer.(17)
</TABLE>
77
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.28 Employment Agreement made and entered into February 2, 1999 by and between Harveys Casino Resorts and
Stephen L. Cavallaro.(17)
10.29 Employment Agreement made and entered into February 2, 1999 by and between Harveys Casino Resorts and
John J. McLaughlin.(17)
10.30 Deferred Compensation Agreement dated as of February 2, 1999 by and between Harveys Casino Resorts and
Charles W. Scharer.(17)
10.31 Deferred Compensation Agreement dated as of February 2, 1999 by and between Harveys Casino Resorts and
Stephen L. Cavallaro.(17)
10.32 Deferred Compensation Agreement dated as of February 2, 1999 by and between Harveys Casino Resorts and
John J. McLaughlin.(17)
10.33 1999 Omnibus Stock Incentive Plan.(17)
10.34 Stockholders Agreement entered into as of February 2, 1999 by and among Harveys Casino Resorts (the
"Company"), Colony HCR Voteco LLC, Colony Investors III, L. P. And the securityholders of the Company
as identified from time to time on Schedule A thereto.(17)
10.35 Real Estate Option Agreement dated January 8, 1998 by and between the Registrant and Grand Plaza Limited
Partnership.(14)
10.36 Amendment, dated as of September 15, 1998, to Option Agreement dated as of January 8, 1998 by and
between the Registrant and Grand Plaza Limited Partnership.(17)
10.37 Extension of Employment Agreement dated as of October 19, 1998, by and between the Registrant and James
J. Rafferty.(17)
10.38 Extension of Employment Agreement dated as of October 26, 1998, by and between the Registrant and Gary
Armentrout.(17)
10.39 1999 Deferred Compensation Plan Participants.(17)
10.40 Memorandum of Understanding dated February 1, 1998 among Harveys Acquisition Corporation, a Nevada
corporation, Charles W. Scharer, Stephen L. Cavallaro and John J. McLaughlin.(15)
10.41 Voting and Profit Sharing Agreement dated as of February 1, 1998 by and among Harveys Acquisition
Corporation and the individuals and entities signatory thereto.(15)
10.42 Noncompetition and Trade Secret Agreement dated as of February 1, 1998 by and among Harveys Acquisition
Corporation and the individuals signatory thereto. (15)
10.43 Stock Option and Restricted Stock Agreement dated as of February 2, 1999 by and between Harveys Casino
Resorts and Charles W. Scharer.(17)
10.44 Stock Option and Restricted Stock Agreement dated as of February 2, 1999 by and between Harveys Casino
Resorts and Steven L. Cavallaro.(17)
10.45 Stock Option and Restricted Stock Agreement dated as of February 2, 1999 by and between Harveys Casino
Resorts and John J. McLaughlin.(17)
10.46 Stock Option and Restricted Stock Agreement dated as of February 2, 1999 by and between Harveys Casino
Resorts and Gary Armentrout.(17)
10.47 Deferred Compensation Agreement dated as of February 2, 1999 by and between Harveys Casino Resorts and
Gary Armentrout.(17)
10.48 Indemnification Agreement between Harveys Acquisition Corporation and Kelvin L. Davis.(17)
</TABLE>
78
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
21.1 List of Subsidiaries of the Registrant(16)
27 Financial Data Schedule(17)
</TABLE>
- ------------------------
(1) Incorporated herein by reference to Registration Statement No. 33-70670
(2) Incorporated herein by reference to Registrant's Annual Report on Form 10-K
for the period ended November 30, 1994
(3) Incorporated herein by reference to Registrant's Quarterly Report on Form
10-Q for the period ended May 31, 1995
(4) Incorporated herein by reference to Registrant's Quarterly Report on Form
10-Q for the period ended August 31 1995
(5) Incorporated herein by reference to Registrant's Annual Report on Form 10-K
for the period ended November 30, 1995
(6) Incorporated herein by reference to Registration Statement No. 333-3576
(7) Incorporated herein by reference to Registrant's Current Report on Form 8-K
filed June 14, 1996
(8) Incorporated herein by reference to Registrant's Quarterly Report on Form
10-Q for the period ended February 28, 1997
(9) Incorporated herein by reference to Registrant's Current Report on Form 8-K
filed July 2, 1997
(10) Incorporated herein by reference to Registrant's Quarterly Report on Form
10-Q for the period ended May 31, 1997
(11) Incorporated herein by reference to Registrant's Quarterly Report on Form
10-Q for the period ended August 31, 1997
(12) Incorporated herein by reference to Registrant's Quarterly Report on Form
8-K filed February 3, 1998
(13) Incorporated herein by reference to Registrant's Current Report on Form 8-K
filed February 12, 1999
(14) Incorporated herein by reference to Registrant's Quarterly Report on Form
10-Q for the period ended February 28, 1998
(15) Incorporated herein by reference to Registration Statement on Form 10 of
Harveys Acquisition Corporation, File No. 0-25093, filed November 20, 1998
(16) Incorporated herein by reference to the Registrant's Annual Report on Form
10-K for the period ended November 30, 1998
(17) Filed herewith
79
<PAGE>
Exhibit 3.3
EIGHTH
AMENDED AND RESTATED
BYLAWS OF
HARVEYS CASINO RESORTS
ARTICLE I
OFFICES
SECTION 1.01 REGISTERED OFFICE. The registered office of the corporation
shall be in the City of Stateline, County of Douglas, State of Nevada. The
corporation may, from time to time, in the manner provided by law, change the
registered office within the State of Nevada.
SECTION 1.02 OTHER OFFICES. The corporation may also maintain an office or
offices at such other places within or without the State of Nevada as the Board
of Directors may form time to time determine or the business of the corporation
may require.
ARTICLE II
STOCKHOLDERS
SECTION 2.01 ANNUAL MEETING. The annual meeting of stockholders shall be
held each year on a date and time designated by the Board of Directors. Any
previously scheduled annual meeting of the stockholders may be postponed by
resolution of the Board of Directors upon public notice given prior to the date
previously scheduled for such annual meeting of the stockholders.
SECTION 2.02 SPECIAL MEETINGS.
(a) Except as otherwise required by law and subject to the rights of
the holders of Preferred Stock, special meetings of stockholders may be called
only by the Board of Directors pursuant to a resolution approved by a majority
of the entire Board of Directors, the chairman of the board, chief executive
officer, or president. Each special meeting shall be held at such date, time and
place either within or without the State of Nevada as shall be designated by the
Board of Directors at least ten (10) days prior to such meeting.
(b) No business shall be acted upon at a special meeting except as set
forth in the notice calling the meeting, unless one of the conditions for the
holding of a meeting without notice set forth in Section 2.05 shall be
satisfied, in which case any business (except as noted in Section 2.12
immediately below) may be transacted and the meeting shall be valid for all
purposes.
<PAGE>
SECTION 2.03 PLACE OF MEETINGS. Any meeting of the stockholders of the
corpora tion may be held at its registered office in the State of Nevada or at
such other place in or out of the United States as the Board of Directors may
designate. A waiver of notice signed by stockholders entitled to vote may
designate any place for the holding of such meeting.
SECTION 2.04 NOTICE OF MEETINGS.
(a) The president, a vice president, the secretary, an assistant
secretary or any other individual designated by the Board of Directors shall
sign and deliver written notice of any meeting at least ten (10) days, but not
more than sixty (60) days, before the date of such meeting. The notice shall
state the place, date and time of the meeting and the purpose or purposes for
which the meeting is called.
(b) In the case of an annual meeting, subject to Section 2.12, any
proper business may be presented for action, except that action on any of the
following items shall be taken only if the general nature of the proposal is
stated in the notice:
(1) Action with respect to any contract or transaction between
the corporation and one or more of its directors or officers or between the
corporation and any corporation, firm or association in which one or more of the
corporation's directors or officers is a director or officer or is financially
interested;
(2) Adoption of amendments to the Articles of Incorporation; or
(3) Action with respect to a merger, share exchange,
reorganization, partial or complete liquidation, or dissolution of the
corporation.
(c) A copy of the notice shall be personally delivered or mailed
postage prepaid to each stockholder of record entitled to vote at the meeting at
the address appearing on the records of the corporation, and the notice shall be
deemed delivered the date the same is deposited in the United States mail for
transmission to such stockholder. If the address of any stockholder does not
appear upon the records of the corporation, it will be sufficient to address any
notice to such stockholder at the registered office of the corporation.
(d) The written certificate of the individual signing a notice of
meeting, setting forth the substance of the notice or having a copy thereof
attached, the date the notice was mailed or personally delivered to the
stockholders and the addresses to which the notice was mailed, shall be prima
facie evidence of the manner and fact of giving such notice.
2
<PAGE>
(e) Any stockholder may waive notice of any meeting by a signed
writing, either before or after the meeting.
SECTION 2.05 MEETING WITHOUT NOTICE.
(a) Whenever all persons entitled to vote at any meeting consent,
either by:
(1) A writing on the records of the meeting or filed with the
secretary; or
(2) Presence at such meeting and oral consent entered on the
minutes; or
(3) Taking part in the deliberations at such meeting without
objection;
The doings of such meeting shall be as valid as if had at a meeting regularly
called and noticed.
(b) At such meeting any business may be transacted which is not
excepted from the written consent or to the consideration of which no objection
for want of notice is made at the time.
(c) If any meeting be irregular for want of notice or of such consent,
provided a quorum was present at such meeting, the proceedings of the meeting
may be ratified and approved and rendered likewise valid and the irregularity or
defect therein waived by a writing signed by all parties having the right to
vote at such meeting.
(d) Such consent or approval may be by proxy or power of attorney, but
all such proxies and powers of attorney must be in writing.
SECTION 2.06 DETERMINATION OF STOCKHOLDERS OF RECORD.
(a) For the purpose of determining the stockholders entitled to notice
of and to vote at any meeting of stockholders or any adjournment thereof, or
entitled to receive payment of any distribution or the allotment of any rights,
or entitled to exercise any rights in respect of any change, conversion, or
exchange of stock or for the purpose of any other lawful action, the directors
may fix, in advance, a record date, which shall not be more than sixty (60) days
nor less than ten (10) days before the date of such meeting, nor more than sixty
(60) days prior to any other action.
3
<PAGE>
(b) If no record date is fixed, the record date for determining
stockhold ers: (i) entitled to notice of and to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held, (ii) entitled to
express consent to corporate action in writing without a meeting shall be the
day on which the first written consent is expressed, and (iii) for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto. A determination of
stockholders of record entitled to notice of or to vote at any meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the ad journed
meeting.
SECTION 2.07 QUORUM; ADJOURNED MEETINGS.
(a) Unless the Articles of Incorporation provide for a different
propor tion, stockholders holding at least a majority of the voting power of the
corporation's stock, represented in person or by proxy, are necessary to
constitute a quorum for the transaction of business at any meeting. If, on any
issue, voting by classes is required by the laws of the State of Nevada, the
Articles of Incorporation or these Bylaws, at least a majority of the voting
power within each such class is necessary to constitute a quorum of each such
class.
(b) If a quorum is not represented, a majority of the voting power so
represented may adjourn the meeting from time to time until holders of the
voting power required to constitute a quorum shall be represented. At any such
adjourned meeting at which a quorum shall be represented, any business may be
transacted which might have been transacted as originally called. When a
stockholders' meeting is adjourned to another time or place hereunder, notice
need not be given of the adjourned meeting if the time and place thereof are
announced at the meeting at which the adjournment is taken. The stockholders
present at a duly convened meeting may continue to transact business until
adjournment, notwithstanding the withdrawal of enough stockholders to leave less
than a quorum of the voting power.
SECTION 2.08 VOTING.
(a) Unless otherwise provided in the Articles of Incorporation, or in
the resolution providing for the issuance of the stock adopted by the Board of
Directors pursuant to authority expressly vested in it by the provisions of the
Articles of Incorporation, each stockholder of record, or such stockholder's
duly authorized proxy or attor ney-in-fact, shall be entitled to one (1) vote
for each share of voting stock standing registered in such stockholder's name on
the record date. No stockholder of the corporation shall be entitled to
cumulative voting for the election of directors.
4
<PAGE>
(b) Except as otherwise provided herein, all votes with respect to
shares standing in the name of an individual on the record date (included
pledged shares) shall be cast only by that individual or such individual's duly
authorized proxy, attorney-in-fact, or voting trustee(s) pursuant to a voting
trust. With respect to shares held by a representative of the estate of a
deceased stockholder, guardian, conservator, custodian or trustee, votes may be
cast by such holder upon proof of capacity, even though the shares do not stand
in the name of such holder. In the case of shares under the control of a
receiver, the receiver may cast votes carried by such shares even though the
shares do not stand in the name of the receiver; provided, that the order of the
court of competent jurisdiction which appoints the receiver contains the
authority to cast votes carried by such shares. If shares stand in the name of a
minor, votes may be cast only by the duly appointed guardian of the estate of
such minor if such guardian has provided the corporation with written proof of
such appointment.
(c) With respect to shares standing in the name of another
corporation, partnership, limited liability company or other legal entity on the
record date, votes may be cast: (i) in the case of a corporation, by such
individual as the bylaws of such other corporation prescribe, by such individual
as may be appointed by resolution of the board of directors of such other
corporation or by such individual (including the officer making the
authorization) authorized in writing to do so by the chairman of the board of
directors, president or any vice-president of such corporation and (ii) in the
case of a partnership, limited liability company or other legal entity, by an
individual representing such stock holder upon presentation to the corporation
of satisfactory evidence of his authority to do so.
(d) Notwithstanding anything to the contrary herein contained, no
votes may be cast for shares owned by this corporation or its subsidiaries, if
any. If shares are held by this corporation or its subsidiaries, if any, in a
fiduciary capacity, no votes shall be cast with respect thereto on any matter
except to the extent that the beneficial owner thereof possesses and exercises
either a right to vote or to give the corporation holding the same binding
instructions on how to vote.
(e) Any holder of shares entitled to vote on any matter may cast a
portion of the votes in favor of such matter and refrain from casting the
remaining votes or cast the same against the proposal, except in the case of
elections of directors. If such holder entitled to vote fails to specify the
number of affirmative votes, it will be conclusively presumed that the holder
is casting affirmative votes with respect to all shares held.
(f) With respect to shares standing in the name of two or more
persons, whether fiduciaries, members of a partnership, joint tenants, tenants
in common, husband and wife as community property, tenants by the entirety,
voting trustees, persons entitled to vote under a stockholder voting agreement
or otherwise and shares held by two or more
5
<PAGE>
persons (including proxy holders) having the same fiduciary relationship in
respect to the same shares, votes may be cast in the following manner:
(1) If only one person votes, the vote of such person binds all.
(2) If more than one person casts votes, the act of the majority
so voting binds all.
(3) If more than one person casts votes, but the vote is evenly
split on a particular matter, the votes shall be deemed cast proportionately, as
split.
(g) If a quorum is present, unless the Articles of Incorporation
provide for a different proportion, the affirmative vote of holders of at least
a majority of the voting power represented at the meeting and entitled to vote
on any matter shall be the act of the stockholders, unless voting by classes is
required for any action of the stockholders by the laws of the State of Nevada,
the Articles of Incorporation or these Bylaws, in which case the affirmative
vote of holders of a least a majority of the voting power of each such class
shall be required.
SECTION 2.09 PROXIES. At any meeting of stockholders, any holder of shares
entitled to vote may designate, in a manner permitted by the laws of the State
of Nevada, another person or persons to act as a proxy or proxies. No proxy is
valid after the expiration of six (6) months from the date of its creation,
unless it is coupled with an interest or unless otherwise specified in the
proxy. In no event shall the term of a proxy exceed seven (7) years from the
date of its creation. Every proxy shall continue in full force and effect until
its expiration or revocation in a manner permitted by the laws of the State of
Nevada.
SECTION 2.10 ORDER OF BUSINESS. At the annual stockholder's meeting, the
regular order of business shall be as follows:
1. Determination of stockholders present and existence of quorum, in
person or by proxy;
2. Reading and approval of the minutes of the previous meeting or
meetings;
3. Reports of the Board of Directors, and, if any, the president,
treasurer and secretary of the corporation;
4. Reports of committees;
5. Election of directors;
6
<PAGE>
6. Unfinished business;
7. New business;
8. Adjournment.
SECTION 2.11 ABSENTEES' CONSENT TO MEETINGS. Transactions of any meeting of
the stockholders are as valid as though had at a meeting duly held after regular
call and notice if a quorum is represented, either in person or by proxy, and
if, either before or after the meeting, each of the persons entitled to vote,
not represented in person or by proxy (and those who, although present, either
object at the beginning of the meeting to the transaction of any business
because the meeting has not been lawfully called or convened or expressly object
at the meeting to the consideration of matters not included in the notice which
are legally required to be included therein), signs a written waiver of notice
and/or consent to the holding of the meeting or an approval of the minutes
thereof. All such waivers, consents, and approvals shall be filed with the
corporate records and made a part of the minutes of the meeting. Attendance of a
person at a meeting shall constitute a waiver of notice of such meeting, except
when the person objects at the beginning of the meeting to the transaction of
any business because the meeting is not lawfully called or convened and except
that attendance at a meeting is not a waiver of any right to object to the
consideration of matters not properly included in the notice if such objection
is expressly made at the time any such matters are presented at the meeting.
Neither the business to be transacted at nor the purpose of any regular or
special meeting of stockholders need be specified in any written waiver of
notice or consent, except as otherwise provided in Section 2.04(a) and (b) or
Section 2.12 (if applicable) of these Bylaws.
SECTION 2.12 TELEPHONIC MEETING. Stockholders may participate in a meeting
of the stockholdes by means of a telephone conference or similar method of
communications by which all individuals participating in the meeting can hear
each other. Participation in a meeting pursuant to this Section 2.12 constitutes
presence in person at the meeting.
SECTION 2.13 ACTION WITHOUT MEETING. Any action required or permitted to be
taken at a meeting of the stockholders may be taken without a meeting if a
written consent thereto is signed by the holders of the voting power of the
corporation that would be required at a meeting to constitute the act of the
stockholders. Whenever action is taken by written consent, a meeting of
stockholders need not be called or notice given. The written consent may be
signed in counterparts and must be filed with the minutes of the proceedings of
the stockholders.
SECTION 2.14 BUSINESS TO BE CONDUCTED AT MEETING. At an annual or special
meeting of the stockholders, only such business shall be conducted as shall have
been properly brought before the meeting. To be properly brought before a
meeting, business must be (a) specified in the notice of meeting (or any
supplement thereto) given by or at
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the direction of the Board of Directors, (b) brought before the meeting by or at
the direction of the Board of Directors, (c) properly brought before an annual
meeting by a stockholder, or (d) if, and only if, the notice of a special
meeting provides for business to be brought before the meeting by stockholders,
properly brought before the meeting by a stockholder who is a stockholder of
record at the time of serving of the notice pursuant to Section 2.04, who shall
be entitled to vote at such meeting and who complies with the notice procedures
set forth in this Section 2.12. For business to be properly brought before a
meeting by a stockholder pursuant to the preceding clauses (c) or (d), the
stockholder must have given timely notice thereof in writing to the secretary of
the corporation. To be timely, a stockholder's notice must be delivered to, or
mailed and received by, the secretary at the principal executive office of the
corporation not less than thirty-five (35) days prior to the meeting; PROVIDED,
HOWEVER, that in the event less than forty-five (45) days notice or public
disclosure of the date of the meeting is given or made to the stockholders,
notice by the stockholder to be timely must be so received not later than the
fifth (5th) day following the day on which such notice of the date of the
meeting was mailed or such disclosure was made. In no event shall the public
disclosure of an adjournment of an annual or special meeting commence a new time
period for the giving of stockholder's notice as described above. A
stockholder's notice to the secretary shall set forth as to each matter the
stockholder proposes to bring before the meeting (a) a brief description of the
business desired to be brought before the meeting and the reasons for conducting
such business at the meeting, (b) the name and address, as they appear on the
corporation's books, of the stockholder proposing such business, and the name
and address of the beneficial owner, if any, on whose behalf the proposal is
made, (c) the class and number of shares of the corporation which are owned
beneficially and of record by such stockholder of record and by the beneficial
owner, if any, on whose behalf the proposal is made, and (d) any material
interest of such stockholder of record and the beneficial owner, if any, on
whose behalf the proposal is made in such business. Notwithstanding anything in
the Bylaws to the contrary, no business shall be conducted at a meeting except
in accor dance with the procedures set forth in this Section 2.12. The presiding
officer at the meeting shall, if the facts warrant, determine and declare to the
meeting that business was not brought in accordance with this Section 2.12, and
if he should so determine, he shall so declare to the meeting and any such
business not properly brought before the meeting shall not be transacted.
Notwithstanding the foregoing provisions of this Section 2.12, a stockholder
shall also comply with all applicable requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and the rules and regulations
thereunder with respect to the matters set forth herein. As used herein, "public
disclosure" shall mean disclosure in a press release reported by the Dow Jones
News Association, the Associated Press, or comparable news service or in a
document publicly filed with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the Exchange Act.
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ARTICLE III
DIRECTORS
SECTION 3.01 NUMBER, ELECTION, TENURE, AND QUALIFICATIONS. Except as
otherwise fixed by resolution of the Board of Directors pursuant to the Articles
of Incorporation relating to the authorization of the Board of Directors to
provide by resolu tion for the issuance of Preferred Stock and to determine the
rights of the holders of such Preferred Stock to elect directors, the Board of
Directors shall consist of at least one (1) individual who shall be elected at
the annual meeting of the stockholders of the corporation and who shall hold
office for one (1) year or until his or her successor is elected and qualify. A
director need not be a stockholder of the corporation.
SECTION 3.02 CHANGE IN NUMBER. Subject to any limitation in the laws of the
State of Nevada, the Articles of Incorporation or these Bylaws, the number of
directors may be changed from time to time by resolution adopted by the Board of
Directors.
SECTION 3.03 REDUCTION IN NUMBER. No reduction in the number of directors
shall have the effect of removing any director prior to the expiration of his
term in office.
SECTION 3.04 NOMINATION OF DIRECTORS. Except as otherwise fixed by
resolution of the Board of Directors pursuant to the Articles of Incorporation
relating to the authorization of the Board of Directors to provide by
resolution for the issuance of Preferred Stock and to determine the rights of
the holders of such Preferred Stock to elect directors, nominations for the
election of directors may be made by the Board of Directors, by a committee
appointed by the board of directors, or by any stockholder of record at the time
of giving of notice provided for herein. However, any stockholder entitled to
vote in the election of directors as provided herein may nominate one or more
persons for election as directors at a meeting only if written notice of such
stockholder's intent to make such nomination or nominations has been delivered
to or mailed and received by the secretary of the corporation not later than,
(a) with respect to an election to be held at an annual meeting of stockholders,
120 calendar days in advance of the first anniversary of the date the
corporation's proxy statement was released to security holders in connection
with the preceding year's annual meeting; PROVIDED, HOWEVER, that in the event
that the date of the annual meeting is changed by more than thirty (30) days
from such anniversary date, notice by the stockholder to be timely must be
received not later than the close of business on the tenth (10th) day following
the earlier of the day on which notice of the date of the meeting was mailed or
public disclosure was made, and (b) with respect to an election to be held at a
special meeting of stockholders for the election of directors, not earlier than
the close of business on the 90th day prior to such special meeting and not
later than the close of business on the later of the 60th day prior to such
special meeting or the tenth (10th) day following the day on which public
disclosure is first made of the date of the special meeting and the nominees
proposed by the board of directors to be elected at such a meeting.
Notwithstanding any of the foregoing to the contrary, in the event that the
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number of directors to be elected by the Board of Directors of the corporation
is increased and there is no public disclosure by the corporation naming the
nominees for director or specifying the size of the increased Board of Directors
at least seventy (70) days prior to the first anniversary of the date of the
preceding year's annual meeting, a stockholder's notice required hereunder shall
also be considered timely, but only with respect to nominees for any new
positions created by such increase, if it shall be delivered to the secretary at
the principal executive office of the corporation not later than the close of
business on the tenth (10th) day following the earlier of day on which notice of
the meeting is mailed or such public disclosure is first made by the
corporation. In no event shall the public announcement of an adjournment of an
annual or special meeting commence a new time period for the giving of a
stockholder's notice as describe above. Each such notice shall set forth: (a)
the name and address of the stockholder who intends to make the nomination and
of the person or persons to be nominated; (b) a representation that the
stockholder is a holder of record of stock of the corporation entitled to vote
at such meeting and intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice; (c) the class and number
of shares of the corporation which are beneficially owned by such stockholder
and also which are owned of record by such stockholder; (d) as to the beneficial
owner, if any, on whose behalf the nomination is made, (i) the name and address
of such person and (ii) the class and number of shares of the corporation which
are beneficially owned by such person; (e) a description of all arrangements or
understandings between the stockholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by the stockholder; (f) such other information
regarding each nominee proposed by such stockholder as would be required to be
included in a proxy statement filed pursuant to the proxy rules of the
Securities and Exchange Commission, had such nominee been nominated, or intended
to be nominated, by the Board of Directors; and (g) the written consent of each
nominee to being named as nominee in the proxy statement and to serving as a
director of the corporation if so elected. At the request of the Board of
Directors, any person nominated by the Board of Directors for election as a
director shall furnish to the secretary of the corporation, that information
required to be set forth in a stockholder's notice of nomination which pertains
to the nominee. The presiding officer of the meeting may refuse to acknowledge
the nomination of any person not made in compliance with the foregoing
procedure. As used herein, "public disclosure" shall have the meaning set forth
in Section 2.12. No person shall be eligible to serve as a director of the
corporation unless nominated in accordance with the procedures set forth in this
Section 3.04. The presiding officer at the meeting shall, if the facts warrant,
determine and declare to the meeting that a nomination was not made in
accordance with the procedures prescribed by this Section 3.04, and if he should
so determine, he shall so declare to the meeting and the defective nomination
shall be disregarded. Notwithstanding the foregoing provisions hereof, a
stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth herein.
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SECTION 3.05 VACANCIES; NEWLY CREATED DIRECTORSHIPS. Except as otherwise
fixed by resolution of the Board of Directors pursuant to the Articles of
Incorporation relating to the authorization of the Board of Directors to provide
by resolution for the issuance of Preferred Stock and to determine the rights of
the holders of such Preferred Stock to elect directors, any vacancies on the
Board of Directors resulting from death, resignation, retirement,
disqualification, removal from office, or other cause, and newly created
directorships resulting from any increase in the authorized number of directors,
may be filled only by a majority vote of the directors then in office, though
less than a quorum, or by a sole remaining director, and the director(s) so
chosen shall hold office (i) in the case of the replacement of a director,
during the remainder of the term of office of the replaced director and (ii) in
the case of an increase in the number of directors, until the next annual
meeting of stockholders at which directors are elected, unless sooner dis
placed.
SECTION 3.06. REMOVAL OF DIRECTORS. Subject to any rights of the holders of
Preferred Stock, any director may be removed from office by the affirmative vote
of the holders of at least two-thirds (2/3rds) of the voting power of all shares
of the corporation entitled to vote generally in the election of directors
(voting as a single class).
SECTION 3.07 ANNUAL AND REGULAR MEETINGS. Immediately following the
adjournment of, and at the same place as, the annual or any special meeting of
the stockholders at which directors are elected other than pursuant to Section
3.06 of this Article, the Board of Directors, including directors newly elected,
shall hold its annual meeting without notice, other than this provision, to
elect officers and to transact such further business as may be necessary or
appropriate. The Board of Directors may provide by resolution the place, date,
and hour for holding regular meetings between annual meetings.
SECTION 3.08 SPECIAL MEETINGS. Except as otherwise required by law, and
subject to the rights, if any, of the holders of Preferred Stock, special
meetings of the Board of Directors may be called by the chairman, or if there be
no chairman, by the president or secretary and shall be called by the chairman,
the president or the secretary upon the request of any two (2) directors. If the
chairman, or if there be no chairman both the president and secretary, refuses
or neglects to call such special meeting, a special meeting may be called by
notice signed by any two (2) directors.
SECTION 3.09 PLACE OF MEETINGS. Any regular or special meeting of the
directors of the corporation may be held at such place as the Board of
Directors, or in the absence of such designation, as the notice calling such
meeting, may designate. A waiver of notice signed by directors may designate any
place for the holding of such meeting.
SECTION 3.10 NOTICE OF MEETINGS. Except as otherwise provided in Section
3.07, there shall be delivered to all directors, at least forty-eight (48) hours
before the time of such meeting, a copy of a written notice of any meeting by
delivery of such notice
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personally by mailing such notice postage prepaid or by telegram. Such notice
shall be addressed in the manner provided for notice to stockholders in Section
2.04(c). If mailed, the notice shall be deemed delivered two (2) business days
following the date the same is deposited in the United States mail, postage
prepaid. Any director may waive notice of any meeting, and the attendance of a
director at a meeting and oral consent entered on the minutes of the meeting or
taking part in deliberations of the meeting without objection shall constitute a
waiver of notice of such meeting. Attendance for the express purpose of
objecting to the transaction of business thereat because the meeting is not
properly called or convened shall not constitute presence nor a waiver of notice
for purposes hereof.
SECTION 3.11 QUORUM; ADJOURNED MEETINGS.
(a) A majority of the directors in office, at a meeting duly
assembled, is necessary to constitute a quorum for the transaction of business.
(b) At any meeting of the Board of Directors where a quorum is not
present, a majority of those present may adjourn, from time to time, until a
quorum is present, and no notice of such adjournment shall be required. At any
adjourned meeting where a quorum is present, any business may be transacted
which could have been transacted at the meeting originally called.
SECTION 3.12 BOARD OF DIRECTORS' DECISIONS. The affirmative vote of a
majority of the directors present at a meeting at which a quorum is present is
the act of the Board of Directors.
SECTION 3.13 TELEPHONIC MEETINGS. Members of the Board of Directors or of
any committee designated by the Board of Directors may participate in a meeting
of the Board of Directors or committee by means of a telephone conference or
similar method of communication by which all persons participating in such
meeting can hear each other. Participation in a meeting pursuant to this Section
3.13 constitutes presence in person at the meeting.
SECTION 3.14 ACTION WITHOUT MEETING. Any action required or permitted to be
taken at a meeting of the Board of Directors or of a committee thereof may be
taken without a meeting if, before or after the action, a written consent
thereto is signed by all of the members of the Board of Directors or the
committee. The written consent may be signed in counterparts and must be filed
with the minutes of the proceedings of the Board of Directors or committee.
SECTION 3.15 POWERS AND DUTIES.
(a) Except as otherwise restricted in the laws of the State of Nevada
or the Articles of Incorporation, the Board of Directors has full control over
the affairs of the corporation. The Board of Directors may delegate any of its
authority to manage, control
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or conduct the business of the corporation to any standing or special committee,
as more fully set forth in Article V of these Bylaws, or to any officer or agent
and to appoint any persons to be agents of the corporation with such powers,
including the power to subdelegate, and upon such terms as may be deemed fit.
(b) The Board of Directors may present to the stockholders at annual
meetings of the stockholders, and when called for by a majority vote of the
stockholders at an annual meeting or, subject to Section 2.12, a special meeting
of the stockholders shall so present, a full and clear report of the condition
of the corporation.
(c) The Board of Directors, in its discretion, or the officer of the
corporation presiding at a meeting of stockholders, in his discretion, may
require that any votes cast at such meeting shall be cast by written ballot and
may submit any contract or act for approval or ratification at any annual
meeting of the stockholders or any special meeting properly called for the
purpose of considering any such contract or act, provided a quorum is present.
SECTION 3.16. COMPENSATION. The directors shall be paid their expenses of
attendance at each meeting of the board of directors and any applicable
committee and may be paid a fixed fee for attendance at each meeting of the
board of directors and any applicable committee or a stated salary as director
and member of an applicable committee. No such payment shall preclude any
director from serving the corporation in any other capacity and receiving
compensation therefor.
SECTION 3.17 BOARD OF DIRECTORS' OFFICERS.
(a) At its annual meeting, the Board of Directors shall elect, from
among its members, a chairman, who shall preside at meetings of the Board of
Directors and the stockholders. The Board of Directors may also elect such other
officers of the Board of Directors and for such term as it may, from time to
time, determine advisable.
(b) Any vacancy in any office of the Board of Directors because of
death, resignation, removal or otherwise may be filled by the Board of Directors
for the unexpired portion of the term of such office.
SECTION 3.18 ORDER OF BUSINESS. The order of business at any meeting of the
Board of Directors shall be as follows:
1. Determination of members present and existence of quorum;
2. Reading and approval of the minutes of any previous meeting or
meetings;
3. Reports of officers and committeemen;
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4. Election of officers (annual meeting);
5. Unfinished business;
6. New business;
7. Adjournment.
ARTICLE IV
COMMITTEES
SECTION 4.01 STANDING COMMITTEES. The Board of Directors shall designate an
audit committee and a compensation committee, each committee to consist of two
or more directors to serve at the pleasure of the Board. The Board may designate
one or more directors as alternate members of any committee, who may replace any
absent or disquali fied member at any meeting of the committee. In the absence
or disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the board of
directors to act at the meeting in the place of any such absent or disqualified
member. The committees shall keep regular minutes of their proceedings and
report the same to the Board when required
(a) AUDIT COMMITTEE. The audit committee will review the annual audits
of the corporation's independent public accountants, review and evaluate
internal account ing controls, recommend the selection of the corporation's
independent public accountants, review and pass upon (or ratify) related party
transactions, and conduct such reviews and examinations as it deems necessary
with respect to the practices and policies of, and the relationship between, the
corporation and its independent public accountants.
(b) COMPENSATION COMMITTEE. The Compensation Committee will review
salaries, bonuses and stock options of senior officers of the corporation and
administer the corporation's executive compensation policies and stock option
plan.
SECTION 4.02 SPECIAL COMMITTEES. In addition to the standing committees
provided in Section 4.01 above, the Board of Directors may, by resolution passed
by a majority of the whole board, designate one or more special committees, each
committee to consist of one or more of the directors of the corporation. The
Board may designate one or more directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the
committee. In the absence or disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member. Such committee or committees shall have
such name or names as may be determined from time to time by resolution adopted
by the Board of
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Directors. The committees shall keep regular minutes of their proceedings and
report the same to the Board when required. Subject to applicable law and to the
extent provided in the resolution of the Board of Directors, any committee
designated hereunder shall have and may exercise all the powers of the Board of
Directors, except with respect to: (i) the approval of any action which, under
Chapter 78 of the Nevada Revised Statutes, also requires the approval of the
full Board of Directors, or the stockholders of the outstanding shares; (ii) the
filling of vacancies on the Board of Directors or in any committee; (iii) the
amendment or repeal of bylaws or the adoption of new bylaws; (iv) the amendment
or repeal of any resolution of the Board of Directors which by its express terms
is not so amendable or repealable; (v) a distribution to the stockholders of the
corporation, except at a rate or in a periodic amount or within a price range
determined by the Board of Direc tors; or (vi) the appointment of any other
committees of the Board of Directors or the members thereof.
SECTION 4.03 MEETINGS AND ACTIONS OF COMMITTEES. Meetings and actions of
committees shall be governed by, and held and taken in accordance with Sections
3.07 (annual and regular meetings), 3.08 (special meetings), 3.09 (place of
meetings). 3.10 (notice of meetings), 3.11 (quorum and adjourned meetings), 3.13
(telephonic meetings), and 3.13 (action without a meeting) of these Bylaws, with
such changes in the context of those bylaws as are necessary to substitute the
committee and its members for the Board of Directors, and notice of special
meetings of committees shall also be given to all alternate members, who shall
have the right to attend all meetings of the committee. The Board of Directors
may adopt rules for the government of any committee not inconsistent with the
provisions of these Bylaws.
ARTICLE V
OFFICERS
SECTION 5.01 ELECTION. The Board of Directors, at its annual meeting, shall
elect a president, a secretary and a treasurer to hold office for a term of one
(1) year or until their successors are chosen and qualify. Any individual may
hold two or more offices. The Board of Directors may, from time to time, by
resolution, elect one or more vice-presidents, assistant secretaries, assistant
treasurers or other officers, and appoint agents of the corporation, prescribe
their duties and fix their compensation.
SECTION 5.02 REMOVAL; RESIGNATION. Any officer or agent elected or
appointed by the Board of Directors may be removed by it with or without cause.
Any officer may resign at any time upon written notice to the corporation. Any
such removal or resignation shall be subject to the rights, if any, of the
respective parties under any contract between the corporation and such officer
or agent.
SECTION 5.03 VACANCIES. Any vacancy in any office because of death,
resignation, removal or otherwise may be filled by the Board of Directors for
the unexpired portion of the term of such office.
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SECTION 5.04 CHAIRMAN OF THE BOARD. The chairman shall be the chief
executive officer of the corporation and shall, subject to the control of the
Board of Directors, have general supervision, direction and control of the
business and affairs of the corporation and shall preside at meetings of the
stockholders and the Board of Directors.
SECTION 5.05 PRESIDENT.
(a) The president shall be the chief operations officer, and if no
chairman is elected, the chief executive officer, of the corporation, subject to
the supervision and control of the Board of Directors, and shall direct the
corporate affairs, with full power to execute all resolutions and orders of the
Board of Directors not expressly delegated to some other officer or agent of the
corporation. If the chairman of the Board of Directors elects not to preside or
is absent, the president shall preside at meetings of the stockholders and Board
of Directors and perform such other duties as shall be prescribed by the Board
of Directors.
(b) The president shall have full power and authority on behalf of the
corporation to attend and to act and to vote, or designate such other officer or
agent of the corporation to attend and to act and to vote, at any meetings of
the stockholders of any corporation in which the corporation may hold stock and,
at any such meetings, shall possess and may exercise any and all rights and
powers incident to the ownership of such stock. The Board of Directors, by
resolution from time to time, may confer like powers on any person or persons in
place of the president to exercise such powers for these purposes.
SECTION 5.06 VICE-PRESIDENTS. The Board of Directors may elect one or more
vice-presidents who shall be vested with all the powers and perform all the
duties of the president whenever the president is absent or unable to act and
such other duties as shall be prescribed by the Board of Directors or the
president.
SECTION 5.07 SECRETARY. The secretary shall keep, or cause to be kept, the
minutes of proceedings of the stockholders and the Board of Directors in books
provided for that purpose. The secretary shall attend to the giving and service
of all notices of the corporation, may sign with the president in the name of
the corporation all contracts in which the corporation is authorized to enter,
shall have the custody or designate control of the corporate seal, shall affix
the corporate seal to all certificates of stock duly issued by the corporation,
shall have charge or designate control of stock certificate books, transfer
books and stock ledgers, and such other books and papers as the Board of
Directors or appropriate committee may direct, and shall, in general, perform
all duties incident to the office of the secretary.
SECTION 5.08 ASSISTANT SECRETARIES. The Board of Directors may appoint one
or more assistant secretaries who shall have such powers and perform such duties
as may be prescribed by the Board of Directors or the secretary.
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SECTION 5.09 TREASURER. The treasurer shall be the chief financial officer
of the corporation, subject to the supervision and control of the Board of
Directors, and shall have custody of all the funds and securities of the
corporation. When necessary or proper, the treasurer shall endorse on behalf of
the corporation for collection checks, notes, and other obligations, and shall
deposit all monies to the credit of the corporation in such bank or banks or
other depository as the Board of Directors may designate, and shall sign all
receipts and vouchers for payments made by the corporation. Unless otherwise
specified by the Board of Directors, the treasurer may sign with the president
all bills of exchange and promissory notes of the corporation, shall also have
the care and custody of the stocks, bonds, certificates, vouchers, evidence of
debts, securities, and such other property belonging to the corporation as the
Board of Directors shall designate, and shall sign all papers required by law,
by these Bylaws, or by the Board of Directors to be signed by the treasurer. The
treasurer shall enter, or cause to be entered, regularly in the financial
records of the corporation, to be kept for that purpose, full and accurate
accounts of all monies received and paid on account of the corporation and,
whenever required by the Board of Directors, the treasurer shall render a
statement of any or all accounts. The treasurer shall at all reasonable times
exhibit the books of account to any director of the corporation and shall
perform all acts incident to the position of treasurer subject to the control of
the Board of Directors.
The treasurer shall, if required by the Board of Directors, give bond to
the corporation in such sum and with such security as shall be approved by the
Board of Directors for the faithful performance of all the duties of treasurer
and for restoration to the corporation, in the event of the treasurer's death,
resignation, retirement or removal from office, of all books, records, papers,
vouchers, money and other property in the treasurer's custody or control and
belonging to the corporation. The expense of such bond shall be borne by the
corporation.
SECTION 5.10 ASSISTANT TREASURERS. The Board of Directors may appoint one
or more assistant treasurers who shall have such powers and perform such duties
as may be prescribed by the Board of Directors or the treasurer. The Board of
Directors may require an assistant treasurer to give a bond to the corporation
in such sum and with such security as it may approve, for the faithful
performance of the duties of assistant treasurer, and for restoration to the
corporation, in the event of the assistant treasurer's death, resignation,
retirement or removal from office, of all books, records, papers, vouchers,
money and other property in the assistant treasurer's custody or control and
belonging to the corporation. The expense of such bond shall be borne by the
corporation.
ARTICLE VI
CAPITAL STOCK
SECTION 6.01 ISSUANCE. Shares of the corporation's authorized stock shall,
subject to any provisions or limitations of the laws of the State of Nevada, the
Articles of Incorporation or any contracts or agreements to which the
corporation may be a party, be issued in
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such manner, at such times, upon such conditions and for such consideration as
shall be prescribed by the Board of Directors.
SECTION 6.02 CERTIFICATES. Ownership in the corporation shall be evidenced
by certificates for shares of stock in such form as shall be prescribed by the
Board of Directors, shall be under the seal of the corporation and shall be
manually signed by the president or a vice-president and also by the secretary
or an assistant secretary; provided, however, whenever any certificate is
countersigned or otherwise authenticated by a transfer agent or transfer clerk,
and by a registrar, then a facsimile of the signatures of said officers may be
printed or lithographed upon the certificate in lieu of the actual signatures.
If the Corporation uses facsimile signatures of its officers on its stock
certificates, it shall not act as registrar of its own stock, but its transfer
agent and registrar may be identical if the institution acting in those dual
capacities countersigns any stock certificates in both capacities. Each
certificate shall contain the name of the record holder, the number,
designation, if any, class or series of shares represented, a statement or
summary of any applicable rights, preferences, privileges or restrictions
thereon, and a statement, if applicable, that the shares are assessable. All
certificates shall be consecutively numbered. If provided by the stockholder,
the name, address and federal tax identification number of the stockholder, the
number of shares, and the date of issue shall be entered in the stock transfer
records of the corporation.
SECTION 6.03 SURRENDERED; LOST OR DESTROYED CERTIFICATES. All certificates
surrendered to the corporation, except those representing shares of treasury
stock, shall be canceled and no new certificate shall be issued until the former
certificate for a like number of shares shall have been canceled, except that in
case of a lost, stolen, destroyed or mutilated certificate, a new one may be
issued therefor. However, any stockholder applying for the issuance of a stock
certificate in lieu of one alleged to have been lost, stolen, destroyed or
mutilated shall, prior to the issuance of a replacement, provide the corporation
with his, her or its affidavit of the facts surrounding the loss, theft,
destruction or mutilation and, if required by the Board of Directors, an
indemnity bond in an amount not less than twice the current market value of the
stock, and upon such terms as the treasurer or the Board of Directors shall
require which shall indemnify the corporation against any loss, damage, cost or
inconvenience arising as a consequence of the issuance of a replacement
certificate.
SECTION 6.04 REPLACEMENT CERTIFICATE. When the Articles of Incorporation
are amended in any way affecting the statements contained in the certificates
for outstanding shares of capital stock of the corporation or it becomes
desirable for any reason, in the discretion of the Board of Directors,
including, without limitation, the merger of the corporation with another
corporation or the reorganization of the corporation, to cancel any outstanding
certificate for shares and issue a new certificate therefor conforming to the
rights of the holder, the Board of Directors may order any holders of
outstanding certificates for shares to surrender and exchange the same for new
certificates within a reasonable time to be fixed by the Board of Directors.
The order may provide that a holder of
18
<PAGE>
any certificate(s) ordered to be surrendered shall not be entitled to vote,
receive distributions or exercise any other rights of stockholders of record
until the holder has complied with the order, but the order operates to suspend
such rights only after notice and until compliance.
SECTION 6.05 TRANSFER OF SHARES. Upon surrender to the corporation, or the
transfer agent of the corporation, of a certificate or shares duly endorsed or
accompanied by proper evidence of succession, assignation or authority to
transfer, it shall be the duty of the corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and the record the
transaction upon its books.
SECTION 6.06 TRANSFER AGENT; REGISTRARS. The Board of Directors may appoint
one or more transfer agents, transfer clerk and registrars of transfer and may
require all certificates for shares of stock to bear the signature of such
transfer agent, transfer clerk and/or registrar of transfer.
SECTION 6.07 STOCK TRANSFER RECORDS. The stock transfer records shall be
closed for a period of at least ten (10) days prior to all meetings of the
stockholders and shall be closed for the payment of distributions as provided in
Article VII hereof and during such periods as, from time to time, may be fixed
by the Board of Directors, and, during such periods, no stock shall be
transferable for purposes of Article VII and no voting rights shall be deemed
transferred during such periods. Subject to the forgoing limitations, nothing
contained herein shall cause transfers during such periods to be void or
voidable.
SECTION 6.08 MISCELLANEOUS. The Board of Directors shall have the power and
authority to make such rules and regulations not inconsistent herewith as it may
deem expedient concerning the issue, transfer, and registration of certificates
for shares of the corporation's stock.
ARTICLE VII
DISTRIBUTIONS
SECTION 7.01 Distributions may be declared, subject to the provisions of
the laws of the State of Nevada and the Articles of Incorporation, by the Board
of Directors at any regular or special meeting and may be paid in cash,
property, shares of corporate stock, or any other medium. The Board of Directors
may fix in advance a record date, as provided in Section 2.06, prior to the
distribution for the purpose of determining stockholders entitled to receive any
distribution. The Board of Directors may close the stock transfer books for such
purpose for a period of not more than ten (10) days prior to the date of such
distribution.
19
<PAGE>
ARTICLE VIII
RECORDS; REPORTS; SEAL; AND FINANCIAL MATTERS
SECTION 8.01 RECORDS. All original records of the corporation, shall be
kept by or under the direction of the secretary or at such places as may be
prescribed by the Board of Directors.
SECTION 8.02 DIRECTORS' AND OFFICERS' RIGHT OF INSPECTION. Every director
and officer shall have the absolute right at any reasonable time for a purpose
reasonably related to the exercise of such individual's duties to inspect and
copy all of the corporation's books, records, and documents of every kind and to
inspect the physical properties of the corporation and/or its subsidiary
corporations. Such inspection may be made in person or by agent or attorney.
SECTION 8.03 CORPORATE SEAL. The Board of Directors may, by resolution,
authorize a seal, and the seal may be used by causing it, or a facsimile, to be
impressed or affixed or reproduced or otherwise. Except when otherwise
specifically provided herein, any officer of the corporation shall have the
authority to affix the seal to any document requiring it.
SECTION 8.04 FISCAL YEAR-END. The fiscal year-end of the corporation shall
be such date as may be fixed from time to time by resolution of the Board of
Directors.
SECTION 8.05 RESERVES. The Board of Directors may create, by resolution,
such reserves as the directors may, from time to time, in their discretion,
think proper to provide for contingencies, or to equalize distributions or to
repair or maintain any property of the corporation, or for such other purpose as
the Board of Directors may deem beneficial to the corporation, and the
directors may modify or abolish any such reserves in the manner in which they
were created.
ARTICLE IX
INDEMNIFICATION
SECTION 9.01 INDEMNIFICATION AND INSURANCE.
(a) INDEMNIFICATION OF DIRECTORS AND OFFICERS.
(i) For purposes of this Article, (A) "Indemnitee" shall mean
each director or officer who was or is a party to, or is threatened to be made a
party to, or is otherwise involved in, any Proceeding (as hereinafter defined),
by reason of the fact that he or she is or was a director or officer of the
corporation or is or was serving in any capacity at the request of the
corporation as a director, officer, employee, agent, partner, or fiduciary of,
or in any other capacity for, another corporation or any partnership, joint
venture, trust, or other enterprise; and (B) "Proceeding" shall mean any
threatened,
20
<PAGE>
pending, or completed action, or suit (including without limitation an action,
suit or proceeding by or in the right of the corporation), whether civil,
criminal, administrative, or investigative.
(ii) Each Indemnitee shall be indemnified and held harmless by
the corporation for all actions taken by him or her and for all omissions
(regardless of the date of any such action or omission), to the fullest extent
permitted by Nevada law, against all expense, liability and loss (including
without limitation attorneys' fees, judgments, fines, taxes, penalties, and
amounts paid or to be paid in settlement) reasonably incurred or suffered by the
Indemnitee in connection with any Proceeding.
(iii) Indemnification pursuant to this Section shall continue as
to an Indemnitee who has ceased to be a director or officer and shall inure to
the benefit of his or her heirs, executors and administrators.
(b) INDEMNIFICATION OF EMPLOYEES AND OTHER PERSONS.
The corporation may, by action of its Board of Directors and to
the extent provided in such action, indemnify employees and other persons as
though they were Indemnitees.
(c) NON-EXCLUSIVITY OF RIGHTS.
The rights to indemnification provided in this Article shall not
be exclusive of any other rights that any person may have or hereafter acquire
under any statute, provision of the corporation's Articles of Incorporation or
Bylaws, agreement, vote of stockholders or directors, or otherwise.
(d) INSURANCE.
The corporation may purchase and maintain insurance or make other
financial arrangements on behalf of any person who is or was a director,
officer, employee, or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee, or agent of another
corporation, partnership, joint venture, trust, or other enterprise for any
liability asserted against him or her and liability and expenses incurred by him
or her in his or her capacity as a director, officer, employee or agent, or
arising out of his or her status as such, whether or not the corporation has the
authority to indemnify him or her against such liability and expenses.
(e) OTHER FINANCIAL ARRANGEMENTS.
The other financial arrangements which may be made by the
corporation may include the following (i) the creation of a trust fund; (ii) the
establishment of a program of self-insurance; (iii) the securing of its
obligation of indemnification by granting a security interest or other lien on
any assets of the corporation; (iv) the establishment of a letter of credit,
guarantee or surety. No financial arrangement made pursuant to
21
<PAGE>
this subsection may provide protection for a person adjudged by a court of
competent jurisdiction, after exhaustion of all appeals therefrom, to be liable
for intentional misconduct, fraud, or a knowing violation of law, except with
respect to advancement of expenses or indemnification ordered by a court.
(f) OTHER MATTERS RELATING TO INSURANCE OR FINANCIAL ARRANGEMENTS.
Any insurance or other financial arrangement made on behalf of a
person pursuant to this section may be provided by the corporation or any other
person approved by the Board of Directors, even if all or part of the other
person's stock or other securities is owned by the corporation. In the absence
of fraud:
(i) the decision of the Board of Directors as to the propriety of
the terms and conditions of any insurance or other financial arrangement made
pursuant to this section and the choice of the person to provide the insurance
or other financial arrangement is conclusive; and
(ii) the insurance or other financial arrangement:
(A) is not void or voidable; and
(B) does not subject any director approving it to personal
liability for his action,
even if a director approving the insurance or other financial arrangement is a
beneficiary of the insurance or other financial arrangement.
SECTION 9.02 AMENDMENT. The provisions of this Article IX relating to
indemni fication shall constitute a contract between the corporation and each of
its directors and officers which may be modified as to any director or officer
only with that person's consent or as specifically provided in this Section.
Notwithstanding any other provision of these Bylaws relating to their amendment
generally (including, without limitation, Article X below), any repeal or
amendment of this Article IX which is adverse to any director or officer shall
apply to such director or officer only on a prospective basis, and shall not
limit the rights of an Indemnitee to indemnification with respect to any action
or failure to act occurring prior to the time of such repeal or amendment.
Notwithstanding any other provision of these Bylaws, no repeal or amendment of
these Bylaws shall affect any or all of this Article IX so as to limit or reduce
the indemnification in any manner unless adopted by (a) the unanimous vote of
the directors of the corporation then serving, or (b) by the stockholders as set
forth in Article X hereof; provided that no such amendment shall have a
retroactive effect inconsistent with the preceding sentence.
ARTICLE X
AMENDMENT OR REPEAL
22
<PAGE>
SECTION 10.01. AMENDMENT OF BYLAWS. These Bylaws or any provision hereof
may be amended, altered, or repealed (a) by the Board of Directors at an annual
meeting thereof without prior notice or at any special meeting thereof if notice
of such proposed amendment, alteration or repeal is contained in the notice of
such special meeting or (b) by the affirmative vote of at least sixty-six and
two thirds percent (66-2/3%) of the voting power of all the then outstanding
shares of capital stock entitled to vote at any meeting of the stockholders at
which a quorum is present, if notice of such proposed amendment, alteration or
repeal is contained in the notice of such meeting. The stockholders may provide
by resolution that any Bylaw provision altered, amended, repealed or adopted by
the stockholders may not be altered, amended, reinstated or repealed by the
Board of Directors.
SECTION 10.02. ADDITIONAL BYLAWS. Additional bylaws not inconsistent
herewith may be adopted by the Board of Directors. Any bylaws so adopted shall
be subject to alteration, amendment or repeal by the stockholders in accordance
with Section 10.01 of these Bylaws.
ARTICLE XI
CHANGES IN NEVADA LAW
SECTION 11.01 CHANGES IN NEVADA LAW. References in these Bylaws to Nevada
law or to any provision thereof shall be to such law as it existed on the date
these Bylaws were adopted or as such law thereafter may be changed; provided
that (a) in the case of any change which expands the liability of directors or
officers or limits the indemnification rights or the rights to advancement of
expenses which the corporation may provide in Article IX hereof, the rights to
limited liability, to indemnification and to the advancement of expenses
provided in the corporation's Articles of Incorporation and/or these Bylaws
shall continue as theretofore to the extent permitted by law; and (b) if such
change permits the corporation, without the requirement of any further action by
stock holders or directors, to limit further the liability of directors or
officers or to provide broader indemnification rights or rights to the
advancement of expenses than the corporation was permitted to provide prior to
such change, then liability thereupon shall be so limited and the rights to
indemnification and the advancement of expenses shall be so broadened to the
extent permitted by law.
CERTIFICATION
The undersigned duly elected secretary of the corporation does hereby
certify that the foregoing Bylaws were adopted by the Board of Directors on the
2nd day of February, 1999.
/s/ John J. McLaughlin
-----------------------------
John J. McLaughlin, Secretary
23
<PAGE>
EXHIBIT 4.1
[Number [Shares
AC-1] **______**]
[See Reverse for
Certain Restrictions]
FirstStar Bank of Minnesota, N.A.
- ---------------------------------
Authorized Signatory
Incorporated under the laws of the State of Nevada
HARVEYS CASINO RESORTS
_________ Shares $.01 Par Value
Class __ Common Stock
THIS IS TO CERTIFY THAT ______________________ IS THE OWNER OF
**__________________________________________**
Fully Paid and Non-Assessable Shares of Class __ Common Stock of
HARVEYS CASINO RESORTS
transferable only on the books of the Corporation by the holder thereof in
person or by a duly authorized Attorney upon surrender of this Certificate
properly endorsed.
WITNESS, the seal of the Corporation and the signatures of its duly
authorized officers.
DATED February 2, 1999
[Seal]
[Signature] [Signature]
------------------- -----------------
Assistant Secretary President
<PAGE>
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in
full according to applicable laws or regulations:
TEN COM --as tenants in common UNIF GIFT MIN ACT Custodian
----- ----------
TEN ENT --as tenants by the entireties (Cust) (Minor)
under Uniform Gifts to Minors
JT TEN --as joint tenants with right of Act
survivorship and not as tenants -------------------------
in common (State)
Additional abbreviations may also be used
though not in the above list.
FOR VALUE RECEIVED HEREBY SELL, ASSIGN AND TRANSFER UNTO
--
[PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE]
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING
POSTAL ZIP CODE OF ASSIGNEE)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SHARES REPRESENTED BY THE WITHIN CERTIFICATE, AND DO HEREBY IRREVOCABLY
CONSTITUTE AND APPOINT ATTORNEY TO TRANSFER THE
SAID SHARES ON THE BOOKS OF THE WITHIN NAMED CORPORATION WITH FULL POWER OF
SUBSTITUTION IN THE PREMISES.
DATED
- --------------------------
IN PRESENCE OF
- --------------------------------- -------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED, SOLD,
ASSIGNED, HYPOTHECATED OR OTHERWISE DISPOSED OF (A "TRANSFER") EXCEPT IN
ACCORDANCE WITH THE PROVISIONS OF A STOCKHOLDERS AGREEMENT DATED AS OF
FEBRUARY 2, 1999. ANY TRANSFEREE OF THESE SECURITIES TAKES SUBJECT TO THE
TERMS OF SUCH AGREEMENT, A COPY OF WHICH IS ON FILE WITH THE COMPANY.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 (THE "ACT") OR STATE SECURITIES LAWS, AND NO
TRANSFER OF THESE SECURITIES MAY BE MADE EXCEPT (A) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT, OR (B) PURSUANT TO AN EXEMPTION
THEREFROM WITH RESPECT TO WHICH THE COMPANY MAY, UPON REQUEST, REQUIRE A
SATISFACTORY OPINION OF COUNSEL FOR THE HOLDER THAT SUCH TRANSFER IS EXEMPT
FROM THE REQUIREMENTS OF THE ACT.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND SUCH
SECURITIES MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT
(1) PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS UNDER THE SECURITIES ACT OR (2) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH CASE IN
ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED
STATES.
THE OWNERSHIP AND TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
ARE SUBJECT TO AND RESTRICTED BY THE TERMS AND CONDITIONS OF A CERTAIN
TRANSFER RESTRICTION AGREEMENT DATED FEBRUARY 1, 1998. THE CORPORATION WILL
FURNISH A COPY OF SUCH TRANSFER RESTRICTION AGREEMENT WITHOUT CHARGE TO ANY
STOCKHOLDER ON REQUEST.
Stockholders may obtain a copy of a statement setting forth in full or
summarizing the voting powers, designations, preferences, limitations,
restrictions and relative rights of the various classes of stock or series
thereof of the company at its office located at: Highway 50, P.O. Box 128,
Stateline, Nevada 89449.
<PAGE>
Exhibit 4.5
- -------------------------------------------------------------------------------
HARVEYS CASINO RESORTS,
Issuer
HARVEYS TAHOE MANAGEMENT COMPANY, INC.,
HARVEYS C.C. MANAGEMENT COMPANY, INC.,
HARVEYS IOWA MANAGEMENT COMPANY, INC. and
HARVEYS L.V. MANAGEMENT COMPANY, INC.,
as Guarantors
and
IBJ SCHRODER BANK & TRUST COMPANY,
Trustee
THIRD SUPPLEMENTAL INDENTURE
Dated as of December 24, 1998
--------------
$150,000,000
10 5/8% SENIOR SUBORDINATED NOTES DUE 2006
Supplementing the Indenture Dated as of May 15, 1996 among Harveys Casino
Resorts, Issuer, Harveys C.C. Management Company, Inc., Harveys Wagon Wheel
Casino Limited Liability Company, Harveys Iowa Management Company, Inc. and
Harveys L.V. Management Company, Inc., as Guarantors, and IBJ Schroder Bank &
Trust Company, Trustee, as amended and supplemented to date
- -------------------------------------------------------------------------------
<PAGE>
THIS THIRD SUPPLEMENTAL INDENTURE (the "Third Supplemental
Indenture"), dated as of December 24, 1998 among HARVEYS CASINO RESORTS, a
Nevada corporation (the "Issuer"), and HARVEYS TAHOE MANAGEMENT COMPANY, INC., a
Nevada corporation, HARVEYS C.C. MANAGEMENT COMPANY, INC., a Nevada corporation,
HARVEYS IOWA MANAGEMENT COMPANY, INC., a Nevada corporation and HARVEYS L.V.
MANAGEMENT COMPANY, INC., a Nevada corporation (the "Guarantors"), and IBJ
SCHRODER BANK & TRUST COMPANY, a New York banking corporation, as Trustee (the
"Trustee"), under the Indenture dated as of May 15, 1996 (the "Original
Indenture"), as amended and supplemented by a First Supplemental Indenture dated
as of June 5, 1996 (the "First Supplemental Indenture") and a Second
Supplemental Indenture dated as of May 22, 1997 (the "Second Supplemental
Indenture") (the Original Indenture as so amended and supplemented by the First
Supplemental Indenture and the Second Supplemental Indenture, the "Indenture").
W I T N E S S E T H :
WHEREAS, the Issuer has issued its 10 5/8% Senior Subordinated Notes
Due 2006 (the "Securities") pursuant to the Indenture;
WHEREAS, the Issuer has entered into an Agreement and Plan of Merger
dated as of February 1, 1998 with Harveys Acquisition Corporation, a Nevada
corporation ("HAC"), pursuant to which, subject to the terms and conditions
thereof, HAC would be merged with and into the Issuer, the Issuer to be the
surviving corporation (the "Merger");
WHEREAS, the Issuer has requested that the holders (the "Holders") of
the Securities waive one time the applicability to the Merger of section 8.1 of
the Indenture;
WHEREAS, the Issuer and the Guarantors wish to amend or waive certain
provision of the Indenture pursuant to section 7.2 thereof; and
WHEREAS, the Trustee has received evidence satisfactory to it of the
consent of the holders of not less than a majority of the aggregate principal
amount of the Securities outstanding to the waivers and amendments set forth
herein, pursuant to section 6.1 of the Indenture.
1
<PAGE>
NOW, THEREFORE, intending to be legally bound hereby, the parties
agree as follows. Capitalized terms used herein and not otherwise defined shall
have the meanings assigned to them in the Indenture.
ARTICLE I
WAIVER
All Holders and every subsequent holder of the Securities shall be
bound by the following waiver of the Indenture and the Securities:
Such persons expressly waive the necessity of the compliance by
the Issuer with its obligations set forth in section 8.1 of the
Indenture in connection with, and solely for the facilitation of the
Merger of HAC, with and into the Issuer, the Issuer to be the
surviving corporation.
ARTICLE II
AMENDMENTS
The definition of "Consolidated Cash Flow" in Section 1.1 of the
Indenture is deleted in its entirety and replaced with the following:
"'Consolidated Cash Flow' means for any period, Consolidated Net
Income for such period after deducting therefrom an amount equal to
any extraordinary gain (to the extent such gain was included in
computing Consolidated Net Income) and after adding thereto (a) an
amount equal to any extraordinary loss plus any net loss realized in
connection with a sale, lease, conveyance, transfer or other
disposition of property or other assets (other than the disposition of
inventory in the ordinary course of business), to the extent such
losses were deducted in computing Consolidated Net Income, plus (b)
provision for taxes based on income or profits to the extent such
provision for taxes was included in computing Consolidated Net
Income, plus (c) consolidated interest expense of the Issuer and its
Restricted Subsidiaries for such period, whether paid or accrued
(including amortization of original
2
<PAGE>
issue discount, non-cash interest payments, amortization of, deferred
financing charges and the interest component of capital lease
obligations), to the extent such expense was deducted in computing
Consolidated Net Income, plus (d) depreciation, amortization
(including amortization of goodwill and other intangibles) and other
non-cash charges (excluding any such non-cash charge that requires an
accrual of or reserve for cash charges for any future period and
excluding any such non-cash charge that is included in consolidated
interest expense or consolidated tax expense) of the Issuer and its
Restricted Subsidiaries for such period to the extent such
depreciation, amortization and other non-cash charges were deducted in
computing Consolidated Net Income, plus, (e) any capitalized
preopening expenses incurred in connection with the Harveys Kanesville
Queen Riverboat Gaming Facility and related landbased amenities which
were reflected in the Issuer's Consolidated Statement of Operations
for any period ending on or before December 31, 1996 to the extent
that any such expenses were deducted in computing Consolidated Net
Income, in each case, on a consolidated basis, determined in
accordance with GAAP, plus, (f) to the extent not included above (and
in any case without duplication), all charges and expenses (including,
without limitation, legal and investment banking fees and expenses and
severance and other payments to management and directors of Issuer)
incurred by Issuer in connection with the merger (the "Merger") of
Harveys Acquisition Corporation, a Nevada corporation ("HAC"), with
and into Issuer pursuant to the Agreement and Plan of Merger dated as
of February 1, 1998 by and between Issuer and HAC, the amendment and
restatement of the Credit Facility in connection with the Merger, any
issuance of preferred stock by Issuer for the purpose of providing
financing for the Merger, any offer to repurchase the Securities
required hereunder in connection with the Merger and any fees payable
to Holders in connection with the solicitation by Issuer of consents
of Holders pursuant to the Consent Solicitation Statement dated
November 16, 1998, as may be amended."
3
<PAGE>
ARTICLE III
MISCELLANEOUS
Section 3.1 Except as amended hereby, all of the terms of the
Indenture shall remain and continue in full force and effect and are hereby
confirmed in all respects.
Section 3.2 This Third Supplemental Indenture and each and every
provision hereof shall be deemed to be a contract made under the laws of the
State of New York and for all purposes shall be construed in accordance with the
laws of such State.
Section 3.3 This Third Supplemental Indenture may be executed in any
number of counterparts, each of which shall be an original; but such
counterparts shall constitute but one and the same instrument.
Section 3.4 In entering into this Third Supplemental Indenture, the
Trustee shall be entitled to the benefit of every provision of the Indenture
relating to the conduct or affecting the liability of or affording protection to
the Trustee, whether or not elsewhere herein so provided.
[SIGNATURE PAGES FOLLOW]
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Third
Supplemental Indenture to be duly executed, and their respective corporate seals
to be hereunto affixed and attested, all as of the date hereof.
HARVEYS CASINO RESORTS
By: /s/ John J. McLaughlin
-----------------------------------------------
Name: John J. McLaughlin
Title: Sr. Vice President/CFO/Treasurer
IBJ SCHRODER BANK & TRUST COMPANY,
as Trustee
By: /s/ Stephen J. Giurlando
-----------------------------------------------
Name: Stephen J. Giurlando
Title: Assistant Vice President
HARVEYS C.C. MANAGEMENT COMPANY, INC.
By: /s/ John J. McLaughlin
-----------------------------------------------
Name: John J. McLaughlin
Title: Sr. Vice President/CFO/Treasurer
HARVEYS TAHOE MANAGEMENT COMPANY,
INC.
By: /s/ John J. McLaughlin
-----------------------------------------------
Name: John J. McLaughlin
Title: Sr. Vice President/CFO/Treasurer
<PAGE>
HARVEYS IOWA MANAGEMENT COMPANY, INC.
By: /s/ John J. McLaughlin
-----------------------------------------------
Name: John J. McLaughlin
Title: Sr. Vice President/CFO/Treasurer
HARVEYS L.V. MANAGEMENT COMPANY, INC.
By: /s/ John J. McLaughlin
-----------------------------------------------
Name: John J. McLaughlin
Title: Sr. Vice President/CFO/Treasurer
<PAGE>
Exhibit 4.6
- --------------------------------------------------------------------------------
HARVEYS CASINO RESORTS,
Issuer
HARVEYS TAHOE MANAGEMENT COMPANY, INC.,
HARVEYS C.C. MANAGEMENT COMPANY, INC.,
HARVEYS IOWA MANAGEMENT COMPANY, INC. and
HARVEYS L.V. MANAGEMENT COMPANY, INC.,
as Guarantors
and
IBJ SCHRODER BANK & TRUST COMPANY,
Trustee
FOURTH SUPPLEMENTAL INDENTURE
Dated as of December 24, 1998
--------------
$150,000,000
10 5/8% SENIOR SUBORDINATED NOTES DUE 2006
Supplementing the Indenture Dated as of May 15, 1996 among Harveys Casino
Resorts, Issuer, Harveys C.C. Management Company, Inc., Harveys Wagon Wheel
Casino Limited Liability Company, Harveys Iowa Management Company, Inc. and
Harveys L.V. Management Company, Inc., as Guarantors, and IBJ Schroder Bank &
Trust Company, Trustee, as amended and supplemented to date
- -------------------------------------------------------------------------------
<PAGE>
THIS FOURTH SUPPLEMENTAL INDENTURE (the "Fourth Supplemental
Indenture"), dated as of December 24, 1998, among HARVEYS CASINO RESORTS, a
Nevada corporation (the "Issuer"), and HARVEYS TAHOE MANAGEMENT COMPANY, INC.,
a Nevada corporation, HARVEYS C.C. MANAGEMENT COMPANY, INC., a Nevada
corporation, HARVEYS IOWA MANAGEMENT COMPANY, INC., a Nevada corporation and
HARVEYS L.V. MANAGEMENT COMPANY, INC., a Nevada corporation (the "Guarantors"),
and IBJ SCHRODER BANK & TRUST COMPANY, a New York banking corporation, as
Trustee (the "Trustee"), under the Indenture dated as of May 15, 1996 (the
"Original Indenture"), as amended and supplemented by a First Supplemental
Indenture dated as of June 5, 1996 (the "First Supplemental Indenture"), a
Second Supplemental Indenture dated as of May 22, 1997 (the "Second Supplemental
Indenture") and a Third Supplemental Indenture dated as of December 24, 1998
(the "Third Supplemental Indenture") (the Original Indenture as so amended and
supplemented by the First Supplemental Indenture, the Second Supplemental
Indenture and the Third Supplemental Indenture, the "Indenture").
W I T N E S S E T H :
WHEREAS, the Issuer has issued its 10 5/8% Senior Subordinated Notes
Due 2006 (the "Securities") pursuant to the Indenture;
WHEREAS, the Issuer has entered into an Agreement and Plan of Merger
dated as of February 1, 1998 with Harveys Acquisition Corporation, a Nevada
corporation ("HAC"), pursuant to which, subject to the terms and conditions
thereof, HAC would be merged with and into the Issuer, the Issuer to be the
surviving corporation (the "Merger");
WHEREAS, the Issuer has requested that the holders (the "Holders") of
the Securities waive one time the applicability to the Merger of section 3.24 of
the Indenture;
WHEREAS, the Issuer and the Guarantors wish to amend or waive certain
provisions of the Indenture pursuant to section 7.2 thereof; and
WHEREAS, the Trustee has received evidence satisfactory to it of the
consent of the holders of not less than two-thirds of the aggregate principal
amount of the Securities outstanding to the waiver set forth herein, pursuant to
section 6.1 of the Indenture.
1
<PAGE>
NOW, THEREFORE, intending to be legally bound hereby, the parties
agree as follows. Capitalized terms used herein and not otherwise defined shall
have the meanings assigned to them in the Indenture.
ARTICLE I
WAIVER
All Holders and every subsequent holder of the Securities shall be
bound by the following waiver of the Indenture and the Securities:
Such persons expressly waive the necessity of the compliance by
the Issuer with its obligations set forth in section 3.24 of the
Indenture in connection with, and solely for the facilitation of, the
Merger of HAC, with and into the Issuer, the Issuer to be the
surviving corporation.
ARTICLE II
MISCELLANEOUS
Section 2.1 Except as amended hereby, all of the terms of the
Indenture shall remain and continue in full force and effect and are hereby
confirmed in all respects.
Section 2.2 This Fourth Supplemental Indenture and each and every
provision hereof shall be deemed to be a contract made under the laws of the
State of New York and for all purposes shall be construed in accordance with the
laws of such State.
Section 2.3 This Fourth Supplemental Indenture may be executed in any
number of counterparts, each of which shall be an original; but such
counterparts shall constitute but one and the same instrument.
Section 2.4 In entering into this Fourth Supplemental Indenture, the
Trustee shall be entitled to the benefit of every provision of the Indenture
relating to the conduct or affecting the liability of or affording protection to
the Trustee, whether or not elsewhere herein so provided.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Fourth
Supplemental Indenture to be duly executed, and their respective corporate seals
to be hereunto affixed and attested, all as of the date hereof.
HARVEYS CASINO RESORTS
By: /s/ John J. McLaughlin
-----------------------------------------------
Name: John J. McLaughlin
Title: Sr. Vice President/CFO/Treasurer
IBJ SCHRODER BANK & TRUST COMPANY,
as Trustee
By: /s/ Stephen J. Giurlando
-----------------------------------------------
Name: Stephen J. Giurlando
Title: Assistant Vice President
HARVEYS C.C. MANAGEMENT COMPANY, INC.
By: /s/ John J. McLaughlin
-----------------------------------------------
Name: John J. McLaughlin
Title: Sr. Vice President/CFO/Treasurer
HARVEYS TAHOE MANAGEMENT COMPANY,
INC.
By: /s/ John J. McLaughlin
-----------------------------------------------
Name: John J. McLaughlin
Title: Sr. Vice President/CFO/Treasurer
<PAGE>
HARVEYS IOWA MANAGEMENT COMPANY, INC.
By: /s/ John J. McLaughlin
-----------------------------------------------
Name: John J. McLaughlin
Title: Sr. Vice President/CFO/Treasurer
HARVEYS L.V. MANAGEMENT COMPANY, INC.
By: /s/ John J. McLaughlin
-----------------------------------------------
Name: John J. McLaughlin
Title: Sr. Vice President/CFO/Treasurer
<PAGE>
AMENDED AND RESTATED CREDIT AGREEMENT
THIS AMENDED AND RESTATED CREDIT AGREEMENT ("Credit Agreement") is
made and entered into as of the 9th day of December, 1998, by and among
HARVEYS CASINO RESORTS, a Nevada corporation ("HCR"), HARVEYS C.C. MANAGEMENT
COMPANY, INC., a Nevada corporation ("HCCMC"), HARVEYS IOWA MANAGEMENT
COMPANY, INC., a Nevada corporation ("HIMC"), HARVEYS TAHOE MANAGEMENT
COMPANY, INC., a Nevada corporation ("HTMC") and HCR SERVICES COMPANY, INC.,
a Nevada corporation ("HCRSC" and together with HCR, HCCMC, HIMC and HTMC
collectively the "Borrowers"), WELLS FARGO BANK, National Association, THE
FIRST NATIONAL BANK OF CHICAGO, FIRST SECURITY BANK, N.A., U.S. BANK NATIONAL
ASSOCIATION, CREDIT LYONNAIS LOS ANGELES BRANCH, SOCIETE GENERALE, IMPERIAL
BANK, HIBERNIA BANK, BANK OF THE WEST, and FIRST HAWAIIAN BANK (herein
together with their respective successors and assigns collectively the
"Lenders"), WELLS FARGO BANK, National Association, as the swingline lender
(herein in such capacity, together with its successors and assigns, the
"Swingline Lender"), WELLS FARGO BANK, National Association, as the issuer of
letters of credit hereunder (herein in such capacity, together with its
successors and assigns, the "L/C Issuer") and WELLS FARGO BANK, National
Association, as administrative and collateral agent for the Lenders,
Swingline Lender and L/C Issuer (herein, in such capacity, called the "Agent
Bank" and, together with the Lenders, Swingline Lender and L/C Issuer,
collectively referred to as the "Banks").
R E C I T A L S:
----------------
WHEREAS:
A. In this Credit Agreement all capitalized words and terms
shall have the respective meanings and be construed herein as hereinafter
provided in Section 1.01 of this Credit Agreement and shall be deemed to
incorporate such words and terms as a part hereof in the same manner and with
the same effect as if the same were fully set forth.
B. By Agreement and Plan of Merger dated as of February 1, 1998
(the "Merger Agreement"), HCR and Harveys Acquisition Corporation, a Nevada
corporation ("HAC") agreed that HAC shall merge with and into HCR, with HCR
remaining as the surviving entity and, as of the Merger Effective Time, the
Pre-Merger Common Stock shall be cancelled and retired or converted into the
right to receive the Merger Consideration.
<PAGE>
The requisite percentage of the holders of the Pre-Merger Common Stock
approved the Merger Agreement on May 14, 1998.
C. HAC and WFB intend to enter into a loan agreement on or
before the Merger Effective Date (the "HAC Loan Agreement") under the terms
of which WFB shall agree to fund a loan (the "HAC Loan") up to the amount of
One Hundred Eighty-Five Million Dollars ($185,000,000.00) to be further
evidenced by a demand note of even date therewith (the "HAC Demand Note") to
be executed by HAC, payable to the order of WFB.
D. The proceeds of the HAC Loan shall be used to fund a portion
of the Merger Consideration to be paid by HAC to the holders of the
Pre-Merger Common Stock in connection with the Merger and to pay related fees
and expenses.
E. HCR, the Operating Subsidiaries and the Existing Harveys
Lenders are party to the Existing Harveys Credit Agreement. In connection
with the Merger, all obligations of HAC under the HAC Loan shall be assumed
by HCR. HCR, the Operating Subsidiaries and the Banks all desire to amend and
restate the Existing Harveys Credit Agreement, as set forth herein, and to
utilize the proceeds of the Initial Disbursement hereunder to repay all
borrowings by HAC under the HAC Loan.
NOW, THEREFORE, in consideration of the foregoing, and other
valuable considerations as hereinafter described, the parties hereto do
promise, covenant and agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. DEFINITIONS. For the purposes of this Credit
Agreement, each of the following terms shall have the meaning specified with
respect thereto, unless a different meaning clearly appears from the context:
"Access Laws" shall have the meaning set forth in Section 5.23.
"Adjusted Fixed Charge Coverage Ratio" as of the end of any Fiscal
Quarter shall mean with reference to the Borrower Consolidation:
-2-
<PAGE>
For the Fiscal Quarter under review, together with the most
recently ended three (3) preceding Fiscal Quarters, the sum of: (i)
EBITDA, less (ii) the aggregate amount of actually paid federal and
state taxes on or measured by income or profits, less (iii)
Distributions actually paid solely to the extent not deducted in
determining Net Income during such Fiscal Quarters, but excluding
Distributions paid on or prior to the Closing Date, less (iv) the
amount of the Minimum Cap Ex Requirement for such period
Divided by (DIVIDED BY)
The sum of: (i) the aggregate amount of actually paid Interest Expense
(expensed and capitalized), plus (ii) the aggregate amount of
Scheduled Reductions actually paid, plus (iii) the aggregate amount of
actually paid principal payments or reductions (without duplication)
made on all other Indebtedness, plus (iv) the current portion of
Capitalized Lease Liabilities, to the extent not included in (i) or
(iii) above; in each case of (i) through (iv) determined for the
Fiscal Quarter under review together with the most recently ended
three (3) preceding Fiscal Quarters.
"Affiliate(s)" of any Person means any other Person which, directly or
indirectly, controls, is controlled by or is under common control with such
Person. A Person shall be deemed to be "controlled by" any other Person if such
other Person possesses, directly or indirectly, power to:
(a) vote twenty percent (20%) or more of the equity
securities (on a fully diluted basis) having ordinary voting power for
the election of directors or managing general partners; or
(b) direct or cause the direction of the management and
policies of such Person whether by contract or otherwise.
"Agent Bank" shall mean WFB in its capacity as administrative and
collateral agent for Lenders, Swingline Lender and L/C Issuer.
"Aggregate Commitment" shall mean reference to the aggregate amount
committed by Lenders for advance to or on
-3-
<PAGE>
behalf of the Borrower Consolidation as Borrowings under the Credit Facility
(inclusive of the outstanding principal under the Existing Harveys Credit
Facility as of the Merger Effective Time) in the initial principal amount of
One Hundred Eighty-Five Million Dollars ($185,000,000.00), subject to the
Scheduled Reductions as set forth on the Aggregate Commitment Reduction
schedule and to the limitations for advance as set forth in the definition
of Maximum Permitted Balance.
"Aggregate Commitment Reduction Schedule" shall mean the Aggregate
Commitment Reduction Schedule marked "Schedule 2.01(c)", affixed hereto and
by this reference incorporated herein and made a part hereof, setting forth
the Scheduled Reductions and Maximum Scheduled Balance as of each Reduction
Date under the Credit Facility.
"Aggregate Outstandings" shall mean collective reference to the sum
of the Funded Outstandings, Swingline Outstandings and L/C Exposure as of any
given date of determination.
"Applicable Margin" means for any Base Rate Loan or LIBOR Loan
during the period commencing on the date of the Initial Disbursement and
continuing until the Maturity Date, the applicable percentage amount to be
added to the Base Rate or LIBO Rate, as the case may be, as set forth in
Table One below in each instance based on the Leverage Ratio calculated with
regard to the Borrower Consolidation as of each Fiscal Quarter end, any
change in the applicable percentage amount by reason thereof to be effective
as of the 1st day of the third (3rd) month immediately following each such
Fiscal Quarter end:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
TABLE ONE TABLE TWO
- ----------------------------------------------------------------------------------------------
LIBO
BASE RATE RATE COMMITMENT
LEVERAGE RATIO MARGIN MARGIN PERCENTAGE
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Greater than 4.50 to 1.0 1.75% 3.00% 0.50%
- ----------------------------------------------------------------------------------------------
Greater than 4.00 to 1.0 but less than or 1.50% 2.75% 0.50%
equal to 4.50 to 1.00
- ----------------------------------------------------------------------------------------------
Greater than 3.50 to 1.0 but less than or 1.00% 2.25% 0.375%
equal to 4.00 to 1.00
- ----------------------------------------------------------------------------------------------
Greater than 3.00 to 1.0 but less than or 0.75% 2.00% 0.375%
equal to 3.50 to 1.00
- ----------------------------------------------------------------------------------------------
-4-
<PAGE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
TABLE ONE TABLE TWO
- ----------------------------------------------------------------------------------------------
LIBO
BASE RATE RATE COMMITMENT
LEVERAGE RATIO MARGIN MARGIN PERCENTAGE
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Greater than 2.00 to 1.0 but less than or 0.50% 1.75% 0.375%
equal to 3.00 to 1.00
- ----------------------------------------------------------------------------------------------
Greater than 1.00 to 1.0 but less than or 0.00% 1.250% 0.375%
equal to 2.00 to 1.00
- ----------------------------------------------------------------------------------------------
Less than or equal to 1.00 to 1.00 0.00% 1.00% 0.25%
- ----------------------------------------------------------------------------------------------
</TABLE>
"Articles of Merger" shall mean collective reference to the
articles of merger and other appropriate documentation required by Law, and
in accordance with the applicable provisions of the Laws of the State of
Nevada, for the Merger of HAC and HCR, with HCR to continue as the surviving
corporation and the cessation of HAC as a separate entity.
"Assets" shall mean the total assets of the Borrower Consolidation
determined in accordance with GAAP.
"Assignment and Assumption Agreement" shall mean the document
evidencing an assignment of a Syndication Interest by any Lender to an
Eligible Assignee in the form of the Assignment, Assumption and Consent
Agreement marked "Exhibit L", affixed hereto and by this reference
incorporated herein and made a part hereof.
"Assignment of California Greenbelt Lease" shall mean the Amended
and Restated Assignment of California Greenbelt Lease executed by HTMC and
Agent Bank on or before the Closing Date as additional security for the Bank
Facilities, pursuant to which HTMC assigns to Agent Bank on behalf of Lenders
all of its right, title and interest as lessee under the California Greenbelt
Lease, which shall constitute a full amendment and restatement of the
Assignment of California Greenbelt Lease recorded August 16, 1995, in the
Official Records of El Dorado County, California, in Book 4522, at Page 088,
as Document No. 036647, together with all prior amendments thereto, as such
Amended and Restated Assignment of California Greenbelt Lease may be amended,
restated or otherwise modified from time to time.
"Assignment of Friendship Sublease" shall mean the Amended and
Restated Assignment of Friendship Park Sublease executed by HIMC and Agent
Bank on or before the Closing Date
-5-
<PAGE>
as additional security for the Bank Facilities pursuant to which HIMC assigns
to Agent Bank on behalf of Lenders all of its right, title and interest as
sublessee under the Friendship Sublease, which shall constitute a full
amendment and restatement of the Assignment of Friendship Park Sublease
recorded August 16, 1995, in the Official Records of Pottawattamie County,
Iowa, in Book 96, at Page 4606, as Instrument No. 1849, together with all
prior amendments thereto, as such Amended and Restated Assignment of
Friendship Park Sublease may be amended, restated or otherwise modified from
time to time.
"Assignment of Park Cattle Lease" shall mean the Amended and
Restated Assignment of Park Cattle Lease executed by HTMC and Agent Bank on
or before the Closing Date as additional security for the Bank Facilities
pursuant to which HTMC assigns to Agent Bank on behalf of Lenders all of its
right, title and interest as lessee under the Park Cattle Lease, which shall
constitute a full amendment and restatement of the Assignment of Park Cattle
Lease recorded August 16, 1995, in the Official Records of Douglas County,
Nevada, in Book 895, at Page 2553, as Instrument No. 368423, together with
all prior amendments thereto, as such Amended and Restated Assignment of Park
Cattle Lease may be amended, restated or otherwise modified from time to time.
"Assignment of Tahoe Greenbelt Lease" shall mean the Amended and
Restated Assignment of Tahoe Greenbelt Lease executed by HTMC and Agent Bank
on or before the Closing Date as additional security for the Bank Facilities
pursuant to which HTMC assigns to Agent Bank on behalf of Lenders all of its
right, title and interest as lessee under the Tahoe Greenbelt Lease, which
shall constitute a full amendment and restatement of the Assignment of Tahoe
Greenbelt Lease recorded August 16, 1995, in the Official Records of Douglas
County, Nevada, in Book 895, at Page 2562, as Instrument No. 368424, together
with all prior amendments thereto, as such Amended and Restated Assignment of
Tahoe Greenbelt Lease may be amended, restated or otherwise modified from
time to time.
"Assignments" shall mean collective reference to the Tahoe
Assignments, the Iowa Assignments and the Colorado Assignments.
"Assignments of Permits, Licenses and Contracts" shall mean collective
reference to the Tahoe Assignment of Permits, Licenses and Contracts, Colorado
Assignment of
-6-
<PAGE>
Permits, Licenses and Contracts and the Iowa Assignment of Permits, Licenses
and Contracts.
"Assignments of Spaceleases, Contracts, Rents and Revenues" shall
mean collective reference to the Tahoe Assignment of Spaceleases, Contracts,
Rents and Revenues, Colorado Assignment of Spaceleases, Contracts, Rents and
Revenues and the Iowa Assignment of Spaceleases, Contracts, Rents and
Revenues.
"Authorized Officer Certificate" shall have the meaning set forth
in Section 3.05(iv).
"Authorized Officer(s)" shall mean, relative to the Borrowers,
those of the respective officers whose signatures and incumbency shall have
been certified to Agent Bank and the Banks as required in Section 3.05(iv) of
the Credit Agreement with the authority and responsibility to deliver Notices
of Borrowing, Continuation/Conversion Notices, Compliance Certificates,
Pricing Certificates, Notices of Swingline Advances, requests for the
issuance of Letters of Credit and all other requests, notices, reports,
consents, certifications and authorizations on behalf of Borrowers, or any of
them.
"Available Borrowings" shall mean, at any time, and from time to
time, the aggregate amount available to Borrowers for a Borrowing, a
Swingline Advance or issuance of a Letter of Credit not exceeding the amount
of the Maximum Availability, as of each date of determination.
"Bank Facilities" shall mean collective reference to the Credit
Facility, Swingline Facility and L/C Facility.
"Bank Facility Termination" or "Bank Facilities Termination" shall
mean payment in full of all sums owing under the Notes and each of the other
Loan Documents, the occurrence of the Stated Expiry Date or other termination
or cash collateralization of all outstanding Letters of Credit, and the
irrevocable termination of the obligation of Banks to advance Borrowings, to
advance Swingline Advances and to issue Letters of Credit.
"Banking Business Day" means (a) with respect to any Borrowing,
payment or rate determination of LIBOR Loans, a day, other than a Saturday or
Sunday, on which Agent Bank is open for business in San Francisco and on
which dealings in Dollars are carried on in the London interbank market, and
-7-
<PAGE>
(b) for all other purposes any day excluding Saturday, Sunday and any day
which is a legal holiday under the laws of the States of California, Nevada
and/or New York, or is a day on which banking institutions located in
California, Nevada and/or New York are required or authorized by law or other
governmental action to close.
"Bankruptcy Code" shall mean the United States Bankruptcy Code, as
amended, 11 U.S.C. Section 101, ET SEQ.
"Banks" shall have the meaning set forth in the Preamble to this
Credit Agreement.
"Base Rate" shall mean, as of any date of determination, the rate
per annum equal to the higher of (a) the Prime Rate in effect on such date
and (b) the Federal Funds Rate in effect on such date plus one-half of one
percent (1/2 of 1%) (fifty basis points).
"Base Rate Loan" shall mean reference to that portion of the unpaid
principal balance of the Credit Facility bearing interest with reference to
the Base Rate plus the Applicable Margin.
"Borrower Consolidation" shall mean: (i) prior to the Merger
Effective Time, collective reference to HCR, HTMC, HCRSC, HCCMC and HIMC on a
consolidated basis, and (ii) as of and after the Merger Effective Time,
collective reference to Borrowers and each Restricted Subsidiary on a
consolidated basis, in each instance without regard to any Unrestricted
Subsidiary or other Affiliate.
"Borrowers" shall mean collective reference to HCR, HTMC, HCRSC,
HCCMC and HIMC.
"Borrowing(s)" shall mean the Initial Disbursement and such amounts
as Borrowers may request by Notice of Borrowing to Agent Bank from time to
time to be advanced under the Credit Facility following the Closing Date in
accordance with the provisions of Section 2.03 or at the request of Agent
Bank pursuant to Section 2.08 or Section 2.09.
"Breakage Charges" shall have the meaning ascribed to such term in
Section 2.07(c) of the Credit Agreement.
"California Deed of Trust" shall mean the Amended and Restated
Leasehold Deed of Trust with Assignment of Rents and Notice of Additional
Commitment (California) to be
-8-
<PAGE>
executed by HTMC and Agent Bank on or before the Closing Date in favor of
Agent Bank on behalf of Lenders for the purpose of encumbering HTMC's
leasehold interest in the California Greenbelt Lease for the purpose of
providing additional security for the Bank Facilities which shall constitute
a full amendment and restatement of the Leasehold Deed of Trust with
Assignment of Rents (California) recorded August 16, 1995, in the Official
Records of El Dorado County, California, in Book 4522, at Page 069, as
Instrument No. 036646, together with all prior amendments thereto, as such
Amended and Restated Leasehold Deed of Trust with Assignment of Rents
(California) may be amended, restated or otherwise modified from time to time.
"California Greenbelt Lease" shall mean that certain Net Lease
Agreement dated as of February 28, 1985, as amended by First Amendment to
Lease Agreement dated as of June 1, 1997, between Park Cattle Company, as
lessor, and HCR (formerly known as Harvey's Wagon Wheel, Inc., a Nevada
corporation), as lessee, the lessee's interest therein having been assigned
by HCR to HTMC by Assignment of Leases dated as of June 1, 1997, under the
terms of which HTMC leases the California Greenbelt Property from Park Cattle
Co., as such Net Lease Agreement may be further amended, extended, renewed,
or otherwise modified from time to time.
"California Greenbelt Lease Estoppel Certificate" shall mean an
estoppel certificate duly executed by Park Cattle Co. as lessor and HTMC as
lessee under the California Greenbelt Lease, wherein each certifies and
represents to Agent Bank on behalf of Lenders that: (a) the California
Greenbelt Lease, as defined herein, represents the entire agreement between
the parties thereto, and supersedes all other previous documents and
agreements between them, (b) that the California Greenbelt Lease has not been
modified, supplemented or amended, except as described herein, (c) to the
actual knowledge of lessor and to the best knowledge of lessee there are no
defaults presently existing or continuing under any of the terms and
provisions of the California Greenbelt Lease, and (d) other provisions
regarding notice to Agent Bank in the event of a default thereunder, Agent
Bank's right to cure any such default and the rights of Banks and their
successors and assigns to continue in possession of the leased premises.
"California Greenbelt Property" shall mean that real property which
is particularly described as Parcel 5 on Exhibit Q attached hereto.
-9-
<PAGE>
"Capital Expenditures" shall mean, for any period, without
duplication, the aggregate of all expenditures (whether paid in cash or
accrued as liabilities during that period and including Capitalized Lease
Liabilities) by the Borrower Consolidation during such period that, in
conformity with GAAP, are required to be included in or reflected by the
property, plant or equipment or similar fixed or capital asset accounts
reflected in the consolidated balance sheet of the Borrower Consolidation
(including equipment which is purchased simultaneously with the trade-in of
existing equipment owned by Borrowers to the extent of (a) the gross amount
of such purchase price LESS (b) the cash proceeds of trade-in credit of the
equipment being traded in at such time), but excluding capital expenditures
made in connection with the replacement or restoration of assets, to the
extent reimbursed or refinanced from insurance proceeds paid on account of
the loss of or damage to the assets being replaced or restored, or from
awards of compensation arising from the taking by condemnation of or the
exercise of the power of eminent domain with respect to such assets being
replaced or restored.
"Capital Proceeds" shall mean the net proceeds (after deducting all
reasonable or customary expenses incurred in connection therewith) available
to Borrowers in excess of Five Million Dollars ($5,000,000.00) in the
aggregate during any Fiscal Year from (i) partial or total condemnation or
destruction of any part of the Collateral, (ii) insurance proceeds (other
than rent insurance and business interruption insurance) received in
connection with damage to or destruction of the Collateral, and (iii) the
sale or other disposition of any portion of the Collateral in accordance with
the provisions of this Credit Agreement (not including, however, any proceeds
received by Borrowers, or any of them, from a sale, condemnation, damage or
destruction of FF&E or other personal property if such FF&E or other personal
property is replaced by items of equivalent value or utility, in each case
such exclusion to apply only during any period in which no Default in the
payment of any principal or interest owing under the terms of the Bank
Facilities or an Event of Default has occurred and is continuing).
"Capitalized Lease Liabilities" means all monetary obligations of
the Borrowers, or any of them, under any leasing or similar arrangement
which, in accordance with GAAP, would be classified as capitalized leases,
and, for purposes of this Credit Agreement, the amount of such obligations
shall be the capitalized amount thereof, determined in accordance with GAAP,
and the stated maturity thereof shall be the date
-10-
<PAGE>
of the last payment of rent or any other amount due under such lease prior to
the first date upon which such lease may be terminated by the lessee without
payment of a penalty.
"Cash" shall mean, when used in connection with any Person, all
monetary and non-monetary items owned by that Person that are treated as cash
or the equivalent of cash in accordance with GAAP, consistently applied.
"Cash Collateral Account" shall mean the restricted depository
savings account to be established by Borrowers or Agent Bank on behalf of
Borrowers with L/C Issuer at its offices located at One East First Street,
Reno, Nevada, or at such other office located in the United States as may be
designated from time to time by L/C Issuer, for the purpose of depositing
cash collateral for the aggregate L/C Exposure upon the occurrence of any
Event of Default.
"Cash Collateral Pledge Agreement" shall mean the Pledge and
Assignment of Savings Account Agreement to be executed by Borrowers in favor
of L/C Issuer as of the Closing Date as the same may be amended or modified
from time to time under the terms of which all sums held from time to time in
the Cash Collateral Account are pledged in favor of L/C Issuer to secure
repayment of any funding required under any outstanding Letters of Credit, a
copy of which Cash Collateral Pledge Agreement is marked "Exhibit M", affixed
hereto and by this reference incorporated herein and made a part hereof.
"Cash Equivalents" shall mean, when used in connection with any
Person, that Person's Investments in:
(a) Government Securities maturing within one (1) year
after the date of the making of the Investment;
(b) readily marketable direct obligations of any State of
the United States of America or any political subdivision or agency of
the foregoing given on the date of such Investment a credit rating of
at least Aa by Moody's Investors Service, Inc. or AA by Standard &
Poor's Corporation, in each case maturing within one (1) year from the
making of the Investment;
(c) certificates of deposit issued by, bank deposits in,
eurodollar deposits through, bankers' acceptances of, and repurchase
agreements covering
-11-
<PAGE>
Government Securities executed by, any Lender or, if not a Lender,
any bank incorporated under the laws of the United States of
America or any State thereof and having on the date of such
Investment combined capital, surplus and undivided profits of at
least Two Hundred Fifty Million Dollars ($250,000,000.00), or total
assets of at least Five Billion Dollars ($5,000,000,000.00), in
each case maturing within one (1) year after the date of the making
of the Investment;
(d) certificates of deposit issued by, bank deposits in,
eurodollar deposits through, bankers' acceptances of, and repurchase
agreements covering Government Securities executed by, any branch or
office located in the United States of America of a bank incorporated
under the laws of any jurisdiction outside the United States of
America having on the date of such Investment combined capital,
surplus and undivided profits of at least Five Hundred Million Dollars
($500,000,000.00), or total assets of at least Fifteen Billion Dollars
($15,000,000,000.00) in each case maturing within one year after the
date of the making of the Investment;
(e) repurchase agreements covering Government Securities
executed by a broker or dealer registered under Section 15(b) of the
Securities Exchange Act of 1934 having on the date of the Investment
capital of at least One Hundred Million Dollars ($100,000,000.00),
maturing within thirty (30) days after the date of the making of the
Investment; PROVIDED that the maker of the Investment receives written
confirmation of the transfer to it of record ownership of the
Government Securities on the books of a "primary dealer" in such
Government Securities on the books of such registered broker or
dealer, as soon as practicable after the making of the Investment;
(f) readily marketable commercial paper of corporations
doing business in and incorporated under the laws of the United States
of America or any State thereof or of any corporation that is the
holding company for a bank described in clauses (c) or (d) above given
on the date of such Investment a credit rating of at least P-1 by
Moody's Investors
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Service, Inc. or A-1 by Standard & Poor's Corporation, in each case
maturing within three hundred sixty-five (365) days after the date
of the making of the Investment;
(g) "money market preferred stock" issued by a corporation
incorporated under the laws of the United States of America or any
State thereof given on the date of such Investment a credit rating of
at least Aa by Moody's Investors Service, Inc. or AA by Standard &
Poor's Corporation, in each case having an investment period not to
exceed fifty (50) days; PROVIDED that (i) the amount of all such
Investments issued by the same issuer does not exceed Five Million
Dollars ($5,000,000.00) and (ii) the aggregate amount of all such
Investments does not exceed Fifteen Million Dollars ($15,000,000.00);
and
(h) a readily redeemable "money market mutual fund" advised
by a bank described in clauses (c) or (d) hereof, or an investment
advisor registered under Section 203 of the Investment Advisors Act of
1940, that has and maintains an investment policy limiting its
investments primarily to instruments of the types described in clauses
(a) through (g) hereof and having on the date of such Investment total
assets of at least One Billion Dollars ($1,000,000,000.00).
"Change in Control" shall mean the occurrence of any of the following:
(a) Any "person" or "group" (as such terms are defined in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended) other than any such "person" or "group" which is or which
includes the holders of the common stock (voting and non-voting) and
preferred stock of HCR as of the Merger Effective Time or their
Affiliates, own or control, more than forty percent (40%) of the
common voting stock of HCR; or
(b) Other than with respect to the election of directors
specifically contemplated by the Merger Agreement, during any period
of twenty-four (24) consecutive months commencing after the Closing
Date, individuals who at the beginning of
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such period constituted HCR's Board of Directors (together with any
new or replacement directors whose election by HCR's Board of
Directors or whose nomination for election by HCR's shareholders,
was approved by a vote of at least a majority of the directors then
still in office who were either directors at the beginning of such
period or whose election or nomination for election was previously
so approved) cease for any reason to constitute a majority of the
directors then in office; or
(c) HCR fails to own, directly or indirectly, one hundred
percent (100%) of the capital stock interests of HTMC, HCRSC, HCCMC
and HIMC.
"Closing Certificate" shall have the meaning ascribed to such term
in Section 3.05(v).
"Closing Date" shall mean the date upon which: (i) each requirement
set forth in Article IIIA of this Credit Agreement has been satisfied or
waived, (ii) the Mortgages have been filed and/or recorded in accordance with
and in the manner required by the Closing Instructions, (iii) the Merger is
consummated, and (iv) the Initial Disbursement hereunder has been funded.
"Closing Instructions" shall mean collective reference to the Tahoe
Closing Instructions, Iowa Closing Instructions and Colorado Closing
Instructions.
"Collateral" shall mean: (a) a collective reference to the Tahoe
Collateral, Colorado Collateral and the Iowa Collateral; (b) the HCR Stock
Pledges; and (c) any and all other property and/or intangible rights,
interests or benefits inuring to or in favor of Borrowers which are in any
manner assigned, pledged, encumbered or otherwise hypothecated in favor of
Lenders or Agent Bank on behalf of the Lenders to secure repayment of the
Bank Facilities, but shall not include the Gaming Permits.
"Collateral Properties" shall mean collective reference to the real
properties, improvements and associated FF&E which are pledged and encumbered
as Collateral securing repayment of the Bank Facilities, which shall consist
of the Tahoe Real Property, California Greenbelt Property, Iowa Real
Property, and Colorado Real Property, together with any other real property
or interests therein which may be held by Agent
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Bank from time to time to secure repayment of the Bank Facilities.
"Colorado Assignment of Permits, Licenses and Contracts" shall mean
the Amended and Restated Assignment of Permits, Licenses and Contracts
(Colorado) to be executed by HCCMC and Agent Bank on or before the Closing
Date, whereby HCCMC assigns to Agent Bank all of its right, title and
interest in and to all permits, licenses and contracts relating to the
Colorado Hotel/Casino Facility, except those Gaming Permits and other
licenses or permits which are unassignable, which shall constitute a full
amendment and restatement of the Assignment of Permits, Licenses and
Contracts (Central City) recorded May 23, 1996, in the Office of the Gilpin
County Clerk and Recorder, in Book 599, Page 369, under Reception No. 88444,
together with all prior amendments thereto, as such Amended and Restated
Assignment of Permits, Licenses and Contracts (Colorado) may be amended,
restated or otherwise modified from time to time.
"Colorado Assignment of Spaceleases, Contracts, Rents and Revenues"
shall mean the Amended and Restated Assignment of Spaceleases, Contracts,
Rents and Revenues (Colorado) to be executed by HCCMC and Agent Bank on or
before the Closing Date pursuant to which HCCMC assigns to Agent Bank: (a)
all of its right, title and interest under the Colorado Equipment Leases and
Contracts, and under the Colorado Spaceleases relating to the Colorado
Hotel/Casino Facility, and (b) all rents, issues, profits, revenues and
income from the Colorado Hotel/Casino Facility and any other business
activity conducted on the Colorado Real Property, together with any future
expansions thereof, related thereto or used in connection therewith, which
shall constitute a full amendment and restatement of the Assignment of
Spaceleases, Contracts, Rents and Revenues (Central City) recorded May 23,
1996, in the Office of the Gilpin County Clerk and Recorder, in Book 599,
Page 383, under Reception No. 88445, together with all prior amendments
thereto, as such Amended and Restated Assignment of Spaceleases, Contracts,
Rents and Revenues (Colorado) may be amended, restated or otherwise modified
from time to time.
"Colorado Assignments" shall mean collective reference to the
Colorado Assignment of Permits, Licenses and Contracts and the Colorado
Assignment of Spaceleases, Contracts, Rents and Revenues.
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"Colorado Closing Instructions" shall mean the Closing Instructions
to be given by Agent Bank to the Colorado Title Company on or before the
Closing Date setting forth the requirements of Lenders for the issuance of
the Colorado Title Endorsements and other conditions for the funding of the
Initial Disbursement, to the reasonable satisfaction of Agent Bank, Lenders
and the Borrowers.
"Colorado Collateral" shall mean collective reference to: (i) all
of the Colorado Real Property and the personal property, furniture, fixtures
and equipment, contract rights, leases, intangibles and other interests of
HCCMC, which are subject to the liens and security interests of the Colorado
Security Documents; (ii) all rights of HCCMC assigned as additional security
pursuant to the terms of the Colorado Security Documents; and (iii) any and
all other property and/or intangible rights, interest or benefits inuring to
or in favor of HCCMC, which are in any manner assigned, pledged, encumbered
or otherwise hypothecated in favor of Agent Bank on behalf of Lenders to
secure payment of the Bank Facilities.
"Colorado Deed of Trust" shall mean the Amended and Restated Deed
of Trust, Fixture Filing and Security Agreement with Assignment of Rents and
Notice of Additional Commitment (Colorado) to be executed by HCCMC, as
trustor and debtor, and by Agent Bank on or before the Closing Date, to the
Public Trustee of Gilpin County, Colorado, as trustee, in favor of Agent Bank
on behalf of Lenders, as beneficiary, for the purposes of providing
additional security for the Bank Facilities, encumbering the Colorado
Collateral more particularly therein described as a first mortgage lien
subject only to the Colorado Permitted Encumbrances, which shall constitute a
full amendment and restatement of the Deed of Trust, Fixture Filing and
Security Agreement with Assignment of Rents (Central City) recorded May 23,
1996, in the Office of the Gilpin County Clerk and Recorder in Book 599, Page
343, under Reception No. 88443, together with all prior amendments thereto,
as such Amended and Restated Deed of Trust, Fixture Filing and Security
Agreement with Assignment of Rents (Colorado) may be amended, restated or
otherwise modified from time to time.
"Colorado Equipment Leases and Contracts" shall mean the executed
leases and purchase contracts pertaining to the Colorado FF&E wherein HCCMC
is the lessee or vendee, as the case may be, as set forth on that certain
schedule marked "Schedule 4.16(B)", affixed hereto and by this reference
incorporated herein and made a part hereof.
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<PAGE>
"Colorado FF&E" shall mean the furniture, fixtures and equipment
and all gaming equipment and Gaming Devices which have been installed or are
to be installed and used or owned by HCCMC in connection with the operation
of the Colorado Hotel/Casino Facility.
"Colorado Financing Statements" shall mean the Uniform Commercial
Code Financing Statements to be executed by HCCMC on or before the Closing
Date in favor of Agent Bank on behalf of Lenders, to be registered in the
Colorado Central Index Filing System and filed with: (i) the Secretary of
State of the State of Colorado; (ii) the County Recorder of Gilpin County,
Colorado; and (iii) the Nevada Secretary of State; all in order to perfect
the security interest granted to Agent Bank on behalf of Lenders under the
Colorado Security Documents in accordance with the requirements of the
Colorado and Nevada Uniform Commercial Code, as they may be amended,
modified, extended, renewed or restated from time to time.
"Colorado Gaming Authorities" shall mean, without limitation, the
Division of Gaming of the Colorado Department of Revenue, the Colorado
Limited Gaming Control Commission and any other applicable governmental or
administrative state or local agency involved in the regulation of gaming and
gaming activities conducted by any member of the Borrower Consolidation in
the State of Colorado.
"Colorado Hotel/Casino Facility" shall mean the hotel and casino
business and related activities conducted by HCCMC in and on the Colorado
Real Property and all improvements now or hereafter situate thereon,
presently conducted under the style and name of Harvey's Wagon Wheel
Hotel/Casino.
"Colorado Permitted Encumbrances" shall mean, at any particular
time, (i) liens for taxes, assessments or governmental charges not then due
and payable or not then delinquent, (ii) statutory liens for labor and/or
materials and liens for taxes, assessments or governmental charges not then
required to be paid, released, discharged or expunged pursuant to Sections
5.04 and 5.10 hereof, respectively, provided that, Borrowers shall have
maintained adequate reserves in accordance with GAAP for payment of same,
(iii) liens incurred or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other types
of social security, or to secure the performance of tenders, statutory
obligations, surety and appeal bonds, bids, leases, government contracts,
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trade contracts, performance and return-of-money bonds and other similar
obligations (exclusive of obligations for the payment of borrowed money);
(iv) leases or subleases granted to others (including, without limitation,
any Subsidiary) not interfering in any material respect with the ordinary
conduct of the business of the Colorado Hotel/Casino Facility; (v) liens
created or contemplated by the Colorado Security Documents, (vi) the liens,
encumbrances and restrictions on the Colorado Real Property, Colorado FF&E
and existing improvements which are shown as exceptions on Schedule B of the
Colorado Title Insurance Policy and Colorado Title Endorsements to be issued
by the Title Company as of the Closing Date, (vii) liens consented to in
writing by Agent Bank upon the approval of Requisite Lenders, (viii) liens of
legally valid capital leases and purchase money security interests for
Colorado FF&E and other goods to the extent permitted by Section 6.09(c),
(ix) each and every easement, license, restriction or right-of-way that (A)
is hereafter granted to any Governmental Authority or public utility and (B)
does not interfere in any material respect with the Colorado Hotel/Casino
Facility; and (x) judgment liens, writs, warrants, levies, distraints,
attachments and other similar process which do not constitute an Event of
Default, (xi) Liens securing reimbursement obligations with respect to
letters of credit and banker's acceptances which encumber only documents and
other property relating to such letters of credit and banker's acceptances
and products or proceeds thereof; (xii) Liens arising out of consignment or
similar arrangements for the sale of goods; (xiii) any interest or title of a
lessor subject to any capital lease obligation or operating lease; (xiv)
Liens in existence on the Closing Date and referenced on Schedule of Liens
set forth as Schedule 6.09; (xv) easements, rights of way, restrictions,
minor defects or irregularities in title and other similar liens, charges or
encumbrances which do not interfere in any material respect with the business
of the Borrowers; (xvi) Liens on property of a Person existing at the time
such Person is merged into or consolidated with any Borrower or any
Subsidiary of the Borrowers or becomes a Subsidiary of the Borrowers;
PROVIDED that such Liens (other than replacement Liens) were not created in
contemplation of such merger or consolidation and do not extend to any assets
other than those of the Person merged into or consolidated with any Borrower
or such Subsidiary or acquired by any Borrower or such Subsidiary; (xvii) the
replacement, extension or renewal of any Lien permitted hereunder; (xviii)
Liens arising from filing Uniform Commercial Code financing statements
regarding leases; (xix) Liens in favor of customs and revenue
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authorities arising by operation of law to secure payment of customs duties
in connection with the importation of goods; (xx) licenses, leases or
subleases granted to other Persons in the ordinary course of business; (xxi)
any interest or title of a lessor, sublessor, licensee or licensor under any
personal or real property lease, sublease or license agreement; (xxii) Liens
in favor of a banking or other financial institution encumbering deposits
(including the right of set-off) held by such banking or other financial
institutions incurred in the ordinary course of business; and (xxiii) Liens
for property taxes on real property which is to be abandoned for which the
sole recourse for such tax is to such property (or to a Subsidiary of any
Borrower whose sole asset is such property).
"Colorado Real Property" shall mean that real property which is
particularly described as Parcels 1 through 6 on "Exhibit R" attached hereto
and incorporated by reference herein.
"Colorado Security Documents" shall mean collective reference to
the Colorado Assignment of Permits, Licenses and Contracts, the Colorado
Assignment of Spaceleases, Contracts, Rents and Revenues, the Colorado Deed
of Trust, the Colorado Financing Statements and any other document or
instrument which is executed or delivered by HCCMC and accepted by Agent
Bank, on behalf of Lenders, as security for payment under the Bank Facilities
relating to the Colorado Hotel/Casino Facility.
"Colorado Spaceleases" shall mean the executed leases and
concession agreements pertaining to the Colorado Hotel/Casino Facility, or
any portion thereof, wherein HCCMC is the lessor as set forth on the certain
schedule marked "Schedule 4.15(B)", affixed hereto and by this reference
incorporated herein and made a part hereof.
"Colorado Title Company" shall mean First American Title Company
and its issuing agent, Clear Creek-Gilpin Abstract & Title Corp., 619 Fifth
Street in Georgetown, Colorado, together with such reinsurers with direct
access as are requested by Agent Bank or other title insurance company or
companies as may be reasonably acceptable to Agent Bank.
"Colorado Title Endorsements" shall mean a collective reference to a
Colorado Form 110.5 Endorsement to the Existing Colorado Title Policy and to
such other endorsements to the Existing Colorado Title Policy as are
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requested by Agent Bank, in order to cause the Existing Colorado Title Policy
to insure the lien and priority of the Colorado Deed of Trust, subject only
to such exceptions and conditions of title as are acceptable to Agent Bank,
all of which endorsements shall be issued by the Colorado Title Company and
shall be in a form and substance acceptable to Agent Bank or, in the
alternative, an ALTA Extended Coverage Lender's Policy of Title Insurance
issued by the Colorado Title Company, as a substitute for the Existing
Colorado Title Policy, insuring the lien and priority of the Colorado Deed of
Trust, subject only to such exceptions and conditions of title as are
acceptable to Agent Bank which policy shall be in a form and substance
acceptable to Agent Bank.
"Colorado Title Insurance Policy" shall mean a collective reference
to the Existing Colorado Title Policy and the Colorado Title Endorsements.
"Commitment Fee" shall have the meaning ascribed to such term in
Section 2.10(c) of this Credit Agreement.
"Commitment Percentage" shall mean the per annum percentage to be
used in the calculation of the Commitment Fee on and after the Closing Date
based on the Leverage Ratio of the Borrower Consolidation, determined as set
forth in Table Two of the definition of Applicable Margin.
"Compliance Certificate" shall mean a compliance certificate as
described in Section 5.08(a)(v) substantially in the form of "Exhibit F",
affixed hereto and by this reference incorporated herein and made a part
hereof.
"Contingent Liability(ies)" shall mean, as to any Person, without
duplication among Persons, collectively, any obligation of such Person
guaranteeing or having the economic effect of guaranteeing any Indebtedness,
leases or dividends ("primary obligations") of any other Person (the "primary
obligor") (other than Indebtedness or other obligations of the Borrower
Consolidation, or any of them) in any manner, whether directly or indirectly,
including, without limitation, any obligation of such Person, whether or not
contingent, (a) to purchase any such primary obligation or any property
constituting direct or indirect security therefor, (b) to advance or supply
funds (by means of loans, capital contributions or otherwise) (i) for the
purchase or payment of any such primary obligation or (ii) to maintain
working capital or equity capital of the primary obligor or otherwise to
maintain the net worth or support the solvency or level of
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any balance sheet item of the primary obligor or any "keep well," "make well"
or other arrangement of whatever nature given for the purpose of assuring or
holding harmless an obligee against loss with respect to any obligation of
such primary obligor, (c) to purchase property, securities or services
primarily for the purpose of assuring the owner of any such primary
obligation of the ability of the primary obligor to make payment of such
primary obligation, (d) to make payment in respect of any net liability
arising in connection with any Interest Rate Hedges, foreign currency
exchange agreement, commodity hedging agreement or any similar agreement or
arrangement in any such case if the purpose or intent of such agreement is to
provide assurance that such primary obligation will be paid or discharged, or
that any agreements relating thereto will be complied with, or that the
holders of such primary obligation will be protected (in whole or in part)
against loss in respect thereof or (e) otherwise to assure or hold harmless
the holder of such primary obligation against loss in respect thereof;
provided, however, that the term Contingent Liability shall not include
endorsements of instruments for deposit or collection in the ordinary course
of business or indemnification of directors, officers or employees. The
amount of any Contingent Liability shall be deemed to be an amount equal to
the stated or determinable amount of the primary obligation in respect of
which such Contingent Liability is made (unless the Contingent Liability is
limited by its terms to a lesser amount, in which case to the extent of such
amount) or, if not stated or determinable, the maximum reasonably anticipated
liability in respect thereof as determined by Borrowers in good faith,
PROVIDED that (y) the amount of any Contingent Liability consisting of a
completion guaranty shall be deemed to be zero unless and until Borrowers'
independent auditors have quantified the amount of the exposure thereunder
(and thereafter shall be deemed to be the amount so quantified from time to
time), and (z) the amount of any Contingent Liability consisting of a
"keep-well", "make well" or other similar arrangement shall be deemed to be
zero unless and until any Borrower or any Restricted Subsidiary is required
to make payment with respect thereto (and shall thereafter be deemed during
the relevant period to be the amount required to be paid and after paid in
full, zero).
"Continuation/Conversion Notice" shall mean a notice of
continuation or conversion of or to a LIBOR Loan and certificate duly
executed by an Authorized Officer, substantially in the form of that certain
exhibit marked
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"Exhibit D", affixed hereto and by this reference incorporated herein and
made a part hereof.
"Convert, Conversion and Converted" shall refer to a Borrowing at
or continuation of a particular interest rate basis or conversion of one
interest rate basis to another pursuant to Section 2.05(c).
"Credit Agreement" shall mean this Amended and Restated Credit
Agreement, together with all Schedules and Exhibits attached hereto, executed
by and among Borrowers and Banks setting forth the terms and conditions of
the Credit Facility, Swingline Facility and L/C Facility, together with all
other attachments thereto, as may be amended, modified, extended, renewed or
restated from time to time.
"Credit Facility" shall mean the agreement of Lenders to fund a
revolving line of credit, subject to the terms and conditions set forth in
this Credit Agreement and the Revolving Credit Note, up to the Maximum
Permitted Balance.
"Deeds of Trust" shall mean collective reference to the Tahoe Deed
of Trust, the California Deed of Trust and the Colorado Deed of Trust.
"Default" shall mean the occurrence or non-occurrence, as the case
may be, of any event that with the giving of notice or passage of time, or
both, would become an Event of Default.
"Default Rate" shall have the meaning set forth in Section 2.11(b).
"Defaulting Lender" means any Lender which fails or refuses to
perform its obligations under the Credit Facility within the time period
specified for performance of such obligation or, if no time frame is
specified, if such failure or refusal continues for a period of five (5)
Banking Business Days after notice from Agent Bank.
"Designated Deposit Account" shall mean a deposit account to be
maintained by Borrowers with Agent Bank, as from time to time designated in
writing by an Authorized Officer.
"Dispute" shall have the meaning set forth in Section 10.14(a).
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"Distributions" shall mean and collectively refer to any and all
Cash dividends paid by any member of the Borrower Consolidation, management
fees paid by any member of the Borrower Consolidation, payments, advances or
other distributions, fees or compensation of any kind or character
whatsoever, other than within the Borrower Consolidation, paid by any member
of the Borrower Consolidation, but shall not include: (i) Investments in
Unrestricted Subsidiaries, (ii) consideration paid for tangible and
intangible assets in an arms length exchange for fair value, (iii) trade
payments made and other payments for liabilities incurred in the ordinary
course of business, (iv) compensation to officers, directors and employees of
Borrowers in the ordinary course of business, (v) payment of indemnification
obligations to or incurred on behalf of officers, directors and employees of
the Borrower Consolidation, (vi) payment or reimbursement of, or advances
for, expenses incurred or to be incurred by officers, directors and employees
of the Borrower Consolidation and of Affiliates of the Borrower Consolidation
in excess of One Hundred Fifty Thousand Dollars ($150,000.00) during any
Fiscal Year as permitted under Section 6.12(v), (vii) loans or advances to
officers, directors or employees of the Borrower Consolidation to the extent
permitted under Section 6.08(e), and (viii) payments, up to the aggregate
amount of One Million Dollars ($1,000,000.00) during any Fiscal Year, to
redeem and repurchase capital stock of HCR or options, warrants or other
securities exercisable or convertible into common stock of HCR from
employees, officers or directors of HCR upon the death, disability or
termination of employment or directorship of such employee, officer or
director.
"Documents" shall have the meaning set forth in Section 10.14(a).
"Dollars" and "$" means the lawful money of the United States of
America.
"EBITDA" shall mean with reference to any Person, for any fiscal
period under review, the sum of (i) Net Income for that period, plus (ii) any
extraordinary loss to the extent reflected in such Net Income, minus (iii)
any extraordinary gain to the extent reflected in such Net Income, plus (iv)
Interest Expense for that period, plus (v) the aggregate amount of the
provision for federal and state taxes on or measured by income or profit for
that period (whether or not payable during that period), plus (vi)
depreciation, amortization and all other non-cash expenses for that period,
plus (vii) pre-opening expenses for that period, plus (viii)
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all fees, costs and expenses (including salaries and compensation) related to
the long term incentive plan and the supplemental executive retirement plan
and any director fees paid prior to the beginning of the first Fiscal Quarter
following the Closing Date, plus (ix) to the extent not included in Interest
Expense (and in any case without duplication), all charges and expenses
(including, without limitation, legal and investment banking fees and
expenses) incurred in connection with the Merger, the Bank Facilities, the
issuance of preferred stock by HAC or HCR, the offer to purchase to the
holders of the Senior Subordinated Notes made following the Merger, consent
fees paid to the holders of the Senior Subordinated Notes and the
transactions contemplated thereby and hereby, in each case determined in
accordance with GAAP and, in the case of items (ii), (iv), (v), (vi), (vii),
(viii) and (ix), only to the extent deducted in the determination of Net
Income for that period.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time.
"Eligible Assignee" means (a) another Lender, (b) with respect to
any Lender, any Affiliate of that Lender, (c) any commercial bank having a
combined capital and surplus of Fifty Million Dollars ($50,000,000.00) or
more that is (i) organized under the Laws of the United States of America,
any State thereof or the District of Columbia or (ii) organized under the
Laws of any other country which is a member of the Organization for Economic
Cooperation and Development, or a political subdivision of such a country,
PROVIDED that (A) such bank is acting through a branch or agency located in
the United States of America and (B) such Bank is otherwise exempt from
withholding of tax on interest and delivers Form 1001 or Form 4224 at the
time of any assignment, (d) a financial institution which is an accredited
investor as defined by the Securities Act of 1934 and is otherwise exempt
from withholding tax on interest at the time of any assignment, and (e) with
respect to such commercial bank or financial institution as described in (a)
through (d) above, no finding of unsuitability has been made or determined by
any Gaming Authority or the gaming authorities of any other States of the
United States of America.
"Eligible Subparticipant" shall mean any Person which is a bank,
savings and loan association or other financial or lending institution which
has not been found unsuitable as a lender by any Gaming Authority.
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"Environmental Certificate" shall mean the Certificate and
Indemnification Regarding Hazardous Materials to be executed by Borrowers on
or before the Closing Date, as a further inducement to the Banks to establish
the Bank Facilities, as such Environmental Certificate may be amended,
modified, extended, renewed or restated from time to time.
"Equipment Leases and Contracts" shall mean collective reference to
the Tahoe Equipment Leases and Contract, Colorado Equipment Leases and
Contracts and the Iowa Equipment Leases and Contracts.
"Equity Offering" shall mean the issuance and sale of shares of
common voting stock by HCR to the public after the Merger Effective Time in
exchange for Cash or Cash Equivalents.
"Estoppel Certificates" shall mean collective reference to the
California Greenbelt Lease Estoppel Certificate, Tahoe Greenbelt Lease
Estoppel Certificate, Park Cattle Lease Estoppel Certificate, Friendship
Master Lease Estoppel Certificate and Friendship Sublease Estoppel
Certificate.
"Event of Default" shall mean any event of default as defined in
Section 7.01 hereof.
"Excess Capital Proceeds" shall have the meaning ascribed to such
term in Section 5.01 of this Credit Agreement.
"Existing Colorado Title Policy" shall mean the ALTA Extended
Coverage Lender's Policy of Title Insurance, under Policy No. CW-959410,
which the Colorado Title Company issued to FINV, as the agent bank under the
Existing Harveys Credit Facility, under date of May 23, 1996 and with
coverage in the aggregate amount of Twenty Million Dollars ($20,000,000.00),
together with the endorsements attached thereto.
"Existing Friendship Master Lease Estoppel Certificate" shall mean
the Ground Lease Estoppel Certificate (Friendship Park Master Lease) duly
executed on August 11, 1995, by the Iowa Department of Natural Resources, as
lessor under the Friendship Master Lease, wherein it certified and
represented to FINV (as predecessor to Agent Bank), among other things that:
(a) the Friendship Master Lease represented the entire agreement between the
parties thereto, and superseded all other previous documents and agreements
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between it and the City of Council Bluffs regarding the Friendship Park
Property, (b) the Friendship Master Lease had not been modified, supplemented
or amended, (c) to its actual knowledge there were no defaults then existing
or continuing by the City of Council Bluffs under any of the terms and
provisions of the Friendship Master Lease, (d) it consented to encumbrance of
HIMC's interest in the Friendship Sublease with the lien of the Existing Iowa
Mortgage, and (e) the City of Council Bluffs had the requisite interest in
the Friendship Park Property and the requisite authority under the Friendship
Master Lease to enter into, and to perform its obligations under, the
Friendship Sublease.
"Existing Friendship Sublease Estoppel Certificate" shall mean the
Ground Lease Estoppel Certificate duly executed on August 4, 1995, by the
City of Council Bluffs, as sublessor under the Friendship Sublease, wherein
it certified and represented to FINV (as the predecessor to Agent Bank),
among other things, that: (a) the Friendship Master Lease and the Friendship
Sublease represented the entire agreement between the parties thereto, and
superseded all other previous documents and agreements between said parties
with respect to the Friendship Park Property, (b) neither the Friendship
Master Lease nor the Friendship Sublease had been modified, supplemented or
amended, (c) to its actual knowledge there were no defaults then existing or
continuing under any of the terms and provisions of the Friendship Master
Lease or the Friendship Sublease, and (d) it consented to encumbrance of
HIMC's interest in the Friendship Sublease with the lien of the Existing Iowa
Mortgage.
"Existing Hard Rock Subordination Agreement" shall mean the
Subordination Agreement; Acknowledgement of Lease Assignment, Estoppel,
Attornment and Non-Disturbance Agreement which was executed by and among
HTMC, Hard Rock and Agent Bank under date of March 31, 1998, under the terms
of which the Hard Rock Lease was subordinated to the lien of the Existing
Tahoe Deed of Trust, which Hard Rock Subordination Agreement was recorded on
April 9, 1998, in the Official Records of Douglas County, Nevada, in Book 498
of Official Records, at Page 1475, as Instrument No. 0436882.
"Existing Harveys Bank Loan Security Documents" shall mean
collective reference to all pledges, security agreements, mortgages,
financing statements, ship mortgage and other documents and instruments
securing repayment of the Existing Harveys Credit Facility, including,
without limitation, those documents and instruments set forth on the
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Schedule of Existing Bank Loan Security Documents marked "Schedule 3.11",
affixed hereto and by this reference incorporated herein and made a part
hereof.
"Existing Harveys Bank Note" shall mean that certain Reducing
Revolving Credit Promissory Note dated August 14, 1995, in the original
principal amount of One Hundred Fifty Million Dollars ($150,000,000.00),
executed by Borrowers, payable to the order of Existing Harveys Lenders.
"Existing Harveys Credit Facility" shall mean the Indebtedness
evidenced by the Existing Harveys Credit Agreement and the Existing Harveys
Bank Note.
"Existing Harveys Lenders" shall mean collective reference to the
lenders party to the Existing Harveys Credit Agreement.
"Existing Harveys Credit Agreement" shall mean the Reducing
Revolving Credit Agreement dated as of August 14, 1995, as amended by First
Amendment to Reducing Revolving Credit Agreement dated as of May 15, 1996,
Second Amendment to Reducing Revolving Credit Agreement dated as of May 23,
1996, Third Amendment to Reducing Revolving Credit Agreement dated as of
September 30, 1996, and Fourth Amendment to Reducing Revolving Credit
Agreement dated as of July 25, 1997, executed by and among HCR, the Operating
Subsidiaries and the Existing Harveys Lenders.
"Existing Iowa Mortgage" shall mean that certain Mortgage,
Assignment of Rents and Fixture Filing which was executed by HIMC, as
Mortgagor, for the benefit of FINV (as the predecessor to Agent Bank), as
Mortgagee for the purpose, among other things of securing performance under
the Existing Harveys Bank Note, which was recorded August 16, 1998, in the
Official Records of Pottawattamie County, Iowa in Book 96, at Page 4466.
"Existing Iowa Title Policy" shall mean the ALTA Extended Coverage
Lender's Policy of Title Insurance, under Policy No. 135-00-754457, which the
Iowa Title Company issued to FINV, as the agent bank under the Existing
Harveys Credit Facility, under date of August 16, 1995 and with coverage in
the aggregate amount of Fifty Million Dollars ($50,000,000.00), together with
the endorsements attached thereto.
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"Existing Tahoe Deed of Trust" shall mean that certain Leasehold
and Fee Deed of Trust, Fixture Filing and Security Agreement with Assignment
of Rents (Tahoe) which was executed by HCR, as trustor and debtor, for the
benefit of FINV (as the predecessor to Agent Bank), as beneficiary and
secured party, for the purpose, among other things, of securing performance
under the Existing Harveys Bank Note, which was recorded August 16, 1995, in
the Official Records of Douglas County, Nevada, in Book 895, at Page 2552, as
Document No. 368422.
"Existing Tahoe Title Policy" shall mean the ALTA Extended Coverage
Lender's Policy of Title Insurance, under Policy No. 290016-107-00001, which
the Tahoe Title Company issued to FINV, as the agent bank under the Existing
Harveys Credit Facility, and under date of August 16, 1995 and with coverage
in the aggregate amount of One Hundred Million Dollars ($100,000,000.00),
together with the endorsements attached thereto.
"Existing Westwood Subordination and Non-Disturbance Agreement"
shall mean that certain Subordination, Attornment and Non-Disturbance
Agreement which was executed by the City of Council Bluffs and FINV (as the
predecessor to Agent Bank) under date of August 14, 1995, pursuant to which
the Westwood Lease was subordinated to the lien of the Existing Iowa Mortgage
subject to the agreement by FINV, on behalf of the Existing Harveys Lenders,
not to disturb, and to recognize, the interest of the City of Council Bluffs
as lessee under the Westwood Lease, and which was recorded August 16, 1995,
in the Official Records of Pottawattamie County, Iowa, in Book 96, at Page
4598.
"FF&E" shall mean reference to the Tahoe FF&E, Colorado FF&E and
the Iowa FF&E and any other furniture, fixtures and equipment, including,
without limitation, all gaming devices and associated equipment used in
connection with the Hotel/Casino Facilities and those items of furniture,
fixtures and equipment which have been purchased or leased or are hereafter
purchased or leased by Borrowers, or any of them, in connection with the
Hotel/Casino Facilities.
"FINV" shall mean First Interstate Bank of Nevada, N.A.
"FIRREA" shall mean the Financial Institutions Reform, Recovery and
Enforcement Act of 1989.
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"Federal Funds Rate" means, as of any date of determination, the
rate set forth in the weekly statistical release designated as H.15(519), or
any successor publication, published by the Federal Reserve Board (including
any such successor, "H.15(519)") for such date opposite the caption "Federal
Funds (Effective)". If for any relevant date such rate is not yet published
in H.15(519), the rate for such date will be the rate set forth in the daily
statistical release designated as the Composite 3:30 p.m. Quotations for U.S.
Government Securities, or any successor publication, published by the Federal
Reserve Bank of New York (including any successor, the "Composite 3:30 p.m.
Quotation") for such date under the caption "Federal Funds Effective Rate".
If on any relevant date the appropriate rate for such date is not yet
published in either H.15(519) or the Composite 3:30 p.m. Quotations, the rate
for such date will be the arithmetic mean of the rates for the last
transaction in overnight Federal funds arranged prior to 9:00 a.m. (New York
City time) on that date by each of three leading brokers of Federal funds
transactions in New York City selected by the Agent Bank. For purposes of
the Credit Agreement, any change in the Base Rate due to a change in the
Federal Funds Rate shall be effective as of the opening of business on the
effective date of such change.
"Fee Side Letter" shall mean the Confidential Fee Letter dated
February 3, 1998, executed by and between Agent Bank and Colony Capital, Inc,
a Delaware corporation, concerning payment of fees in connection with the
Credit Facility, as more particularly therein described.
"Financial Covenants" shall mean collective reference to the
financial covenants set forth in Sections 6.01 through 6.10, 6.12, 6.13 and
6.14 of this Credit Agreement.
"Financing Statements" shall mean collective reference to the Tahoe
Financing Statements, Colorado Financing Statements and Iowa Financing
Statements.
"Fiscal Quarter" shall mean the consecutive three (3) month periods
during each Fiscal Year beginning on December 1, March 1, June 1 and
September 1 and ending on February 28 (or February 29, as the case may be),
May 31, August 31 and November 30, respectively.
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"Fiscal Year" shall mean the fiscal year period beginning December
1 of each calendar year and ending on the following November 30.
"Fiscal Year End" shall mean November 30 of each calendar year.
"Fixed Charge Coverage Ratio" as of the end of any Fiscal Quarter
shall mean with reference to the Borrower Consolidation:
The sum of EBITDA during the Fiscal Quarter under review,
plus EBITDA during each of the most recently ended three (3)
preceding Fiscal Quarters,
Divided by (DIVIDED BY)
The sum of: (i) Interest Expense (expensed and capitalized), plus
(ii) the aggregate amount of Scheduled Reductions actually paid, plus
(iii) the aggregate amount of actually paid principal payments or
reductions (without duplication) made on all other Indebtedness, plus
(iv) the current portion of Capitalized Lease Liabilities to the
extent not included in (i) or (iii) above, plus (v) payments of
dividends in Cash or Cash Equivalents on Permitted Preferred Stock to
the extent not included in (i) above; in each case of (i) through (v)
determined for the Fiscal Quarter under review together with the most
recently ended three (3) preceding Fiscal Quarters.
"Friendship Master Lease" shall mean that certain Management
Agreement which is executed by the Iowa Department of Natural Resources under
date of September 2, 1994 and by the City of Council Bluffs, Iowa under date
of August 8, 1994, pursuant to which the City of Council Bluffs is obligated
and entitled to perform the care and maintenance of the Friendship Park
Property and is authorized to sublease a portion of the Friendship Park
Property to HIMC, as such Management Agreement may be amended, restated,
extended, renewed, or otherwise modified from time to time.
"Friendship Master Lease Estoppel Certificate" shall mean the
Existing Friendship Park Master Lease Estoppel
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Certificate as reaffirmed by the Reaffirmation of Friendship Park Master
Lease Estoppel Certificate.
"Friendship Park Property" shall mean the real property located in
the State of Iowa more particularly described as Parcel C on that certain
exhibit marked "Exhibit S" affixed hereto and by this reference incorporated
herein and made a part hereof, which is contiguous to the Iowa Hotel Property
and upon which the Iowa Docking Facility is to be primarily situate.
"Friendship Sublease" shall mean that certain Sublease Agreement
which is executed by the City of Council Bluffs and HIMC under date of March
1, 1995 pursuant to which the City of Council Bluffs did sublease the
Friendship Park Property to HIMC pursuant to the City of Council Bluffs'
interest as lessee under the Friendship Master Lease, as such Sublease
Agreement may be amended, restated, extended, renewed or otherwise modified
from time to time.
"Friendship Sublease Estoppel Certificate" shall mean the Existing
Friendship Park Sublease Estoppel Certificate as reaffirmed by the
Reaffirmation of Friendship Park Sublease Estoppel Certificate.
"Funded Outstandings" shall mean the unpaid principal amount
outstanding on the Credit Facility as of any given date of determination, not
including Swingline Outstandings or the amount of any L/C Exposure.
"Funding Date" shall mean the date on which the Initial
Disbursement is advanced by Lenders and each date upon which Lenders fund
Borrowings requested by Borrowers in accordance with the provisions of
Section 2.03 or at the request of Agent Bank pursuant to Section 2.08 or
Section 2.09.
"GAAP" means generally accepted accounting principles set forth in
the opinions and pronouncements of the Accounting Principles Board and the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board, or in such other
statements by such other entity as may be in general use by significant
segments of the accounting profession, which are applicable to the
circumstances as of the date of determination, in each instance consistently
applied.
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"Gaming Authority(ies)" shall mean any agency, authority, board,
bureau, commission, department, office or instrumentality of any nature
whatsoever of the United States federal or foreign government, any state,
province or any city or other political subdivision or otherwise and whether
now or hereafter in existence or any officer or official thereof, including,
without limitation, Nevada Gaming Authorities, Colorado Gaming Authorities
and Iowa Gaming Authorities, with authority to regulate any gaming operation
(or proposed gaming operation) owned, managed or operated by the Borrower
Consolidation.
"Gaming Devices" shall mean slot machines, gaming tables, chips,
tokens and other equipment which constitute gaming devices, cashless wagering
systems and associated equipment.
"Gaming Laws" means all statutes, rules, regulations, ordinances,
codes and administrative or judicial precedents pursuant to which any Gaming
Authority possesses regulatory, licensing or permit authority over gambling,
gaming or casino activities conducted by any member of the Borrower
Consolidation within its jurisdiction, 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.
"Gaming Permits" shall mean collective reference to every license,
registration, finding of suitability, approvals, permit or other
authorization required to own, operate and otherwise conduct nonrestricted
gaming operations at the Tahoe Hotel/Casino Facility which are required by
the Nevada Gaming Authorities, at the Colorado Hotel/Casino Facility which
are required by the Colorado Gaming Authorities and/or at the Iowa
Riverboat/Hotel Facilities which are required by the Iowa Gaming Authorities,
as the context may require.
"Government Securities" means readily marketable (a) direct full
faith and credit obligations of the United States of America or obligations
guaranteed by the full faith and credit of the United States of America and
(b) obligations of an agency or instrumentality of, or corporation owned,
controlled or sponsored by, the United States of America that are generally
considered in the securities industry to be implicit obligations of the
United States of America.
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"Governmental Authority" or "Governmental Authorities" shall mean
any federal, state, regional, county or municipal governmental agency, board,
commission, officer or official whose consent or approval is required or
whose regulations must be followed as a prerequisite to (i) the continued
operation and occupancy of the Hotel/Casino Facilities or (ii) the
performance of any act or obligation or the observance of any agreement,
provision or condition of whatever nature herein contained.
"Greenbelt Leaseholds" shall mean collective reference to the
interest of HTMC in and to the Tahoe Greenbelt Lease and the California
Greenbelt Lease.
"HAC" shall have the meaning ascribed to such term in Recital
Paragraph B of this Credit Agreement.
"HAC Demand Note" shall have the meaning set forth in Recital
Paragraph C of this Credit Agreement.
"HAC Loan" shall have the meaning set forth in Recital Paragraph C
of this Credit Agreement.
"HAC Loan Agreement" shall have the meaning set forth in Recital
Paragraph C of this Credit Agreement.
"HCCMC" shall mean Harveys C.C. Management Company, Inc., a Nevada
corporation.
"HCR" shall mean Harveys Casino Resorts, a Nevada corporation.
"HCR Financing Statements" shall mean the Uniform Commercial Code
Financing Statements to be executed by HCR and HCRSC on or before the Closing
Date in favor of Agent Bank on behalf of Lenders, to be filed with the
Secretary of State of the State of Nevada, the Secretary of State of the
State of Iowa and the Secretary of State of the State of Colorado (with such
Colorado filing to be registered in the Colorado Central Index Filing System)
in order to effect and perfect the security interest granted to Agent Bank on
behalf of Lenders under the HCR Security Agreement in accordance with the
requirements of Nevada, Iowa and Colorado Uniform Commercial Codes,
respectively, as they may be extended, renewed, amended, restated or
otherwise modified from time to time.
"HCR Security Agreement" shall mean the Security Agreement to be
executed by HCR and HCRS, as debtors and Agent
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Bank, as secured party, on or before the Closing Date in favor of Agent Bank,
on behalf of Lenders, as secured party, encumbering the Collateral therein
described for the purpose of providing security for the Bank Facilities as
such Security Agreement may be amended, modified, extended, renewed or
restated from time to time.
"HCR Stock Pledge" shall mean individual reference and "HCR Stock
Pledges" shall mean collective reference to the Security Agreement and Stock
Pledge and Irrevocable Stock Powers to be executed and delivered by HCR as of
the Closing Date, pursuant to which all of the issued and outstanding stock
of HTMC, HCRSC, HCCMC and HIMC is pledged to Agent Bank on behalf of Lenders
as additional security for the Bank Facilities and all other sums which may
be owing by Borrowers to the Banks from time to time under the terms of the
Credit Agreement.
"HCR Stock Redemption" shall mean the purchase, redemption or other
acquisition by any member of the Borrower Consolidation of shares of the
common voting and/or non-voting stock of HCR from its shareholders.
"HCRSC" shall mean HCR Services Company, Inc., a Nevada corporation.
"HIMC" shall mean Harveys Iowa Management Co., Inc., a Nevada
corporation.
"HLVMC" shall mean Harveys L.V. Management Company, Inc., a Nevada
corporation.
"HTMC" shall mean Harveys Tahoe Management Company, Inc., a Nevada
corporation.
"Hard Rock" shall mean Hard Rock Cafe International (USA), Inc.,
dba Hard Rock Cafe - Lake Tahoe, a Florida corporation.
"Hard Rock Lease" shall mean that certain Lease Agreement under the
terms of which a portion of the Tahoe Hotel/Casino Facility consisting of
approximately seven thousand five hundred eighty-seven (7,587) square feet of
space in the aggregate, together with additional rights and appurtenances as
therein provided, is leased by HTMC to Hard Rock for an initial term of ten
(10) years subject to two (2) separate consecutive additional periods of five
(5) years
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each, as such Lease Agreement may be amended, restated, extended, renewed or
otherwise modified from time to time.
"Hard Rock Subordination Agreement" shall mean the Existing Hard
Rock Subordination Agreement as reaffirmed by the Reaffirmation of Hard Rock
Subordination Agreement.
"Hazardous Materials Claims" shall have the meaning set forth in
Section 5.21.
"Hazardous Materials Laws" shall have the meaning ascribed to such
term in the Environmental Certificate.
"Hotel/Casino Facilities" shall mean collective reference to the
Tahoe Hotel/Casino Facility, the Colorado Hotel/Casino Facility and Iowa
Riverboat/Hotel Facilities, together with any future expansions thereof,
related thereto or used in connection therewith, and all appurtenances
thereto.
"Indebtedness" shall mean, as to any Person, with-out duplication,
(a) all indebtedness (including principal, interest, fees and charges) of
such Person for borrowed money, (b) the deferred purchase price of property
or services (other than accrued expenses, tax liability, deferred taxes, and
trade accounts payable less than one hundred twenty (120) days past due and
other accrued or deferred liabilities incurred in the ordinary course of
business) which in accordance with GAAP would be shown on the liability side
of the balance sheet of such Person, (c) the face amount of all letters of
credit to the extent not secured with Cash or Cash Equivalents, issued for
the account of such Person and, without duplication, all drafts drawn
thereunder, (d) all obligations under conditional sale or other title
retention agreements relating to property purchased by such Person, (e) all
liabilities of other Persons of the type described in clauses (a) through (d)
or (f) of this definition secured by (or for which the holder of any such
liability has an existing right, contingent or otherwise, to be secured by)
any lien or encumbrance on any property owned by such Person, whether or not
such liabilities have been assumed by such Person, (f) all Capitalized Lease
Liabilities of such Person, and (g) all Contingent Liabilities of such Person
in respect of any Indebtedness of any other Person of the type referred to in
clauses (a)-(f) of this definition; provided that the amount of Indebtedness
of the type referred to in (x) clause (e) shall be the lesser of (i) the
outstanding principal amount of Indebtedness secured by such lien or
encumbrance or (ii) the fair market value of
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the property subject to such lien or encumbrance; and (y) clause (g) shall be
valued as provided in the definition of "Contingent Liabilities."
"Indenture" shall mean that certain Indenture dated as of May 15,
1996, executed by and among HCR, as issuer, HCCMC, Harveys Wagon Wheel Casino
Limited Company, HIMC and HLVMC, as guarantors, each other Subsidiary of HCR
that is or becomes a guarantor, and IBJ Schroder Bank & Trust Company, as
trustee, pursuant to which HCR issued the Senior Subordinated Notes.
"Initial Disbursement" shall have the meaning set forth in Section
2.02(a).
"Initial Disbursement Date" shall mean the date Lenders fund the
Initial Disbursement.
"Intangibles" shall mean the aggregate goodwill, trademarks,
patents, organizational expense and other similar intangible items of the
Borrower Consolidation determined on a consolidated basis in accordance with
GAAP.
"Interest Expense" shall mean with respect to any Person, as of the
last day of any fiscal period under review, the sum of (i) all interest,
fees, charges and related expenses actually paid or payable in Cash (without
duplication, but including capitalized interest) for that fiscal period by
such Person to a lender in connection with borrowed money or in connection
with the issuance of preferred stock (including any obligations for fees,
charges and related expenses payable to the issuer of any letter of credit)
or the deferred purchase price of assets that are considered "interest
expense" under GAAP, plus (ii) the portion of the up front costs and expenses
for Interest Rate Hedges (to the extent not included in (i)) fairly allocated
to such Interest Rate Hedges as expenses for such period, plus (iii) the
portions of Capital Lease Liabilities that should be treated as interest in
accordance with GAAP.
"Interest Period(s)" shall have the meaning set forth in Section
2.05(d).
"Interest Rate Hedges" shall mean, with respect to any Person, all
liabilities of such Person under interest rate swap agreements, interest rate
cap agreements, basis swap, forward rate agreement and interest collar or
floor agreements and all other agreements or arrangements designed to protect
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such Person against fluctuations in interest rates or currency exchange rates.
"Interest Rate Option" shall have the meaning ascribed to such term
in Section 2.05(b) of the Credit Agreement.
"Investment" shall mean, when used in connection with any Person,
any investment by or of that Person, whether by means of purchase or other
acquisition of stock or other securities of any other Person or by means of a
loan, advance creating a debt, capital contribution, guaranty or other debt
or equity participation or interest in any other Person, INCLUDING any
partnership and joint venture interests of such Person. The amount of any
Investment shall be the amount actually invested without adjustment for
subsequent increases or decreases in the value of such Investment (but with
deduction for amounts received as Investment Returns). In no event shall the
term "Investment" be deemed or construed to include the Merger Consideration
or accounts receivable created in the ordinary course of business.
"Investment Return(s)" shall mean the aggregate amount received by
the Borrower Consolidation in Cash or Cash Equivalents from Unrestricted
Subsidiaries in return of Investments in such Unrestricted Subsidiaries,
whether as interest, principal, dividends, distributions or otherwise or from
the sale of an Unrestricted Subsidiary or New Venture or any interest therein.
"Iowa Assignment of Permits, Licenses and Contracts" shall mean the
Amended and Restated Assignment of Permits, Licenses and Contracts (Iowa) to
be executed by HIMC and Agent Bank on or before the Closing Date, pursuant to
which HIMC assigns to Agent Bank on behalf of the Lenders all of its right,
title and interest in and to all assignable permits, licenses and contracts
relating to the Iowa Riverboat/Hotel Facilities, as it may be amended,
modified, extended, renewed or restated from time to time which assignment
shall constitute a full amendment and restatement of the Assignment of
Permits, Licenses and Contracts (Iowa) recorded August 16, 1995, in the
Official Records of Pottawattamie County, Iowa, in Book 96, at Page 4634,
together with all prior amendments thereto, as such Amended and Restated
Assignment of Permits, Licenses and Contracts (Iowa) may be amended, restated
or otherwise modified from time to time.
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"Iowa Assignment of Spaceleases, Contracts, Rents and Revenues"
shall mean the Amended and Restated Assignment of Spaceleases, Contracts,
Rents and Revenues (Iowa) to be executed by HIMC and Agent Bank on or before
the Closing Date, pursuant to which HIMC assigns to Agent Bank on behalf of
the Lenders: (a) all of its right, title and interest under all Iowa
Equipment Leases and Contracts and Iowa Spaceleases relating to the Iowa
Riverboat/Hotel Facilities, and (b) all rents, issues, profits, revenues and
income from the Iowa Real Property and the Iowa Riverboat/Hotel Facilities
and any other business activity conducted on the Iowa Real Property, together
with any future expansions thereof, related thereto or used in connection
therewith; as it may be amended, modified, extended, renewed or restated from
time to time, which assignment shall constitute a full amendment and
restatement of the Assignment of Spaceleases, Contracts, Rents and Revenues
(Iowa) recorded August 16, 1995, in the Official Records of Pottawattamie
County, Iowa, in Book 96, at Page 4615; together with all prior amendments
thereto, as such Amended and Restated Assignment of Spaceleases, Contracts,
Rents and Revenues (Iowa) may be amended, restated or otherwise modified from
time to time.
"Iowa Assignments" shall mean collective reference to the Iowa
Assignment of Permits, Licenses and Contracts, Iowa Assignment of
Spaceleases, Contracts, Rents and Revenues and Assignment of Friendship
Sublease.
"Iowa Closing Instructions" shall mean the Closing Instructions to
be given by Agent Bank to Iowa Title Company on or before the Closing Date
setting forth the requirements of Lenders for the issuance of the Iowa Title
Endorsements and other conditions for the funding of the Initial Disbursement
to the reasonable satisfaction of Agent Bank, Lenders and the Borrowers.
"Iowa Collateral" shall mean collective reference to: (i) all of
the Iowa Real Property and the personal property, furniture, fixtures and
equipment, contract rights, leases, intangibles and other interests of HIMC,
which are subject to the liens and security interests of the Iowa Security
Documents; (ii) all rights of HIMC assigned as additional security pursuant
to the terms of the Iowa Security Documents; and (iii) any and all other
property and/or intangible rights, interest or benefits inuring to or in
favor of HIMC, which are in any manner assigned, pledged, encumbered or
otherwise hypothecated in favor of Agent Bank on behalf of Lenders to secure
payment of the Bank Facilities.
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"Iowa Docking Facility" shall mean the mooring basin and docking
facility constructed primarily upon the Friendship Park Property which
provides a docking facility for the Riverboat, which facility is connected to
the Iowa Hotel Facility.
"Iowa Equipment Leases and Contracts" shall mean the executed
leases and purchase contracts pertaining to the Iowa FF&E wherein HIMC is the
lessee or vendee, as the case may be, as set forth on that certain schedule
marked "Schedule 4.16(C)", affixed hereto and by this reference incorporated
herein and made a part hereof.
"Iowa FF&E" shall mean the furniture, fixtures and equipment and
all gaming equipment and devices which have been installed or are to be
installed and used or owned by HIMC in connection with the operation of the
Iowa Riverboat/Hotel Facilities.
"Iowa Financing Statements" shall mean the Uniform Commercial Code
Financing Statements to be filed: (i) in the office of the Secretary of State
of the State of Iowa; (ii) in the office of the County Recorder of
Pottawattamie County, Iowa; and (iii) in the office of the Nevada Secretary
of State; all in order to perfect the security interest granted to Agent Bank
on behalf of the Lenders under the Iowa Mortgage and other Security
Documentation in accordance with the requirements of the Iowa and Nevada
Uniform Commercial Code, as they may be amended, modified, extended, renewed
or restated from time to time.
"Iowa Gaming Authorities" shall mean, without limitation, the Iowa
Racing and Gaming Commission and any other applicable governmental or
administrative state or local agency involved in the regulation of gaming and
gaming activities conducted by HIMC in the State of Iowa.
"Iowa Hotel Facility" shall mean the hotel complex, including two
hundred fifty-one (251) rooms, a twenty-one thousand (21,000) square foot
convention center, restaurants, retail shops, a link to the Iowa Docking
Facility and other amenities, constructed on the Iowa Hotel Property.
"Iowa Hotel Property" shall mean that real property more
particularly described as Parcel A on that certain exhibit marked "Exhibit S"
affixed hereto and by this reference incorporated herein and made a part
hereof, which is
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contiguous to the Friendship Park Property and upon which the Iowa Hotel
Facility is constructed.
"Iowa Land Base Facilities" shall mean the real property located in
the State of Iowa more particularly described as Parcels A and D through F on
"Exhibit S", affixed hereto and by this reference incorporated herein and
made a part hereof, upon which the land based portions of the Iowa
Riverboat/Hotel Facilities is constructed, together with any other land, real
estate, rights, interests and appurtenances thereto which are or become
Collateral securing repayment of the Credit Facility which are located
thereon or used in connection therewith.
"Iowa Mortgage" shall mean the Amended and Restated Mortgage with
Assignment of Rents, Fixture Filing and Security Agreement and Notice of
Additional Commitment to be executed on or before the Closing Date by HIMC,
as mortgager, and by Agent Bank, as mortgagee, in favor of Agent Bank, on
behalf of Lenders, encumbering the Iowa Docking Facilities, Iowa Land Base
Facilities, the Westwood Golf Course Property, the Iowa FF&E and other Iowa
Collateral more particularly therein described for the purpose of securing
the Bank Facilities and all other sums which may be owing by Borrowers to the
Banks from time to time under the terms of the Credit Agreement, as it may be
amended, modified, extended, renewed or restated from time to time, which
shall constitute a full amendment and restatement of the Mortgage, Assignment
of Rents and Fixture Filing recorded August 16, 1995, in the Official Records
of Pottawattamie County, Iowa, in Book 96, at Page 4466, as Instrument No.
1848, together with all prior amendments thereto.
"Iowa Permitted Encumbrances" shall mean, at any particular time,
(i) liens for taxes, assessments or governmental charges not then due and
payable or not then delinquent, (ii) statutory liens for labor and/or
materials and liens for taxes, assessments or governmental charges not then
required to be paid pursuant to Sections 5.04 and 5.10 hereof, respectively,
provided that, Borrowers shall have maintained adequate reserves in
accordance with GAAP for payment of same, (iii) liens incurred or deposits
made in the ordinary course of business in connection with workers'
compensation, unemployment insurance and other types of social security, or
to secure the performance of tenders, statutory obligations, surety and
appeal bonds, bids, leases, government contracts, trade contracts,
performance and return-of-money bonds and other similar obligations
(exclusive of obligations
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for the payment of borrowed money); (iv) leases or subleases granted to
others (including, without limitation, any Subsidiary) not interfering in any
material respect with the ordinary conduct of the business of the
Riverboat/Hotel Facilities; (v) liens created or contemplated by the Iowa
Security Documents, (vi) the liens, encumbrances and restrictions on the Iowa
Real Property, Iowa FF&E and existing improvements which are shown as
exceptions on Schedule B of the Iowa Title Insurance Policy and Iowa Title
Endorsements to be issued by the Title Company as of the Closing Date, (vii)
liens consented to in writing by Agent Bank upon the approval of Requisite
Lenders, (viii) liens of legally valid capital leases and purchase money
security interests for Iowa FF&E and other goods to the extent permitted by
Section 6.09(c), (ix) each and every easement, license, restriction or
right-of-way that (A) is hereafter granted to any Governmental Authority or
public utility and (B) does not interfere in any material respect with the
Iowa Riverboat/Hotel Facilities; (x) judgment liens, writs, warrants, levies,
distraints, attachments and other similar process which do not constitute an
Event of Default, (xi) Liens securing reimbursement obligations with respect
to letters of credit and banker's acceptances which encumber only documents
and other property relating to such letters of credit and banker's
acceptances and products or proceeds thereof; (xii) Liens arising out of
consignment or similar arrangements for the sale of goods; (xiii) any
interest or title of a lessor subject to any capital lease obligation or
operating lease; (xiv) Liens in existence on the Closing Date and referenced
on Schedule of Liens set forth as Schedule 6.09; (xv) easements, rights of
way, restrictions, minor defects or irregularities in title and other similar
liens, charges or encumbrances which do not interfere in any material respect
with the business of the Borrowers; (xvi) Liens on property of a Person
existing at the time such Person is merged into or consolidated with any
Borrower or any Subsidiary of the Borrowers or becomes a Subsidiary of the
Borrowers; provided that such Liens (other than replacement Liens) were not
created in contemplation of such merger or consolidation and do not extend to
any assets other than those of the Person merged into or consolidated with
any Borrower or such Subsidiary or acquired by any Borrower or such
Subsidiary; (xvii) the replacement, extension, or renewal of any Lien
permitted hereunder; (xviii) Liens arising from filing Uniform Commercial
Code financing statements regarding leases; (xix) Liens in favor of customs
and revenue authorities arising by operation of law to secure payment of
customs duties in connection with the importation of goods; (xx) licenses,
leases or subleases granted to other
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Persons in the ordinary course of business; (xxi) any interest or title of a
lessor, sublessor, licensee or licensor under any personal or real property
lease, sublease or license agreement; (xxii) Liens in favor of a banking or
other financial institution encumbering deposits (including the right of
set-off) held by such banking or other financial institutions incurred in the
ordinary course of business; and (xxiii) Liens for property taxes on real
property which is to be abandoned for which the sole recourse for such tax is
to such property (or to a Subsidiary of any Borrower whose sole asset is such
property).
"Iowa Real Property" shall mean collective reference to the
Friendship Park Property, the Iowa Land Base Facilities and the Westwood Golf
Course Property.
"Iowa Riverboat/Hotel Facilities" shall mean the hotel and
riverboat casino business and related activities conducted by HIMC in and on
the Riverboat and the Iowa Real Property and all improvements now or
hereafter situate thereon, presently conducted under the style and name of
Harveys Casino/Hotel.
"Iowa Security Documents" shall mean collective reference to the
Iowa Mortgage, Iowa Ship Mortgage, Iowa Financing Statements, Iowa
Assignments and any other document or instrument which is executed or
delivered by HIMC, and accepted by Agent Bank, on behalf of Lenders, as
security for payment of the Bank Facilities.
"Iowa Ship Mortgage" shall mean the First Preferred Ship Mortgage
to be executed by HIMC on or before the Closing Date wherein HIMC, as owner
and mortgagor, grants a mortgage lien in favor of Agent Bank on behalf of
Lenders in and to the Riverboat, as such Iowa Ship Mortgage may be amended,
supplemented or otherwise modified from time to time.
"Iowa Spaceleases" shall mean the executed leases and concession
agreements pertaining to the Iowa Riverboat/Hotel Facilities, or any portion
thereof, wherein HIMC is the lessor as set forth on the certain schedule
marked "Schedule 4.15(C)", affixed hereto and by this reference incorporated
herein and made a part hereof.
"Iowa Title Company" shall mean Lawyers Title Insurance Corporation
and its issuing agent Dakota Title and Escrow Co. with offices at 1801 St.
Mary's Avenue, in Omaha, Nebraska, together with such reinsurers with direct
access as
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are requested by Agent Bank or other title insurance company or companies as
may be reasonably acceptable to Agent Bank.
"Iowa Title Endorsements" shall mean a collective reference to: (i)
an endorsement to the Existing Iowa Title Policy providing assurances that
the Existing Iowa Mortgage has been modified by the Iowa Mortgage and
providing assurances as to the lien priority of the Existing Iowa Mortgage,
as so modified; and (ii) such other endorsements to the Existing Iowa Title
Policy as are requested by Agent Bank, in order to cause the Existing Iowa
Title Policy to insure the lien and priority of the Iowa Mortgage, subject
only to such exceptions and conditions of title as are acceptable to Agent
Bank, all of which endorsements shall be issued by the Iowa Title Company and
shall be in a form and substance acceptable to Agent Bank.
"Iowa Title Insurance Policy" shall mean a collective reference to
the Existing Iowa Title Policy and the Iowa Title Endorsements.
"L/C Agreement(s)" shall mean reference to the Application and
Agreement for Standby Letter of Credit and addendum(s) thereto executed by an
Authorized Officer of Borrowers in favor of L/C Issuer in L/C Issuer's
standard form, setting forth the terms and conditions upon which L/C Issuer
shall issue a Letter(s) of Credit, as the same may be amended or modified
from time to time.
"L/C Exposure" shall mean the aggregate amount which L/C Issuer may
be required to fund or is contingently liable for disbursement under all
issued and outstanding Letter(s) of Credit, which amount shall be determined
by subtracting from the aggregate of the Stated Amount of each such Letter(s)
of Credit (to the extent such Letter of Credit is not secured by Cash
deposited into the Cash Collateral Account and subject to the Cash Collateral
Pledge Agreement), the principal amount of all L/C Reimbursement Obligations
which have accrued and have been fully satisfied as of each date of
determination.
"L/C Facility" shall mean the agreement of L/C Issuer to issue
Letters of Credit subsequent to the Closing Date, subject to the terms and
conditions and up to the maximum amounts and duration as set forth in Section
2.09 of this Credit Agreement.
"L/C Fee" shall have the meaning set forth in Section 2.10(d) of
this Credit Agreement.
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"L/C Issuer" shall have the meaning set forth in the Preamble of
this Credit Agreement.
"L/C Reimbursement Obligation(s)" shall mean the obligation of
Borrowers to reimburse L/C Issuer for amounts funded or disbursed under a
Letter(s) of Credit, together with accrued interest thereon.
"LIBO Rate" means, relative to any Interest Period for any LIBOR
Loan, the per annum rate (reserve adjusted as hereinbelow provided) as
published on the applicable Banking Business Day in "Telerate System Reports"
by the British Bankers Association for interest settlement rates relating to
London Interbank Offerings as of 11:00 a.m., London, England time, two (2)
Banking Business Days prior to the beginning of the applicable Interest
Period for delivery on the first day of such Interest Period, for the number
of months comprised therein and in a minimum amount and multiples as set
forth in this Credit Agreement. The foregoing rate of interest shall be
reserve adjusted by dividing the applicable LIBO Rate by a one (1.00) minus
the LIBOR Reserve Percentage, with such quotient to be rounded upward, if
necessary, to the nearest whole multiple of one-hundredth of one percent
(0.01%). All references in this Credit Agreement or other Loan Documents to
a LIBO Rate include the aforesaid reserve adjustment.
"LIBOR Loan" shall mean each portion of the total unpaid principal
under the Credit Facility which bears interest at a rate determined by
reference to the LIBO Rate plus the Applicable Margin.
"LIBOR Reserve Percentage" means, relative to any Interest Period
for LIBOR Loans made by any Lender, the reserve percentage (expressed as a
decimal) equal to the actual aggregate reserve requirements (including all
basic, emergency, supplemental, marginal and other reserves and taking into
account any transactional adjustments or other scheduled changes in reserve
requirements) announced within Agent Bank as the reserve percentage
applicable to Agent Bank as specified under regulations issued from time to
time by the Federal Reserve Board. The LIBOR Reserve Percentage shall be
based on Regulation D of the Federal Reserve Board or other regulations from
time to time in effect concerning reserves for "Eurocurrency Liabilities"
from related institutions as though Agent Bank were in a net borrowing
position.
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"Land Leases" shall mean collective reference to the Park Cattle
Lease, Tahoe Green Belt Lease, California Green Belt Lease, Westwood Lease,
Friendship Master Lease and Friendship Sublease.
"Laws" means, collectively, all international, foreign, federal,
state and local statutes, maritime laws, treaties, rules, regulations,
ordinances, codes and administrative or judicial precedents.
"Lender Reply Period" shall have the meaning set forth in Section
9.10(d).
"Lenders" means WFB and any other bank, finance company, insurance
or other financial institution which is or becomes a party to this Credit
Agreement by execution of a counterpart signature page hereto or an
Assignment and Assumption Agreement, as assignee. At all times that there
are no Lenders other than WFB, the terms "Lender" and "Lenders" means WFB in
its individual capacity. With respect to matters requiring the consent to or
approval of all Lenders at any given time, all then existing Defaulting
Lenders will be disregarded and excluded, and, for voting purposes only, "all
Lenders" shall be deemed to mean "all Lenders other than Defaulting Lenders".
"Letter(s) of Credit" shall mean collective reference to the
Standby Letter(s) of Credit issued by L/C Issuer on behalf of Borrowers, or
any of them, as the same may be extended, renewed or reissued from time to
time.
"Leverage Ratio" as of the end of any Fiscal Quarter shall mean the
ratio resulting by dividing (a) Total Funded Debt for the Fiscal Quarter
under review by (b) the sum of EBITDA for the Fiscal Quarter under review
plus EBITDA for each of the most recently ended three (3) preceding Fiscal
Quarters.
"Liabilities and Costs" means all claims, judgments, liabilities,
obligations, responsibilities, losses, damages (including lost profits),
punitive or treble damages, costs, disbursements and expenses (including,
without limitation, reasonable attorneys', experts' and consulting fees and
costs of investigation and feasibility studies), fines, penalties and
monetary sanctions, interest, direct or indirect, known or unknown, absolute
or contingent, past, present or future.
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"Lien" means any lien, mortgage, pledge, assignment, security
interest, charge or encumbrance of any kind (including any conditional sale
or other title retention agreement, any lease in the nature thereof, and any
agreement to give any security interest) and any option, trust or other
preferential arrangement having the practical effect of any of the foregoing.
"Loan Documents" shall mean the collective reference to this Credit
Agreement, the Revolving Credit Note, the Swingline Note, the Security
Documentation, Environmental Certificate, the documents described in Section
3.04 and all other instruments and agreements required to be executed by or
on behalf of Borrowers, or any of them, or any other Person in connection
with the Bank Facilities for the benefit of Banks or Agent Bank on behalf of
the Lenders, the Swingline Lender and the L/C Issuer.
"Majority Lenders" means, as of any date of determination prior to
the occurrence of an Event of Default, Lenders holding Syndication Interests
in excess of fifty percent (50%) of the Credit Facility; and at all times
during which an Event of Default has occurred and remains continuing, Lenders
holding a percentage equal to or in excess of sixty-six and two-thirds
percent (66-2/3%) of the Funded Outstandings; PROVIDED THAT, (i) in
determining such percentage at any given time, all then existing Defaulting
Lenders will be disregarded and excluded and the Pro Rata Shares of Lenders
shall be redetermined, for voting purposes only, to exclude the Pro Rata
Shares of such Defaulting Lenders, and (ii) notwithstanding the foregoing, at
all times when three (3) or more Lenders are party to this Credit Agreement,
the term Majority Lenders shall in no event mean less than three (3) Lenders.
"Margin Stock" shall have the meaning provided in Regulation U of
the Board of Governors of the Federal Reserve System.
"Material Adverse Change" shall mean: (i) any set of circumstances or
events which, other than with respect to the Representations and Warranties set
forth in Article IV of the Credit Agreement which shall be construed to be
applicable to circumstances and events existing both as of the Closing Date (or
such earlier date as may be referenced in each particular provision) and
subsequent to the Closing Date, are not in existence as of the Closing Date,
which are material and adverse to the Collateral or the condition (financial or
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otherwise), business operations or prospects of (a) the Borrower
Consolidation taken as a whole, or (b) the ability of Borrowers to perform
their respective Obligations under the Loan Documents, or (c) the ability of
any of the Lenders to enforce any of their material rights or remedies under
any of the Loan Documents, or (ii) any events or changes, which, other than
with respect to the Representations and Warranties set forth in Article IV of
the Credit Agreement which shall be construed to be applicable to events and
changes existing both as of the Closing Date (or such earlier date as may be
referenced in each particular provision) and subsequent to the Closing Date,
are not in existence as of the Closing Date or which have or result in a
material adverse effect upon (a) the value of the Hotel/Casino Facilities or
the priority of the security interests granted to Agent Bank (other than as a
result of any action or inaction by Agent Bank or any Lender), (b) the
validity of any of the Loan Documents, or (c) the use, occupancy or operation
of the Hotel/Casino Facilities.
"Maturity Date" shall mean the fifth (5th) annual anniversary of
the Initial Disbursement Date.
"Maximum Availability" shall mean the Maximum Permitted Balance
less the Aggregate Outstandings.
"Maximum Permitted Balance" shall mean the maximum amount of
principal which may be outstanding on the Bank Facilities from time to time,
which shall be the lesser of: (a) the Maximum Scheduled Balance, or (b) the
amount to which the Maximum Scheduled Balance is permanently voluntarily
reduced by Borrower pursuant to Section 2.01(c) or is otherwise reduced or
limited pursuant to Sections 5.01, 6.10(c) or 8.02 or by Scheduled Reductions.
"Maximum Scheduled Balance" shall mean the amount of the Aggregate
Commitment, as reduced on each Reduction Date by the Scheduled Reductions.
"Merger" shall mean the occurrence and effectiveness of the merger
of HAC with and into HCR, with HCR remaining as the surviving entity, and the
cessation of HAC as a separate entity, on the terms and conditions set forth
in the Merger Agreement.
"Merger Agreement" shall have the meaning ascribed to such term in
Recital Paragraph B of this Credit Agreement.
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"Merger Consideration" shall have the meaning ascribed to such term
in the Merger Agreement.
"Merger Effective Date" shall mean the date upon which the Merger
has occurred.
"Merger Effective Time" shall mean the time on the Merger Effective
Date at which the Merger becomes effective as provided in the Merger
Agreement.
"Minimum Cap Ex Requirement" shall have the meaning ascribed to
such term in Section 6.06 of the Credit Agreement, which, for purposes of the
definition of "Adjusted Fixed Charge Coverage Ratio" shall be deemed to be
equal to two percent (2%) of gross revenues derived from the Hotel/Casino
Facilities by the Borrower Consolidation during each applicable Fiscal
Quarter or other applicable fiscal period.
"Mortgages" shall mean collective reference to the Deeds of Trust,
Iowa Mortgage and Iowa Ship Mortgage.
"Net Income" shall mean with respect to any Person for any fiscal
period, the net income of such Person during such fiscal period determined in
accordance with GAAP, consistently applied.
"Net Proceeds" shall mean the aggregate cash proceeds received by
the Borrower Consolidation in respect of any sale, transfer, conveyance or
disposition of FF&E, net of the direct costs relating to such sale, transfer,
conveyance or disposition of FF&E, amounts required to be applied to the
repayment of Indebtedness secured by a Lien on the asset or assets that were
the subject of such sale, transfer, conveyance or disposition of FF&E, any
reserve for adjustment in respect of the sale price of such FF&E or
liabilities associated with such sale, transfer, conveyance or disposition of
FF&E and retained by the Borrower Consolidation and all Indebtedness assumed
by the purchaser in connection with such sale, transfer, conveyance or
disposition of FF&E and all taxes paid or payable as a result of such sale,
transfer, conveyance or disposition.
"Net Worth" shall mean Assets, less Total Liabilities.
"Nevada Gaming Authority" shall mean, without limitation, the
Nevada Gaming Commission and the State Gaming Control Board and any other
applicable governmental or
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administrative state or local agency involved in the regulation of gaming and
gaming activities conducted by the Borrower Consolidation in the State of
Nevada.
"New Venture" means a casino, hotel, casino/hotel, resort,
casino/resort, riverboat casino, dock casino, golf course, horse racing
business, entertainment center, shopping center or similar facility or any
business mandated by a Gaming Authority in order to obtain or retain a Gaming
Permit (or any site or proposed site for any of the foregoing or entity that
provides management or other services or goods to any of the foregoing) owned
or to be owned in whole or in part by any New Venture Subsidiary or owned or
to be owned by a Person in which any member of the Borrower Consolidation or
a New Venture Subsidiary is an owner or equity investor.
"New Venture Investment" shall mean any Investment or Distributions
made by any member of the Borrower Consolidation in or to any New Venture or
New Venture Subsidiary after the Closing Date.
"New Venture Investments" shall mean collective reference to each
and every New Venture Investment.
"New Venture Subsidiary" shall mean a Subsidiary of HCR or any of
its Subsidiaries (other than HTMC, HCRSC, HCCMC or HIMC) that is the direct
or indirect owner in whole or part of a New Venture.
"Non Pro Rata Borrowing" means a Borrowing with respect to which
fewer than all Lenders have funded their respective Pro Rata Shares of such
Borrowing and the failure of the non-funding Lender or Lenders to fund its or
their respective Pro Rata Shares of such Borrowing constitutes a breach of
this Credit Agreement.
"Notes" shall mean collective reference to the Revolving Credit
Note and the Swingline Note.
"Notice of Borrowing" shall have the meaning set forth in Section
2.03.
"Notice of Swingline Advance" shall have the meaning set forth in
Section 2.08(b).
"Obligations" means, from time to time, all Indebtedness of
Borrowers owing to Agent Bank, any Lender or any Person entitled to
indemnification pursuant to
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Section 5.14, or any of their respective successors, transferees or assigns,
of every type and description, whether or not evidenced by any note, guaranty
or other instrument, arising under or in connection with this Credit
Agreement or any other Loan Document, whether or not for the payment of
money, whether direct or indirect (including those acquired by assignment),
absolute or contingent, due or to become due, now existing or hereafter
arising and however acquired. The term includes, without limitation, all
interest, charges, expenses, fees, reasonable attorneys' fees and
disbursements, reasonable fees and disbursements of expert witnesses and
other consultants, and any other sum now or hereinafter chargeable to
Borrowers under or in connection with Credit Agreement or any other Loan
Document. Notwithstanding the foregoing definition of "Obligations",
Borrowers' obligations under any environmental indemnity agreement
constituting a Loan Document, or any environmental representation, warranty,
covenant, indemnity or similar provision in this Credit Agreement or any
other Loan Document, shall be secured by the Collateral only to the extent,
if any, specifically provided in the Security Documentation.
"Operating Subsidiaries" shall mean collective reference to HTMC,
HCRSC, HCCMC and HIMC.
"Park Cattle Co." shall mean Park Cattle Co., a Nevada corporation.
"Park Cattle Lease" shall mean that certain Lease dated July 9,
1973, as amended on April 27, 1979, February 28, 1985 and June 1, 1997,
wherein Park Cattle Co. is lessor and HCR (formerly Harvey's Wagon Wheel,
Inc.) is lessee of the Park Cattle Property, the lessee's interest therein
having been assigned by HCR to HTMC by Assignment of Leases dated June 1,
1997, as such Lease may be further amended, restated, extended, renewed or
otherwise modified from time to time.
"Park Cattle Lease Estoppel Certificate" shall mean an estoppel
certificate duly executed by Park Cattle Co. as lessor and HTMC as lessee
under the Park Cattle Lease, pursuant to which Park Cattle Co. certifies and
represents to Agent Bank on behalf of Lenders that: (a) the Park Cattle
Lease, as defined herein, represents the entire agreement between the parties
thereto with respect to the Park Cattle Property and supersedes all other
previous documents and agreements between them, (b) that the Park Cattle
Lease has not been modified, supplemented or amended except as described
herein, (c) to the best knowledge of Park Cattle Co., there
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are no defaults presently existing or continuing under any of the provisions
of the Park Cattle Lease, and (d) other provisions regarding notice to Agent
Bank on behalf of Lenders in the event of default thereunder, Agent Bank's
right to cure and the rights of Banks and their successors to continue in
possession of the Park Cattle Lease premises.
"Park Cattle Property" shall mean that real property which is
particularly described as Parcel 3 on Exhibit Q attached hereto.
"Paying Agent" shall mean the bank or trust company designated by
HAC and HCR to act as paying agent in the Merger for the purpose of holding
the Merger Consideration on and after the Merger Effective Time and paying
the Merger Consideration to the holders of the Pre-Merger Common Stock as
provided in Section 3.02 of the Merger Agreement.
"Pension Plan" means any "employee pension benefit plan" that is
subject to Title IV of ERISA and which is maintained for employees of
Borrowers, or any of them, or any of their respective ERISA Affiliates.
"Permitted Encumbrances" shall mean collective reference to the
Tahoe Permitted Encumbrances, the Colorado Permitted Encumbrances, the Iowa
Permitted Encumbrances and the Restricted Subsidiary Permitted Encumbrances.
"Permitted Preferred Stock" shall mean preferred stock issued by
HAC or HCR which (a) has no provision or requirement for the payment of
dividends in Cash or Cash Equivalents prior to the Maturity Date, or (b) if
providing for or requiring the payment of dividends in Cash or Cash
Equivalents prior to the Maturity Date, such preferred stock (i) is not
issued for or in the face amount in excess of Sixty-Five Million Dollars
($65,000,000.00) in the aggregate (it being understood that the face amount
of each preferred stock may exceed Sixty-Five Million Dollars
($65,000,000.00) in the aggregate as a result, and only as a result, of the
payment of dividends in additional preferred stock which meets the
requirements of clauses (b)(ii) and (iii) immediately hereinbelow or
cumulation of additional liquidation amounts in lieu of dividends), (ii)
contains a dividend deferral option (allowing dividends to be paid in a
manner other than Cash or Cash Equivalents or otherwise deferred) exercisable
at the discretion of HCR for a period or multiple periods aggregating no less
than five (5) years or otherwise does not require the payment of dividends in
Cash or Cash Equivalents for a period
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or multiple periods aggregating no less than five (5) years, and (iii) does
not require any redemptions (other than in connection with asset sales and
changes of control the provision for which shall be no more restrictive on
HCR or the Borrower Consolidation than the provisions concerning asset sales
and changes of control contained in the Credit Agreement) prior to the
Maturity Date.
"Person" means an individual, firm, corporation, limited liability
company, trust, association, partnership, joint venture, tribunal or other
entity.
"Policies of Insurance" shall mean the insurance to be obtained and
maintained by Borrowers throughout the term of this Credit Agreement as
provided by Schedule 5.09(a) herein.
"Post Foreclosure Plan" shall have the meaning set forth in Section
9.11(e).
"Pre-Merger Commitment Fees" shall have the meaning ascribed to
such term in Section 2.10(a) of this Credit Agreement.
"Pre-Merger Common Stock" shall mean all shares of the common stock
of HCR issued and outstanding prior to the occurrence of the Merger.
"Pricing Certificate" shall have the meaning set forth in Section
5.08(a)(ii).
"Prime Rate" means at any time, and from time to time, the rate of
interest most recently announced within WFB at its principal office in San
Francisco, California, as its "Prime Rate", with the understanding that WFB's
"Prime Rate" is one of its base rates and serves as the basis upon which
effective rates of interest are calculated for those loans and extensions of
credit making reference thereto, and is evidenced by the recording thereof
after its announcement in such internal publication or publications as WFB
may designate. Each change in the Prime Rate shall be effective on the day
the change is announced within WFB.
"Principal Prepayments" shall have the meaning set forth in Section
2.07(a) of this Credit Agreement.
"Pro Rata" or "Pro Rata Share" shall mean with respect to any
Lender, a percentage or proportion equal to such Lender's Syndication
Interest in the Credit Facility as
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set forth on the Schedule of Lenders' Proportions in Credit Facility.
"Protective Advance" means all sums expended as determined by Agent
Bank to be necessary to: (a) protect the priority, validity and
enforceability of the Security Documentation on, and security interests in,
any Collateral and the instruments evidencing or securing the Obligations, or
(b) prevent the value of any Collateral from being materially diminished
(assuming the lack of such a payment within the necessary time frame could
potentially cause such Collateral to lose value), or (c) protect any of the
Collateral from being materially damaged, impaired, mismanaged or taken,
including, without limitation, any amounts expended in accordance with
Section 10.21 or post-foreclosure ownership, maintenance, operation or
marketing of any Collateral.
"Qualified Appraisal" shall mean reference to an appraisal or
appraisals of the Hotel/Casino Facilities and Collateral, or any portion
thereof, acceptable to Agent Bank, prepared at Borrowers' expense in
compliance with FIRREA by an appraiser acceptable to Agent Bank, with
sufficient copies delivered to Agent Bank for distribution to each of the
Lenders.
"RPI" shall mean Reno Projects, Inc., a Nevada corporation, which
is a wholly owned Subsidiary of HCR.
"Reaffirmation of Friendship Master Lease Estoppel Certificate"
shall mean that certain Reaffirmation of Ground Lease Estoppel Certificate
(Friendship Park Master Lease) duly executed by the Iowa Department of
Natural Resources wherein it certifies and represents to Agent Bank, on
behalf of Lenders, among other things, that: (a) as of the date thereof, the
representations set forth by the Existing Friendship Master Lease Estoppel
Certificate are true and correct; (b) the provisions of the Existing
Friendship Master Lease Estoppel Certificate, with regard to the Existing
Iowa Mortgage, are applicable to the Iowa Mortgage; and (c) except as
modified thereby, the Existing Friendship Master Lease Estoppel Certificate
remains in full force and effect.
"Reaffirmation of Friendship Sublease Estoppel Certificate" shall
mean that certain Reaffirmation of Ground Lease Estoppel Certificate
(Friendship Park Sublease) duly executed by the City of Council Bluffs, Iowa,
as sublessor under the Friendship Sublease, wherein it certifies and
represents to Agent Bank, on behalf of Lenders, among other
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things, that: (a) as of the date thereof, the representations set forth by
the Existing Friendship Sublease Estoppel Certificate are true and correct;
(b) the provisions of the Existing Friendship Sublease Estoppel Certificate,
with regard to the Existing Iowa Mortgage, are applicable to the Iowa
Mortgage; and (c) except as modified thereby, the Existing Friendship
Sublease Estoppel Certificate remains in full force and effect.
"Reaffirmation of Hard Rock Subordination Agreement" shall mean
that certain Reaffirmation of Subordination Agreement; Acknowledgement of
Lease Agreements, Estoppel, Attornment and Non-Disturbance Agreement duly
executed by HTMC, as lessor, Hard Rock, as lessee, and Agent Bank, pursuant
to which, among other things: (a) Hard Rock consents to the Tahoe Deed of
Trust; (b) HTMC and Hard Rock agree that the provisions of the Existing Hard
Rock Subordination Agreement, with regard to the Existing Tahoe Deed of
Trust, are applicable to the Tahoe Deed of Trust; and (c) except as modified
thereby, the Existing Hard Rock Subordination Agreement remains in full force
and effect.
"Reaffirmation of Westwood Subordination and Non-Disturbance
Agreement" shall mean that certain Reaffirmation of Subordination, Attornment
and Non-Disturbance Agreement duly executed by HIMC, as lessor, the City of
Council Bluffs, Iowa, as lessee, and Agent Bank, pursuant to which, among
other things: (a) Hard Rock certifies that certain representations set forth
by the Existing Westwood Subordination and Non-Disturbance Agreement are true
and correct as of the date thereof; (b) the City of Council Bluffs consents
to the Iowa Mortgage; and (c) except as modified thereby, the Existing
Westwood Subordination and Non-Disturbance Agreement remains in full force
and effect.
"Real Properties" shall mean collective reference to the Tahoe Real
Property, the California Greenbelt Property, the Colorado Real Property and
the Iowa Real Property.
"Reduction Date(s)" shall mean reference to each date or the dates,
as the context may require upon which the Maximum Scheduled Balance is
reduced by a Scheduled Reduction as set forth on the Aggregate Commitment
Reduction Schedule.
"Related Entities" shall mean collective reference to all
stockholders, Affiliates and Subsidiaries of the Borrowers, or any of them,
other than another Borrower.
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"Replacement Note(s)" shall have the meaning set forth in Section
2.05(i) of this Credit Agreement.
"Reportable Event" shall mean a reportable event as defined in
Title IV of ERISA, except actions of general applicability by the Secretary
of Labor under Section 110 of ERISA.
"Requisite Lenders" means, as of any date of determination prior to
the occurrence of an Event of Default, Lenders holding Syndication Interests
equal to or in excess of sixty-six and two-thirds percent (66-2/3%) of the
Credit Facility; and at all times during which an Event of Default has
occurred and remains continuing, Lenders holding a percentage equal to or in
excess of sixty-six and two-thirds percent (66-2/3%) of the Funded
Outstandings; PROVIDED THAT, (i) in determining such percentage at any given
time, all then existing Defaulting Lenders will be disregarded and excluded
and the Pro Rata Shares of Lenders shall be redetermined, for voting purposes
only, to exclude the Pro Rata Shares of such Defaulting Lenders, and (ii)
notwithstanding the foregoing, at all times when three (3) or more Lenders
are party to this Credit Agreement, the term Requisite Lenders shall in no
event mean less than three (3) Lenders.
"Restricted Subsidiary" shall mean a wholly owned Subsidiary of HCR
which: (a) has not incurred any Indebtedness other than to the extent
permitted under this Credit Agreement, (b) is not subject to any Liens except
to the extent permitted under this Credit Agreement, (c) has executed and
delivered to Agent Bank a Subsidiary Guaranty, (d) all of the stock or other
evidence of ownership thereof has been pledged in favor of Agent Bank by a
Stock Pledge, and (e) has been designated by HCR to be a Restricted
Subsidiary by written notice thereof to Agent Bank, subject to HCR's right to
redesignate any New Venture Subsidiary as an Unrestricted Subsidiary so long
as: (i) no Default or Event of Default has occurred and remains continuing,
and (ii) giving effect to such redesignation as of the end of the most
recently ended Fiscal Quarter on a pro forma basis, no Default or Event of
Default would exist under Article VI of the Credit Agreement.
"Restricted Subsidiary Permitted Encumbrances" shall mean, at any
particular time with respect to a Restricted Subsidiary, (i) liens for taxes,
assessments or governmental charges not then due, payable and delinquent,
(ii) statutory Liens for labor or materials or liens for taxes, assessments
or governmental charges not then required to be paid pursuant
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to Section 5.10, (iii) liens in favor of Agent Bank or any Lender created or
contemplated by the Security Documentation, (iv) liens in favor of Agent Bank
for the benefit of the Lenders or consented to in writing by Agent Bank upon
the approval of Requisite Lenders, (v) purchase money security interests for
acquired FF&E up to the maximum amount permitted under Section 6.09(c), and
only to the extent of the lesser of the purchase money loan or the fair
market value of the acquired FF&E at the time of the acquisition thereof,
(vi) liens of legally valid leases for FF&E, (vii) easements, licenses or
rights-of-way, now existing or hereafter granted to any Governmental
Authority or public utility providing services to the Restricted Subsidiary
or Restricted Subsidiary Venture, (viii) judgment liens which do not
constitute an Event of Default, (ix) statutory liens of landlords and liens
of carriers, warehousemen, mechanics, customs and revenue authorities and
materialmen and other similar liens imposed by law incurred in the ordinary
course of business which could not reasonably be expected to cause a Material
Adverse Change and which are discharged in accordance with Section 5.04, (x)
liens incurred or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other types
of social security, or to secure the performance of tenders, statutory
obligations, surety and appeal bonds, bids, leases, government contracts,
trade contracts, performance and return-of-money bonds and other similar
obligations; (xi) leases or subleases granted to others not interfering in
any material respect with the ordinary conduct of the business of such
Restricted Subsidiary; (xii) minor defects, encroachments or irregularities
in title not interfering in any material respect with the ordinary conduct of
the business of such Restricted Subsidiary; (xiii) Liens securing
reimbursement obligations with respect to letters of credit and banker's
acceptances which encumber only documents and other property relating to such
letters of credit and banker's acceptances and products or proceeds thereof;
(xiv) Liens arising out of consignment or similar arrangements for the sale
of goods; (xv) any interest or title of a lessor subject to any capital lease
obligation or operating lease; (xvi) Liens in existence on the Closing Date
referenced on Schedule of Liens set forth as Schedule 6.09; (xvii) easements,
rights of way, restriction, minor defects or irregularities in title and
other similar liens, charges or encumbrances which do not interfere in any
material respect with the business of the Borrowers; (xviii) Liens on
property of a Person existing at the time such Person is merged into or
consolidated with any Borrower or any Subsidiary of the Borrowers or becomes
a
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Subsidiary of the Borrowers; provided that such Liens (other than replacement
Liens) were not created in contemplation of such merger or consolidation and
do not extend to any assets other than those of the Person merged into or
consolidated with any Borrower or such Subsidiary or acquired by any Borrower
or such Subsidiary; (xix) the replacement, extension, or renewal of any Lien
permitted hereunder; (xx) Liens arising from filing Uniform Commercial Code
financing statements regarding leases; (xxi) Liens in favor of customs and
revenue authorities arising by operation of law to secure payment of customs
duties in connection with the importation of goods; (xxii) licenses, leases
or subleases granted to other Persons in the ordinary course of business;
(xxiii) any interest or title of a lessor, sublessor, licensee or licensor
under any personal or real property lease, sublease or license agreement;
(xxiv) Liens in favor of a banking or other financial institution encumbering
deposits (including the right of set-off) held by such banking or other
financial institutions incurred in the ordinary course of business; and (xxv)
Liens for property taxes on real property which is to be abandoned for which
the sole recourse for such tax is to such property (or to a Subsidiary of the
Borrower whose sole asset is such property).
"Restricted Subsidiary Stock Pledges" shall mean collective
reference to the Stock Pledge (Gaming) and the Stock Pledge (General).
"Restricted Subsidiary Venture" shall mean a New Venture owned in
whole or in part by a Borrower or a Restricted Subsidiary.
"Revolving Credit Note" shall mean the Amended and Restated
Revolving Credit Promissory Note, a copy of which is marked "Exhibit A",
affixed hereto and by this reference incorporated herein and made a part
hereof, to be executed by Borrowers on or before the Closing Date, payable to
the order of Agent Bank on behalf of the Lenders, evidencing the Credit
Facility as the same may be amended, modified, extended, renewed or restated
from time to time, which shall constitute a full amendment and restatement of
the Existing Harveys Bank Note, together with all prior amendments thereto.
"Riverboat" shall mean the whole of the vessel named below and
described as follows:
VESSEL NAME USCG OFFICIAL NUMBER
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Kanesville Queen 1037706
"Schedule of Lenders' Proportions in Credit Facility" shall mean
the Schedule of Lenders' Proportions in Credit Facility, a copy of which is
marked "Schedule 2.01(a), affixed hereto and by this reference incorporated
herein and made a part hereof, setting forth the respective Syndication
Interest and maximum amount to be funded under the Credit Facility by each
Lender as such schedule may be amended, modified or restated from time to
time in connection with an Assignment and Assumption Agreement.
"Schedule of Liens" shall mean the Schedule of Liens, a copy of
which is set forth as Schedule 6.09, affixed hereto and by this reference
incorporated herein and made a part hereof, setting forth certain Liens
encumbering the Collateral as of the Closing Date.
"Schedule of Outstanding Letters of Credit" shall mean the Schedule
of Outstanding Letters of Credit, a copy of which is set forth as Schedule
2.09(e), affixed hereto and by this reference incorporated herein and made a
part hereof, setting forth each Letter of Credit issued and outstanding under
the Existing Harveys Credit Agreement that will be deemed issued hereunder as
of the Closing Date.
"Schedule of Significant Litigation" shall mean the Schedule of
Significant Litigation, a copy of which is set forth as Schedule 3.20,
affixed hereto and by this reference incorporated herein and made a part
hereof, setting forth the information described in Section 3.20 with respect
to each Significant Litigation.
"Schedule of Subsidiaries" shall mean the Schedule of Subsidiaries,
a copy of which is marked "Schedule 4.22", affixed hereto and by this
reference incorporated herein and made a part hereof, setting forth the name
of each Subsidiary of HCR as of the Closing Date, stating whether each such
Subsidiary is a Restricted Subsidiary or an Unrestricted Subsidiary and if
the Subsidiary is a New Venture Subsidiary setting forth a description of the
applicable New Venture.
"Scheduled Reductions" shall mean the amount by which the Aggregate
Commitment is reduced on each Reduction Date as set forth on the Aggregate
Commitment Reduction Schedule.
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"Secured Interest Rate Hedge(s)" shall mean any Interest Rate Hedge
entered into between any Borrower and any Lender, or Affiliate of any Lender,
which is secured by the Security Documentation.
"Security Documentation" shall mean a collective reference to the
Tahoe Security Documents, Colorado Security Documents, the Iowa Security
Documents, HCR Security Agreement, HCR Financing Statements and HCR Stock
Pledges, Subsidiary Guaranties, the Trademark Security Agreement and all
other instruments and agreements to be executed by or on behalf of members of
the Borrower Consolidation or other applicable Persons, in favor of Agent
Bank on behalf of the Lenders securing repayment of the Bank Facilities.
"Senior Debt" shall mean with reference to the Borrower
Consolidation for any period the Total Funded Debt of the Borrower
Consolidation, less the daily average of the aggregate Subordinated Debt for
such period.
"Senior Leverage Ratio" as of the end of any Fiscal Quarter shall
mean the ratio resulting by dividing (a) Senior Debt for the Fiscal Quarter
under review by (b) the sum of EBITDA for the Fiscal Quarter under review
plus EBITDA for each of the most recently ended three (3) preceding Fiscal
Quarters.
"Senior Subordinated Notes" shall mean reference to the 10-5/8%
Senior Subordinated Notes due 2006 in the original aggregate amount of One
Hundred Fifty Million Dollars ($150,000,000.00) issued by HCR pursuant to the
Indenture.
"Significant Litigation" shall mean each action, suit, proceeding,
litigation and controversy involving Borrowers, or any of them, not fully
covered by insurance or that is subject to a reservation of rights and
involving claims in excess of Three Million Dollars ($3,000,000.00) or which
is reasonably expected to result in a Material Adverse Change.
"Significant Repair Funds" shall have the meaning set forth in
Section 8.02.
"Spaceleases" shall mean collective reference to the Tahoe
Spaceleases, Colorado Spaceleases and Iowa Spaceleases.
"Standby Letter(s) of Credit" shall mean a letter or letters of
credit issued by L/C Issuer pursuant to
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Section 2.09 of the Credit Agreement for the purpose of securing payment or
performance of a financial obligation of Borrowers, or any of them.
"Stated Amount" shall mean the maximum amount which L/C Issuer may
be required to disburse to the beneficiary(ies) of a Letter(s) of Credit
under the terms thereof.
"Stated Expiry Date(s)" shall mean the date set forth on the face
of a Letter(s) of Credit as the date when all obligations of L/C Issuer to
advance funds thereunder will terminate, as the same may be extended from
time to time.
"Stock Pledge (Gaming)" shall mean the Security Agreement and Stock
Pledge, the form of which is marked "Exhibit N", affixed hereto and by this
reference incorporated herein and made a part hereof, pursuant to which the
stock of each Restricted Subsidiary which is a gaming licensee in any
jurisdiction within the United States of America is pledged by HCR to Agent
Bank on behalf of Lender as security for the Bank Facilities and all other
sums which may be owing by Borrowers to the Banks from time to time under the
terms of the Credit Agreement.
"Stock Pledge (General)" shall mean the Security Agreement and
Stock Pledge, the form of which is marked "Exhibit O", affixed hereto and by
this reference incorporated herein and made a part hereof, to be executed by
HCR from time to time for the purpose of pledging the stock of each
Restricted Subsidiary which is not a gaming licensee as security for the Bank
Facilities and all other sums which may be owing by Borrowers to the Banks
from time to time under the terms of the Credit Agreement.
"Subordinated Debt" shall mean: (i) the Indebtedness evidenced by
the Indenture and Senior Subordinated Notes, and (ii) all other unsecured
Indebtedness of the Borrower Consolidation which is contractually
subordinated to the Bank Facilities and for which (a) there is no principal
or sinking fund payment requirement maturing or otherwise coming due prior to
ninety (90) days after the Maturity Date (other than in connection with
changes of control and asset sales); (b) the maturity date of the
Subordinated Debt shall not be earlier than ninety (90) days subsequent to
the Maturity Date; (c) all covenants of the Subordinated Debt shall be no
more restrictive on HCR and the Borrower Consolidation than the Financial
Covenants (to the extent such covenants of the Subordinated Debt address the
matters covered by the Financial
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Covenants) applicable under this Credit Agreement; and (d) the events of
default and subordination provisions of the Subordinated Debt shall be
acceptable (from the perspective of a senior lender) to Agent Bank, which
acceptance shall not be unreasonably withheld or delayed (in this regard
Banks agree that if the events of default and subordination provisions of the
Subordinated Debt are substantially similar in all material respects as the
events of default and subordination provisions contained in the Indenture,
such events of default and subordination provisions shall be deemed
acceptable by Agent Bank).
"Subsidiary" shall mean, on the date in question, any Person of
which an aggregate of more than 50% of the stock of any class or classes (or
equivalent interests) is owned of record or beneficially, directly or
indirectly, by another Person and/or any of its Subsidiaries, if the holders
of the stock of such class or classes (or equivalent interests) (a) are
ordinarily, in the absence of contingencies, entitled to vote for the
election of a majority of the directors (or individuals performing similar
functions) of such Person, even though the right so to vote has been
suspended by the happening of such a contingency, or (b) are entitled, as
such holders, to vote for the election of a majority of the directors (or
individuals performing similar functions) of such Person, whether or not the
right so to vote exists by reason of the happening of a contingency.
"Subsidiary Guarantor" shall mean each Restricted Subsidiary which
has executed the Subsidiary Guaranty.
"Subsidiary Guaranty" shall mean the General Continuing Subsidiary
Guaranty to be executed by each Restricted Subsidiary in favor of the Agent
Bank on behalf of Banks substantially in the form of the General Continuing
Subsidiary Guaranty marked "Exhibit P", affixed hereto and by this reference
incorporated herein and made a part hereof, under the terms of which each
Restricted Subsidiary irrevocably and unconditionally guaranties to Agent
Bank on behalf of the Banks the full and prompt payment and performance of
all Obligations of Borrowers under the Credit Agreement, Notes and other Loan
Documents.
"Swingline Advance" shall mean each advance made by Swingline
Lender to Borrowers under the Swingline Facility.
"Swingline Facility" shall mean the agreement of Swingline Lender to
make Swingline Advances to Borrowers
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subsequent to the Closing Date, subject to the terms and conditions and up to
the maximum amounts and for the duration as set forth in Section 2.08 of this
Credit Agreement.
"Swingline Lender" shall have the meaning set forth in the Preamble of
this Credit Agreement.
"Swingline Note" shall mean the Swingline Note, a copy of which is
marked "Exhibit B", affixed hereto and by this reference incorporated herein
and made a part hereof, to be executed by Borrowers on or before the Closing
Date, payable to the order of Swingline Lender, effective as of the Merger
Effective Time, evidencing the Swingline Facility.
"Swingline Outstandings" shall mean the aggregate amount of all
outstanding and unpaid Swingline Advances as of each date of determination.
"Syndication Interest" shall mean the proportionate interest of
each Lender in the Credit Facility as set forth on the Schedule of Lenders'
Proportions in Credit Facility, a copy of which is marked Schedule 2.01(a),
affixed hereto and by this reference incorporated herein and made a part
hereof, as the same may be amended or restated from time to time.
"Tahoe Assignment of Permits, Licenses and Contracts" shall mean
the Amended and Restated Assignment of Permits, Licenses and Contracts
(Tahoe) to be executed by HTMC and Agent Bank on or before the Closing Date,
whereby HTMC assigns to Agent Bank all of its right, title and interest in
and to all permits, licenses and contracts relating to the Tahoe Hotel/Casino
Facility, except those Gaming Permits and other licenses or permits which are
unassignable, which shall constitute a full amendment and restatement of the
Assignment of Permits, Licenses and Contracts (Tahoe) recorded August 16,
1995, in the Official Records of Douglas County, Nevada, in Book 895, at Page
2585, as Instrument No. 368426, together with all prior amendments thereto,
as such Amended and Restated Assignment of Permits, Licenses and Contracts
(Tahoe) may be amended, restated or otherwise modified from time to time.
"Tahoe Assignment of Spaceleases, Contracts, Rents and Revenues" shall
mean the Amended and Restated Assignment of Spaceleases, Contracts, Rents and
Revenues (Tahoe) to be executed by HTMC and Agent Bank on or before the Closing
Date pursuant to which HTMC assigns to Agent Bank: (a) all of its right, title
and interest under the Tahoe Equipment Leases and
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Contracts, and under the Tahoe Spaceleases relating to the Tahoe Hotel/Casino
Facility, and (b) all rents, issues, profits, revenues and income from the
Tahoe Hotel/Casino Facility and any other business activity conducted on the
Tahoe Real Property, together with any future expansions thereof, related
thereto or used in connection therewith, which shall constitute a full
amendment and restatement of the Assignment of Spacelease, Contracts, Rents
and Revenues (Tahoe) recorded August 16, 1995, in the Official Records of
Douglas County, Nevada, in Book 895, at Page 2571, as Instrument No. 368425,
together with all prior amendments thereto, as such Amended and Restated
Assignment of Spaceleases, Contracts, Rents and Revenues (Tahoe) may be
amended, restated or otherwise modified from time to time.
"Tahoe Assignments" shall mean collective reference to the Tahoe
Assignment of Permits, Licenses and Contracts, Tahoe Assignment of
Spaceleases, Contracts, Rents and Revenues, the Assignment of California
Greenbelt Lease, Assignment of Tahoe Greenbelt Lease and Assignment of Park
Cattle Lease.
"Tahoe Closing Instructions" shall mean the Closing Instructions to
be given by Agent Bank to Tahoe Title Company on or before the Closing Date
setting forth the requirements of Lenders for the issuance of the Tahoe Title
Endorsements and other conditions for the funding of the Initial Disbursement
to the reasonable satisfaction of Agent Bank, Lenders and the Borrowers.
"Tahoe Collateral" shall mean collective reference to: (i) all of
the Tahoe Real Property, the California Greenbelt Property and the personal
property, furniture, fixtures and equipment, contract rights, leases,
intangibles and other interests of HTMC, which are subject to the liens and
security interests of the Tahoe Security Documents; (ii) all rights of HTMC
assigned as additional security pursuant to the terms of the Tahoe Security
Documents; and (iii) any and all other property and/or intangible rights,
interest or benefits inuring to or in favor of HTMC, which are in any manner
assigned, pledged, encumbered or otherwise hypothecated in favor of Agent
Bank on behalf of Lenders to secure payment of the Bank Facilities.
"Tahoe Deed of Trust" shall mean the Amended and Restated Leasehold
and Fee Deed of Trust, Fixture Filing and Security Agreement with Assignment
of Rents and Notice of Additional Commitment (Tahoe) to be executed on or
before the
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Closing Date, by HTMC, as trustor and debtor, and by Agent Bank, as
beneficiary and Secured Party, to Tahoe Title Insurance Company, as trustee,
in favor of Agent Bank on behalf of Lenders, as beneficiary, for the purposes
of providing security for the Bank Facilities encumbering the Tahoe
Collateral more particularly therein described as first mortgage lien subject
only to the Tahoe Permitted Encumbrances, which shall constitute a full
amendment and restatement of the Leasehold and Fee Deed of Trust, Fixture
Filing and Security Agreement with Assignment of Rents (Tahoe), recorded
August 16, 1995, in the Official Records of Douglas County, Nevada, in Book
895, at Page 2526, as Document No. 368422, together with all prior amendments
thereto, as such Amended and Restated Leasehold and Fee Deed of Trust,
Fixture Filing and Security Agreement with Assignment of Rents (Tahoe) may be
amended, restated or otherwise modified from time to time.
"Tahoe Equipment Leases and Contracts" shall mean the executed
leases and purchase contracts pertaining to the Tahoe FF&E wherein HTMC is
the lessee or vendee, as the case may be, as set forth on that certain
schedule marked "Schedule 4.16(A)", affixed hereto and by this reference
incorporated herein and made a part hereof.
"Tahoe FF&E" shall mean the furniture, fixtures and equipment and
all gaming equipment and devices which have been installed or are to be
installed and used or owned by HTMC in connection with the operation of the
Tahoe Hotel/Casino Facility.
"Tahoe Financing Statements" shall mean the Uniform Commercial Code
Financing Statements to be executed by HTMC on or before the Closing Date in
favor of Agent Bank on behalf of Lenders, to be filed with the Secretary of
State of the State of Nevada and the County Recorder of Douglas County,
Nevada, in order to effect and perfect the security interest granted to Agent
Bank on behalf of Lenders under the Tahoe Deed of Trust in accordance with
the requirements of Nevada Uniform Commercial Code, as they may be extended,
renewed, amended, restated or otherwise modified from time to time.
"Tahoe Greenbelt Lease" shall mean that certain Net Lease Agreement
dated as of February 28, 1985, as amended on June 1, 1997, between Park
Cattle Co., as lessor, and HCR as lessee, under the terms of which HCR leases
the Tahoe Greenbelt Property from Park Cattle Co., the lessee's interest
therein having been assigned by HCR to HTMC by Assignment of
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Leases dated June 1, 1997, as such Net Lease Agreement may be further
amended, extended, renewed, or otherwise modified from time to time.
"Tahoe Greenbelt Lease Estoppel Certificate" shall mean an estoppel
certificate duly executed by Park Cattle Co. as lessor and HTMC as lessee
under the Tahoe Greenbelt Lease, pursuant to which Park Cattle Co. certifies
and represents to Agent Bank on behalf of Lenders that: (a) the Tahoe
Greenbelt Lease, as defined herein, represents the entire agreement between
the parties hereto and supersedes all other previous documents and agreements
between them, (b) that the Tahoe Greenbelt Lease has not been modified,
supplemented or amended except as described herein, (c) to the best knowledge
of Park Cattle Co., there are no defaults presently existing or continuing
under any of the provisions of the Tahoe Greenbelt Lease, and (d) other
provisions regarding notice to Agent Bank on behalf of Lenders in the event
of default thereunder, Agent Bank's right to cure any such default and the
rights of Banks and their successors to continue in possession of the leased
premises.
"Tahoe Greenbelt Property" shall mean that property which is
particularly described as Parcel 4 on Exhibit Q attached hereto.
"Tahoe Hotel/Casino Facility" shall mean the hotel and casino business
and related activities conducted by HTMC in and on the Tahoe Real Property and
all improvements now or hereafter situate thereon, presently conducted under the
style and name of Harveys Resort Hotel/Casino.
"Tahoe Permitted Encumbrances" shall mean, at any particular time,
(i) liens for taxes, assessments or governmental charges not then due and
payable or not then delinquent, (ii) statutory liens for labor and/or
materials and liens for taxes, assessments or governmental charges not then
required to be paid pursuant to Sections 5.04 and 5.10 hereof, respectively,
provided that, Borrowers shall have maintained adequate reserves in
accordance with GAAP for payment of same, (iii) liens incurred or deposits
made in the ordinary course of business in connection with workers'
compensation, unemployment insurance and other types of social security, or
to secure the performance of tenders, statutory obligations, surety and
appeal bonds, bids, leases, government contracts, trade contracts,
performance and return-of-money bonds and other similar obligations
(exclusive of obligations for the payment of borrowed money); (iv) leases or
subleases
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granted to others (including, without limitation, any Subsidiary) not
interfering in any material respect with the ordinary conduct of the business
of the Tahoe Hotel/Casino Facility; (v) liens created or contemplated by the
Tahoe Security Documents, (vi) the liens, encumbrances and restrictions on
the Tahoe Real Property, Tahoe FF&E and existing improvements which are shown
as exceptions on Schedule B of the Tahoe Title Insurance Policy and Tahoe
Title Endorsements to be issued by the Tahoe Title Company as of the Closing
Date, (vii) liens consented to in writing by Agent Bank upon the approval of
Requisite Lenders, (viii) liens of legally valid capital leases and purchase
money security interests for Tahoe FF&E and other goods to the extent
permitted by Section 6.09(c), (ix) each and every easement, license,
restriction or right-of-way that (A) is hereafter granted to any Governmental
Authority or public utility and (B) does not interfere in any material
respect with the Tahoe Hotel/Casino Facility; (x) judgment liens, writs,
warrants, levies, distraints, attachments and other similar process which do
not constitute an Event of Default, (xi) Liens securing reimbursement
obligations with respect to letters of credit and banker's acceptances which
encumber only documents and other property relating to such letters of credit
and banker's acceptances and products or proceeds thereof; (xii) Liens
arising out of consignment or similar arrangements for the sale of goods;
(xiii) any interest or title of a lessor subject to any capital lease
obligation or operating lease; (xiv) Liens in existence on the Closing Date
and referenced on Schedule of Liens set forth as Schedule 6.09; (xv)
easements, rights of way, restrictions, minor defects or irregularities in
title and other similar liens, charges or encumbrances which do not interfere
in any material respect with the business of the Borrowers; (xvi) Liens on
property of a Person existing at the time such Person is merged into or
consolidated with any Borrower or any Subsidiary of the Borrowers or becomes
a Subsidiary of the Borrowers; provided that such Liens (other than
replacement Liens) were not created in contemplation of such merger or
consolidation and do not extend to any assets other than those of the Person
merged into or consolidated with any Borrower or such Subsidiary or acquired
by any Borrower or such Subsidiary; (xvii) the replacement, extension, or
renewal of any Lien permitted hereunder; (xviii) Liens arising from filing
Uniform Commercial Code financing statements regarding leases; (xix) Liens in
favor of customs and revenue authorities arising by operation of law to
secure payment of customs duties in connection with the importation of goods;
(xx) licenses, leases or subleases granted to other Persons in
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the ordinary course of business; (xxi) any interest or title of a lessor,
sublessor, licensee or licensor under any personal or real property lease,
sublease or license agreement; (xxii) Liens in favor of a banking or other
financial institution encumbering deposits (including the right of set-off)
held by such banking or other financial institutions incurred in the ordinary
course of business; and (xxiii) Liens for property taxes on real property
which is to be abandoned for which the sole recourse for such tax is to such
property (or to a Subsidiary of any Borrower whose sole asset is such
property).
"Tahoe Real Property" shall mean that real property which is
particularly described as Parcels 1 through 4 on "Exhibit Q" attached hereto
and incorporated by reference herein.
"Tahoe Security Documents" shall mean collective reference to the
Tahoe Assignment of Permits, Licenses and Contracts, the Tahoe Assignment of
Spaceleases, Contracts, Rents and Revenues, the Tahoe Deed of Trust, the
California Deed of Trust, the Tahoe Financing Statements, the Assignment of
California Greenbelt Lease, Assignment of Tahoe Greenbelt Lease, Assignment
of Park Cattle Lease and any other document or instrument which is executed
or delivered by HTMC and accepted by Agent Bank, on behalf of Lenders, as
security for payment under the Bank Facilities relating to the Tahoe
Hotel/Casino Facility.
"Tahoe Spaceleases" shall mean the executed leases and concession
agreements pertaining to the Tahoe Hotel/Casino Facility, or any portion
thereof, wherein HTMC is the lessor as set forth on the certain schedule
marked "Schedule 4.15(A)", affixed hereto and by this reference incorporated
herein and made a part hereof.
"Tahoe Title Company" shall mean Chicago Title Insurance Company
and its issuing agent, Western Title Company, 225 So. Arlington Avenue, Reno,
Nevada 89501, together with such reinsurers with direct access as are
requested by Agent Bank or other title insurance company or companies as may
be reasonably acceptable to Agent Bank.
"Tahoe Title Endorsements" shall mean a collective reference to a
CLTA 110.5 Form Endorsement to the Existing Tahoe Title Policy and to such
other endorsements to the Existing Tahoe Title Policy as are requested by
Agent Bank, in order to cause the Existing Tahoe Title Policy to insure the
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lien and priority of the Tahoe Deed of Trust and the lien and priority of the
California Deed of Trust, subject only to such exceptions and conditions of
title as are acceptable to Agent Bank, all of which endorsements shall be
issued by the Tahoe Title Company and shall be in a form and substance
acceptable to Agent Bank.
"Tahoe Title Insurance Policy" shall mean a collective reference to
the Existing Tahoe Title Policy and the Tahoe Title Endorsements.
"Taxes" shall have the meaning set forth in Section 2.12.
"Title Company" shall mean individual reference and "Title
Companies" shall mean collective reference to the Tahoe Title Company,
Colorado Title Company and Iowa Title Company, as the context may require.
"Title Endorsement" shall mean individual reference and "Title
Endorsements" shall mean collective reference to the Colorado Title
Endorsements, the Iowa Title Endorsements and the Tahoe Title Endorsements.
"Title Insurance Policy" shall mean individual reference and "Title
Insurance Policies" shall mean collective reference to the Tahoe Title
Insurance Policy, Iowa Title Insurance Policy and the Colorado Title
Insurance Policy, as the context may require.
"Total Funded Debt" shall mean with reference to the Borrower
Consolidation for any period the daily average of the Aggregate Outstandings
for such period, plus the total as of the last day of such period of both the
long-term and current portions (without duplication) of all other
Indebtedness.
"Total Liabilities" shall mean the total liabilities of the
Borrower Consolidation determined in accordance with GAAP.
"Trademark Security Agreement" shall mean the Amended and Restated
Trademark Security Agreement to be executed by Borrowers and Agent Bank as of
the Closing Date for the purpose of granting a security interest in favor of
Agent Bank on behalf of Lenders, in all trademarks, tradenames, copyrights
and servicemarks used in connection with the Hotel/Casino Facilities,
including, without limitation each registration and application set forth on
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Schedule 4.27 or otherwise described on Schedule A to the Trademark Security
Agreement, which shall constitute a full amendment and restatement of the
Trademark Security Agreement filed with the U.S. Patent and Trademark Office,
and with the U.S. Copyright Office, on August 18, 1995, as such Amended and
Restated Trademark Security Agreement may be amended, restated or otherwise
modified from time to time.
"USCG" shall mean the United States Coast Guard.
"Unrestricted Subsidiary" shall mean RPI, HLVMC and each Subsidiary
which is not a Restricted Subsidiary.
"Unsuitable Lender" shall have the meaning set forth in Section
10.10(d).
"Voluntary Permanent Reduction" shall have the meaning set forth in
Section 2.01(c).
"WFB" shall mean Wells Fargo Bank, National Association.
"Westwood Golf Course Property" shall mean that property which is
particularly described as Parcel B on "Exhibit S" attached hereto and
incorporated by reference herein.
"Westwood Lease" shall mean that certain Lease Agreement under date
of March 1, 1995 pursuant to which the Westwood Golf Course Property is
leased by HIMC to the City of Council Bluffs, subject to the terms and
conditions set forth therein, as such Lease Agreement may be amended and
restated, extended, renewed or otherwise modified from time to time.
"Westwood Subordination and Non-Disturbance Agreement" shall mean
the Existing Westwood Subordination and Non-Disturbance Agreement as
reaffirmed by the Reaffirmation of Westwood Subordination and Non-Disturbance
Agreement.
Section 1.02. INTERPRETATION AND CONSTRUCTION. In this Credit
Agreement, unless the context otherwise requires:
(a) Articles and Sections mentioned by number only are
the respective Articles and Sections of this Credit Agreement as so numbered;
(b) Words importing a particular gender mean and include
every other gender, and words importing the
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singular number mean and include the plural number and VICE VERSA;
(c) All times specified herein, unless otherwise
specifically referred, shall be the time in San Francisco, California;
(d) Any headings preceding the texts of the several
Articles and Sections of this Credit Agreement, and any table of contents or
marginal notes appended to copies hereof, shall be solely for convenience of
reference and shall not constitute a part of this Credit Agreement, nor shall
they affect its meaning, construction or effect;
(e) If any clause, provision or Section of this Credit
Agreement shall be ruled invalid or unenforceable by any court of competent
jurisdiction, such holding shall not invalidate or render unenforceable any
of the remaining provisions hereof;
(f) The terms "herein", "hereunder", "hereby", "hereto",
"hereof" and any similar terms as used in the Credit Agreement refer to this
Credit Agreement; the term "heretofore" means before the date of the
execution of this Credit Agreement; and the term "hereafter" means after the
date of the execution of this Credit Agreement;
(g) The parties hereto agree that each has contributed
to the drafting of this Credit Agreement and each of the Loan Documents and
that the provisions herein contained shall not be construed against Borrowers
or Banks as having been the person or persons responsible for the preparation
thereof;
(h) All accounting terms used herein which are not
otherwise specifically defined shall be used in accordance with GAAP;
(i) Each reference to a Loan Document or the Security
Documentation, or any of them, as used in this Credit Agreement shall be
deemed a reference to such Loan Document or the Security Documentation as the
same may be amended, modified, supplemented, replaced or restated from time
to time;
(j) All contracts, documents, indentures, leases or other
agreements referred to herein shall, unless expressly indicated to the contrary,
refer to such contract,
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document, indenture or other agreement as the same may be amended, restated,
supplemented or otherwise modified from time to time; and
(k) Every affirmative duty, covenant and obligation of
Borrowers hereunder shall be equally applicable to each of the Borrowers
individually and where the context would result in the best interests or
rights of Banks shall be construed to mean "Borrowers or any of them" or
"Borrowers and each of them", as applicable.
Section 1.03. USE OF DEFINED TERMS. Unless otherwise defined or
the context otherwise requires, terms for which meanings are provided in this
Credit Agreement shall have such meanings when used in the Notes and in each
Loan Document and other communication delivered from time to time in
connection with this Credit Agreement or any other Loan Document.
Section 1.04. CROSS-REFERENCES. Unless otherwise specified,
references in this Credit Agreement and in each other Loan Document to any
Article or Section are references to such Article or Section of this Credit
Agreement or such other Loan Document, as the case may be, and, unless
otherwise specified, references in any Article, Section or definition to any
clause are references to such clause of such Article, Section or definition.
Section 1.05. EXHIBITS AND SCHEDULES. All Exhibits and Schedules
to this Credit Agreement, either as originally existing or as the same may
from time to time be supplemented, modified or amended, are incorporated
herein by this reference.
ARTICLE II
AMOUNT, TERMS AND SECURITY OF THE FACILITIES
Section 2.01. THE CREDIT FACILITY.
a. Subject to the conditions and upon the terms
hereinafter set forth and in accordance with the terms and provisions of the
Revolving Credit Note, each Lender severally agrees in the proportions set
forth on the Schedule of Lenders' Proportions in Credit Facility, marked
Schedule 2.01(a) attached hereto and by this reference incorporated herein
and made a part hereof, to fund the Initial Disbursement and continue the
outstanding balance of
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principal and accrued interest under the Existing Harveys Credit Facility as
Funded Outstandings hereunder and to lend and advance Borrowings to
Borrowers, on and after the Closing Date, in the aggregate up to the Maximum
Permitted Balance, such amounts as Borrowers may request by Notice of
Borrowing duly executed by an Authorized Officer and delivered to Agent Bank
from time to time as provided in Section 2.03.
b. Subject to the uses and purposes set forth in
Section 2.02, on and after the Closing Date, Borrowers may borrow, repay and
reborrow Borrowings up to the Available Borrowings from time to time;
provided, however, amounts of Funded Outstandings bearing interest with
reference to a LIBO Rate shall be subject to Breakage Charges incident to
prepayment to the extent repaid other than on the last day of the Interest
Period applicable to such Funded Outstandings. The Credit Facility shall be
for a term commencing as of the Closing Date and terminating on the Maturity
Date, on which date the entire outstanding balance of the Credit Facility
shall be fully paid and Bank Facility Termination shall occur. In no event
shall any Lender be liable to fund any amounts under the Credit Facility in
excess of its respective Syndication Interest in any Borrowing. In the event
the Aggregate Outstandings exceed the Maximum Permitted Balance at any time,
Borrowers shall immediately cause the Aggregate Outstandings to be reduced by
such amount as may be necessary to cause the Aggregate Outstandings to be
equal to or less than the Maximum Permitted Balance.
c. Borrowers may voluntarily reduce the Maximum
Permitted Balance from time to time (a "Voluntary Permanent Reduction") on
the following conditions:
(i) that each such Voluntary Permanent Reduction be
in the minimum amount of Two Million Five Hundred Thousand Dollars
($2,500,000.00) and made in writing by an Authorized Officer,
effective on the third (3rd) Banking Business Day following receipt by
Agent Bank;
(ii) that each such Voluntary Permanent Reduction
shall be irrevocable and a permanent reduction to the Maximum
Permitted Balance;
(iii) In the event any Voluntary Permanent Reduction
reduces the Maximum Permitted Balance to less than the sum of the
Aggregate Outstandings, the Borrowers shall immediately cause
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the Aggregate Outstandings to be reduced by such amount as may be
necessary to cause the Aggregate Outstandings to be equal to or less
than the Maximum Permitted Balance.
Section 2.02. USE OF PROCEEDS OF THE CREDIT FACILITY. Available
Borrowings shall be used for the following purposes:
a. On the Closing Date for the purposes of (the "Initial
Disbursement"):
(i) continuing the outstanding principal balance under the
Existing Harveys Credit Facility as Funded Outstandings under the
Credit Facility, if any;
(ii) paying in full all amounts owing under the HAC Loan,
HAC Loan Agreement and HAC Demand Note as of the Closing Date;
(iii) paying in full the fees due Agent Bank as set forth in
the Fee Side Letter, the costs, fees and expenses of Title Company
incurred in connection with the issuance of the Title Endorsements,
the costs, fees and expenses of Henderson & Morgan, LLC, attorneys for
Agent Bank, and associate counsel and insurance consultants retained
by them incurred to the Closing Date; and
(iv) paying other costs, fees, charges and expenses incurred
by Borrowers (including, without limitation, legal and investment
banking fees and expenses) incurred in connection with the Merger, the
Bank Facilities, the issuance of preferred stock by HAC or HCR, the
offer to purchase to the holders of the Senior Subordinated Notes made
following the Merger, consent fees paid to the holders of the Senior
Subordinated Notes and the transactions contemplated thereby and
hereby.
b. Subsequent to the Closing Date for the purposes of
providing financing for general corporate purposes, including financing
Capital Expenditures, working capital requirements and New Venture
Investments of the Borrower Consolidation subject to the terms, covenants and
limitations hereinafter set forth.
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Section 2.03. NOTICE OF BORROWINGS.
a. An Authorized Officer shall give Agent Bank, no
later than 9:00 a.m. on a Banking Business Day at Agent Bank's office
specified in Section 2.07, at least three (3) full Banking Business Days
prior written notice in the form of the Notice of Borrowing ("Notice of
Borrowing"), a copy of which is marked "Exhibit C", affixed hereto and by
this reference incorporated herein and made a part hereof, for each proposed
Borrowing to be made with reference to a LIBO Rate and at least one (1) full
Banking Business Day prior written notice for all other Borrowings,
specifying the date and amount of each proposed Borrowing. Agent Bank shall
give prompt notice of each Notice of Borrowing to Lenders of the amount to be
funded and specifying the Funding Date. Not later than 11:00 a.m. on the
Funding Date specified, each Lender shall disburse to Agent Bank the Pro Rata
Share of the amount to be advanced by each such Lender in lawful money of the
United States of America and in immediately available funds. Agent Bank
shall make the proceeds of such fundings received by it on or before 11:00
a.m. from the Lenders available to Borrowers by depositing, prior to 1:00
p.m. on the day so received (but not prior to the Funding Date), in the
Designated Deposit Account maintained with Agent Bank the amounts received
from the Lenders. No Borrowing may exceed the Available Borrowings. Each
Borrowing to be made with reference to the Base Rate shall be in a minimum
amount of One Million Dollars ($1,000,000.00) and in increments of One
Hundred Thousand Dollars ($100,000.00). Borrowers shall be entitled to no
more than five (5) Borrowings during each calendar month, exclusive of
Borrowings made for the sole purpose of funding repayment of a Swingline
Advance or L/C Reimbursement Obligation.
b. The failure of any Lender to fund its Pro Rata Share
of any Borrowing on any Funding Date shall neither relieve any other Lender
of any obligation hereunder to fund its Pro Rata Share of such Borrowing on
such Funding Date nor relieve the Lender which has failed to fund of its
obligations to Borrowers hereunder. No Lender shall be responsible for the
failure of any other Lender to fund its Pro Rata Share of such Borrowing on
any Funding Date nor shall any Lender be responsible for the failure of any
other Lender to perform its respective obligations hereunder. The provisions
set forth in Section 10.10(d) shall be applicable to a Defaulting Lender to
the same extent as if such Defaulting Lender was found to be an Unsuitable
Lender.
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Section 2.04. CONDITIONS OF BORROWINGS. Borrowings, other than the
Initial Disbursement and Borrowings made at the request of Agent Bank for the
purpose of funding repayment of Swingline Outstandings and/or L/C
Reimbursement Obligations as hereinafter provided, will only be made so long
as Borrowers are in full compliance with each of the requirements and
conditions precedent set forth in Article III B of this Credit Agreement.
Provided, however, upon the consent of the Requisite Lenders, Lenders shall
advance Borrowings notwithstanding the existence of less than full compliance
with the requirements of Article III B and Borrowings so made shall be deemed
to have been made pursuant to this Credit Agreement.
Section 2.05. THE REVOLVING CREDIT NOTE AND EXERCISE OF INTEREST
RATE OPTIONS.
a. The Credit Facility shall be further evidenced by
the Revolving Credit Note payable to the order of Agent Bank on behalf of the
Lenders. Agent Bank shall record manually or electronically the date and
amount of each Borrowing advanced by the Lenders together with the applicable
Interest Period in the case of portions of the unpaid principal under the
Credit Facility bearing interest with reference to a LIBO Rate, and the
amount of each repayment of principal made thereunder by Borrowers and the
entry of such records shall be prima facie evidence as to such matters;
provided, however, the failure to make such a record or notation with respect
to any Borrowing or repayment thereof, or an error in making such a record or
notation, shall not limit or otherwise affect the obligations of Borrowers
hereunder or under the Revolving Credit Note.
b. Interest shall accrue on the entire outstanding
principal balance at a rate per annum equal to the Base Rate plus the
Applicable Margin, unless Borrowers request a LIBOR Loan pursuant to Section
2.03 or elect pursuant to Section 2.05(c) hereinbelow to have interest accrue
on a portion or portions of the outstanding principal balance at a LIBO Rate
("Interest Rate Option"), in which case interest on such portion or portions
shall accrue at a rate per annum equal to such LIBO Rate plus the Applicable
Margin; provided that: (i) each such LIBOR Loan is in a minimum amount of
Five Million Dollars ($5,000,000.00) and in minimum increments of One Million
Dollars ($1,000,000.00), and (ii) no more than eight (8) LIBOR Loans may be
outstanding at any one time. As of the Closing Date, the Applicable Margin
for the Base Rate Loan shall be one and three-quarters percent (1.75%) and
for
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each LIBOR Loan shall be three percent (3.0%). Interest accrued on each Base
Rate Loan shall be due and payable in arrears on the first day of each Fiscal
Quarter following the Closing Date, on the first day of each successive
Fiscal Quarter thereafter, and on the Maturity Date. For each LIBOR Loan,
interest shall be due and payable in arrears at the end of each Interest
Period applicable thereto, but in any event no less frequently than at the
end of each three (3) month period during the term of such LIBOR Loan. Agent
Bank shall notify HCR in writing five (5) Banking Business Days prior to each
payment of interest due herewith, detailing the amount owed and the
calculation thereof. Except as qualified above, the outstanding principal
balance of the Credit Facility may be a Base Rate Loan or one or more LIBOR
Loans, or any combination thereof, as Borrowers shall specify.
c. So long as no Default or Event of Default shall have
occurred and remains continuing, Borrowers may Convert from one Interest Rate
Option to another Interest Rate Option or continue an Interest Rate Option
for another Interest Period by giving irrevocable notice to Agent Bank of
such Conversion or Continuation by 9:00 a.m., on a day which is at least
three (3) Banking Business Days prior to the proposed date of such Conversion
to or Continuation of each LIBOR Loan or at least one (1) Banking Business
Day prior to the proposed date of such Conversion to each Base Rate Loan.
Each such notice shall be made by an Authorized Officer by telephone or telex
and thereafter immediately confirmed in writing by delivery to Agent Bank of
a Continuation/Conversion Notice specifying the date of such Conversion or
Continuation, the amounts to be so Converted or Continued and the Interest
Period if the Conversion or Continuation is being made with reference to a
LIBOR Loan. Upon receipt of such Continuation/Conversion Notice, Agent Bank
shall promptly in accordance with such Continuation/Conversion Notice set the
applicable interest rate (which in the case of a LIBOR Loan shall be the LIBO
Rate plus the Applicable Margin as of the second Banking Business Day prior
to the first day of the applicable Interest Period) and the applicable
Interest Period if the Conversion or Continuation is being made with
reference to a LIBOR Loan and shall confirm the same in writing to Borrowers
and Lenders. Each Conversion or Continuation shall be on a Banking Business
Day. No LIBOR Loan shall be converted to a Base Rate Loan or renewed on any
day other than the last day of the current Interest Period relating to such
amounts outstanding unless Borrowers pay any applicable Breakage Charges.
All Borrowings advanced at the request of Agent Bank under Sections 2.08 or
2.09 of the Credit Agreement
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shall bear interest with reference to the Base Rate plus the Applicable
Margin, subject to Borrowers' right to Convert such Borrowing to a LIBOR Loan
or LIBOR Loans as provided herein. If Borrowers fail to give a
Continuation/Conversion Notice for the continuation of a LIBOR Loan as a
LIBOR Loan for a new Interest Period in accordance with this Section 2.05(c),
such LIBOR Loan shall automatically become a Base Rate Loan at the end of its
then current Interest Period.
d. Each interest period (each individually an "Interest
Period" and collectively the "Interest Periods") for a LIBOR Loan shall
commence on the date such LIBOR Loan is made or the date of Conversion or
Continuation of any amount or amounts of the outstanding Borrowings hereunder
as a LIBOR Loan, as the case may be, and shall end on the date which is one
(1), two (2), three (3) or six (6) months thereafter. However, no Interest
Period may extend beyond the Maturity Date. Each Interest Period for a LIBOR
Loan shall commence and end on a Banking Business Day. If any Interest
Period commences on a date for which there is no corresponding date in the
month in which it is scheduled to end, such Interest Period shall end on the
last Banking Business Day of such month. If any Interest Period would
otherwise expire on a day which is not a Banking Business Day, the Interest
Period shall be extended to expire on the next succeeding Banking Business
Day, unless the result of such extension would be to carry such Interest
Period into another calendar month, in which event such Interest Period shall
end on the immediately preceding Banking Business Day.
e. The applicable LIBO Rate and Base Rate shall be
determined by the Agent Bank, and notice thereof shall be given promptly to
Borrowers and Lenders. Each determination of the applicable Base Rate and
LIBO Rate shall be conclusive and binding upon the Borrowers, in the absence
of manifest or demonstrable error. The Agent Bank shall, upon written
request of Borrowers or any Lender, deliver to Borrowers or such Lender, as
the case may be, a statement showing the computations used by the Agent Bank
in determining any rate hereunder.
f. Computation of interest on LIBOR Loans shall be
calculated on the basis of a year of three hundred sixty (360) days and the
actual number of days elapsed. Computation of interest on Base Rate Loans
shall be calculated on the basis of a year of three hundred sixty-five (365)
or three hundred sixty-six (366) days, as the case may be, and the actual
number of days elapsed. The applicable Base Rate
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shall be effective the same day as a change in the Base Rate is announced by
WFB as being effective.
g. If with respect to any Interest Period, (a) the
Agent Bank reasonably determines (which determination shall be binding and
conclusive on Borrowers) that by reason of circumstances affecting the
inter-bank eurodollar market adequate and reasonable means do not exist for
ascertaining the applicable LIBO Rate, or (b) Requisite Lenders advise Agent
Bank that the LIBO Rate as determined by Agent Bank will not adequately and
fairly reflect the cost to such Lenders of maintaining or funding, for such
Interest Period, a LIBOR Loan under the Credit Facility, then so long as such
circumstances shall continue: (i) Agent Bank shall promptly notify Borrowers
thereof, (ii) the Agent Bank shall not be under any obligation to make a
LIBOR Loan or Convert a Base Rate Loan into a LIBOR Loan for which such
circumstances exist, and (iii) on the last day of the then current Interest
Period, the LIBOR Loan for which such circumstances exist shall, unless then
repaid in full, automatically Convert to a Base Rate Loan.
h. Notwithstanding any other provisions of the Credit
Agreement, if, after the Closing Date, any law, rule, regulation, treaty,
interpretation or directive (whether having the force of law or not) or any
change therein shall make it unlawful for any Lender to make or maintain
LIBOR Loans, (i) the commitment and agreement to maintain LIBOR Loans as to
such Lender shall immediately be suspended, and (ii) unless required to be
terminated earlier, LIBOR Loans as to such Lender, if any, shall be Converted
on the last day of the then current Interest Period applicable thereto to
Base Rate Loans. If it shall become lawful for such Lender to again maintain
LIBOR Loans, then Borrowers may once again as to such Lender request
Conversions to the LIBO Rate or LIBOR Loans. During any period of such
suspension, such Lender shall make Base Rate Loans.
i. The Borrowers agree that upon written notice by: (y)
Agent Bank or (z) any Lender to the Borrowers (with a copy of such notice
concurrently delivered to Agent Bank) to the effect that a promissory note or
other evidence of indebtedness is required for such Lender by a Governmental
Authority, banking regulatory agency or regulatory audit in order for such
Lender to evidence (whether for the purposes of pledge, enforcement or
otherwise) the Borrowings owing to, or to be made by, such Lender:
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(i) The Borrowers shall promptly execute and deliver
to each Lender a promissory note payable to the order of each such
Lender (each individually a "Replacement Note" and collectively the
"Replacement Notes") in the form of the Revolving Credit Note in the
amount of each Lender's respective Syndication Interest in the Credit
Facility subject to Scheduled Reductions to be allocated amongst
Lenders in accordance with their respective Syndication Interests;
(ii) The Replacement Notes shall, in the aggregate,
fully replace the Revolving Credit Note and each reference to the
Revolving Credit Note in this Credit Agreement and each of the Loan
Documents shall be deemed to be a collective reference to the
Replacement Notes;
(iii) Borrowings, Interest Rate Options,
Continuation/Conversion Notices and all other provisions for the
disbursement of funds, setting of interest rates and collection of
repayments of interest and principal shall continue to be made by
Agent Bank as the administrative and collateral agent for the Lenders
in the same manner and to the same extent as provided in the Revolving
Credit Note and this Credit Agreement as fully applicable to each of
the Replacement Notes;
(iv) the Agent Bank, upon the consent of Requisite
Lenders, shall cause the Title Insurance Company to issue, at the
expense of Borrowers, such endorsements to the Title Insurance
Policies as may be reasonably necessary to assure the aggregate
obligation evidenced by the Replacement Notes is secured by the Deed
of Trust with the same coverage and priority as the obligation
evidenced by the Revolving Credit Note; and
(v) Concurrently with the delivery of the Replacement
Notes, Agent Bank shall return the original Revolving Credit Note to
Borrower marked as superseded and replaced by the Replacement Notes.
Section 2.06. SECURITY FOR THE CREDIT FACILITY. As security for
the due and punctual payment and performance of the terms and provisions of
this Credit Agreement, the
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Notes and all of the other Loan Documents, the Security Documentation shall
be executed on or before the Closing Date by the respective parties to each
of the Security Documentation and recorded and/or filed in each applicable
jurisdiction as required by the Closing Instructions.
Section 2.07. PLACE AND MANNER OF PAYMENT.
a. All amounts payable by Borrowers to the Lenders
shall be made to Agent Bank on behalf of Lenders pursuant to the terms of
this Credit Agreement and the Notes and shall be made on a Banking Business
Day in lawful money of the United States of America and in immediately
available funds. Other than in connection with: (i) the Scheduled Reductions
of principal, or (ii) principal payments which may be required to decrease
the Aggregate Outstandings to an amount equal to or less than the Maximum
Permitted Balance, Borrowers shall not make repayments ("Principal
Prepayments") of the outstanding balance of principal owing under the
Revolving Credit Note more frequently than five (5) such Principal
Prepayments during each calendar month. Each such Principal Prepayment of a
Base Rate Loan shall be in a minimum amount of One Million Dollars
($1,000,000.00) (or, if less, the outstanding principal amount of Base Rate
Loans) and in increments of One Hundred Thousand Dollars ($100,000.00) in
excess thereof. Each such Principal Prepayment of a LIBOR Loan shall be in a
minimum amount of Five Million Dollars ($5,000,000.00) (or, if less, the
outstanding principal amount of such LIBOR Loan) and in increments of One
Million Dollars ($1,000,000.00) in excess thereof.
b. All such amounts payable by Borrowers shall be made
to Agent Bank at its office located at Wells Fargo Bank, Syndications
Division, 201 Third Street, Eighth Floor, San Francisco, California 94103, or
at such other address as may be directed in writing by Agent Bank from time
to time. If such payment is received by Agent Bank prior to 11:00 a.m.,
Agent Bank shall credit Borrowers with such payment on the day so received
and shall disburse to the appropriate Lenders on the same day the Pro Rata
Share of payments relating to the Credit Facility, in immediately available
funds. If such payment is received by Agent Bank after 11:00 a.m., Agent
Bank shall credit Borrowers with such payment as of the next Banking Business
Day and disburse to the appropriate Lenders on the next Banking Business Day
such Pro Rata Share of such payment relating to the Credit Facility, in
immediately available funds. Any payment on the Credit Facility made by
Borrowers to Agent Bank pursuant to
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the terms of this Credit Agreement or the Revolving Credit Note for the
account of Lenders shall constitute payment to the appropriate Lenders. If
the Revolving Credit Note or any payment required to be made thereon or
hereunder, is or becomes due and payable on a day other than a Banking
Business Day, the due date thereof shall be extended to the next succeeding
Banking Business Day and interest thereon shall be payable at the then
applicable rate during such extension.
c. Subject to Section 2.07(a), the outstanding
principal owing under the Credit Facility and the Revolving Credit Note may
be prepaid at any time in whole or in part without penalty; provided,
however, that any portion or portions of the unpaid principal balance which
is accruing interest at a LIBO Rate may only be prepaid or repaid on the last
day of the applicable Interest Period unless Borrowers give three (3) days
prior written notice to Agent Bank and additionally pay concurrently (or if
notice of the amount of such Breakage Charges has not been given as of such
prepayment, promptly following reasonable demand therefor) with such
prepayment such additional amount or amounts as will compensate Lenders for
any losses, costs or expenses which they may incur as a result of such
payment, including, without limitation, any loss (including loss of
anticipated profits), cost or expense incurred by the liquidation or
reemployment of deposits or other funds acquired by such Lender to fund or
maintain such LIBOR Loan ("Breakage Charges"). A certificate of a Lender as
to amounts payable hereunder shall be conclusive and binding on Borrowers for
all purposes, absent manifest or demonstrable error. Any calculation
hereunder shall be made on the assumption that each Lender has funded or will
fund each LIBOR Loan in the London interbank market; PROVIDED that no Lender
shall have any obligation to actually fund any LIBOR Loan in such manner.
d. Unless the Agent Bank receives notice from an
Authorized Officer prior to the date on which any payment is due to the Lenders
that the Borrowers will not make such payment in full as and when required, the
Agent Bank may assume that the Borrowers have made such payment in full to the
Agent Bank on such date in immediately available funds and the Agent Bank may
(but shall not be so required), in reliance upon such assumption, distribute to
each Lender on such due date an amount equal to the amount then due such Lender.
If and to the extent the Borrowers have not made such payment in full to the
Agent Bank, each Lender shall repay to the Agent Bank on demand such amount
distributed to such Lender, together with interest thereon at the Federal Funds
Rate for
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each day from the date such amount is distributed to such Lender until the
date repaid.
e. If, other than as expressly provided elsewhere
herein, any Lender shall obtain any payment with respect to the Bank
Facilities (whether voluntary, involuntary, through the exercise of any right
of set-off, or otherwise) in excess of its Syndication Interest, such Lender
shall immediately (i) notify the Agent Bank of such fact, and (ii) purchase
from the other Lenders such participations in the Credit Facility as shall be
necessary to cause such purchasing Lender to share the excess payment with
each of them in proportion to their respective Syndication Interests;
PROVIDED, however, that if all or any portion of such excess payment is
thereafter recovered from the purchasing Lender, such purchase shall to that
extent be rescinded and each other Lender shall repay to the purchasing
Lender the purchase price paid therefor, together with an amount equal to
such paying Lender's ratable share (according to the proportion of (x) the
amount of such paying Lender's required repayment to (y) the total amount so
recovered from the purchasing Lender) of any interest or other amount paid or
payable by the purchasing Lender in respect of the total amount so recovered.
The Borrowers agree that any Lender so purchasing a participation from
another Lender may, to the fullest extent permitted by law, exercise all its
rights of payment with respect to such participation as fully as if such
Lender were the direct creditor of the Borrowers in the amount of such
participation. The Agent Bank will keep records (which shall be conclusive
and binding in the absence of manifest error) of each participation purchased
under this section and will in each case notify the Lenders following any
such purchases or repayments.
Section 2.08. THE SWINGLINE FACILITY.
a. Subject to the conditions and upon the terms
hereinafter set forth and in accordance with the terms and provisions of the
Swingline Note, Exhibit B affixed hereto, on and after the Closing Date,
Swingline Lender agrees to lend and advance Swingline Advances to Borrowers
in the amounts and at the times provided below. Notwithstanding anything
herein contained to the contrary, however, Borrower shall not be entitled to
any Swingline Advances on and after the date which is ten (10) calendar days
prior to the Maturity Date.
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b. With respect to each proposed Swingline Advance, an
Authorized Officer shall give Swingline Lender written notice in the form of
the Notice of Swingline Advance ("Notice of Swingline Advance"), a copy of
which is marked "Exhibit E", affixed hereto and by this reference
incorporated herein and made a part hereof, to be received by Swingline
Lender no later than 12:00 noon on the date for each proposed Swingline
Advance specifying the requested amount to be funded or oral notice to be
received by Swingline Lender no later than 12:00 noon on such date, to be
followed by a duly completed and executed Notice of Swingline Advance no
later than 3:00 p.m. on the same date. Swingline Lender shall, on the date
for each proposed Swingline Advance, deposit into the Designated Deposit
Account in lawful money of the United States of America in immediately
available funds such amounts as Borrowers may request; provided, that: (i)
after giving effect to such Swingline Advance, the Swingline Outstandings
shall not exceed Five Million Dollars ($5,000,000.00), (ii) the amount
requested does not exceed the Available Borrowings, (iii) no Default or Event
of Default has occurred and is continuing, and (iv) the conditions precedent
set forth in Sections 3.29 and 3.30 shall have been satisfied. Within the
foregoing limitations, Borrowers may borrow, repay and reborrow under the
Swingline Facility. Each Swingline Advance shall be in an integral multiple
of One Hundred Thousand Dollars ($100,000.00). Promptly after receipt of
each request for a Swingline Advance, Swingline Lender shall obtain
telephonic verification from Agent Bank that, giving effect to such request,
the amount of such request does not exceed the then Available Borrowings
(such verification to be promptly confirmed in writing). Unless notified to
the contrary by the Swingline Lender, each repayment of a Swingline Advance
shall be in an amount which is an integral multiple of One Hundred Thousand
Dollars ($100,000.00), together with the accrued interest thereon. The
Swingline Lender shall promptly notify the Agent Bank of the Swingline
Outstandings each time there is a change therein.
c. Each Swingline Advance shall bear interest at the Base
Rate plus the Applicable Margin and shall be payable at the times and in the
manner set forth below and, in any event, on or before ten (10) days prior to
the Maturity Date. Unless otherwise paid, interest accrued on the unpaid
balance of Swingline Outstandings shall be paid monthly in arrears on or before
the fifth (5th) day following receipt by Borrowers of an invoice from Swingline
Lender setting forth the amount of such accrued interest. In the event any
Swingline Advance is outstanding for thirty (30) consecutive
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Banking Business Days or as of the tenth (10th) day prior to the Maturity
Date, then on the next Banking Business Day (unless Borrowers have made other
arrangements acceptable to the Swingline Lender to pay the Swingline
Outstanding in full or to continue such Swingline Outstanding), Borrowers
shall request a Borrowing under the Credit Facility in an amount sufficient
to pay the applicable Swingline Advance in full, together with all interest
accrued thereon. Upon receipt of the amount of the Borrowing from the
Lenders, the Agent Bank shall provide such amount to the Swingline Lender for
repayment of the applicable Swingline Advance and the balance of the
Borrowing, if any, shall be deposited in immediately available funds to the
Designated Deposit Account. In the event Borrowers fail to request a
Borrowing within the period specified above, Agent Bank shall, without notice
to the Borrowers and without regard to any other conditions precedent for the
making of Borrowings under the Credit Facility, including, without limitation
the remedies set forth in Section 7.02, promptly (but subject to the notice
periods for Borrowings set forth in Section 2.03) cause a Borrowing to be
made and funded by the Lenders under the Credit Facility in the amount
necessary to pay the applicable Swingline Advance in full, together with all
interest accrued thereon, to the extent of Available Borrowings, and the
Borrowers shall be deemed to have requested such Borrowing and consented to
its being made as provided for herein.
d. Each Lender's obligation to advance Borrowings in
the proportionate amount of its Syndication Interest in the Credit Facility
of any unreimbursed Swingline Outstandings pursuant hereto is several, and
not joint or joint and several. The failure of any Lender to perform its
obligation to advance a Borrowing in a proportionate amount of such Lender's
Syndication Interest of any unreimbursed Swingline Outstandings shall neither
relieve any other Lender of its obligation hereunder to advance such
Borrowing in the amount of such other Lender's proportionate Syndication
Interest of such amount, nor relieve the Lender which has failed to fund of
its obligations to Borrowers hereunder. The Borrowers agree to accept the
Borrowings for payment of Swingline Outstandings as provided hereinabove,
whether or not such Borrowings could have been made pursuant to the terms of
Article III B or any other section of this Credit Agreement.
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Section 2.09. ISSUANCE OF LETTERS OF CREDIT.
a. Any Authorized Officer of Borrowers may from time to
time following the Closing Date request that a Letter of Credit be issued by
delivering to L/C Issuer (with a facsimile copy to the Agent Bank) on a
Banking Business Day, at least three (3) Banking Business Days prior to the
date of such proposed issuance, an L/C Agreement in L/C Issuer's then
standard form (consistent with the terms of the Credit Agreement), completed
to the satisfaction of L/C Issuer and such other certificates as the L/C
Issuer may reasonably request; provided, however, that no Letter of Credit
shall be issued (a) if any Default or Event of Default has occurred and
remains continuing, or (b) if after giving effect to the issuance thereof,
the aggregate Stated Amount of outstanding Letters of Credit would exceed
Five Million Dollars ($5,000,000.00), or (c) the Stated Amount of the
requested Letter of Credit exceeds the Maximum Availability. Each Letter of
Credit shall be issued by the L/C Issuer on the Banking Business Day
specified in the Borrowers' application therefor. Each request for a Letter
of Credit and each Letter of Credit shall be subject to the Uniform Customs
and Practice for Documentary Credits, International Chamber of Commerce
Publication New 1994 Revision No. 500, or any successor publication then in
effect. Each Letter of Credit will be issued for a term not greater than one
(1) year (and may include any provision for automatic renewal, subject to the
payment of any applicable L/C Fee for such renewal period); provided,
however, in no event shall any Letter of Credit have a Stated Expiry Date
later than thirty (30) days prior to the Maturity Date. Promptly after
receipt of each request for the issuance of a Letter of Credit and
immediately prior to the issuance thereof, L/C Issuer shall obtain telephonic
verification from Agent Bank that the amount of such request does not exceed
the then Available Borrowings. The L/C Issuer shall promptly notify the
Agent Bank of the aggregate L/C Exposure of outstanding Letters of Credit
each time there is a change therein.
b. Upon presentation of a draft drawn under any Letter
of Credit, L/C Issuer shall promptly notify the Agent Bank and Borrowers of
the amount under such draft and the date upon which such draft is to be
funded. On or before two (2) Banking Business Days following such notice
(unless Borrowers have made other arrangements acceptable to the L/C Issuer
to pay the amount of such draft in full), Borrowers shall request a Borrowing
under the Credit Facility in an amount sufficient to pay the amount of such
draft in full.
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The Agent Bank, upon receipt of such funds from the Lenders, shall
automatically provide such amount to the L/C Issuer for payment of the amount
of such draft and the balance of the Borrowing shall be deposited in
immediately available funds to the Designated Deposit Account. In the event
Borrowers fail to advance to L/C Issuer the amount of such draft from
Borrowers' available funds or request a Borrowing within two (2) Banking
Business Days from receipt of the notice as specified above, on the third
(3rd) Banking Business Day following Agent Bank's receipt of such notice,
Agent Bank shall, without notice to or consent of the Borrowers and without
regard to any other conditions precedent for the making of Borrowings under
the Credit Facility, including, without limitation the remedies set forth in
Section 7.02, cause (subject to the notice periods for Borrowings set forth
in Section 2.03) a Borrowing to be made and funded by the Lenders under the
Credit Facility in the amount necessary to pay the amount of such draft in
full. Upon the occurrence and continuance of any Event of Default, L/C
Issuer shall, without prior notice or further authorization or consent of
Borrowers whatsoever, be authorized to immediately cause the Cash Collateral
Account to be established and funded by Lenders with a Borrowing advanced to
Agent Bank equal to the aggregate amount of the L/C Exposure then
outstanding. All amounts held by L/C Issuer in the Cash Collateral Account
shall be held as security for the repayment of any L/C Reimbursement
Obligation thereafter arising pursuant to the terms of the L/C Agreement(s)
and the Cash Collateral Pledge Agreement. Borrowings advanced by Lenders to
pay drafts drawn upon or to secure repayment of the L/C Exposure under
Letters of Credit pursuant to this subsection shall: (i) constitute
Borrowings under the Credit Facility, (ii) initially be Base Rate Loans and
(iii) be subject to all of the provisions of this Credit Agreement concerning
Borrowings under the Credit Facility, except that such Borrowings shall be
made upon demand of the Agent Bank as set forth above rather than upon Notice
of Borrowing by Borrowers and shall be made, notwithstanding anything in this
Credit Agreement to the contrary, without regard to any other conditions
precedent to the making of Borrowings under the Credit Facility and
notwithstanding any Default or Event of Default thereunder. All amounts paid
by L/C Issuer on a draft drawn under any Letter of Credit which has not been
funded or concurrently reimbursed by Borrowers or through a Borrowing as
provided hereinabove, shall bear interest at the Base Rate plus the
Applicable Margin per annum until repaid or reimbursed to L/C Issuer.
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c. Each Lender's obligation to advance Borrowings in
the proportionate amount of its Syndication Interest in the Credit Facility
of any unreimbursed amounts outstanding under any Letter of Credit pursuant
hereto is several, and not joint or joint and several. The failure of any
Lender to perform its obligation to advance a Borrowing in a proportionate
amount of such Lender's Syndication Interest of any unreimbursed amounts
outstanding under a Letter of Credit will not relieve any other Lender of its
obligation hereunder to advance such Borrowing in the amount of such other
Lender's proportionate Syndication Interest of such amount, nor relieve the
Lender which has failed to fund of its obligations to Borrowers hereunder.
The Borrowers agree to accept the Borrowings for payment of Letters of Credit
as provided hereinabove, whether or not such Borrowings could have been made
pursuant to the terms of Article III B or any other section of this Credit
Agreement.
d. Letters of Credit shall be used and issued for the
benefit of Borrowers for the general corporate purposes of Borrowers, or any
of them, relating to the Hotel/Casino Facilities or any New Venture.
e. On the Closing Date, each Letter of Credit issued
and outstanding under the Existing Harveys Credit Agreement in accordance
with its terms shall be deemed for all purposes to be issued and outstanding
hereunder, and each Lender shall be deemed to have a risk participation
therein pursuant to the terms of this Section 2.09. Each such issued and
outstanding Letter of Credit is detailed on the Schedule of Outstanding
Letters of Credit attached hereto as Schedule 2.09(e).
Section 2.10. FEES.
a. On the Merger Effective Date, Borrowers shall pay to
Agent Bank for Pro Rata distributions to the Lenders a non-refundable fee
(the "Pre-Merger Commitment Fees") in the amount of three-eights of one
percent (0.375%) per annum of each respective Lender's Pro Rata Share of the
Aggregate Commitment, calculated as of the Merger Effective Date on the basis
of a three hundred sixty (360) day year for the number of actual days elapsed
during the period commencing on August 31, 1998 and ending on the Merger
Effective Date.
b. On the Merger Effective Date and on each other
applicable date, Borrowers shall pay the fees as required in the Fee Side
Letter, the obligation for which
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shall be and is hereby assumed by Borrowers, each of such fees to be retained
by Agent Bank or distributed to Lenders as agreed between Agent Bank and each
Lender.
c. Borrowers shall pay a quarterly nonusage fee (the
"Commitment Fee") to the Agent Bank for the account of Lenders based on the
Leverage Ratio, calculated as of each Fiscal Quarter end following the
Closing Date with reference to the Borrower Consolidation, to determine the
applicable Commitment Percentage determined as set forth in Table Two of the
definition of Applicable Margin. As of the Closing Date, the Commitment
Percentage shall be one-half of one percent (0.50%).
The Commitment Fee shall commence to accrue on the Merger Effective Date and
shall be calculated as the product of (i) the applicable Commitment
Percentage multiplied by (ii) the daily average of the Maximum Permitted
Balance less the daily average of the Funded Outstandings computed on the
basis of a three hundred sixty (360) day year based on the number of actual
days elapsed. Each Commitment Fee shall be payable in arrears on a quarterly
basis on or before the first (1st) day of the third (3rd) month following
each applicable Fiscal Quarter end and upon Bank Facility Termination. Each
Commitment Fee shall be promptly distributed by Agent Bank to Lenders in
proportion to their respective Syndication Interests in the Credit Facility.
d. Concurrently with the issuance of each Letter of
Credit (other than the Letters of Credit set forth in Schedule 2.09(e)),
Borrowers shall pay a letter of credit issuance fee to the L/C Issuer ("L/C
Fee") in an amount equal to the Stated Amount of each such Letter of Credit
multiplied by one and one-half percent (1.5%), calculated on a per annum
basis for the number of days elapsing from the issuance date to the Stated
Expiry Date of each such Letter of Credit. From each L/C Fee, one-half of
one percent (.50%) of the Stated Amount of each such Letter of Credit,
calculated on a per annum basis as provided hereinabove, shall be retained by
L/C Issuer for its own account and the balance of each L/C Fee shall be
promptly distributed by Agent Bank to Lenders in proportion to their
respective Syndication Interests in the Credit Facility. All L/C Fees paid
by Borrowers are nonrefundable and shall be deemed fully earned upon issuance
of the applicable Letter of Credit.
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Section 2.11. INTEREST ON OVERDUE AMOUNTS AND DEFAULT RATE.
a. If any payment due under the Revolving Credit Note
is not paid within one (1) Banking Business Day after receipt by Borrowers of
written notice of such nonpayment from Agent Bank, Borrowers promise to pay a
late charge in the amount of three percent (3%) of the amount of such
delinquent payment and Agent Bank need not accept any late payment made
unless it is accompanied by such three percent (3%) late payment charge. Any
late charge shall be paid to Lenders in proportion to their respective
Syndication Interests.
b. In the event of the existence of an Event of
Default, commencing on the first (1st) Banking Business Day following the
receipt by Borrowers of written notice of the occurrence of such Event of
Default from Agent Bank, the total of the unpaid balance of the principal and
the then accrued and unpaid interest owing under the Notes shall collectively
commence accruing interest at a rate equal to two percent (2.0%) over the
Base Rate (the "Default Rate") until such time as all payments and additional
interest are paid, together with the curing of any Events of Default which
may exist, at which time the interest rate shall revert to that rate of
interest otherwise accruing pursuant to the terms of the Notes.
c. In the event of the occurrence and continuance of an
Event of Default, Borrowers agree to pay all reasonable costs of collection,
including a reasonable attorneys' fee and costs, at the time of the payment
of such sum of money to the Agent Bank and/or the performance of such acts as
may be required to cure such Event of Default. In the event legal action is
commenced for the collection of any sums owing hereunder or under the terms
of the Revolving Credit Note the Borrowers agree that any judgment issued as
a consequence of such action against Borrowers and/or any Subsidiary
Guarantor shall bear interest at a rate equal to the Default Rate until fully
paid.
Section 2.12. NET PAYMENTS. All payments under this Credit
Agreement, the Revolving Credit Note, the Swingline Note and/or a L/C
Reimbursement Obligation shall be made without set-off, counterclaim,
recoupment or defense of any kind and in such amounts as may be necessary in
order that all such payments, after deduction or withholding for or on
account of any future taxes, levies, imposts, duties or other
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charges of whatsoever nature imposed by the United States or any Governmental
Authority, other than franchise taxes or any tax on or measured by the gross
receipts or overall net income of any Lender pursuant to the income tax laws
of the United States or any State, or the jurisdiction where each Lender's
principal office is located (collectively "Taxes"), shall not be less than
the amounts otherwise specified to be paid under this Credit Agreement and
the Revolving Credit Note. Each Lender that is a foreign Person (i.e., a
Person other than a United States Person for Federal income tax purposes)
shall deliver to Borrowers through Agent Bank, no later than the Closing Date
(or if such Lender becomes a party to this Credit Agreement after the Closing
Date, the date upon which a Lender becomes a party hereto), a complete and
correct signed original Internal Revenue Service ("IRS") Form 4224 (or any
successor thereto) or IRS Form 1001 (or any successor thereto) indicating
that such Lender is on the date of delivery thereof entitled to receive all
payments under this Credit Agreement free from withholding of United States
Federal income tax and shall deliver updated or corrected Forms 4224 or 1001
to Borrowers to the extent and in the manner required under the United States
tax law. Borrower shall not be required to pay any additional amounts under
this Section 2.12 as a result of (i) a Lender's failure to comply with the
requirements under this Section 2.12 or (ii) a Lender's failure to qualify
for a full reduction or exemption from deduction or withholding of United
States Federal income tax in respect of payments by Borrowers hereunder for
any reason other than a change in the United States tax law, any applicable
tax treaty or the official interpretation thereof, in each case, after the
delivery of Form 4224 or 1001, as the case may be.
A certificate as to any additional amounts payable to the Lenders under this
Section 2.12 submitted to the Borrowers by the Lenders shall certify that
such payments were actually incurred by the applicable Lenders and shall show
in reasonable detail an accounting of the amount payable and the calculations
used to determine in good faith such amount and shall be conclusive absent
manifest or demonstrable error. Any amounts payable by the Borrowers under
this Section 2.12 with respect to past payments shall be due within ten (10)
days following receipt by the Borrowers of such certificate from the Lenders;
any such amounts payable with respect to future payments shall be due within
ten (10) days after demand with such future payments. With respect to each
deduction or withholding for or on account of any Taxes, the Borrowers shall
promptly furnish to the Lenders such certificates, receipts and other
documents as may be required (in the
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reasonable judgment of the Lenders) to establish any tax credit to which the
Lenders may be entitled.
Section 2.13. INCREASED COSTS. If after the Closing Date hereof
the adoption of, or any change in, any applicable law, rule or regulation
(including without limitation Regulation D of the Board of Governors of the
Federal Reserve System and any successor thereto), or any change in the
interpretation or administration thereof by any Governmental Authority,
central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by any Lender with any future request
or future directive (whether or not having the force of law) of any such
Governmental Authority, central bank or comparable agency:
a. Shall subject any Lender to any duty or other charge
(except with respect to any taxes imposed by the United States or any foreign
country (including any political subdivisions or agencies thereof)) with
respect to the Credit Facility, the Revolving Credit Note, the Swingline Note
and/or a L/C Reimbursement Obligation or such Lender's obligation to make any
funding of the Credit Facility; or
b. With respect to the Bank Facilities or the
obligation of the Lenders to advance Borrowings under the Credit Facility, or
to issue or participate in Letters of Credit under the L/C Facility, shall
impose, modify or deem applicable any reserve imposed by the Board of
Governors of the Federal Reserve System, special deposit, capitalization,
capital adequacy or similar requirement against assets of, deposits with or
for the account of, or credit extended by, any Lender;
and the result of any of the foregoing, as set forth in subsections (a) or
(b) above is to increase the cost to (or in the case of Regulation D or
reserve requirements referred to above or a successor thereto, to impose a
cost on) such Lender of making or maintaining the Credit Facility, or to
reduce the amount of any sum or rate of return received or receivable by such
Lender under the Revolving Credit Note, then within ten (10) days after
demand by such Lender (which demand shall be accompanied by a certificate
setting forth the basis of such demand), the Borrowers shall pay directly to
such Lender such additional amount or amounts as will compensate such Lender
for such increased cost (or in the case of Regulation D or reserve
requirements referred to above or a successor thereto, such costs which may
be imposed upon such Lender) or such reduction of any sum or rate of return
received or
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receivable under the Revolving Credit Note. A certificate as to any
additional amounts payable to any Lender under this Section 2.13 submitted to
the Borrowers by such Lender shall certify that such amounts were actually
incurred by such Lender and shall show in reasonable detail an accounting of
the amount payable and the calculations used to determine in good faith such
amount and shall be conclusive absent manifest or demonstrable error. Each
Lender agrees to use its reasonable efforts not materially disadvantageous to
it (in its reasonable determination) to minimize such increased or imposed
costs or such reduction.
Section 2.14. MITIGATION; EXCULPATION; REPLACEMENT LENDER.
a. Each Lender agrees that it will promptly notify the
Borrowers in writing upon its becoming aware that any payments are to become
due to it under this Credit Agreement pursuant to Section 2.12 or 2.13. Each
Lender further agrees that it will use reasonable efforts not materially
disadvantageous to it (in its reasonable determination) in order to avoid or
minimize, as the case may be, the payment by the Borrowers of any additional
amounts pursuant to Section 2.12 or 2.13. Each Lender represents, to the
best of its knowledge, to the Borrowers that as of the Closing Date no such
amounts are payable to it.
b. Borrowers shall not be liable to any Lender for any
payments under Section 2.12 or 2.13 arising to the extent of such Lender's
gross negligence or wilful misconduct or breach of any laws (other than as a
result of Borrowers' or Subsidiary Guarantor's breach), or for amounts which
were incurred more than ninety (90) days prior to the date Borrowers are
notified of the incurrence of such amount. Each Bank shall be entitled to be
compensated for amounts pursuant to Section 2.12 and 2.13 only to the extent
such Bank makes the same demands for compensation from all of its other
customers facing the same or similar circumstances.
c. In the event that (x) any Lender becomes a
Defaulting Lender or otherwise defaults in its obligations to make loans or
fund Borrowings, including but not limited to, Borrowings to be made pursuant
to Section 2.05, 2.08 and 2.09 or (y) any Lender makes demand for
compensation pursuant to Section 2.12 or Section 2.13, the Borrower shall
have the right to request a replacement Lender for such Lender and (a) Agent
Bank shall use its best efforts to find such a replacement Lender which shall
acquire all of such Lender's
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Syndication Interest pursuant to Section 10.01, (b) Borrowers shall have the
right to make a Voluntary Reduction in the amount necessary to reduce the
Aggregate Commitment by the amount of the Syndication Interest held by such
Lender (without any penalties, including any Breakage Charges) until a
replacement Lender, if any, commits to acquire the Syndication Interest of
such Lender, at which time the Aggregate Commitment shall be increased by the
amount of such Voluntary Reduction (any payments required in connection with
such Voluntary Reduction shall be made to such Lender and not on a pro rata
basis to all Lenders), and (c) upon full payment of all outstanding amounts
of principal and interest owing it, such Defaulting Lender shall execute such
documents as may be required by Agent Bank or Borrowers to evidence the
termination of its Syndication Interest in the Credit Facility.
ARTICLE III
REQUIREMENTS FOR THE OCCURRENCE OF THE CLOSING DATE
AND ALL BORROWINGS
A. CLOSING AND FUNDING CONDITIONS. The obligation of each of the
Banks to fund the Initial Disbursement hereunder is subject to the following
requirements having been received by Agent Bank, in each case in form and
substance reasonably satisfactory to Agent Bank, or in the case of an
occurrence, action or event, the occurrence of each of the following on or
before the respective dates indicated below:
Section 3.01. CREDIT AGREEMENT. On or before the Closing Date,
executed counterparts of this Credit Agreement in sufficient duplicate
originals for Borrowers and each of the Banks shall be executed by Borrowers
and Banks and delivered to Agent Bank.
Section 3.02. THE NOTES.
a. On or before the Closing Date, the Revolving Credit
Note duly executed by the Borrowers in favor of Agent Bank shall be delivered
to Agent Bank.
b. On or before the Closing Date, the Swingline Note
duly executed by the Borrowers in favor of Swingline Lender shall be
delivered to Swingline Lender.
Section 3.03. SECURITY DOCUMENTATION. On or before the Closing
Date, the Security Documentation described
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below, duly executed by each applicable Borrower or other party thereto,
shall be delivered to Agent Bank:
a. Tahoe Deed of Trust;
b. California Deed of Trust;
c. Tahoe Financing Statements;
d. Assignment of Park Cattle Lease;
e. Assignment of Tahoe Green Belt Lease;
f. Assignment of California Green Belt Lease;
g. Tahoe Assignment of Spaceleases, Contracts, Rents and
Revenues;
h. Tahoe Assignment of Permits, Licenses and Contracts;
i. Cash Collateral Pledge Agreement;
j. Subsidiary Guaranty, if applicable;
k. Trademark Security Agreement;
l. Iowa Mortgage;
m. Iowa Ship Mortgage;
n. Iowa Financing Statements;
o. Iowa Assignment of Spaceleases, Contracts, Rents and
Revenues;
p. Iowa Assignment of Permits, Licenses and Contracts;
q. Assignment of Friendship Sublease;
r. Colorado Deed of Trust;
s. Colorado Financing Statements;
t. Colorado Assignment of Permits, Licenses and Contracts;
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u. Colorado Assignment of Spaceleases, Contracts, Rents
and Revenues;
v. HCR Stock Pledge and Irrevocable Stock Power of all
issued and outstanding stock of HCCMC;
w. HCR Stock Pledge and Irrevocable Stock Power of all
issued and outstanding stock of HIMC;
x. HCR Stock Pledge and Irrevocable Stock Power of all
issued and outstanding stock of HTMC;
y. HCR Stock Pledge and Irrevocable Stock Power of all
issued and outstanding stock of HCRSC;
z. HCR Security Agreement; and
aa. HCR Financing Statements.
Section 3.04. OTHER LOAN DOCUMENTS. The following Loan Documents
duly executed by each applicable Borrower and any other applicable party
thereto, consisting of the following shall be delivered or caused to be
delivered to Agent Bank on or before the Closing Date:
a. Environmental Certificate;
b. Park Cattle Lease Estoppel Certificate;
c. Tahoe Green Belt Lease Estoppel Certificate;
d. California Green Belt Lease Estoppel Certificate;
e. Reaffirmation of Hard Rock Subordination Agreement;
f. Reaffirmation of Friendship Master Lease Estoppel
Certificate;
g. Reaffirmation of Friendship Sublease Estoppel
Certificate; and
h. Reaffirmation of Westwood Subordination,
Non-Disturbance and Attornment Agreement.
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Section 3.05. ARTICLES OF INCORPORATION, BYLAWS, CORPORATE
RESOLUTION, CERTIFICATE OF GOOD STANDING AND CLOSING CERTIFICATE. Agent Bank
shall have received from each of the Borrowers on or before the Closing Date:
(i) a Certificate of Good Standing each issued by the Secretary of State of
the State of Nevada (together with a Certificate of Good Standing as a
foreign corporation issued by the Colorado Secretary of State with respect to
HCCMC and the Iowa Secretary of State with respect to HIMC) and together with
a "Long Form Good Standing Certificate" with respect to HCR issued by the
Nevada Secretary of State, and each dated within thirty (30) calendar days of
the Closing Date, (ii) a copy of the respective articles of incorporation and
by-laws certified as of the Closing Date to be true, correct and complete by
a duly Authorized Officer of each of the Borrowers, respectively, together
with a copy of all amendments thereto that will survive the Merger as the
operative articles of incorporation and bylaws of HCR, as the surviving
entity, (iii) an original Certificate of Corporate Resolution and Certificate
of Incumbency executed by the Secretary of each of the Borrowers and attested
to by its respective President, Vice President, or Treasurer authorizing each
such Borrower to enter into all documents and agreements to be executed by it
pursuant to this Credit Agreement and further authorizing and empowering the
officer or officers who will execute such documents and agreements with the
authority and power to execute such documents and agreements on behalf of
each respective corporation, (iv) designation by corporate resolution and an
original certificate ("Authorized Officer Certificate"), substantially in the
form of the Authorized Officer Certificate marked "Exhibit H", affixed hereto
and by this reference incorporated herein and made a part hereof, of the
officers of Borrowers who are authorized to give Notices of Borrowing,
Continuation/Conversion Notices, Pricing Certificates, Compliance
Certificates, Notices of Swingline Advances, request for the issuance of
Letters of Credit and all other notices, requests, reports, consents,
certifications and authorizations on behalf of the Borrowers (each
individually an "Authorized Officer" and collectively the "Authorized
Officers"), and (v) an original closing certificate ("Closing Certificate"),
substantially in the form of the Closing Certificate marked "Exhibit I",
affixed hereto and by this reference incorporated herein and made a part
hereof, duly executed by each of the Borrowers.
Section 3.06. OPINIONS OF COUNSEL. Opinions of counsel to the
Borrowers and addressed to the Agent Bank and each of the Banks, together
with their respective successors
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and assigns, substantially in the form of the legal opinions marked "Exhibits
J-1, J-2 and J-3", affixed hereto and by this reference incorporated herein
and made a part hereof, dated as of the Closing Date.
Section 3.07. TITLE INSURANCE POLICIES. On or before the Closing
Date:
a. The Tahoe Title Endorsements to the Existing Tahoe
Title Insurance Policy (or proforma commitment for the issuance thereof)
together with such re-insurance requirements as set forth in the Tahoe
Closing Instructions.
b. The Iowa Title Endorsements to the Existing Iowa
Title Insurance Policy (or proforma commitment for the issuance thereof)
together with such re-insurance requirements as set forth in the Iowa Closing
Instructions.
c. The Colorado Title Endorsements to the Existing
Colorado Title Insurance Policy (or proforma commitment for the issuance
thereof) together with such re-insurance requirements as set forth in the
Colorado Closing Instructions.
Section 3.08. SURVEY. In the event any Title Company requires a
survey as a condition of issuing the applicable Title Endorsements consistent
with the applicable Closing Instructions, subject to exceptions approved by
Agent Bank prior to the Closing Date, a current boundary and location survey
for each of the applicable Collateral Properties, which must (i) be certified
to Agent Bank and the applicable Title Insurance Company, (ii) show each of
the applicable Collateral Properties to be free of material encroachments,
overlaps, and other survey defects, (iii) show the courses and distances of
the boundary lines for each of the applicable Collateral Properties, (iv)
show that all existing or to be constructed improvements are located within
said boundary lines, and (v) show the location of all above and below ground
easements, improvements, appurtenances, utilities, rights-of-way, water
rights, if any, and ingress and egress, by reference to book and page numbers
and/or filed map reference, to the extent possible.
Section 3.09. PAYMENT OF TAXES. On or before the Closing Date,
evidence satisfactory to Agent Bank that all past and current real and
personal property taxes and assessments which are presently due and payable
applicable to
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the Collateral Properties, except those being contested in good faith, have
been paid in full.
Section 3.10. INSURANCE. On or before the Closing Date, copies of
the declaration pages of each of the insurance policies certified to be true
and correct by an Authorized Officer of the Borrowers, together with original
binders evidencing Borrowers as named insured, and original certificates of
insurance, loss payable and mortgagee endorsements naming Agent Bank as
mortgagee, loss payee and additional insured, as required by the applicable
insurance provisions set forth in Section 5.09 of this Credit Agreement.
Section 3.11. REFINANCING OF THE HAC LOAN. As of the Closing Date
and immediately following the Merger Effective Time, all outstanding
Indebtedness under the HAC Loan shall be fully paid and the HAC Loan
Agreement and HAC Demand Note shall be irrevocably terminated.
Section 3.12. REIMBURSEMENT FOR EXPENSES AND FEES. On or before
the Closing Date: (i) reimbursement by Borrowers for all reasonable fees and
out-of-pocket expenses incurred by Agent Bank in connection with the Credit
Facility, including, but not limited to, escrow charges, title insurance
premiums, environmental examinations, recording fees, appraisal fees,
reasonable attorney's fees of Henderson & Morgan, LLC and gaming, California,
Colorado, Iowa and maritime co-counsel retained by Henderson & Morgan, LLC,
insurance consultant fees, and all other like fees and expenses remaining
unpaid as of the Closing Date to the extent then due and payable and
appropriately invoiced on the Closing Date, provided that the amount then
invoiced shall not thereafter preclude Borrowers' obligation to pay such
costs and expenses relating to the Credit Facility following the Merger
Effective Date or to reimburse Agent Bank for the payment thereof, and (ii)
payment by Borrowers to Agent Bank of the Pre-Merger Commitment Fees and the
fees required in the Fee Side Letter as provided in Section 2.10(a) and (b),
respectively.
Section 3.13. SCHEDULES OF SPACELEASES AND EQUIPMENT LEASES AND
CONTRACTS. On or before the Closing Date, a Schedule of Spaceleases
(Schedules 4.18(A) through (C)) and Equipment Leases and Contracts (Schedules
4.19(A) through (C)) in each instance setting forth the name of the other
party thereto, a brief description of each spacelease providing for the
payment of One Hundred Thousand Dollars ($100,000.00), or more, per year,
equipment lease and contract providing for the payment of Fifty Thousand
Dollars
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($50,000.00), or more, per year and the commencement and ending date thereof.
Section 3.14. LEASES. On or before the Closing Date:
a. A true and correct copy of the Park Cattle Lease,
Tahoe Greenbelt Lease, California Greenbelt Lease and Hard Rock Lease and of
all amendments and modifications to any of such instruments; and
b. A true and correct copy of the Westwood Lease,
Friendship Master Lease and Friendship Sublease and of all amendments and
modifications to any of such instruments.
Section 3.15. MERGER DOCUMENTATION. On or before the Merger
Effective Date:
a. A true and correct copy of the Merger Agreement,
together with all amendments and modifications thereto;
b. Written evidence, to the reasonable satisfaction of
Agent Bank, that the Merger Consideration has been provided in full to and
received by the Paying Agent; and
c. A true and correct copy of the Articles of Merger
evidencing the Merger as filed in the Office of the Secretary of State of the
State of Nevada and certified by the Nevada Secretary of State as true and
correct; and
d. Written evidence, to the reasonable satisfaction of
Agent Bank, that the directors of HAC immediately prior to the Merger
Effective Time, will, upon the consummation of the Merger, be the directors
of HCR, including, without limitation, a copy of the list of officers and
directors filed with the Nevada Secretary of State on the Merger Effective
Date.
Section 3.16. ENVIRONMENTAL QUESTIONNAIRE. On or before the
Closing Date:
a. A WFB form Environmental Questionnaire and
Disclosure Statement (Form CL-503 Rev. 6-92) completed by an Authorized
Officer of HCR with respect to each of the Collateral Properties.
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b. Borrower shall confirm that the representations
contained in Sections 2.1 and 2.2 of the Environmental Certificate are true
and correct in all material respects.
Section 3.17. EVIDENCE OF RIGHT TO OCCUPANCY OF HOTEL/CASINO
FACILITIES. On or before the Closing Date, a copy of the permanent
certificate of occupancy issued by each applicable Governmental Authority,
evidencing the right of the Borrower Consolidation to use and hold open for
the use and occupancy of the public of each of the Hotel/Casino Facilities.
Section 3.18. REGULATORY APPROVALS, PERMITS, CONSENTS, ETC.. On
or before the Closing Date, copies of those material permits, approvals or
consents by all Governmental Authorities permitting the use and operation of
the Hotel/Casino Facilities, together with all supporting documents and
materials, reasonably requested by Agent Bank at least three (3) Banking
Business Days prior to the Closing Date. On or before the Merger Effective
Date, a copy of each necessary approval of or other consent to this Credit
Agreement, Notes and the Merger by each of the applicable Gaming Authorities.
Section 3.19. RESTRICTED SUBSIDIARIES STOCK. On the Closing Date,
immediately following the Merger Effective Time, original stock certificates
of HCCMC, HTMC, HCRSC and HIMC shall be delivered to Agent Bank on behalf of
Lenders pursuant to the HCR Stock Pledges.
Section 3.20. SCHEDULE OF ALL SIGNIFICANT LITIGATION. On or
before the Closing Date, a Schedule of Significant Litigation (Schedule
3.20), involving any member of the Borrower Consolidation, in each instance
setting forth the names of the other parties thereto, a brief description of
such litigation, whether or not such litigation is covered by insurance and,
if so, whether the defense thereof and liability therefor has been accepted
by the applicable insurance company indicating whether such acceptance of
such defenses is with or without a reservation of rights, the commencement
date of such litigation and the amount sought to be recovered by the adverse
parties thereto or the amount which is otherwise in controversy.
Section 3.21. FINANCIAL STATEMENTS. On or before the Closing
Date, audited financial statements of HCR, on a consolidated and
consolidating basis, for the last Fiscal Year
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for which such financial statements are available, together with a statement
from the Chief Financial Officer of HCR to the effect that no Material
Adverse Change has occurred with respect to the Borrowers since the date of
the financial statements most recently given to Agent Bank.
Section 3.22. NO INJUNCTION OR OTHER LITIGATION. As of the
Closing Date, no law or regulation shall prohibit, and no order, judgment or
decree of any Governmental Authority shall, and no litigation shall be
pending or threatened which in the reasonable judgment of the Agent Bank
would or would reasonably be expected to, enjoin, prohibit, limit or restrain
the occurrence of the Merger or the execution and delivery of this Credit
Agreement or the making of the Base Rate Loans or the LIBOR Loans or the
performance by the Borrowers of any other obligations in respect thereof or
the ability of the Borrowers to conduct their business substantially as
presently conducted.
Section 3.23. MINIMUM EQUITY INVESTMENT. On or prior to the
Merger Effective Date, HCR shall have received a minimum of One Hundred
Twenty-Four Million Dollars ($124,000,000.00) in Cash as equity capital
through the issuance of common stock (voting and nonvoting) or through the
issuance of Permitted Preferred Stock.
Section 3.24. EMPLOYMENT CONTRACTS. Prior to the Merger Effective
Time, Borrowers shall have negotiated and executed employment contracts with
key management to be designated by Borrowers, to the reasonable satisfaction
of Agent Bank.
Section 3.25. FINANCIAL PERFORMANCE REQUIREMENTS. As of the date
of the Initial Disbursement, the HCR Consolidation shall have demonstrated
the following to the reasonable satisfaction of Agent Bank:
a. That the Leverage Ratio of the HCR Consolidation as
of the most recently ended Fiscal Quarter does not exceed 5.25 to 1.00; and
b. EBITDA for the HCR Consolidation for the four (4)
most recently ended Fiscal Quarters is Fifty-Three Million Five Hundred
Thousand Dollars ($53,500,000.00), or more, in the aggregate.
Section 3.26. ADDITIONAL DOCUMENTS AND STATEMENTS. On or before
the Closing Date, such additional documents,
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affidavits, certificates and opinions as Lenders may reasonably require to
insure compliance with this Credit Agreement. The statements set forth in
Section 3.29 shall be true and correct.
Section 3.27. OCCURRENCE OF MERGER. As of the Closing Date, the
Merger shall have occurred and become effective.
B. CONDITIONS PRECEDENT TO ALL BORROWINGS. The obligation of
each Lender and Agent Bank to make any Borrowing requested to be made on any
Funding Date, except Borrowings made upon the demand of Agent Bank for the
purpose of funding repayment of Swingline Outstandings and/or L/C
Reimbursement Obligations, is subject to the occurrence of each of the
following conditions precedent as of such Funding Date:
Section 3.28. NOTICES OF BORROWING. With respect to each
Borrowing, the Agent Bank shall have received in accordance with Section 2.03
on or before such Funding Date an original and duly executed Notice of
Borrowing or facsimile copy thereof, to be promptly followed by an original.
Section 3.29. CERTAIN STATEMENTS. On each such Funding Date and
as of the Closing Date the following statements shall be true and correct:
a. The representations and warranties made by the
Borrowers contained in Article IV hereof or in any of the Loan Documents
(other than representations and warranties which expressly speak only as of a
different date which shall be true and correct as of such date) are true and
correct on and as of the Funding Date and as of the Closing Date in all
material respects as though made on and as of that date, except to the extent
that such representations and warranties are not true and correct as a result
of a change which is permitted by this Credit Agreement or by any other Loan
Document, or which is otherwise consented to by Agent Bank upon the approval
of Requisite Lenders;
b. The representations and certifications contained in
the Environmental Certificate are true and correct in all material respects
(other than representations and warranties which expressly speak only as of a
different date which shall be true and correct as of such date);
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c. Since the date of the most recent financial
statements referred to in Sections 3.21 and 5.08, no Material Adverse Change
shall have occurred; and
d. No event has occurred or as a result of any
Borrowings contemplated hereby would occur and is continuing, or would result
from the making thereof, which constitutes a Default or Event of Default
hereunder.
Section 3.30. GAMING PERMITS. The Borrower Consolidation shall
have all Gaming Permits material to or required for the conduct of the gaming
businesses and the conduct of games of chance at the Hotel/Casino Facilities
and such Gaming Permits shall not then be suspended, enjoined or prohibited
(for any length of time) by any Gaming Authority or any other Governmental
Authority.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
To induce Banks to enter into this Credit Agreement, Borrowers make
the following representations and warranties as of the Closing Date:
Section 4.01. ORGANIZATION; POWER AND AUTHORIZATION.
a. Each Borrower is a corporation duly organized,
validly existing and in good standing under the laws of the State of Nevada.
Each Borrower (i) has all requisite power, authority and legal right to
execute and deliver each document, agreement or certificate to which it is a
party or by which it is bound in connection with the Bank Facilities, to
consummate the transactions and perform its obligations hereunder and
thereunder, and to own its properties and assets and to carry on and conduct
its business as presently conducted or proposed to be conducted, (ii) has
taken all necessary action to authorize the execution, delivery and
performance by it of this Credit Agreement and the other Loan Documents to
which it is a party or by which it is bound and to consummate the
transactions contemplated hereunder and thereunder and (iii) is duly
qualified as a foreign corporation, and is licensed and in good standing
under the laws of each jurisdiction where its ownership, lease or operation
of property or the conduct of its business requires such qualification or
license and where the failure
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to so qualify and be licensed (other than with respect to the Gaming Permits)
would result in a Material Adverse Change.
b. Each Restricted Subsidiary, when formed: (i) is a
corporation, limited partnership, limited liability company or general
partnership duly formed, validly existing and in good standing under the laws
of its jurisdiction of organization, is duly qualified to do business as a
foreign organization and is in good standing as such in each jurisdiction in
which the conduct of its business or the ownership or leasing of its
properties and assets makes such qualification necessary where the failure to
so qualify would result in a Material Adverse Change and has all requisite
power and authority to conduct its business and to own and lease its
properties and assets, and (ii) has taken all necessary action to authorize
the execution, delivery and performance by it of the Subsidiary Guaranty
executed and delivered by it to Agent Bank as of the date of such execution
and delivery.
Section 4.02. NO CONFLICT WITH, VIOLATION OF OR DEFAULT UNDER LAWS
OR OTHER AGREEMENTS. Neither the execution and delivery of this Credit
Agreement, the Revolving Credit Note, the Swingline Note, or any other Loan
Document, or any other agreement, certificate or instrument to which
Borrowers are a party or by which they, or any of them, are bound in
connection with the Bank Facilities, nor the consummation of the transactions
contemplated hereunder or thereunder, or the compliance with or performance
of the terms and conditions herein or therein, is prevented by, limited by,
conflicts in any material respect with, or will result in a material breach
or violation of, or a material default (with due notice or lapse of time or
both) under, or the creation or imposition of any lien, charge, or
encumbrance of any nature whatsoever upon any of their respective property or
assets by virtue of, the terms, conditions or provisions of (a) the Articles
of Incorporation (including all amendments thereto in connection with the
Merger), Bylaws (including all amendments thereto in connection with the
Merger) or other documents of organization or charter of any of the
Borrowers, (b) any indenture, evidence of indebtedness, loan or financing
agreement, or other agreement or instrument of whatever nature to which they,
or any of them, are a party or by which they, or any of them, are bound
(other than the Loan Documents), including, without limitation, the Indenture
and the Senior Subordinated Notes, (c) the Park Cattle Lease, the Tahoe Green
Belt Lease, the California Green Belt Lease or the Hard Rock Lease, (d) the
Westwood Lease, Friendship Lease or the Friendship
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Sublease, or (e) any provision of any existing law, rule, regulation, order,
writ, injunction or decree of any court or Governmental Authority to which
they, or any of them, are subject where, in the case of each of clauses (a),
(b), (c), (d) and (e), such breach, conflict, violation, default, lien,
charge or encumbrance could reasonably be expected to result in a Material
Adverse Change.
Section 4.03. LITIGATION. Except as disclosed on the Schedule of
Significant Litigation delivered in connection with Section 3.20 there is no
action, suit, proceeding, inquiry, hearing or investigation pending or, to
the best knowledge of Borrowers, threatened, in any court of law or in
equity, or before any Governmental Authority, which could reasonably be
expected to result in any Material Adverse Change. To the best knowledge of
Borrowers, Borrowers are not in violation of or default with respect to any
order, writ, injunction, decree or demand of any such court or Governmental
Authority where such default could reasonably be expected to result in a
Material Adverse Change.
Section 4.04. AGREEMENTS LEGAL, BINDING, VALID AND ENFORCEABLE.
a. This Credit Agreement, the Revolving Credit Note,
the Swingline Note, the Security Documentation and all other Loan Documents,
when executed and delivered by Borrowers in connection with the Bank
Facilities will, as of the Merger Effective Time, constitute legal, valid and
binding obligations of Borrowers, enforceable against Borrowers in accordance
with their respective terms, except as may be limited by bankruptcy,
insolvency, reorganization, moratorium and other laws of general application
relating to or affecting the enforcement of creditors' rights and the
exercise of judicial discretion in accordance with general principles of
equity (regardless of whether enforcement is considered in a proceeding in
equity or at law).
b. Each of the Land Leases have been duly authorized
and executed by the applicable member of the Borrower Consolidation and to
the best knowledge of Borrowers by each other respective party thereto and
constitute legal, valid and binding obligations of the applicable member of
the Borrower Consolidation and to the best knowledge of Borrowers each other
respective party thereto, enforceable against such parties in accordance with
their respective terms, except as may be limited by bankruptcy, insolvency,
reorganization, moratorium and other laws of general application relating to
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or affecting the enforcement of creditors' rights and the exercise of
judicial discretion in accordance with general principles of equity
(regardless of whether enforcement is considered in a proceeding in equity or
at law).
Section 4.05. INFORMATION AND FINANCIAL DATA ACCURATE; FINANCIAL
STATEMENTS; NO MATERIAL ADVERSE CHANGE. Any and all financial statements
heretofore furnished to Banks by Borrowers, or any of them: (a) present
fairly the financial position of the entity to which they relate as at their
respective dates and the results of operations and changes in cash flows for
the periods to which they apply, and (b) have been prepared in conformity
with GAAP applied on a consistent basis throughout the periods involved.
Since the date of the most recent financial statements referred to in this
Section 4.05, there has been no Material Adverse Change in the financial
condition, business or operations of the Borrower Consolidation.
Section 4.06. GOVERNMENTAL APPROVALS. All consents, approvals,
orders or authorizations of, or registrations, declarations, notices or
filings with any Governmental Authority and any other Person, which may be
required in connection with the valid execution and delivery of this Credit
Agreement and the other Loan Documents by Borrowers and the carrying-out or
performance of any of the transactions required or contemplated hereunder, or
thereunder, by Borrowers, have been obtained or accomplished and are in full
force and effect, except as may be required in connection with the exercise
of remedies under the Security Documentation following an Event of Default,
or can be obtained by Borrowers. All consents, approvals, orders or
authorizations of, or registrations, declarations, notices or filings with
any Governmental Authority and any other Person, the failure of which could
reasonably be expected to result in a Material Adverse Change, which may be
required by Borrowers in connection with the use and operation of the
Hotel/Casino Facilities have been obtained or accomplished and are in full
force and effect.
Section 4.07. PAYMENT OF TAXES. Borrowers have duly filed or
caused to be filed all material federal, state and local tax reports and
returns which are required to be filed by them and have paid or made
provisions for the payment of, all material taxes, assessments, fees and
other governmental charges which have or may have become due pursuant to said
returns or otherwise pursuant to any assessment received by Borrowers except
such taxes,
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assessments, fees or other governmental charges, if any, as are being
contested in good faith by Borrowers by appropriate proceedings and for which
Borrowers have maintained adequate reserves for the payment thereof in
accordance with GAAP.
Section 4.08. TITLE TO PROPERTIES. As of the Closing Date, HTMC
has good and marketable title to all of its properties and assets reflected
in the most recent financial statements of the Borrower Consolidation
delivered to Agent Bank prior to the Closing Date, as owned by it, including,
but not limited to, the Tahoe Real Property and the Tahoe Hotel/Casino
Facility and the lessee's interest in the Park Cattle Lease, the Tahoe Green
Belt Lease, the California Green Belt Lease and all other Tahoe Collateral
(except for those properties and assets disposed of since the date of said
financial statements in the ordinary course of business or those properties
and assets which are no longer used or useful in the conduct of its business
or those properties and assets permitted to be disposed of under this Credit
Agreement). As of the Closing Date, HIMC has good and marketable title to
all of its properties and assets reflected in the most recent financial
statements of the Borrower Consolidation delivered to Agent Bank prior to the
Closing Date, as owned by it, including, but not limited to, the Iowa Land
Base Facilities, the Riverboat and the lessor's interest in the Westwood
Lease and sublessee's interest in the Friendship Sublease. As of the Closing
Date, HCCMC has good and marketable title to all of its properties and assets
reflected in the most recent financial statements of the Borrower
Consolidation delivered to Agent Bank prior to the Closing Date, as owned by
it, including, but not limited to, the Colorado Hotel/Casino Facility. The
Collateral is not subject to any liens, encumbrances or restrictions except
Permitted Encumbrances.
Section 4.09. NO UNTRUE STATEMENTS. All representations and
warranties made by Borrowers, or any of them, in this Credit Agreement, any
other Loan Document and any other agreement, document, certificate or
instrument furnished by Borrowers, or any of them, to Banks pursuant to the
provisions of Article III of this Credit Agreement, including, without
limitation, all financial information and other data previously furnished in
writing by Borrowers, or any of them, in connection with the Bank Facilities,
on and as of the Closing Date: (a) are and shall be true, correct and
complete in all material respects at the time made, (b) do not and shall not
contain (at the time they were made) any untrue statement of a material fact,
and (c) do not and shall not omit to state a material fact, the absence of
which makes the
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information contained herein or therein materially misleading or incomplete.
Borrowers understand that all such statements, representations and warranties
shall be deemed to have been relied upon by Banks as a material inducement to
establish the Bank Facilities.
Section 4.10. BROKERAGE COMMISSIONS. No Person (other than the
Banks) is entitled to receive any brokerage commission, finder's fee or
similar fee or payment in connection with the extensions of credit
contemplated by this Credit Agreement as a result of any agreement entered
into by Borrowers. No brokerage or other fee, commission or compensation is
to be paid by Banks with respect to the extensions of credit contemplated
hereby as a result of any agreement entered into by Borrowers, and Borrowers
agree to indemnify Banks against any such claims for brokerage fees or
commissions and to pay all expenses including, without limitation, reasonable
attorney's fees incurred by Banks in connection with the defense of any
action or proceeding brought to collect any such brokerage fees or
commissions.
Section 4.11. NO DEFAULTS. To the best of Borrowers' knowledge,
none of the Borrowers are in violation of or in default with respect to any
applicable laws and/or regulations which materially and adversely affect the
Iowa Riverboat/Hotel Facilities, Tahoe Hotel/Casino Facility or Colorado
Hotel/Casino Facility or the business, financial condition, property of
Borrowers or operations of the Borrowers, or any of them which could
reasonably be expected to result in a Material Adverse Change. Without
limiting the generality of the foregoing, Borrowers are not in violation or
default (nor is there any waiver in effect which, if not in effect, would
result in a violation or default) in any material and adverse respect under
the Indenture, Senior Subordinated Notes, the Park Cattle Lease, the Tahoe
Green Belt Lease, the California Green Belt, the Hard Rock Lease, the
Westwood Lease, the Friendship Sublease or under any indenture, evidence of
indebtedness, loan or financing agreement or other agreement or instrument of
whatever nature to which it is a party or by which it is bound, which in any
case could reasonably be expected to result in Material Adverse Change.
Section 4.12. EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974. To
the best knowledge of Borrowers, no Reportable Event has occurred with
respect to any Pension Plan under ERISA, that gives rise to material
liabilities that
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materially adversely affect the financial condition or operations of
Borrowers, or any of them.
Section 4.13. PARK CATTLE LEASE AND HARD ROCK LEASE. The copies
of the Park Cattle Lease and Hard Rock Lease and all modifications and
amendments thereto (if any) which have been delivered to Agent Bank in
accordance with Section 3.14: (a) are a true, correct and complete copy of
the respective originals thereof, as in effect on the Closing Date, and no
amendments or modifications have been made to such Park Cattle Lease and/or
the Hard Rock Lease prior to the Closing Date, except as set forth by the
documents delivered to Agent Bank in accordance with said Section 3.14 or
otherwise reasonably approved in writing by Requisite Lenders, and (b) have
not been terminated and are in full force and effect. There is no default in
the observance or performance by HTMC of any of its obligations under the
Park Cattle Lease and/or the Hard Rock Lease which would entitle Park Cattle
Co. or Hard Rock to terminate such lease and HTMC has done all things
required to be done as of the Closing Date to keep unimpaired its rights
thereunder.
Section 4.14. GREEN BELT LEASES. The copies of the Tahoe Green
Belt Lease, California Green Belt Lease and all modifications and amendments
thereto (if any) which have been delivered to Agent Bank in accordance with
Section 3.14: (a) is a true, correct and complete copy of the respective
original thereof, as in effect on the Closing Date, and no amendments or
modifications have been made to such Tahoe Green Belt Lease or California
Green Belt Lease prior to the Closing Date, except as set forth by documents
delivered to Agent Bank in accordance with said Section 3.14 or otherwise
reasonably approved in writing by Requisite Lenders, and (b) has not been
terminated and is in full force and effect. There is no default by HTMC in
the observance or performance of any of its obligations under the Tahoe Green
Belt Lease and California Green Belt Lease which would entitle Park Cattle
Co. to terminate such lease and HTMC has done all things required to be done
as of the Closing Date to keep unimpaired its rights thereunder.
Section 4.15. IOWA LEASES. The copy of each of the Westwood
Lease, Friendship Master Lease and Friendship Sublease and all modifications
and amendments thereto (if any) which have been delivered to Agent Bank in
accordance with Section 3.14: (a) is a true, correct and complete copy of the
respective original thereof, as in effect on the Closing Date, and no
amendments or modifications have been made to such
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Westwood Lease, Friendship Master Lease or Friendship Sublease prior to the
Closing Date, except as set forth by documents delivered to Agent Bank in
accordance with said Section 3.14 or otherwise reasonably approved in writing
by Requisite Lenders, and (b) has not been terminated and is in full force
and effect. To the actual knowledge of HIMC, there is no default by the City
of Counsel Bluffs, Iowa, in the observance or performance of any of its
obligations under the Friendship Master Lease which would entitle the Iowa
Department of Natural Resources to terminate such lease and the City of
Counsel Bluffs, Iowa, has done all things required to be done as of the
Closing Date to keep unimpaired its rights thereunder. There is no default
in the observance or performance by HIMC of any of its obligations under the
Westwood Lease or Friendship Sublease which would entitle the City of Counsel
Bluffs to terminate such lease and HIMC has done all things required to be
done as of the Closing Date to keep unimpaired its rights thereunder.
Section 4.16. AVAILABILITY OF UTILITY SERVICES. All utility
services necessary for the Hotel/Casino Facilities including, without
limitation, electrical, water, gas and sewage services and facilities are
available at the boundaries of the Tahoe Real Property, the Iowa Real
Property and the Colorado Real Property, respectively.
Section 4.17. POLICIES OF INSURANCE. As of the Closing Date, each
of the copies of the declaration pages, original binders and certificates of
insurance evidencing the Policies of Insurance relating to the Hotel/Casino
Facilities delivered to Agent Bank by Borrowers (i) is a true, correct and
complete copy of the respective original thereof as in effect on the date
hereof, and no amendments or modifications of any of said documents or
instruments not included in such copies have been made as of the Closing
Date, and (ii) has not been terminated and is in full force and effect.
There is no default by Borrowers in the observance or performance of their
respective obligations under said documents and instruments which would
entitle the insurers party thereto to terminate the Policies of Insurance or
deny coverage thereunder, and Borrowers, and each of them, have done all
things required to be done as of the date of this Credit Agreement to keep
unimpaired their rights thereunder.
Section 4.18. SPACELEASES. A schedule of all executed Spaceleases
pertaining to the Hotel/Casino Facilities under which the lessee thereunder
is required to pay One Hundred Thousand Dollars ($100,000.00), or more, per
year,
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respectively, or any portion thereof, in existence as of the Closing Date
hereof, is set forth on Schedules 4.18(A) through (C) attached hereto.
Section 4.19. EQUIPMENT LEASES AND CONTRACTS. A schedule of all
executed Equipment Leases and Contracts pertaining to the Hotel/Casino
Facilities providing for the payment by the lessee of Fifty Thousand Dollars
($50,000.00), or more, per year, respectively, or any portion thereof, in
existence on the date hereof, is set forth on Schedules 4.19 (A) through (C)
attached hereto.
Section 4.20. GAMING PERMITS AND APPROVALS. All Gaming Permits
required to be held by Borrowers in connection with the Tahoe Hotel/Casino
Facility, the Iowa Riverboat/Hotel Facilities and the Colorado Hotel/Casino
Facility are current and in good standing and Borrowers presently hold all
Gaming Permits necessary for the continued operation of the Tahoe
Hotel/Casino Facility, the Iowa Riverboat/Hotel Facilities and the Colorado
Hotel/Casino Facility. Each of the Gaming Authorities have given all
necessary approvals of this Credit Agreement, the Notes and each Loan
Document to be executed by Borrowers in connection with the Bank Facilities.
Section 4.21. ENVIRONMENTAL CERTIFICATE. The representations and
certifications contained in the Environmental Certificate are true and
correct in all material respects.
Section 4.22. NEW VENTURE SUBSIDIARIES. A schedule of each
Restricted Subsidiary and Unrestricted Subsidiary (exclusive of HTMC, HIMC,
HCRSC and HCCMC) existing as of the Closing Date and a description of the New
Venture owned in whole or part by each such Restricted Subsidiary and
Unrestricted Subsidiary is marked "Schedule 4.22", affixed hereto and by this
reference incorporated herein and made a part hereof. As of the Closing
Date, HTMC, HIMC, HCRSC and HCCMC do not have any Subsidiaries.
Section 4.23. COMPLIANCE WITH STATUTES, ETC. Except for matters
related to the compliance by the Borrowers with Hazardous Materials Laws,
which matters are governed by the Environmental Certificate and the
Mortgages, to the best knowledge of Borrowers, each of the Borrowers is in
compliance with all applicable statutes, regulations and orders of, and all
applicable restrictions imposed by, all Governmental Authorities, domestic or
foreign, in respect of the conduct of its business and the ownership of its
property, except such
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noncompliance as would not, in the aggregate, reasonably be expected to
result in a Material Adverse Change.
Section 4.24. INVESTMENT COMPANY ACT. Neither HCR nor any of its
Subsidiaries is an "investment company" or a company "controlled" by an
"investment company," which is required to be registered under the Investment
Company Act of 1940, as amended.
Section 4.25. PUBLIC UTILITY HOLDING COMPANY ACT. Neither HCR nor
any of its Subsidiaries is a "holding company," or a "subsidiary company" of
a "holding company," or an "affiliate" of a "holding company" or of a
"subsidiary company" of a "holding company," within the meaning of the Public
Utility Holding Company Act of 1935, as amended.
Section 4.26. LABOR RELATIONS. There is no strike or work
stoppage in existence, or to the best knowledge of Borrowers threatened
involving any Borrower or any of the Hotel/Casino Facilities that could
reasonably be expected to result in a Material Adverse Change.
Section 4.27. TRADEMARKS, PATENTS, LICENSES, FRANCHISES, FORMULAS
AND COPYRIGHTS. Except as disclosed in Schedule 4.27, each of HCR and its
Restricted Subsidiaries own all the patents, trademarks, permits, service
marks, trade names, copyrights, licenses, franchises and formulas, or has a
valid license or sublicense of rights with respect to the foregoing, and has
obtained assignments of all leases and other rights of whatever nature,
necessary for the present conduct of its business, without any known conflict
with the rights of others which, or the failure to obtain which, as the case
may be, could reasonably be expected to result in a Material Adverse Change
in the business, operations, property, assets or condition (financial or
otherwise) of HCR and its Restricted Subsidiaries taken as a whole. Each of
the patents, trademarks, servicemarks, tradenames and copyrights owned by
Borrowers, or any of them, relating to the Tahoe Hotel/Casino Facility, Iowa
Riverboat/Hotel Facilities and/or Colorado Hotel/Casino Facility which is
registered with any Governmental Authority is set forth on Schedule 4.27,
attached hereto.
Section 4.28. CONTINGENT LIABILITIES. As of the Merger Effective
Date, Borrowers have incurred no material Contingent Liabilities (any
Contingent Liability in excess of One Million Dollars ($1,000,000.00) being
deemed material) other than those described on Schedule 4.28.
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ARTICLE V
GENERAL COVENANTS OF BORROWERS
To induce the Banks to enter into this Credit Agreement and
establish the Bank Facilities, Borrowers covenant to Banks as follows from
and after the Closing Date until the occurrence of Bank Facility Termination:
Section 5.01. FF&E. The Borrower Consolidation shall furnish,
fixture and equip the Hotel/Casino Facilities with FF&E it reasonably deems
appropriate for the operation of the Hotel/Casino Facilities. All FF&E that
is purchased and installed in the Hotel/Casino Facilities shall be purchased
free and clear of any liens, encumbrances or claims, other than Permitted
Encumbrances. If Borrowers should sell, transfer, convey or otherwise
dispose of any FF&E to any Person other than a member of the Borrower
Consolidation (other than obsolete or worn out FF&E or other FF&E no longer
useful in the business of the Borrowers) and not within thirty (30) days of
such sale, transfer, conveyance or other disposition replace such FF&E with
purchased items of equivalent value and utility or replace said FF&E with
leased FF&E of equivalent value and utility or replace such FF&E with other
assets useful in the business of the Borrower Consolidation, within the
permissible leasing and purchase agreement limitation set forth in Section
6.10(b) herein, to the extent the Net Proceeds thereof not used to replace
FF&E exceeds a cumulative aggregate value of Five Million Dollars
($5,000,000.00) during any Fiscal Year or a cumulative aggregate value of Ten
Million Dollars ($10,000,000.00) during the term of the Credit Facility (in
either instance the "Excess Capital Proceeds"), Borrowers shall be required
to, on, or at Borrowers' option, prior to thirty (30) days following such
sale, transfer, conveyance or other dispositions, permanently reduce the
Maximum Permitted Balance of the Credit Facility by a Voluntary Permanent
Reduction in the amount of the Excess Capital Proceeds of the FF&E so
disposed of, subject, however, to the right of Agent Bank to verify to its
reasonable satisfaction the amount of said Excess Capital Proceeds.
Section 5.02. PERMITS; LICENSES AND LEGAL REQUIREMENTS. Borrowers
shall comply in all material respects with and keep in full force and effect,
as and when required, all Gaming Permits and all material permits, licenses
and approvals obtained from any Governmental Authorities which are required
for the operation and use of the Hotel/Casino
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Facilities. Borrowers, and each of them, shall comply in all material
respects with all applicable material existing and future laws, rules,
regulations, orders, ordinances and requirements of all Governmental
Authorities, and with all recorded restrictions affecting the Hotel/Casino
Facilities where the failure of such compliance could reasonably be expected
to result in a Material Adverse Change.
Section 5.03. LEASES. Until Bank Facility Termination: (a) HTMC
shall fully perform and comply in all material respects with all agreements,
covenants, terms and conditions imposed or assumed by HTMC as: (i) lessee
under Park Cattle Lease; (ii) as lessee under the Tahoe Green Belt Lease;
(iii) as lessee under the California Green Belt Lease; and (iv) as lessor
under the Hard Rock Lease, and (b) HIMC shall fully perform and comply in all
material respects with all agreements, covenants, terms and conditions
imposed or assumed by HIMC as: (i) lessor under the Westwood Lease, and (ii)
as lessee under the Friendship Sublease. Borrowers shall not amend, modify
or terminate, or enter into any agreement to amend, modify or terminate the
Park Cattle Lease, the Tahoe Green Belt Lease, California Green Belt Lease,
the Hard Rock Lease, Westwood Lease and/or Friendship Sublease without the
prior written consent of Agent Bank, which consent shall not be unreasonably
withheld, or if in the opinion of Agent Bank such amendment or modification
is materially adverse to any member of the Borrower Consolidation or could
reasonably be expected to have a detrimental effect on the Agent Bank or the
Lenders or any of their rights or remedies under the Credit Agreement or the
Security Documentation, without the prior written consent of Requisite
Lenders.
Section 5.04. PROTECTION AGAINST LIEN CLAIMS. Borrowers shall
promptly pay and discharge or cause to be paid and discharged all claims and
liens for labor done and materials and services supplied and furnished in
connection with the Hotel/Casino Facilities in accordance with this Section
5.04, except such claims and liens, if any, as are being contested in good
faith by Borrowers by appropriate proceedings and for which Borrowers have
maintained adequate reserves for the payment thereof in accordance with GAAP.
If any mechanic's lien or materialman's lien for a sum in excess of Five
Hundred Thousand Dollars ($500,000.00) shall be recorded, filed or suffered
to exist against the Hotel/Casino Facilities, or any of them, or any interest
therein by reason of work, labor, services or materials supplied, furnished
or claimed to have been supplied and furnished in connection with the
Hotel/Casino Facilities, or any of them, upon Borrowers
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receipt of written notice from Agent Bank demanding the release and discharge
of such lien, said lien or claim shall be paid, released and discharged or
expunged of record within sixty (60) days following its receipt of such
notice.
Section 5.05. NO CHANGE IN CHARACTER OF BUSINESS. Until Bank
Facility Termination, (i) the Hotel/Casino Facilities shall be operated by
members of the Borrower Consolidation, and (ii) the Borrower Consolidation
shall not effect a Material Adverse Change in the nature and character of its
business at the Hotel/Casino Facilities as presently conducted and as
presently contemplated and disclosed to Banks. Notwithstanding the
foregoing, upon written notice to Agent Bank, the Borrower Consolidation may
make such changes to its business operation as may be necessary or advisable
to remain competitive in the gaming industry.
Section 5.06. PRESERVATION AND MAINTENANCE OF PROPERTIES AND
ASSETS; ACQUISITION OF ADDITIONAL PROPERTY. Until Bank Facility Termination,
Borrowers shall not remove, demolish, materially alter, discontinue the use
of, sell, transfer, assign, hypothecate or otherwise dispose of to any
Person, any part of their respective properties and assets necessary for the
continuance of their respective businesses, as presently conducted and as
presently contemplated, other than in the normal course of Borrowers'
business and as provided in Sections 5.01, 5.07 and 6.14. Furthermore, in
the event Borrowers, or any of them, or any Subsidiary thereof, shall acquire
any other real property or rights to the use of real property or any interest
therein which is used in any material manner in connection with the
Hotel/Casino Facilities, Borrowers shall or shall cause the Subsidiary, as
applicable, concurrently with the acquisition of such real property or the
rights to the use of such real property, to execute or cause the execution of
such documents as may be necessary to add such real property or rights to the
use of real property as Collateral under the Credit Facility.
Section 5.07. REPAIR OF PROPERTIES AND ASSETS. Until Bank
Facility Termination, Borrowers shall, at their own cost and expense, (a)
maintain, preserve and keep in a manner consistent with hotel and gaming
casino operating practices generally applicable to hotel/casino operations
operating in the Lake Tahoe, Nevada, Central City, Colorado and Council
Bluffs, Iowa areas, their respective assets and properties, including, but
not limited to, the Collateral and all FF&E owned or leased by Borrowers in
good and substantial repair, working order and condition, ordinary wear and
tear excepted,
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(b) from time to time, make or cause to be made, all necessary and proper
repairs, replacements, renewals, improvements and betterments to the
Hotel/Casino Facilities, and (c) from time to time, make such substitutions,
additions, modifications and improvements as may be necessary and as shall
not materially impair the structural integrity, operating efficiency and
economic value of said assets included within the Hotel/Casino Facilities (it
being understood that the activities referred to above may, on a temporary
basis, impair the operating efficiency and economic value of such assets).
All alterations, replacements, renewals, or additions made pursuant to this
Section 5.07 shall become and constitute a part of said assets and property
and subject, INTER ALIA, to the provisions of Section 5.01 and subject to the
lien of the Security Documentation.
Section 5.08. FINANCIAL STATEMENTS; REPORTS; CERTIFICATES AND BOOKS
AND RECORDS.
a. Until Bank Facility Termination, Borrowers shall,
unless the Agent Bank (with the written approval of the Requisite Lenders)
otherwise consents, at Borrowers' sole expense, deliver to the Agent Bank and
each of the Lenders a full and complete copy of each of the following and
shall comply with each of the following financial requirements:
(i) As soon as practicable, and in any event within
forty-five (45) days after the end of the first three (3) Fiscal
Quarters of each Fiscal Year, (a) the consolidated balance sheet of
the Borrower Consolidation as at the end of such Fiscal Quarter and
the consolidated statement of operations for such Fiscal Quarter, and
a statement of cash flows for the portion of the Fiscal Year ended
with such Fiscal Quarter and (b) the consolidating balance sheets and
statements of operations of the Borrower Consolidation as at and for
the portion of the Fiscal Year ended with such Fiscal Quarter, all in
reasonable detail. Such financial statements shall be certified by an
Authorized Officer of the Borrower Consolidation as fairly presenting
the financial condition, results of operations and cash flows of the
Borrower Consolidation in accordance with GAAP (other than footnote
disclosures) as at such date and for such periods, subject only to
normal year-end accruals and audit adjustments;
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(ii) As soon as practicable, and in any event within
forty-five (45) days after the end of each Fiscal Quarter (including
the fourth (4th) Fiscal Quarter in any Fiscal Year), a pricing
certificate in the form marked "Exhibit G", affixed hereto and by this
reference incorporated herein and made a part hereof (the "Pricing
Certificate") setting forth a preliminary calculation of the Leverage
Ratio as of the last day of such Fiscal Quarter, and providing
reasonable detail as to the calculation thereof, which calculations
shall be based on the preliminary unaudited financial statements of
the Borrower Consolidation for such Fiscal Quarter, and as soon as
practicable thereafter, in the event of any material variance in the
actual calculation of the Leverage Ratio from such preliminary
calculation, a revised Pricing Certificate setting forth the actual
calculation thereof; provided, however, that in the event that
Borrowers do not deliver a Pricing Certificate when due, then until
(but only until) such Pricing Certificate is delivered as provided
herein, the Leverage Ratio shall be deemed, for the purpose of
determining the Applicable Margin, to be greater than 4.5 to 1.0 and
the Applicable Margin determined with respect thereto.
(iii) As soon as practicable, and in any event within
one hundred twenty (120) days after the end of each Fiscal Year,
(i) the consolidated and consolidating balance sheet, income
statement, statement of retained earnings and cash flows (reconciled
with year end audited statements) of the Borrower Consolidation as at
the end of such Fiscal year, all in reasonable detail. Such financial
statements shall be prepared in accordance with GAAP and shall be
accompanied by a report of independent public accountants of
recognized standing selected by HCR and reasonably satisfactory to the
Agent Bank (it being understood that any "Big 5" accounting firm shall
be automatically deemed satisfactory to the Agent Bank), which report
shall be prepared in accordance with generally accepted auditing
standards as at such date, and shall not be subject to any
qualifications or exceptions as to the scope of the audit nor to any
other qualification or exception determined by the Requisite Lenders
in their good
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faith business judgment to be adverse to the interests
of the Banks. Such accountants' report shall be accompanied by a
certificate stating that, in making the examination pursuant to
generally accepted auditing standards necessary for the certification
of such financial statements and such report, such accountants have
obtained no knowledge of any Default or, if, in the opinion of such
accountants, any such Default shall exist, stating the nature and
status of such Default, and stating that such accountants have
reviewed the Financial Covenants as at the end of such Fiscal Year
(which shall accompany such certificate) under Sections 6.01 through
6.07, have read such Sections (including the definitions of all
defined terms used therein) and that nothing has come to the attention
of such accountants in the course of such examination that would cause
them to believe that the same were not calculated by the Borrower
Consolidation in the manner prescribed by this Credit Agreement. Such
financial statements shall be certified by an Authorized Officer of
the Borrower Consolidation in the same manner as required with respect
to financial statements delivered pursuant to Section 5.08(a)(i);
(iv) As soon as practicable, and in any event no later
than ninety (90) days following the commencement of each Fiscal Year,
a budget (including a Capital Expenditure budget) and projection by
Fiscal Quarter for that Fiscal Year and by Fiscal Year for the next
occurring two (2) consecutive Fiscal Years, INCLUDING for the first
such Fiscal Year, projected consolidated and consolidating balance
sheets, statements of operations and statements of cash flow of the
Borrower Consolidation, all in reasonable detail;
(v) Concurrently with the financial statements and
reports required pursuant to Sections 5.08(a)(i) and 5.08(a)(iii),
Compliance Certificate signed by an Authorized Officer;
(vi) As soon as practicable, and in any event within
forty-five (45) days (or, in the case of the fourth (4th) Fiscal
Quarter in each Fiscal Year, ninety (90) days) after the end of each
Fiscal Quarter, a written report (to the extent not
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reported under Section 5.08(vii) hereinbelow), in form and detail
reasonably acceptable to the Agent Bank, with respect to the status
of each New Venture, including the amounts of New Venture Capital
Expenditures and New Venture Investments made, and reasonably
anticipated to be made, with respect thereto; and
(vii) Promptly after the same are available, copies of
each annual report, proxy or financial statement or other report or
communication that shall have been sent to the stockholders of HCR,
and copies of all annual, regular, periodic and special reports
(including, without limitation, each 10Q and 10K report) and
registration statements which HCR shall have filed or be required to
file with the Securities and Exchange Commission under Section 13 or
15(d) of the Securities Exchange Act of 1934, as amended, and not
otherwise required to be delivered to the Banks pursuant to other
provisions of this Section 5.08.
b. Until Bank Facility Termination, Borrowers, and each
of them, shall keep and maintain complete and accurate books and records in
accordance with GAAP in all material respects, consistently applied.
Borrowers, and each of them, shall permit Banks and any authorized
representatives of Banks to have reasonable access to and to inspect, examine
and make copies of the books and records, any and all accounts, data and
other documents of Borrowers at all reasonable times upon the giving of
reasonable notice of such intent. In addition: (i) in the event of the
occurrence of any Default or Event of Default, or (ii) in the event any
Material Adverse Change occurs, Borrowers shall promptly, and in any event
within three (3) Banking Business Days after actual knowledge thereof by the
corporate controller or a senior executive officer, notify Agent Bank in
writing of such occurrence.
c. Until Bank Facility Termination, Borrowers, and each
of them, shall furnish to Agent Bank, with sufficient copies for distribution
to each of the Banks any financial information or other information bearing
on the financial status of the Borrowers or their Subsidiaries, or any of
them, which is reasonably requested by Agent Bank or Requisite Lenders.
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Section 5.09. INSURANCE. Until Bank Facility Termination,
Borrowers shall obtain, or cause to be obtained, and shall maintain or cause
to be maintained with respect to the Hotel/Casino Facilities, including
without limitation, the Riverboat, at their own cost and expense:
a. PROPERTY INSURANCE. Borrowers shall maintain a
special causes of loss (ISO or equivalent), including flood and earthquake,
perils policy covering the buildings and improvements, and any other
permanent structures for one hundred percent (100%) of the replacement cost.
Upon the request of Agent Bank, replacement cost for insurance purposes will
be established by an independent appraiser mutually selected by Borrowers and
Agent Bank. The policy will include Agreed Amount (waiving co-insurance),
replacement cost valuation and building ordinance endorsements. The policy
will include a standard mortgagee clause (ISO form or equivalent, i.e.
Borrowers' acts will not impair mortgagee's right to recover, exclusive
payment of a loss to mortgagee and automatic notice of cancellation or
non-renewal to mortgagee) and provide that all losses in excess of One
Million Dollars ($1,000,000.00) be adjusted with the Agent Bank. The
Borrowers waive any and all rights of subrogation against Banks.
b. PERSONAL PROPERTY (INCLUDING MACHINERY, EQUIPMENT,
FURNITURE, FIXTURES, STOCK). Borrowers shall maintain "All Risk" property
coverage for all personal property owned, leased or for which Borrowers are
legally liable. The coverage will include a lender's loss payable
endorsement in favor of Agent Bank.
The policy providing real property and personal property
coverages, as specified in 5.09(a) and (b) hereinabove, may include a
deductible of no more than One Hundred Thousand Dollars ($100,000.00) for any
single occurrence. Flood deductibles can be no more than Two Hundred Fifty
Thousand Dollars ($250,000.00) for the Colorado Real Property and Tahoe Real
Property and Five Hundred Thousand Dollars ($500,000.00) for the Iowa Real
Property, if a separate deductible applies and earthquake deductibles can be
no more than five percent (5%) of insured value, if a separate deductible
applies.
c. BUSINESS INTERRUPTION/EXTRA EXPENSE. Borrowers shall
maintain combined Business Interruption/Extra Expense coverage with a limit
representing no less than one hundred percent (100%) of the projected annual net
profit plus
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continuing expenses (including debt service) for the Hotel/Casino Facilities
with respect to all land-based facilities. Such coverage shall include
extensions for Off Premises Power losses at a Two Million Dollar
($2,000,000.00) limit and an extended period of indemnity provision at ninety
(90) days. These coverages may have deductible of no greater than
forty-eight (48) hours, or One Hundred Thousand ($100,000.00), if a separate
deductible applies. This coverage will be specifically endorsed to include
Agent Bank as loss payee.
d. BOILER AND MACHINERY. Borrowers shall maintain a
Boiler and Machinery policy for the Hotel/Casino Facilities written on a
Comprehensive Form with a combined direct and indirect limit of no less than
Twenty Million Dollars ($20,000,000.00). The policy shall include extensions
for Agreed Amount (waiving co-insurance) and Replacement Cost Valuation. The
policy may contain deductibles of no greater than One Hundred Thousand
Dollars ($100,000.00) direct and forty-eight (48) hours indirect.
e. CRIME INSURANCE. Borrowers shall obtain a
comprehensive crime policy, including the following coverages:
(i) employee dishonesty - Two Million Dollars
($2,000,000.00);
(ii) money and securities (inside) - Two Million Dollars
($2,000,000.00);
(iii) money and securities (outside) - Two Million Dollars
($2,000,000.00);
(iv) depositor's forgery - Two Million Dollars
($2,000,000.00);
(v) computer fraud - Two Million Dollars ($2,000,000.00).
The policy must be amended so that money is defined to
include "tokens and chips" (as defined in Regulation 12.010 of the Nevada
Gaming Authorities). The policy may contain deductibles of no greater than
One Hundred Thousand Dollars ($100,000.00) for all coverages listed above.
f. COMMERCIAL GENERAL LIABILITY (1996 FORM OR
EQUIVALENT). Borrowers shall maintain a Commercial General
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Liability policy with a One Million Dollar ($1,000,000.00) combined single
limit for bodily injury and property damage, including Products Liability,
Contractual Liability, and all standard policy form extensions. The policy
must provide a Two Million Dollar ($2,000,000.00) general aggregate (per
location, if multi-location risk) and be written on an "occurrence form".
The policy will include extensions for Liquor Legal Liability and Employee
Benefits Legal Liability coverages. The policy will also include
Professional Liability coverage for all exposures associated with the
operation of health clubs/spa facilities. If the general liability policy
contains a self-insured retention, it shall be no greater than One Hundred
Thousand Dollars ($100,000.00) per occurrence, with an aggregate retention of
no more than Two Million Five Hundred Thousand Dollars ($2,500,000.00),
including expenses.
The policy shall be endorsed to include Agent Bank as an
additional insured on behalf of the Banks. Definition of additional insured
shall include all officers, directors, employees, agents and representatives
of the additional insured. The coverage for additional insured shall apply
on a primary basis irrespective of any other insurance whether collectible or
not (ISO Endorsement Form CG 20261185 Additional Insured - Designated Person
or Organization or Equivalent).
g. AUTOMOBILE. Borrowers shall maintain a
comprehensive Automobile Liability Insurance Policy written under coverage
"symbol 1", providing a One Million Dollar ($1,000,000.00) combined single
limit for bodily injury and property damage covering all owned, non-owned and
hired vehicles of the Borrowers. If the policy contains a self insured
retention it shall be no greater than One Hundred Thousand Dollars
($100,000.00) per occurrence with an aggregate retention of no more than Two
Million Five Hundred Thousand Dollars ($2,500,000.00) including expenses.
The following additional coverages must be purchased by Borrowers:
(i) GARAGE LIABILITY. A One Million Dollar ($1,000,000.00)
combined single limit for bodily and property damage for the garage
operation.
(ii) GARAGEKEEPERS LEGAL LIABILITY. One Million Dollar
($1,000,000.00) limit for comprehensive and collision coverages for
physical damage to vehicles in the Borrowers' care, custody and
control. The policy can be subject to a
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deductible of no greater than Five Thousand Dollars ($5,000.00) for
each auto and Twenty-Five Thousand Dollars ($25,000.00) for each loss.
h. WORKERS COMPENSATION AND EMPLOYERS LIABILITY
INSURANCE. Borrowers shall maintain a standard workers compensation policy or
policies covering the states of Nevada, Colorado, Iowa and any other state
where the Borrower Consolidation is operating, including employers liability
coverage subject to a limit of no less than One Million Dollars
($1,000,000.00) each employee, One Million Dollars ($1,000,000.00) each
accident, One Million Dollars ($1,000,000.00) policy limit. The policy shall
include endorsements for Voluntary Compensation Coverage, Stop Gap Liability,
Long-Shoreman's and Harbors Workmans Compensation Act and Maritime Coverages
(as applicable). If the Borrowers have elected to self-insure Workers
Compensation coverage in the State of Nevada, the Agent Bank must be
furnished with a copy of the certificate from the state permitting
self-insurance and evidence of a Stop Loss/Aggregate Excess Workers
Compensation policy with a specific retention of no greater than Three
Hundred Thousand Dollars ($300,000.00).
i. MARINE INSURANCE (FOR ALL VESSELS OWNED, LEASED OR
FOR WHICH THE BORROWER IS LEGALLY LIABLE).
(i) HULL AND MACHINERY COVERAGE. This policy will provide
the broadest "all risk" form available (including SR & CC and war risk
extensions) property coverage covering each vessel for physical damage
at a value that represents one hundred percent (100%) of the
replacement cost for each vessel. The policy will include Agreed
Amount (waving co-insurance), Replacement Cost Valuation and Liner
Negligence Clause endorsements. The policy may contain a deductible
of no greater than Two Hundred Fifty Thousand Dollars ($250,000.00)
per occurrence. This policy shall include appropriate mortgagee,
breach of warranty and loss payee endorsements in favor of Agent Bank.
(ii) CASINO BOAT BUSINESS INTERRUPTION. Borrowers will
purchase business interruption coverage under a "comprehensive
facility form" indemnifying each vessel operation for loss of net
profits and continuing expenses (including debt service) for loss
arising from casualty to the vessel and any other cause beyond the
control of
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the Borrowers. The limit purchase must represent no less
than seventy-five percent (75%) of the annual net profit plus
continuing expenses. The policy may have a deductible of no greater
than fourteen (14) days for each vessel. This coverage will be
specifically endorsed to include Agent Bank as loss payee.
(iii) PROTECTION AND INDEMNITY. The protection and indemnity
coverage will be written with One Million Dollars ($1,000,000.00)
combined single limit for bodily injury and property damage, including
all standard policy form extensions. The policy shall be written on
an occurrence form. The Agent Bank on behalf of the Lenders will be
included as an additional insured under the policy.
(iv) COMPREHENSIVE POLLUTION LIABILITY. Borrower shall
purchase Comprehensive Pollution Liability coverage with a limit of no
less than Ten Million Dollars ($10,000,000.00) per incident covering
any loss or damage resulting from any discharge, emission, spillage or
leakage on or into water, including governmental mandated cleanups.
The limits can be secured through the purchase of Primary and Excess
policies as long as all coverages follow form. The Agent Bank and
other Lenders will be included as Additional Insureds under the
policy.
j. AIRCRAFT POLICY. Borrowers shall maintain aircraft
liability coverage with a limit of no less Fifty Million Dollars
($50,000,000.00) on all owned and leased aircraft. The policy shall also
provide physical damage coverage for all "owned" aircraft with a deductible
of no greater than Fifty Thousand Dollars ($50,000.00).
k. UNDERGROUND STORAGE TANK LIABILITY. Borrowers shall
maintain an underground storage tank liability policy providing first party
(property damage) and third party (bodily/property damage) coverages for
environmental claims resulting from underground storage tanks at the
Hotel/Casino Facilities. The policy will include coverage for all
governmental and regulatory agency mandated clean ups. The policy shall
provide a limit of no less than Five Million Dollars ($5,000,000.00) for each
occurrence. The policy may contain a deductible of no greater than Five
Hundred Thousand Dollars ($500,000.00) for first and third party claims.
This
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provision may be satisfied in part by HTMC's participation in and compliance
with NRS 590.700 through 590.920, inclusive, and the regulations promulgated
thereunder. Borrowers shall provide Agent Bank proof of registration of all
regulated underground storage tanks.
l. If Borrowers' general liability and automobile
policies include a self-insured retention, it is agreed and fully understood
that Borrowers are solely responsible for payment of all amounts due within
said self-insured retentions. Any Indemnification/Hold Harmless provision is
extended to cover all liabilities associated with said self-insured
retentions.
m. UMBRELLA/BUMBERSHOOT LIABILITY. An
Umbrella/Bumbershoot Liability policy shall be purchased with a limit of not
less than One Hundred Million Dollars ($100,000,000.00) providing excess
coverage over all limits and coverages indicated in paragraphs (f), (g), (h)
and (i)(iii) and (iv) above. The limits can be obtained by a combination of
Primary and Excess Umbrella/Bumbershoot policies, provided that all layers
follow form with the underlying policies indicated in (f), (g), (h) and
(i)(iii) and (iv) and are written on an "occurrence" form. This policy shall
be endorsed to include the Agent Bank as an additional insured on behalf of
the Banks.
n. All policies indicated above shall be written with
insurance companies licensed and admitted to do business in all states where
the Borrower Consolidation, or any of them, is operating and shall be rated
no lower than "A XII" in the most recent addition of A.M. Best and "AA" in
the most recent edition of Standard & Poor's, or such other carrier
reasonably acceptable to Agent Bank. All policies discussed above shall be
endorsed to provide that in the event of a cancellation, non-renewal or
material modification, Agent Bank shall receive thirty (30) days prior
written notice thereof. The Borrowers shall furnish Agent Bank with
Certificates of Insurance executed by an authorized agent evidencing
compliance with all insurance provisions discussed above on an annual basis.
The Borrowers shall also furnish policy endorsements evidencing Agent Bank's
appropriate status (mortgagee, loss payee, additional insured, etc.) under
each policy. Certificates of Insurance executed by an authorized agent of
each carrier providing insurance evidencing continuation of all coverages
will be provided on the Closing Date and annually on or before ten (10) days
prior to the expiration of each policy. All certificates and other notices
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related to the insurance program shall be delivered to Agent Bank
concurrently with the delivery of such certificates or notices to such
carrier or to Borrowers, or any of them, as applicable.
o. Any other insurance reasonably requested by Agent
Bank or Requisite Lenders in such amounts and covering such risks as may be
reasonably required and customary in the hotel/casino industry in locations
of the Hotel/Casino Facilities.
Section 5.10. TAXES. Throughout the term of the Credit Facility,
Borrowers shall prepare and timely file or cause to be prepared and timely
filed all material federal, state and local tax returns required to be filed
by them, and Borrowers shall pay and discharge prior to delinquency all
material taxes, assessments and other governmental charges or levies imposed
upon them, or in respect of any of their respective properties and assets
except such taxes, assessments and other governmental charges or levies, if
any, as are being contested in good faith by Borrowers in the manner which is
set forth for such contests by Section 4.07 herein.
Section 5.11. NOTICE OF CONTESTED MATTERS. Borrowers shall
promptly, but in any event no later than thirty (30) days following actual
knowledge thereof by any senior executive officer, give Agent Bank written
notice of all matters described in Section 5.04 and 5.10, which are being
contested in the manner described therein, involving amounts in excess of Two
Hundred Fifty Thousand Dollars ($250,000.00) in the aggregate.
Section 5.12. ADVANCES. Until Bank Facility Termination, if any
Borrower should fail (i) to perform or observe, or (ii) to cause to be
performed or observed, any covenant or obligation of such Borrower under this
Credit Agreement or any of the other Loan Documents to pay any premium for
the maintenance of the insurance coverages required under Section 5.09 or
fail to pay any rent or payment obligation under any of the Land Leases, the
failure of which could reasonably be expected to result in a Material Adverse
Change, then Agent Bank, upon the giving of reasonable notice to the
Borrowers and the approval of Requisite Lenders, may (but shall be under no
obligation to) take such steps as are necessary to remedy any such
non-performance or non-observance and provide for payment thereof. All
amounts reasonably advanced by Agent Bank or Lenders pursuant to this Section
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5.12 shall become an additional obligation of Borrowers to Lenders secured by
the Security Documentation and other Loan Documents, shall reduce the amount
of Available Borrowings and shall become due and payable by Borrowers on the
next interest payment date, together with interest thereon at a rate per
annum equal to the Default Rate (such interest to be calculated from the date
of such advancement to the date of payment thereof by Borrowers).
Section 5.13. FURTHER ASSURANCES. Borrowers, Agent Bank and each
of the Banks will, at the expense of the Borrowers, do, execute, acknowledge
and deliver, or cause to be done, executed, acknowledged and delivered, such
amendments or supplements hereto or to any of the Loan Documents and such
further documents, instruments and transfers as any such party may reasonably
require for the curing of any defect in the execution or acknowledgement
hereof or in any of the Loan Documents, or in the description of the
Collateral Properties or other Collateral or for the proper evidencing of
giving notice of each lien or security interest securing repayment of the
Bank Facilities. Further, upon the execution and delivery of the Security
Documentation and each of the Loan Documents and thereafter, from time to
time, Borrowers shall cause the Security Documentation and each of the Loan
Documents and each amendment and supplement thereto to be filed, registered
and recorded and to be refiled, re-registered and re-recorded in such manner
and in such places as may be reasonably required by the Requisite Lenders or
Agent Bank, in order to publish notice of and fully protect the liens of the
Security Documentation and to protect or continue to perfect the security
interests created by the Security Documentation in the Collateral and to
perform or cause to be performed from time to time any other actions required
by law and execute or cause to be executed any and all instruments of further
assurance that may be necessary for such publication, perfection,
continuation and protection.
Section 5.14. INDEMNIFICATION. Borrowers agree to and do hereby
jointly and severally indemnify, protect, defend and save harmless Agent Bank
and each of the Banks and their respective directors, trustees, officers,
employees, agents, attorneys and shareholders (individually an "Indemnified
Party" and collectively the "Indemnified Parties") from and against any and all
losses, damages, expenses or liabilities of any kind or nature from any
investigations, suits, claims, demands or other proceedings, including
reasonable counsel fees incurred in investigating or defending such claim,
suffered by any of them and caused by, relating to, arising
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out of, resulting from, or in any way connected with this Credit Agreement,
with any other Loan Document or with the transactions contemplated herein and
thereby; provided, however, Borrowers shall not be obligated to indemnify,
protect, defend or save harmless an Indemnified Party if, and to the extent,
the loss, damage, expense or liability was caused by (a) the gross negligence
or intentional misconduct of such Indemnified Party, or (b) the breach of
this Credit Agreement or any other Loan Document by such Indemnified Party or
the breach of any laws, rules or regulations by an Indemnified Party (other
than those breaches of laws arising from any Borrower's default). In case
any action shall be brought against any Indemnified Party based upon any of
the above and in respect to which indemnity may be sought against Borrowers,
Agent Bank shall promptly notify Borrowers in writing, and Borrowers shall
assume the defense thereof, including the employment of counsel selected by
Borrowers and reasonably satisfactory to Agent Bank, the payment of all costs
and expenses and the right to negotiate and consent to settlement. Upon
reasonable determination made by an Indemnified Party that such counsel would
have a conflict representing such Indemnified Party and Borrowers, the
applicable Indemnified Party shall have the right to employ, at the expense
of Borrowers, one separate counsel in any such action and to participate in
the defense thereof. Borrowers shall not be liable for any settlement of any
such action effected without their consent, but if settled with Borrowers'
consent, or if there be a final judgment for the claimant in any such action,
Borrowers agree to indemnify, defend and save harmless such Indemnified
Parties from and against any loss or liability by reason of such settlement
or judgment. In the event that any Person is adjudged by a court of
competent jurisdiction not to have been entitled to indemnification under
this Section 5.14, it shall repay all amounts with respect to which it has
been so adjudged, together with interest thereon at the Base Rate plus the
Applicable Margin. If and to the extent that the indemnification provisions
contained in this Section 5.14 are unenforceable for any reason, the
Borrowers hereby agree to make the maximum contribution to the payment and
satisfaction of such obligations that is permissible under applicable law.
The provisions of this Section 5.14 shall survive the termination of this
Credit Agreement, the repayment of the Bank Facilities and the assignment or
subparticipation of all or any portion of the Syndication Interest held by
any Lender pursuant to Section 10.10.
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Section 5.15. INSPECTION OF THE COLLATERAL AND APPRAISAL. Until
Bank Facility Termination, Borrowers shall provide or cause to be provided to
Banks and any authorized representatives of Banks, accompanied by
representatives of Borrowers, the reasonable right of entry and free access
to the Hotel/Casino Facilities to inspect same on reasonable prior notice to
Borrowers during normal business hours. If at any time a Qualified Appraisal
of the Hotel/Casino Facilities, or any of them, is required to be made by any
banking regulatory authority or, after the occurrence of an Event of Default,
determined to be necessary by Agent Bank or Requisite Lenders, Borrowers
agree to pay all reasonable fees, costs and expenses incurred by Agent Bank
in connection with the preparation of such Qualified Appraisal; provided that
Borrowers shall not be required to pay for more than one (1) Qualified
Appraisal during each Fiscal Year.
Section 5.16. COMPLIANCE WITH OTHER LOAN DOCUMENTS, EXECUTION OF
SUBSIDIARY GUARANTIES AND PLEDGE OF RESTRICTED SUBSIDIARY STOCK. Borrowers
shall comply with each and every term, condition and agreement contained in
the Loan Documents to which they, or any of them, are a party. Borrowers
shall notify Agent Bank in writing on or before ten (10) Banking Business
Days following the creation of each Subsidiary, together with a description
of each New Venture owned or to be acquired by such Subsidiary. Borrowers
shall cause each Restricted Subsidiary created or otherwise occurring from
time to time following the Closing Date to join in the execution of the
Subsidiary Guaranty in favor of Agent Bank and to deliver the original
thereof, or a duly executed Certificate of Joinder in the form attached to
the Subsidiary Guaranty as Exhibit A, to Agent Bank promptly, but in no event
later than thirty (30) days following the creation or other occurrence of
such Restricted Subsidiary. HCR shall deliver the applicable original stock
certificates and shall execute or cause to be executed a Stock Pledge
(Gaming) or Stock Pledge (General), as applicable, no later than thirty (30)
days following the creation or other occurrence of each Restricted
Subsidiary. In the case of a Stock Pledge (Gaming), HCR shall use all
reasonable efforts to cause all necessary Governmental Authorities to consent
to the delivery of the applicable stock certificates, together with a stock
power executed in blank, to Agent Bank as soon as reasonably practical. In
the case of a Stock Pledge (General), the applicable stock certificates,
together with a stock power executed in blank, shall be delivered to Agent
Bank concurrently with the execution of the Stock Pledge (General). If any
Restricted Subsidiary is redesignated as an Unrestricted Subsidiary in
accordance with
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this Credit Agreement, then the Lenders and the Agent Bank shall promptly
take such actions as may be reasonably required by the Borrowers, at
Borrowers' expense, to cause such Person to be released from its obligations
under the Subsidiary Guaranty and the stock of such Person to be released
from the Stock Pledge (General) or Stock Pledge (Gaming), as applicable.
Section 5.17. SUITS OR ACTIONS AFFECTING BORROWERS. Until Bank
Facility Termination, Borrowers shall promptly advise Agent Bank in writing
within ten (10) Banking Business Days of Borrowers' knowledge of (a) any
claims, litigation, proceedings or disputes (whether or not purportedly on
behalf of Borrowers, or any of them) against, or to the actual knowledge of
Borrowers, threatened or affecting Borrowers, or any of them, which could
reasonably be expected to result in an award of monetary damages in excess of
Three Million Dollars ($3,000,000.00), (b) any material labor controversy
resulting in or threatening to result in a strike against the Hotel/Casino
Facilities, or (c) any proposal by any Governmental Authority to acquire any
of the material assets or business of Borrowers.
Section 5.18. ACCOUNT ANALYSIS OF OPERATING ACCOUNTS. Until Bank
Facility Termination, the Borrower Consolidation shall maintain the
Designated Deposit Account at the principal office of Agent Bank to
facilitate the operational process of the Bank Facilities. Until Bank
Facility Termination, all operating and payroll accounts maintained by
Borrowers at a branch of the Agent Bank shall be maintained on at least a
break-even basis, in accordance with monthly analysis reports, settled
quarterly.
Section 5.19. CONSENTS OF AND NOTICES TO GAMING AUTHORITIES.
a. On or before the Merger Effective Date, HCR shall make
all necessary applications to and procure all necessary consents and approvals
of the applicable Gaming Authorities to the: (i) pledge of the stock of HTMC,
HCRSC, HCCMC and HIMC pursuant to the HCR Stock Pledges, (ii) the restrictions
on transfer and hypothecation of the stock of HTMC, HCRSC, HIMC and HCCMC
contained in Sections 6.16 and 7.01(o) and (p), and (iii) the terms set forth in
the Credit Agreement and each of the Loan Documents, to the extent which may be
required by Colorado Gaming Authorities and the Iowa Gaming Authorities, except
as may be required in connection
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with the exercise or remedies under the Security Documentation following an
Event of Default; and
b. Borrowers shall make all required reports and
disclosures to the applicable Gaming Authorities, including, but not limited
to, reporting this Credit Facility transaction within the time period
required by Regulation 8.130(2) of the Regulations of the Nevada Gaming
Authorities and as may be required by the Colorado Gaming Authorities and the
Iowa Gaming Authorities.
Section 5.20. TRADENAMES, TRADEMARKS AND SERVICEMARKS. Borrowers
shall not assign or in any other manner alienate their interest in any
material tradenames, trademarks or servicemarks relating or pertaining to the
Hotel/Casino Facilities during the term of the Credit Facility, except
pursuant to the Security Documentation. Borrowers shall not change their
names without first giving thirty (30) days prior written notice to Agent
Bank, together with evidence reasonably satisfactory to the Agent Bank that
all notices and other documents required to be delivered, recorded or filed
in order to perfect and protect the security interest granted by the
Borrowers to the Banks in such trademarks, tradenames and servicemarks and
the other Collateral have been so delivered, recorded and/or filed.
Section 5.21. NOTICE OF HAZARDOUS MATERIALS. Within ten (10)
Banking Business Days after Borrowers obtaining actual knowledge thereof,
Borrowers shall immediately advise Agent Bank in writing and deliver a copy
of (a) any and all enforcement, clean-up, removal or other governmental or
regulatory actions expected to cost in excess of One Million Dollars
($1,000,000.00) instituted, completed or threatened pursuant to any
applicable Hazardous Materials Laws relating to any Hazardous Materials (as
defined in the Environmental Certificate) affecting the Collateral; (b) all
claims made or threatened by any third party against Borrowers or the
Hotel/Casino Facilities in excess of One Million Dollars ($1,000,000.00)
relating to damage, contribution, cost recovery compensation, loss or injury
resulting from any Hazardous Materials (the matters set forth in clauses (a)
and (b) above are hereinafter referred to as "Hazardous Materials Claims");
and (c) the discovery of any occurrence or condition on any real property
adjoining or in the vicinity of the Hotel/Casino Facilities that could
reasonably be expected to cause the Borrowers, or any of them, or any part
thereof to be classified as a "border-zone property" under the provisions of,
or to be otherwise subject to any restrictions on the
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ownership, occupancy, transferability or use of the Hotel/Casino Facilities
under, any Hazardous Materials Laws.
Section 5.22. COMPLIANCE WITH STATUTES, ETC. HCR will, and will
cause each of its Subsidiaries to, comply with all applicable statutes,
regulations and orders of, and all applicable restrictions imposed by, all
Governmental Authorities, domestic or foreign, in respect of the conduct of
its business and the ownership of its property (including applicable
statutes, regulations, orders and restrictions relating to environmental
standards and controls) where non-compliance could reasonably be expected to
result in a Material Adverse Change.
Section 5.23. COMPLIANCE WITH ACCESS LAWS.
a. Borrowers agree that Borrowers, the Hotel/Casino
Facilities and the Collateral Properties shall at all times comply in all
material respects with the requirements of the Americans with Disabilities
Act of 1990; the Fair Housing Amendments Act of 1988; and other federal,
state or local laws or ordinances related to disabled access; or any statute,
rule, regulation, ordinance, order of Governmental Authorities, or order or
decree of any court adopted or enacted with respect thereto, as now existing
or hereafter amended or adopted (collectively, the "Access Laws"). At any
time (but no more frequently than once annually), Agent Bank may require a
certificate of compliance with the Access Laws. Agent Bank may also require
a certificate of compliance (but no more frequently than once annually) with
the Access Laws from an architect, engineer, or other third party acceptable
to Agent Bank.
b. Borrowers agree to give prompt written notice to
Agent Bank of the receipt by Borrowers of any claims of violation of any of
the Access Laws and of the commencement of any proceedings or investigations
which relate to compliance with any of the Access Laws (except proceedings or
investigations which do not involve material claims of violation or
non-compliance).
c. Borrowers shall indemnify, defend and hold harmless
Indemnified Parties from and against any and all claims, demands, damages,
costs, expenses, losses, liabilities, penalties, fines and other proceedings
including, without limitation, reasonable attorneys' fees and expenses arising
directly or indirectly from or out of or in any way connected with any failure
of the Hotel/Casino Facilities or
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the Collateral Properties to comply with any of the Access Laws. The
obligations and liabilities of Borrowers under this section shall survive
Bank Facility Termination, but shall terminate upon any satisfaction,
assignment, judicial or nonjudicial foreclosure proceeding, or delivery of a
deed in lieu of foreclosure for violations relating to conditions not in
existence as of the date of such satisfaction, assignment, judicial or
nonjudicial foreclosure proceeding or deed in lieu of foreclosure.
Section 5.24. DESIGNATION OF BANK FACILITIES AS DESIGNATED SENIOR
DEBT. Concurrently with the occurrence of the Merger Effective Date, HCR
shall cause the Bank Facilities to be designated as "Designated Senior Debt"
as defined and described in the Indenture pursuant to an officers'
certificate issued by HCR and delivered to the trustee under the Indenture,
all in accordance with the requirements and procedures set forth in the
Indenture.
Section 5.25. PROHIBITION ON PREPAYMENT OR DEFEASANCE OF SENIOR
SUBORDINATED NOTES. Notwithstanding anything contained in the Credit
Agreement to the contrary, none of Borrowers nor any Subsidiary of Borrowers
shall, except with the prior written consent of the Requisite Lenders,
purchase, redeem, retire or otherwise acquire for value, or set apart any
money for a sinking, defeasance or other analogous fund for, the purchase,
redemption, retirement or other acquisition of, or make any voluntary payment
or prepayment of the principal of or interest on, or any other amount owing
in respect of, the Senior Subordinated Notes, except: (i) for regularly
scheduled payments of principal and interest in respect of such Senior
Subordinated Notes required pursuant to the instruments evidencing such
Senior Subordinated Notes, (ii) prepayments, purchases, redemptions
retirements, acquisitions or setting apart of money as aforesaid financed
with the proceeds of other Subordinated Debt or as otherwise permitted under
Section 6.11 herein, or (iii) for consent payments made to holders of the
Senior Subordinated Notes pursuant to consents granted by such holders in
connection with the Merger and the transactions related thereto.
Section 5.26. YEAR 2000 COMPLIANCE. Borrowers shall perform all acts
reasonably necessary to ensure that (i) Borrowers and the hotel casino and
related businesses conducted by Borrowers at the Hotel/Casino Facilities become
Year 2000 Compliant in a timely manner. Such acts shall include, without
limitation, performing a comprehensive review
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and assessment of all of Borrowers' material systems and adopting a detailed
plan, with itemized budget, for the remediation, monitoring and testing of
such systems. As used in this paragraph, "Year 2000 Compliant" shall mean,
in regard to any entity, that all material software, hardware, firmware,
equipment, goods or systems of the Borrower Consolidation material to the
business operations or financial condition of the Borrower Consolidation,
will properly perform date sensitive functions before, during and after the
year 2000. Borrowers shall, promptly upon request, provide to Agent Bank
such certifications or other evidence of Borrowers' compliance with the terms
of this paragraph as Agent Bank or Requisite Lenders may from time to time
reasonably require.
ARTICLE VI
FINANCIAL COVENANTS
From and after the Closing Date, until payment in full of all sums
owing hereunder and under the Notes and the occurrence of Bank Facilities
Termination, the Borrower Consolidation agrees, as set forth below, to comply
or cause compliance with the following:
Section 6.01. LEVERAGE RATIO. Commencing as of the first Fiscal
Quarter ending subsequent to the Closing Date and continuing as of each
Fiscal Quarter end thereafter occurring until Bank Facilities Termination,
the Borrower Consolidation shall maintain a Leverage Ratio no greater than
the ratios described hereinbelow to be calculated as of the end of each
Fiscal Quarter in accordance with the following schedule:
<TABLE>
<CAPTION>
Maximum
Fiscal Quarter End Leverage Ratio
------------------ --------------
<S> <C>
As of the end of the first Fiscal Quarter
following the Closing Date 5.25 to 1.00
As of the end of the second Fiscal Quarter
following the Closing Date, through the end of
the eighth Fiscal Quarter following the Closing
Date 4.85 to 1.00
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As of the end of the ninth Fiscal Quarter
following the Closing Date through the end of the
twelfth Fiscal Quarter following the Closing Date 4.45 to 1.00
As of the end of the thirteenth Fiscal Quarter
following the Closing Date through the end of the
sixteenth Fiscal Quarter following the Closing
Date 4.00 to 1.00
As of the end of the seventeenth Fiscal Quarter
following the Closing Date, and as of the end of
each Fiscal Quarter thereafter occurring until
the occurrence of Bank Facilities Termination 3.75 to 1.00
</TABLE>
Section 6.02. SENIOR LEVERAGE RATIO. Commencing as of the first
Fiscal Quarter ending subsequent to the Closing Date and continuing as of
each Fiscal Quarter end until Bank Facilities Termination, the Borrower
Consolidation shall maintain a Senior Leverage Ratio no greater than the
ratios described hereinbelow to be calculated as of the end of each Fiscal
Quarter in accordance with the following schedule:
<TABLE>
<CAPTION>
Maximum
Fiscal Quarter End Leverage Ratio
------------------ --------------
<S> <C>
As of the end of the first Fiscal Quarter
following the Closing Date through the end of the
eighth Fiscal Quarter following the Closing Date 3.00 to 1.00
As of the end of the ninth Fiscal Quarter
following the Closing Date through the end of
the twelfth Fiscal Quarter following the Closing
Date 2.50 to 1.00
As of the end of the thirteenth Fiscal Quarter
following the Closing Date and as of the end of
each Fiscal Quarter thereafter occurring until
the occurrence of Bank Facilities Termination 2.25 to 1.00
</TABLE>
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Section 6.03. FIXED CHARGE COVERAGE RATIO. Commencing as of the
first Fiscal Quarter ending subsequent to the Closing Date and continuing as
of each Fiscal Quarter end until the occurrence of Bank Facilities
Termination, the Borrower Consolidation shall maintain a Fixed Charge
Coverage Ratio no less than 1.50 to 1.00.
Section 6.04. ADJUSTED FIXED CHARGE COVERAGE RATIO. Commencing as
of the first Fiscal Quarter ending subsequent to the Closing Date and
continuing as of each Fiscal Quarter end until the occurrence of Bank
Facilities Termination, the Borrower Consolidation shall maintain an Adjusted
Fixed Charge Coverage Ratio no less than 1.10 to 1.00.
Section 6.05. MINIMUM NET WORTH. The Borrower Consolidation shall
maintain as of the end of each Fiscal Quarter following the Closing Date, a
Net Worth equal to or greater than the sum of (a) ninety percent (90%) of the
Net Worth of the Borrower Consolidation as of the Closing Date, after giving
effect to the Merger, the payment of the Merger Consideration and all related
fees and expenses incurred in connection therewith, and the incurrence of
Indebtedness in connection therewith, plus (b) ninety percent (90%) of Net
Income of the Borrower Consolidation after taxes realized as of each Fiscal
Quarter end occurring on and after the Closing Date (without reduction for
any net losses), plus (c) seventy-five percent (75%) of the proceeds received
in Cash or Cash Equivalents (net of reasonable expenses, including, without
limitation, underwriting commissions and discounts and legal and accounting
costs, if any) from all additional Equity Offerings made after the Closing
Date, other than with respect to the proceeds of Equity Offerings which have
been declared and identified for Investment in Unrestricted Subsidiaries
under Section 6.08(p), less (d) one hundred percent (100%) of all Investments
in Unrestricted Subsidiaries, exclusive of any Investments made pursuant to
Section 6.08(p), plus (e) to the extent not included as Net Income of the
Borrower Consolidation in subsection (b) above, one hundred percent (100%) of
the amount of all Investment Returns (other than Investment Returns with
respect to Investments made pursuant to Section 6.08(p) or Investment Returns
constituting interest).
Section 6.06. CAPITAL EXPENDITURE REQUIREMENT. During each Fiscal
Year, commencing with the Fiscal Year commencing December 1, 1998, Borrowers
shall make or cause to be made, Capital Expenditures to the Hotel/Casino
Facilities in a minimum aggregate amount equal to or greater than two
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percent (2%) of gross revenues ("Minimum Cap Ex Requirement") derived from
the Hotel/Casino Facilities by the Borrower Consolidation during the
immediately preceding Fiscal Year. Provided further, however, to the extent
Borrowers spend less than the minimum amount required for Capital
Expenditures during any Fiscal Year, the unused amount shall be set aside in
a reserve account and shall be expended by Borrowers during the next
occurring Fiscal Year in addition to the minimum aggregate amount required
during the next occurring Fiscal Year. No Default or Event of Default under
this Section 6.06 will be deemed to occur until such time as the unused
amount set aside in the reserve account is not utilized in such next
occurring Fiscal Year.
Section 6.07. CONTINGENT LIABILITY(IES). The Borrower
Consolidation shall not directly or indirectly incur any Contingent
Liability(ies) in excess of the cumulative aggregate principal amount of Ten
Million Dollars ($10,000,000.00) at any time outstanding without the prior
written consent of Majority Lenders. In no event shall any Contingent
Liabilities be secured by a Lien on any property or assets of any member of
the Borrower Consolidation.
Section 6.08. INVESTMENT RESTRICTIONS. Other than Investments
permitted herein or approved in writing by Majority Lenders, the Borrower
Consolidation shall not make any Investments (whether by way of loan, stock
purchase, capital contribution, or otherwise) other than the following:
(a) Cash, Cash Equivalents and direct obligations of the
United States Government;
(b) Prime commercial paper (AA rated or better);
(c) Certificates of Deposit or Repurchase Agreement
issued by a commercial bank having capital surplus in excess of One Hundred
Million Dollars ($100,000,000.00);
(d) Money market or other funds of nationally recognized
institutions investing solely in obligations described in (a), (b) and (c)
above;
(e) Loans and advances to officers, employees and
directors in the ordinary course of business not exceeding Five Hundred
Thousand Dollars ($500,000.00) in the aggregate at any one time; and
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(f) Investments in Unrestricted Subsidiaries at the
discretion of Borrowers up to the maximum cumulative aggregate amount of
Sixty Million Dollars ($60,000,000.00) (without giving effect to Investments
made pursuant to subsection (p) below), measured by the amount actually
invested without adjustment for subsequent increases or decreases in the
value of such Investment, but the outstanding aggregate amount of such
Investments shall be deemed reduced by the aggregate amount of Investment
Returns received by the Borrower Consolidation;
(g) Investments in Restricted Subsidiaries and any
member of the Borrower Consolidation, so long as after giving effect to such
Investment no Default or Event of Default would result from the making of
such Investment;
(h) Capital Expenditures for the Hotel/Casino Facilities
during each Fiscal Year;
(i) Investments received by any member of the Borrower
Consolidation from any other member of the Borrower Consolidation;
(j) Investments received in settlement of arms-length
disputes with non-Affiliates of Borrowers;
(k) Investments received as consideration for asset
sales made in arms-length transactions for fair market consideration;
(l) extensions of credit to customers in the ordinary
course of business;
(m) Contingent Liabilities and Indebtedness permitted to
be incurred under Sections 6.07 and 6.10;
(n) Accounts receivable, endorsements for collection or
deposits arising in the ordinary course of business;
(o) Investments relating to obligations of employees or
management of Borrower Consolidation relating to the purchase by such Persons
of equity interests in the Borrower Consolidation;
(p) Investments in Unrestricted Subsidiaries may be made in
excess of the amount permitted pursuant to clause (f), provided that such excess
amount is funded through
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capital contributions, additional paid in capital or equity investments in
HCR or through Equity Offerings, in each case which have been declared and
identified by HCR prior to the funding of such capital contribution,
additional paid in capital, equity investment or Equity Offering for
investment in Unrestricted Subsidiaries and provided further that Investments
pursuant to this subsection (p) may be made at any time, regardless of
whether Investments are then permitted to be made under Subsection (f) above;
(q) Investments by the Borrower Consolidation in a
Person engaged in a business related to the business of the Borrower
Consolidation if as a result thereof such Person becomes a member of the
Borrower Consolidation or such Person is merged, consolidated or amalgamated
with or into or transfers or conveys all or substantially all of its assets
to, or is liquidated into any member of the Borrower Consolidation; and
(r) Investments of a Person that becomes a member of the
Borrower Consolidation or is merged, consolidated or amalgamated with or into
or transfers or conveys all or substantially all of its assets to, or is
liquidated into any member of the Borrower Consolidation.
Section 6.09. TOTAL LIENS. The Borrower Consolidation shall not
directly or indirectly, create, incur, assume or permit to exist any Lien on
or with respect to any of their respective assets or any of the Collateral,
whether now owned or hereafter acquired, or any income or profits therefrom,
or file or permit the filing of, or permit to remain in effect, any financing
statement or other similar notice of any Lien with respect to any of the
Collateral under the Uniform Commercial Code of any State or under any
similar recording or notice statute, except:
(a) Permitted Encumbrances;
(b) Liens granted or permitted pursuant to the Security
Documentation, which secure obligations of the Borrower Consolidation under
the Loan Documents and Secured Interest Rate Hedges;
(c) Liens on the FF&E and other goods securing Indebtedness
to finance the purchase price thereof; PROVIDED that (i) such Liens shall extend
only to the equipment and other goods and FF&E so financed and the proceeds
thereof, and (ii) such Liens shall not secure an
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outstanding principal amount of Indebtedness in excess of Twenty-Five Million
Dollars ($25,000,000.00) in the aggregate at any time; and
(d) The Liens set forth on the Schedule of Liens marked
"Schedule 6.09" attached hereto and by this reference incorporated herein and
made a part hereof.
Section 6.10. LIMITATION ON INDEBTEDNESS. The Borrower
Consolidation will not incur any Indebtedness, except as specifically
permitted hereinbelow:
a. Interest Rate Hedges up to the maximum aggregate
notional principal amount of Seventy-Five Million Dollars ($75,000,000.00) at
any time outstanding;
b. Unsecured Indebtedness, Secured Indebtedness
permitted under Section 6.09(c) and Capital Lease Liabilities up to the
maximum cumulative aggregate principal amount of Twenty-Five Million Dollars
($25,000,000.00) at any time outstanding, provided that in no event shall
unsecured Indebtedness under this subsection (b) exceed Ten Million Dollars
($10,000,000.00) in the aggregate;
c. Subordinated Debt, provided that one hundred percent
(100%) of the principal amount of such Subordinated Debt, not otherwise
applied to repay, retire, redeem, defease or otherwise acquire other
Subordinated Debt, in excess of the sum of (x) One Hundred Fifty Million
Dollars ($150,000,000.00) plus (y) all costs, fees and expenses (including
without limitation underwriting, placement, financial advisory and similar
fees and expenses) incurred in connection with the placement or incurrence of
such Subordinated Debt plus (z) all premium and interest paid with respect to
Indebtedness refinanced, retired, defeased, replaced or repaid with the
proceeds of such Subordinated Debt, shall be used by the Borrower
Consolidation to make a Voluntary Permanent Reduction promptly following the
incurrence of such Subordinated Debt;
d. The Bank Facilities and the Merger Consideration;
e. Indebtedness (other than as described in clause (d))
existing as of the Merger Effective Date and not repaid on such date and any
Indebtedness incurred to refinance, retire, renew, defease or replace such
Indebtedness, so long as such Indebtedness so incurred does
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not have (i) a principal amount greater than the unpaid balance of
Indebtedness being refinanced, retired, renewed, defeased or replaced or (ii)
a maturity date earlier than the Indebtedness being refinanced, retired,
renewed, defeased or replaced;
f. Indebtedness between members of the Borrower
Consolidation;
g. Indebtedness constituting Investments permitted
under Section 6.08;
h. Indebtedness constituting Contingent Liabilities
permitted to be incurred under Section 6.07;
i. Indebtedness incurred by the Borrower Consolidation
arising from agreements providing for indemnification, adjustment of purchase
price or similar obligations, or from guarantees, letters of credit, bankers'
acceptances, surety bonds or performance bonds securing the performance of
the Borrower Consolidation to any Person acquiring all or a portion of the
business or assets of the Borrower Consolidation to the extent such transfer
is permitted by Section 6.14;
j. Indebtedness in respect of performance bonds,
bankers' acceptances, letters of credit and surety or appeal bonds entered
into by the Borrower Consolidation in the ordinary course of their business;
k. Indebtedness arising from the honoring by a bank or
other financial institution of a check, draft or similar instrument
inadvertently drawn against insufficient funds in the ordinary course of
business; and
l. Indebtedness of a Restricted Subsidiary acquired
after the date hereof and Indebtedness of a corporation merged or
consolidated with or into the Borrower or a Subsidiary after the date hereof,
which Indebtedness in each case exists at the time of such acquisition,
merger or consolidation and is not created in contemplation of such event and
where such acquisition, merger or consolidation is permitted by this Credit
Agreement.
Section 6.11. MINIMUM SUBORDINATED DEBT. The Borrower Consolidation
shall maintain at all times commencing on the Closing Date and continuing until
the occurrence of Bank Facilities Termination, Subordinated Debt in an aggregate
principal amount no less than One Hundred Fifty Million Dollars
($150,000,000.00), provided that the required minimum amount of Subordinated
Debt as set forth above shall be
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reduced by the amount of (i) capital contributions, additional paid in
capital, equity investments received by HCR and/or proceeds of Equity
Offerings subsequent to the Merger Effective Date, other than those capital
contributions, additional paid in capital, equity investments and/or Equity
Offerings made pursuant to Section 6.08(p), (ii) the net proceeds received by
the Borrower Consolidation from the issuance of Permitted Preferred Stock
subsequent to the Merger Effective Date, and (iii) prepayments, purchases
and/or redemptions made up to the maximum principal amount of Fifty Million
Dollars ($50,000,000.00) on or before the ninetieth (90th) calendar day
following the Merger Effective Date.
Section 6.12. RESTRICTION ON DISTRIBUTIONS. During the period
commencing on the Merger Effective Date and continuing until the occurrence
of Bank Facility Termination, HCR shall not pay or declare any dividends or
Distributions on capital stock (voting and non-voting) or Permitted Preferred
Stock to its shareholders, other than dividends payable in kind in the form
of additional shares of capital stock. Notwithstanding the foregoing so long
as no Event of Default has occurred and remains continuing or would result
from the payment or making of such Distribution, the Borrower Consolidation
may (i) purchase, redeem, defease, retire or otherwise acquire any shares of
its capital stock effected through the issuance of capital stock (other than
capital stock which, by its terms, matures or is mandatorily or optionally
redeemable (other than in connection with a change of control, merger,
consolidation or asset sale) prior to the Maturity Date), (ii) pay
Distributions to redeem or purchase capital stock of Borrower Consolidation
or options, warrants, or other securities convertible into capital stock of
Borrower Consolidation from employees or directors of Borrower Consolidation,
(iii) make Distributions for the purpose of permitting payments in lieu of
fractional shares, (iv) make Distributions which are funded with Investment
Returns received from Unrestricted Subsidiaries, in an amount not to exceed
the aggregate amount of Investments (without deduction for Investment Returns
received in respect of Investments) made in Unrestricted Subsidiaries
pursuant to Section 6.08(p), (v) make Distributions to Affiliates which are
otherwise prohibited under this Section 6.12, up to the maximum aggregate
amount of Two Hundred Fifty Thousand Dollars ($250,000.00) during any Fiscal
Year, for the purpose of paying (a) ordinary operating expenses of such
Affiliate relating to such Affiliate's ownership of HCR, and (b) such
Affiliate for performing services for the Borrower Consolidation, (vi) make
Distributions to finance the Merger and the Merger Consideration and to pay
costs, fees and expenses related to the Merger and all transactions related
thereto, and (vii) pay Distributions to the holders of the
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capital stock (voting and non-voting) of HCR and to the holders of Permitted
Preferred Stock so long as the Leverage Ratio of the Borrower Consolidation
is less than or equal to 3.00 to 1.00 as of the most recently ended Fiscal
Quarter.
Section 6.13. NO CHANGE OF CONTROL. Until the occurrence of Bank
Facility Termination, no Change of Control shall occur other than the Merger.
Section 6.14. CONSOLIDATION, MERGER, SALE OF ASSETS, ETC. Other
than as approved in writing by Majority Lenders, no member of the Borrower
Consolidation shall wind up, liquidate or dissolve its affairs or enter into
any transaction of merger or consolidation (except a merger or consolidation
with another entity within the Borrower Consolidation), or convey, sell,
lease or otherwise dispose of (or agree to do any of the foregoing at any
future time prior to Bank Facility Termination) all or any material part of
its respective property or assets (except to another entity within the
Borrower Consolidation), except that the following shall be permitted: (i)
the Merger and all transactions contemplated by the Merger Agreement, (ii)
the Borrowers may make sales of inventory and other assets in the ordinary
course of business, (iii) the Borrowers may, in the ordinary course of
business, sell equipment and FF&E as provided in Section 5.01, (iv) HCR or
any of its Subsidiaries may sell any Unrestricted Subsidiary or New Venture
Investment (or all or a portion of its Investment therein) in exchange for
its fair value, (v) mergers or consolidations so long as (x) no Default or
Event of Default will occur after giving pro forma effect thereto for the
prior four (4) Fiscal Quarters, (y) a Borrower is the surviving Person of
such merger or consolidation and (z) the Net Worth of the Person being so
merged or consolidated into a member of the Borrower Consolidation
immediately prior to such merger or consolidation shall not exceed
seventy-five percent (75%) of the Net Worth of the Borrower Consolidation
immediately prior to such merger or consolidation, (vi) the license of
software, trademarks, patents and other intellectual property, in a manner
which will not materially adversely affect the Borrower Consolidation, and
(vii) any sale or transfer permitted under Section 6.16.
Section 6.15. TRANSACTIONS WITH AFFILIATES. Other than: (i)
between and amongst the Borrower Consolidation, or (ii) in connection with
Investments in a New Venture and/or New Venture Subsidiaries, (iii) payments
permitted under Section 6.12, (iv) transactions arising in connection with
the Merger, including, without limitation, payment of the Merger
Consideration, (v) payments made in accordance with any employment agreements
entered into by the Borrower or any
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Subsidiary in the ordinary course of business, and (vi) payments by the
Borrower pursuant to any indemnification agreements with its directors and
officers with respect to any action taken or omitted to be taken by such
director or officer in such director's or officer's capacity as a director or
officer of the Borrower or Subsidiary, no transactions shall be made by the
Borrower Consolidation with Affiliates or Subsidiaries of the Borrower
Consolidation other than arms length transactions for fair market value.
Section 6.16. NO TRANSFER OF OWNERSHIP. HCR shall not transfer or
hypothecate its ownership interests in any of the Operating Subsidiaries or
any Restricted Subsidiary except in connection with the Merger and the
Security Documentation. Provided, however, Borrowers shall have the right to
sell any Unrestricted Subsidiary or New Venture Investment (or all or a
portion of its Investment therein) in exchange for its fair value.
Section 6.17. ERISA. Borrowers shall:
a. Not permit at any time any Pension Plan which is
maintained by such Borrower, and use its best efforts not to permit any
Pension Plan with respect to which such Borrower is obligated to contribute
on behalf of its perspective employees, to:
(i) engage in any nonexempt "prohibited transaction",
as such term is defined in Section 4975 of the Code, which may
reasonably be expected to result in material liability of such
Borrower to the Pension Plan or the Pension Benefit Guaranty
Corporation,
(ii) incur any material "accumulated funding
deficiency", as that term is defined in Section 302 of ERISA, which
may reasonably be expected to result in material liability of such
Borrower to the Pension Plan or the Pension Benefit Guaranty
Corporation.
b. Upon such Borrower becoming aware thereof, promptly
notify the Agent Bank of the occurrence of any "reportable event" (as defined
in Section 4043 of ERISA) or of any non-exempt "prohibited transaction" (as
defined in Section 4975 of the Code) with respect to any Pension Plan which
is maintained by such Borrower or to which such Borrower is obligated to
contribute on behalf of its employees or any trust created thereunder.
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c. Not, at any time, permit any Pension Plan which is
maintained by such Borrower to fail to comply with ERISA or other applicable
laws that would result in a Material Adverse Effect.
Section 6.18. MARGIN REGULATIONS. No part of the proceeds of the
Credit Facility, Swingline Facility or L/C Facility will be used by
Borrowers, or any of them, in violation of or inconsistent with the
provisions of Regulations T, U or X of the Board of Governors of the Federal
Reserve System.
Section 6.19. LIMITATION ON ADDITIONAL SUBSIDIARIES. No Operating
Subsidiary shall create any additional Subsidiaries without the prior written
consent of Majority Lenders.
Section 6.20. LIMITATION ON CONSOLIDATED TAX LIABILITY. No
Borrower shall be liable for federal income taxes relating to the taxable
income of any Subsidiary or Affiliate of the Borrowers, or any of them, in
excess of the amount of federal income taxes it would pay if reporting as a
separate entity, unless such Borrower is fully reimbursed by such Subsidiary
or Affiliate on or before the payment of such taxes.
Section 6.21. CHANGE IN ACCOUNTING PRINCIPLES. Except as
otherwise provided herein, if any changes in accounting principles from those
used in the preparation of the most recent financial statements delivered to
Agent Bank pursuant to the terms hereof are hereinafter required or permitted
by the rules, regulations, pronouncements and opinions of the Financial
Accounting Standards Board or the American Institute of Certified Public
Accountants (or successors thereto or agencies with similar functions) and
are adopted by the Borrowers with the agreement of their independent
certified public accountants and such changes result in a change in the
method of calculation of any of the financial covenants, standards or terms
found herein, the parties hereto agree to enter into negotiations in order to
amend such provisions so as to equitably reflect such changes with the
desired result that the criteria for evaluating the financial condition of
Borrowers shall be the same after such changes as if such changes had not
been made; provided, however, that no change in GAAP that would affect the
method of calculation of any of the financial covenants, standards or terms
shall be given effect in such calculations until such provisions are amended,
in a manner reasonably satisfactory to Agent Bank and Requisite Lenders, to
so reflect such change in accounting principles.
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ARTICLE VII
EVENTS OF DEFAULT
Section 7.01. EVENTS OF DEFAULT. Any of the following events and
the passage of any applicable notice and cure periods shall constitute an
Event of Default hereunder:
(a) Any representation or warranty made by Borrowers or
any Subsidiary of Borrowers pursuant to or in connection with this Credit
Agreement, the Notes, the Environmental Certificate, or any other Loan
Document or in any report, certificate, financial statement or other writing
furnished by Borrowers or any Subsidiary of Borrowers in connection herewith,
shall prove to be false, incorrect or misleading in any materially adverse
aspect as of the date when made unless cured within thirty (30) days of the
date when made if such representation or warranty is capable of being cured.
(b) Borrowers shall have defaulted in the payment of any
interest on the Revolving Credit Note or Swingline Note for a period of five
(5) days from the date such payment is due or shall have defaulted in the
payment of any principal on the Revolving Credit Note when due;
(c) Any of the Security Documentation or any provision
thereof shall cease to be in full force and effect in any material respect or
shall cease to give the Agent Bank in any material respect the liens, rights,
powers and privileges purported to be created thereby (other than as a result
of any action or inaction by Agent Bank or any Bank) or the Borrowers shall
default in the due performance or observance of any term, covenant or
agreement on their part to be performed or observed pursuant to the Security
Documentation for a period of thirty (30) days after written notice thereof
is delivered to Borrowers by Agent Bank (or such shorter period following
such notice as may be specified in any Loan Document);
(d) Borrowers shall have defaulted in the payment of any
fees required to be paid under the Fee Side Letter, late charge, Commitment
Fees, expenses, indemnities or any other amount owing under any Loan Document
for a period of five (5) days after notice thereof to Borrowers from Agent
Bank;
(e) Borrowers or any Restricted Subsidiary shall fail
duly and punctually to perform or comply with: (i) any term, covenant,
condition or promise contained in Sections 5.24, 5.25, 6.01, 6.02, 6.03,
6.04, 6.05, 6.07, 6.08,
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6.09, 6.10, 6.11, 6.12, 6.13, 6.16, 6.18 or 6.19, or (ii) any other term,
covenant, condition or promise contained in this Credit Agreement, the Notes,
or any other Loan Document (other than the Security Documentation) and, in
the case of any term, covenant, condition or promise covered by this clause
(ii), such failure shall continue thirty (30) days after written notice
thereof is delivered to Borrowers by Agent Bank (or such shorter period
following such notice as may be specified in any Loan Document);
(f) Any Borrower or any Restricted Subsidiary shall
commence a voluntary case or other proceeding seeking liquidation,
reorganization or other relief with respect to it or its debts under the
Bankruptcy Code or any bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official, for all or substantially all
of its property, or shall consent to any such relief or to the appointment or
taking possession by any such official in any involuntary case or other
proceeding against it;
(g) An involuntary case or other proceeding shall be
commenced against any Borrower or any Restricted Subsidiary seeking
liquidation, reorganization or other relief with respect to itself or its
debts under the Bankruptcy Code or any bankruptcy, insolvency or other
similar law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar official, for all
or substantially all of its property, and such involuntary case or other
proceeding shall remain undismissed and unstayed for a period of ninety (90)
days;
(h) Any Borrower or any Restricted Subsidiary makes an
assignment of all or substantially all of their assets for the benefit of its
creditors;
(i) Borrowers default, beyond any applicable grace
period, under the terms of the Indenture or the terms of any Subordinated
Debt if the effect thereof (provided such Default shall be deemed cured if
waived by the requisite holders of the Subordinated Debt) is to permit the
acceleration thereof by the holders thereof or Borrowers shall fail to make
any payment when due (whether by scheduled maturity, required prepayment,
offer to purchase, redemption, acceleration, demand or otherwise, in each
case beyond the grace period provided with respect to such Indebtedness) on
any Indebtedness (other than any Indebtedness under this Credit Agreement),
if the aggregate outstanding principal amount of such Indebtedness is Ten
Million Dollars ($10,000,000.00), or more, or any breach, default or event of
default shall occur, or any other event shall occur or
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condition shall exist, under any instrument, agreement or indenture
pertaining thereto if the effect thereof is to accelerate, the maturity of
any such Indebtedness; or any such Indebtedness shall be declared to be due
and payable or shall be required to be prepaid, purchased or redeemed (other
than by a regularly scheduled required prepayment) prior to the stated
maturity thereof, or the holder of any lien in any amount, shall commence
foreclosure of such lien upon property of Borrowers having a value in excess
of Ten Million Dollars ($10,000,000.00) and such foreclosure shall continue
against such property to a date less than thirty (30) days prior to the date
of the proposed foreclosure sale;
(j) The occurrence of any event of default, beyond any
applicable grace period, under the terms of any agreement with any Lender in
connection with a Secured Interest Rate Hedge relating to the Credit Facility;
(k) The occurrence of any Reportable Event as defined
under ERISA, which constitutes proper grounds for the termination of any
employee pension benefit plan or pension plan of Borrowers covered by ERISA
by the Pension Benefit Guaranty Corporation or for the appointment by an
appropriate United States District Court of a trustee to administer any such
plan, which results in a Material Adverse Change and should continue for
thirty (30) days after written notice of such determination shall have been
received by Borrowers from Agent Bank;
(l) Any money judgment, writ or warrant of attachment or
similar process involving in the aggregate at any time an amount in excess of
Ten Million Dollars ($10,000,000.00) (in either case not adequately covered
by insurance as to which a solvent and unaffiliated insurance company has
acknowledged coverage) shall be entered or filed against any Borrower or any
of their respective assets and shall remain undischarged, unvacated, unbonded
or unstayed for a period of sixty (60) days (or in any event later than five
(5) days prior to the date of any proposed sale thereunder);
(m) The loss, revocation or suspension (for a period in
excess of ten (10) calendar days) of the Gaming Permits issued by the
applicable Gaming Authorities for the Hotel/Casino Facilities, or any of
them, or the failure of Borrowers to maintain gaming activities at the
Hotel/Casino Facilities, other than on account of force majeure or periodic
drydocking in compliance with USCG requirements, at least to the same general
extent as is presently conducted thereon for a period in excess of thirty
(30) consecutive days;
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(n) Any order, judgment or decree shall be entered
against any Borrower or any Restricted Subsidiary decreeing its involuntary
dissolution and such order shall remain undischarged and unstayed for a
period in excess of thirty (30) days, or any Borrower shall otherwise
dissolve or cease to exist, other than as permitted under Section 6.14;
(o) The occurrence of any Change in Control following
the Closing Date;
(p) HTMC shall fail to perform, in a timely manner, any
material obligation which it may have under the Park Cattle Lease, which
continues beyond the expiration of any applicable cure period;
(q) The failure of HTMC to timely perform any material
obligation which it may have under the Tahoe Greenbelt Lease, the California
Greenbelt Lease or the Hard Rock Lease, which in either case continues beyond
the expiration of any applicable cure period;
(r) The failure of HIMC to timely perform any material
obligation which it may have under the Westwood Lease or the Friendship
Sublease, which in either case continues beyond the expiration of any
applicable cure period;
(s) Any Subsidiary Guaranty shall cease to be in full
force or effect in any material respect (other than as a result of a merger
or consolidation permitted hereunder or as a result of any Restricted
Subsidiary being re-designated as an Unrestricted Subsidiary), or any
Subsidiary Guarantor shall deny or disaffirm such Subsidiary Guarantor's
obligations under the Subsidiary Guaranty, or such Subsidiary Guarantor shall
default for a period of thirty (30) days after notice thereof from Agent Bank
in the due performance or observance of any term, covenant or agreement on
its part to be performed or observed pursuant to the Subsidiary Guaranty;
(t) The Hard Rock Subordination Agreement shall cease to
be in full force or effect in any material respect, other than on account of
termination of the Hard Rock Lease;
(u) The Westwood Subordination and Non-Disturbance
Agreement shall cease to be in full force or effect in any material respect,
other than on account of termination of the Westwood Lease; or
(v) The occurrence of a Material Adverse Change with
respect to the Borrower Consolidation taken as a whole which has continued
for more than sixty (60) days.
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Section 7.02. DEFAULT REMEDIES. Upon the occurrence and during
the continuance of any Event of Default, and upon the consent of Requisite
Lenders, Agent Bank shall declare the unpaid balance of the Notes, together
with the interest thereon, to be fully due and payable, and, in addition, the
applicable Banks, as set forth below may, at their option, or shall, as
indicated below, exercise any or all of the following remedies:
(a) Agent Bank may, upon the consent of Requisite
Lenders, or at the direction of the Requisite Lenders shall terminate the
obligation of Lenders to make any advances for Borrowings and/or declare all
outstanding unpaid Indebtedness hereunder and under the Notes and other Loan
Documents together with all accrued interest thereon immediately due and
payable without presentation, demand, protest or notice of any kind. This
remedy will be deemed to have been automatically exercised on the occurrence
of any event set out in Sections 7.01(f), (g) or (h) with respect to any
member of the Borrower Consolidation.
(b) The Swingline Lender shall, upon receipt of written
notice of the occurrence of an Event of Default, terminate its obligation to
make any advances under the Swingline Facility and may declare all
outstanding unpaid Indebtedness hereunder and under the Swingline Note,
together with all accrued interest thereon immediately due and payable
without presentation, demand, protest or notice of any kind. This remedy
will be deemed to have been automatically exercised on the occurrence of any
event set out in Sections 7.01(f), (g) or (h) with respect to any member of
the Borrower Consolidation.
(c) The L/C Issuer shall, upon receipt of written notice
of the occurrence of an Event of Default, terminate its obligation to issue
Letters of Credit. This remedy will be deemed to have been automatically
exercised on the occurrence of any event set out in Sections 7.01(f), (g) or
(h) with respect to any Borrower.
(d) Agent Bank and/or L/C Issuer may, or at the
direction of the Requisite Lenders will, direct the Borrowers to pay (and
each of the Borrowers hereby jointly and severally agree upon receipt of such
notice to pay) to the L/C Issuer an amount in Cash equal to the then
outstanding L/C Exposure, such Cash to be held by L/C Issuer in the Cash
Collateral Account as security for the repayment of all L/C Reimbursement
Obligations thereafter occurring.
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(e) The Banks and/or Agent Bank may exercise any and all
remedies available to Banks or Agent Bank under the Loan Documents.
(f) The Banks and/or Agent Bank may exercise any other
remedies available to Banks or Agent Bank at law or in equity, including
requesting the appointment of a receiver to perform any acts required of
Borrowers, or any of them, under this Credit Agreement, and Borrowers hereby
specifically consent to any such request by Banks.
For the purpose of carrying out this section and exercising these
rights, powers and privileges, Borrowers hereby irrevocably constitute and
appoint Agent Bank as their true and lawful attorney-in-fact following the
occurrence and during the continuance of an Event of Default to execute,
acknowledge and deliver any instruments and do and perform any acts such as
are referred to in this paragraph in the name and on behalf of Borrowers.
Agent Bank on behalf of Lenders may exercise one or more of Lenders' remedies
simultaneously and all its remedies are nonexclusive and cumulative. Lenders
shall not be required to pursue or exhaust any Collateral or remedy before
pursuing any other Collateral or remedy. Lenders' failure to exercise any
remedy for a particular default shall not be deemed a waiver of (i) such
remedy, nor their rights to exercise any other remedy for that default, nor
(ii) their right to exercise that remedy for any subsequent default.
Section 7.03. APPLICATION OF PROCEEDS. All payments and proceeds
received and all amounts held or realized from the sale or other disposition
of the Collateral Properties and other Collateral, which are to be applied
hereunder towards satisfaction of Borrowers' obligations under this Credit
Agreement, shall be applied in the following order of priority:
(a) First, to the payment of all reasonable fees, costs
and expenses (including reasonable attorney's fees and expenses) incurred by
Agent Bank and Banks, their agents or representatives in connection with the
realization upon any of the Collateral;
(b) Next, to the payment in full of any other amounts
due under this Credit Agreement and any other Loan Documents (other than the
principal and interest under Notes, an L/C Reimbursement Obligations or any
liability under Secured Interest Rate Hedges);
(c) Next, to the balance of interest remaining unpaid on
the Notes;
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(d) Next, to the balance of principal remaining unpaid
on the Notes, L/C Reimbursement Obligations and Secured Interest Rate Hedges
on a pari passu basis;
(e) Next, the balance, if any, of such payments or
proceeds to whomever may be legally entitled thereto.
Section 7.04. NOTICES. In order to entitle Agent Bank and/or
Banks to exercise any remedy available hereunder, it shall not be necessary
for Agent Bank and/or Banks to give any notice, other than such notice as may
be required expressly herein.
Section 7.05. AGREEMENT TO PAY ATTORNEY'S FEES AND EXPENSES.
Subject to the provisions of Section 10.14, upon the occurrence of an Event
of Default, as a result of which Agent Bank and/or Banks shall require and
employ attorneys or incur other expenses for the collection of payments due
or to become due or the enforcement or performance or observance of any
obligation or agreement on the part of Borrowers contained herein, Borrowers
shall, on demand, pay to Agent Bank and Banks the actual and reasonable fees
of such attorneys (including actual and reasonable allocated costs of
in-house legal counsel) and such other reasonable expenses so incurred by
Agent Bank and Banks.
Section 7.06. NO ADDITIONAL WAIVER IMPLIED BY ONE WAIVER. In the
event any agreement contained in this Credit Agreement should be breached by
either party and thereafter waived by the other party, such waiver shall be
limited to the particular breach so waived and shall not be deemed to waive
any other breach hereunder.
Section 7.07. LICENSING OF AGENT BANK AND LENDERS. In the event of
the occurrence and continuance of an Event of Default hereunder or under any of
the Loan Documents and it shall become necessary, or in the opinion of Requisite
Lenders advisable, for an agent, supervisor, receiver or other representative of
Agent Bank and Banks to become licensed under the provisions of the laws of the
States of Nevada, Colorado or Iowa or rules and regulations adopted pursuant
thereto, as a condition to receiving the benefit of any Collateral encumbered by
the Security Documentation or other Loan Documents for the benefit of Lenders or
otherwise to enforce their rights hereunder or thereunder, Borrowers do hereby
give their consent to the granting of such license or licenses and agrees to
execute such further documents as may be reasonably required in connection with
the evidencing of such consent.
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Section 7.08. EXERCISE OF RIGHTS SUBJECT TO APPLICABLE LAW. All
rights, remedies and powers provided by this Article VII may be exercised
only to the extent that the exercise thereof does not violate any applicable
provision of the laws of any Governmental Authority and all of the provisions
of this Article VII are intended to be subject to all applicable mandatory
provisions of law that may be controlling and to be limited to the extent
necessary so that they will not render this Credit Agreement invalid,
unenforceable or not entitled to be recorded or filed under the provisions of
any applicable law.
Section 7.09. DISCONTINUANCE OF PROCEEDINGS. In case Agent Bank
and/or Banks shall have proceeded to enforce any right, power or remedy under
this Credit Agreement, the Notes, the Security Documentation or any other
Loan Document by foreclosure, entry or otherwise, and such proceedings shall
have been discontinued or abandoned for any reason or shall have been
determined adversely to Banks, then and in every such case Borrowers, Agent
Bank and/or Banks shall be restored to their former positions and rights
hereunder with respect to the Collateral, and all rights, remedies and powers
of Agent Bank and Banks shall continue as if such proceedings had not been
taken, subject to any binding ruling, order of judgment by the applicable
court or other tribunal in any such proceeding.
ARTICLE VIII
DAMAGE, DESTRUCTION AND CONDEMNATION
Section 8.01. NO ABATEMENT OF PAYMENTS. If all or any part of the
Collateral shall be materially damaged or destroyed, or if title to or the
temporary use of the whole or any part of any of the Collateral shall be
taken or condemned by a competent authority for any public use or purpose, or
by exercise of the power of eminent domain, there shall be no abatement or
reduction in the amounts payable by Borrowers hereunder or under the Notes,
and Borrowers shall continue to be obligated to make such payments.
Section 8.02. DISTRIBUTION OF CAPITAL PROCEEDS UPON OCCURRENCE OF
FIRE, CASUALTY, OTHER PERILS OR CONDEMNATION. All Capital Proceeds received
from "All Risk" including flood and earthquake insurance policies covering
any of the Collateral or from condemnation or similar actions in regard to
said Collateral, shall be paid directly to Agent Bank. In the event the
amount paid to Agent Bank is equal to or less than Five Million Dollars
($5,000,000.00), such amount shall be paid to Borrowers, unless a Default in
the payment of any principal or interest owing under the terms of the Bank
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Facilities or an Event of Default shall have occurred hereunder and is
continuing, for repair or replacement of the property destroyed or condemned
or to reimburse Borrowers for the costs of such repair or replacement
incurred prior to the date of such release. In the event the amount of
Capital Proceeds paid to Agent Bank is greater than Five Million Dollars
($5,000,000.00) ("Significant Repair Funds"), then, unless a Default in the
payment of any principal or interest owing under the terms of the Bank
Facilities or Event of Default has occurred hereunder and is then continuing,
the entire amount so collected or so much thereof as may be required to
repair or replace the destroyed or condemned property, shall, subject to the
conditions set forth below, be released to Borrowers for repair or
replacement of the property destroyed or condemned or to reimburse Borrowers
for the costs of such repair or replacement incurred prior to the date of
such release. If a Default in the payment of any principal or interest owing
under the terms of the Bank Facilities or Event of Default has occurred
hereunder and is then continuing such amount may, at the option of Requisite
Lenders, be applied to pay the outstanding balance of the Credit Facility.
In the event the amount of Capital Proceeds so collected is applied to pay or
reduce the outstanding balance of the Credit Facility, the amount received by
Agent Bank shall be applied in the priority set forth in Section 7.03. In
the event Banks are required to release all or a portion of the Significant
Repair Funds to Borrowers for such repair or replacement of the property
destroyed or condemned, such release of funds shall be made in accordance
with the following terms and conditions:
a. The repairs, replacements and rebuilding shall be
made in accordance with plans and specifications to be reasonably approved by
Requisite Lenders and in accordance with all applicable laws, ordinances,
rules, regulations and requirements of Governmental Authorities;
b. Borrowers shall provide Agent Bank with a reasonable
detailed estimate of the costs of such repairs or restorations;
c. Borrowers shall satisfy the Requisite Lenders that
after the reconstruction is completed, the value of the Collateral, as
determined by the Requisite Lenders in their reasonable discretion, will not
be less than the value of the Collateral immediately prior to the damage,
destruction, condemnation or taking, as reasonably determined by the
Requisite Lenders pursuant to this Credit Agreement;
d. If, in the Requisite Lenders' reasonable opinion, any
undisbursed portion of the Available Borrowings,
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after deposit of such proceeds, is insufficient to pay all costs of
reconstruction of the Hotel/Casino Facilities or other Collateral, Borrowers
shall within ten (10) days of the date such additional funds will be required
deposit additional funds with the Agent Bank or raise additional equity
capital, sufficient to pay such additional costs of reconstructing the
Collateral;
e. Borrowers have delivered to the Agent Bank a
construction contract for the work of reconstruction in form and content,
including insurance requirements, reasonably acceptable to the Requisite
Lenders with a contractor reasonably acceptable to the Requisite Lenders;
f. The Requisite Lenders in their reasonable discretion
have determined that after the work of reconstruction is completed, the
Hotel/Casino Facilities will produce income sufficient to pay all costs of
operations and maintenance of the Hotel/Casino Facilities with a reasonable
reserve for repairs, and service all Indebtedness secured by the Collateral;
g. No Default in the payment of any principal or
interest owing under the terms of the Bank Facilities, and no Event of
Default, has occurred and is continuing;
h. Before commencing any such work, Borrowers shall, at
their own cost and expense, furnish Agent Bank with appropriate endorsements,
if needed, to the "All Risk" insurance policy which Borrowers are then
presently maintaining to cover all of the risks during the course of such
work;
i. Such work shall be commenced by Borrowers within one
hundred twenty (120) days after (i) settlement shall have been made with the
insurance companies, and (ii) all the necessary governmental approvals shall
have been obtained, and such work shall be completed within a reasonable
time, free and clear of all liens and encumbrances other than Permitted
Encumbrances; and
j. Disbursements of such insurance or condemnation
proceeds shall be made in the customary manner used by Agent Bank for the
disbursement of construction loans.
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ARTICLE IX
AGENCY PROVISIONS
Section 9.01. APPOINTMENT.
a. Each Lender hereby (i) designates and appoints WFB
as the Agent Bank of such Lender under this Credit Agreement and the Loan
Documents, (ii) authorizes and directs Agent Bank to enter into the Loan
Documents other than this Credit Agreement for the benefit of Lenders, and
(iii) authorizes Agent Bank to take such action on its behalf under the
provisions of this Credit Agreement and the Loan Documents and to exercise
such powers as are set forth herein or therein, together with such other
powers as are reasonably incidental thereto, subject to the limitations
referred to in Sections 9.10(a) and 9.10(b). Agent Bank agrees to act as
such on the express conditions contained in this Article IX.
b. The provisions of this Article IX are solely for the
benefit of Agent Bank and Lenders, and Borrowers shall not have any rights to
rely on or enforce any of the provisions hereof (other than as set forth in
the provisions of Sections 9.03, 9.09 and 9.10), provided, however, that the
foregoing shall in no way limit Borrowers' obligations under this Article IX.
In performing its functions and duties under this Credit Agreement, Agent
Bank shall act solely as Agent Bank of Lenders and does not assume and shall
not be deemed to have assumed any obligation toward or relationship of agency
or trust with or for Borrowers or any other Person.
Section 9.02. NATURE OF DUTIES. Agent Bank shall not have any
duties or responsibilities except those expressly set forth in this Credit
Agreement or in the Loan Documents. The duties of Agent Bank shall be
administrative in nature. Subject to the provisions of Sections 9.05 and
9.07, Agent Bank shall administer the Bank Facilities in the same manner as
it administers its own loans. Promptly following the effectiveness of this
Credit Agreement, Agent Bank shall send to each Lender a duplicate executed
original, to the extent the same are available in sufficient numbers, of the
Credit Agreement and a copy of each other Loan Document in favor of Lenders
and a copy of the filed or recorded Security Documentation, with the
originals of the latter to be held and retained by Agent Bank for the benefit
of all Lenders. Agent Bank shall not have by reason of this Credit Agreement
a fiduciary relationship in respect of any Lender. Nothing in this Credit
Agreement or any of the Loan Documents, expressed or implied, is intended or
shall be construed to impose upon Agent Bank any obligation in respect of
this Credit Agreement
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or any of the Loan Documents except as expressly set forth herein or therein.
Each Lender shall make its own independent investigation of the financial
condition and affairs of the Borrowers and the Collateral in connection with
the making and the continuance of the Bank Facilities hereunder and shall
make its own appraisal of the creditworthiness of the Borrowers and the
Collateral, and, except as specifically provided herein, Agent Bank shall not
have any duty or responsibility, either initially or on a continuing basis,
to provide any Lender with any credit or other information with respect
thereto, whether coming into its possession before the Closing Date or at any
time or times thereafter.
Section 9.03. DISBURSEMENT OF BORROWINGS.
a. Not later than the same Banking Business Day with
respect to Base Rate Loans and the next Banking Business Day with respect to
LIBOR Loans, in each case following receipt of a Notice of Borrowing, Agent
Bank shall send a copy thereof by facsimile to each Lender and shall
otherwise notify each Lender of the proposed Borrowing and the Funding Date.
Each Lender shall make available to Agent Bank (or the funding bank or entity
designated by Agent Bank), the amount of such Lender's Pro Rata Share of such
Borrowing in immediately available funds not later than the times designated
in Section 9.03(b). Unless Agent Bank shall have been notified by any Lender
not later than the close of business (San Francisco time) on the Banking
Business Day immediately preceding the Funding Date in respect of any
Borrowing that such Lender does not intend to make available to Agent Bank
such Lender's Pro Rata Share of such Borrowing, Agent Bank may assume that
such Lender shall make such amount available to Agent Bank. If any Lender
does not notify Agent Bank of its intention not to make available its Pro
Rata Share of such Borrowing as described above, but does not for any reason
make available to Agent Bank such Lender's Pro Rata Share of such Borrowing,
such Lender shall pay to Agent Bank forthwith on demand such amount, together
with interest thereon at the Federal Funds Rate. In any case where a Lender
does not for any reason make available to Agent Bank such Lender's Pro Rata
Share of such Borrowing, Agent Bank, in its sole discretion, may, but shall
not be obligated to, fund to Borrowers such Lender's Pro Rata Share of such
Borrowing. If Agent Bank funds to Borrowers such Lender's Pro Rata Share of
such Borrowing and if such Lender subsequently pays to Agent Bank such
corresponding amount, such amount so paid shall constitute such Lender's Pro
Rata Share of such Borrowing. Nothing in this Section 9.03(a) shall alter
the respective rights and obligations of the parties hereunder in respect of
a Defaulting Lender or a Non-Pro Rata Borrowing.
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b. Requests by Agent Bank for funding by Lenders of
Borrowings will be made by telecopy. Each Lender shall make the amount of
its Pro Rata Share of such Borrowing available to Agent Bank in Dollars and
in immediately available funds, to such bank and account, in San Francisco,
California as Agent Bank may designate, not later than 9:00 A.M. (San
Francisco time) on the Funding Date designated in the Notice of Borrowing
with respect to such Borrowing, but in no event later than one (1) Banking
Business Day notice with respect to Bank Rate Loans and two (2) Banking
Business Days notice with respect to LIBOR Loans, in each case following
Lender's receipt of the applicable Notice of Borrowing.
c. Nothing in this Section 9.03 shall be deemed to
relieve any Lender of its obligation hereunder to make its Pro Rata Share of
Borrowings on any Funding Date, nor shall any Lender be responsible for the
failure of any other Lender to perform its obligations to advance its Pro
Rata Share of any Borrowing hereunder, and the Pro Rata Share of the
Aggregate Commitment of any Lender shall not be increased or decreased as a
result of the failure by any other Lender to perform its obligation to
advance its Pro Rata Share of any Borrowing.
Section 9.04. DISTRIBUTION AND APPORTIONMENT OF PAYMENTS.
a. Subject to Section 9.04(b), payments actually
received by Agent Bank for the account of Lenders shall be paid to them
promptly after receipt thereof by Agent Bank, but in any event within one (1)
Banking Business Day, provided that Agent Bank shall pay to Lenders interest
thereon, at the Federal Funds Rate from the Banking Business Day following
receipt of such funds by Agent Bank until such funds are paid in immediately
available funds to Lenders. Subject to Section 9.04(b), all payments of
principal and interest in respect of Aggregate Outstandings, all payments of
the fees described in this Credit Agreement, and all payments in respect of
any other Obligations shall be allocated among such Lenders as are entitled
thereto, in proportion to their respective Pro Rata Shares or otherwise as
provided herein. Agent Bank shall promptly distribute, but in any event
within one (1) Banking Business Day, to each Lender at its primary address
set forth on the appropriate signature page hereof or on the applicable
Assignment and Assumption Agreement, or at such other address as a Lender may
request in writing, such funds as it may be entitled to receive, provided
that Agent Bank shall in any event not be bound to inquire into or determine
the validity, scope or priority of any interest or entitlement of any Lender
and may suspend all payments and
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seek appropriate relief (including, without limitation, instructions from
Requisite Lenders or all Lenders, as applicable, or an action in the nature
of interpleader) in the event of any doubt or dispute as to any apportionment
or distribution contemplated hereby. The order of priority herein is set
forth solely to determine the rights and priorities of Lenders as among
themselves and may at any time or from time to time be changed by Lenders as
they may elect, in writing in accordance with Section 10.01, without
necessity of notice to or consent of or approval by Borrowers or any other
Person. All payments or other sums received by Agent Bank for the account of
Lenders (including, without limitation, principal and interest payments, the
proceeds of any and all insurance maintained with respect to any of the
Collateral, and any and all condemnation proceeds with respect to any of the
Collateral) shall not constitute property or assets of the Agent Bank and
shall be held by Agent Bank, solely in its capacity as administrative and
collateral agent for itself and the other Lenders, subject to the Loan
Documents.
b. Notwithstanding any provision hereof to the
contrary, until such time as a Defaulting Lender has funded its Pro Rata
Share of Borrowing which was previously a Non Pro Rata Borrowing, or all
other Lenders have received payment in full (whether by repayment or
prepayment) of the principal due in respect of such Non Pro Rata Borrowing,
all principal sums owing to such Defaulting Lender hereunder shall be
subordinated in right of payment to the prior payment in full of all
principal, in respect of all Non Pro Rata Borrowing in which the Defaulting
Lender has not funded its Pro Rata Share. This provision governs only the
relationship among Agent Bank, each Defaulting Lender, and the other Lenders;
nothing hereunder shall limit the obligation of Borrowers to repay all
Borrowings in accordance with the terms of this Credit Agreement. The
provisions of this section shall apply and be effective regardless of whether
an Event of Default occurs and is then continuing, and notwithstanding (i)
any other provision of this Credit Agreement to the contrary, (ii) any
instruction of Borrowers as to their desired application of payments or (iii)
the suspension of such Defaulting Lender's right to vote on matters which are
subject to the consent or approval of Requisite Lenders or all Lenders. No
Commitment Fee or L/C Fees shall accrue in favor of, or be payable to, such
Defaulting Lender from the date of any failure to fund Borrowings or
reimburse Agent Bank for any Liabilities and Costs as herein provided until
such failure has been cured, and Agent Bank shall be entitled to (A) withhold
or setoff, and to apply to the payment of the defaulted amount and any
related interest, any amounts to be paid to such Defaulting Lender under this
Credit Agreement,
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and (B) bring an action or suit against such Defaulting Lender in a court of
competent jurisdiction to recover the defaulted amount and any related
interest. In addition, the Defaulting Lender shall indemnify, defend and
hold Agent Bank and each of the other Lenders harmless from and against any
and all Liabilities and Costs, plus interest thereon at the Default Rate,
which they may sustain or incur by reason of or as a direct consequence of
the Defaulting Lender's failure or refusal to abide by its obligations under
this Credit Agreement.
Section 9.05. RIGHTS, EXCULPATION, ETC. Neither Agent Bank, any
Affiliate of Agent Bank, nor any of their respective officers, directors,
employees, agents, attorneys or consultants, shall be liable to any Lender
for any action taken or omitted by them hereunder or under any of the Loan
Documents, or in connection herewith or therewith, except that Agent Bank
shall be liable for its gross negligence or willful misconduct. In the
absence of gross negligence or willful misconduct, Agent Bank shall not be
liable for any apportionment or distribution of payments made by it in good
faith pursuant to Section 9.04, and if any such apportionment or distribution
is subsequently determined to have been made in error the sole recourse of
any Person to whom payment was due, but not made, shall be to recover from
the recipients of such payments any payment in excess of the amount to which
they are determined to have been entitled. Agent Bank shall not be
responsible to any Lender for any recitals, statements, representations or
warranties herein or for the execution, effectiveness, genuineness, validity,
enforceability, collectibility or sufficiency of this Credit Agreement, any
of the Security Documentation or any of the other Loan Documents, or any of
the transactions contemplated hereby and thereby; or for the financial
condition of the Borrowers or any of their Affiliates. Agent Bank shall not
be required to make any inquiry concerning either the performance or
observance of any of the terms, provisions or conditions of this Credit
Agreement or any of the Loan Documents or the financial condition of the
Borrowers or any of their Affiliates, or the existence or possible existence
of any Default or Event of Default.
Section 9.06. RELIANCE. Agent Bank shall be entitled to rely upon
any written notices, statements, certificates, orders or other documents,
telecopies or any telephone message believed by it in good faith to be
genuine and correct and to have been signed, sent or made by the proper
Person, and with respect to all matters pertaining to this Credit Agreement
or any of the Loan Documents and its duties hereunder or thereunder, upon
advice of legal counsel
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(including counsel for Borrowers), independent public accountant and other
experts selected by it.
Section 9.07. INDEMNIFICATION. To the extent that Agent Bank is
not reimbursed and indemnified by Borrowers, Lenders will reimburse, within
ten (10) Banking Business Days after notice from Agent Bank, and indemnify
and defend Agent Bank for and against any and all Liabilities and Costs which
may be imposed on, incurred by, or asserted against it in any way relating to
or arising out of this Credit Agreement, the Security Documentation or any of
the other Loan Documents or any action taken or omitted by Agent Bank or
under this Credit Agreement, the Security Documentation or any of the other
Loan Documents, in proportion to each Lender's Pro Rata Share; provided that
no Lender shall be liable for any portion of such Liabilities and Costs
resulting from Agent Bank's gross negligence or willful misconduct. The
obligations of Lenders under this Section 9.07 shall survive the payment in
full of all Obligations and the termination of this Credit Agreement. In the
event that after payment and distribution of any amount by Agent Bank to
Lenders, any Lender or third party, including Borrowers, any creditor of
Borrowers or a trustee in bankruptcy, recovers from Agent Bank any amount
found to have been wrongfully paid to Agent Bank or disbursed by Agent Bank
to any Lender, then such Lender shall reimburse Agent Bank for all such
amounts. Notwithstanding the foregoing, Agent Bank shall not be obligated to
advance Liabilities and Costs and may require the deposit by each Lender of
its Pro Rata Share of any material Liabilities and Costs anticipated by Agent
Bank before they are incurred or made payable.
Section 9.08. AGENT INDIVIDUALLY. With respect to its Pro Rata
Share of the Credit Facility, Agent Bank shall have and may exercise the same
rights and powers hereunder and is subject to the same obligations and
liabilities as and to the extent set forth herein for any other Lender. The
terms "Lenders", "Requisite Lenders" or any similar terms may include Agent
Bank in its individual capacity as a Lender or one of the Requisite Lenders,
but Requisite Lenders shall not include Agent Bank solely in its capacity as
Agent Bank and need not necessarily include Agent Bank in its capacity as a
Lender. Agent Bank and any Lender and its Affiliates may accept deposits
from, lend money to, and generally engage in any kind of banking, trust or
other business with Borrowers or any of their Affiliates as if it were not
acting as Agent Bank or Lender pursuant hereto.
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Section 9.09. SUCCESSOR AGENT BANK; RESIGNATION OF AGENT BANK;
REMOVAL OF AGENT BANK.
a. Agent Bank may resign from the performance of all
its functions and duties hereunder at any time by giving at least thirty (30)
Banking Business Days' prior written notice to Lenders and Borrowers, and
shall automatically cease to be Agent Bank hereunder in the event a petition
in bankruptcy shall be filed by or against Agent Bank or the Federal Deposit
Insurance Corporation or any other Governmental Authority shall assume
control of Agent Bank or Agent Bank's interests under the Bank Facilities.
Further, Lenders (other than Agent Bank) may unanimously remove Agent Bank at
any time upon the occurrence of gross negligence or wilful misconduct by
Agent Bank by giving at least thirty (30) Banking Business Days' prior
written notice to Agent Bank, Borrowers and all other Lenders. Such
resignation or removal shall take effect upon the acceptance by a successor
Agent Bank of appointment pursuant to clause (b) or (c).
b. Upon any such notice of resignation by or removal of
Agent Bank, Requisite Lenders shall appoint a successor Agent Bank which
appointment shall be subject to Borrowers' consent (other than upon the
occurrence and during the continuance of any Event of Default), which shall
not be unreasonably withheld or delayed. Any successor Agent Bank must be a
Bank (i) the senior debt obligations of which (or such bank's parent's senior
unsecured debt obligations) are rated not less than Baa-2 by Moody's
Investors Services, Inc. or a comparable rating by a rating agency acceptable
to Requisite Lenders and (ii) which has total assets in excess of Ten Billion
Dollars ($10,000,000,000.00).
c. If a successor Agent Bank shall not have been so
appointed within said thirty (30) Banking Business Day period, the retiring
or removed Agent Bank, with the consent of Borrowers (other than upon the
occurrence and during the continuance of any Event of Default) (which may not
be unreasonably withheld or delayed), shall then appoint a successor Agent
Bank who shall meet the requirements described in subsection (b) above and
who shall serve as Agent Bank until such time, if any, as Requisite Lenders,
with the consent of Borrowers (other than upon the occurrence and during the
continuance of any Event of Default), appoint a successor Agent Bank as
provided above.
Section 9.10. CONSENT AND APPROVALS.
a. Each consent, approval, amendment, modification or
waiver specifically enumerated in this Section 9.10(a) shall require the
consent of Requisite Lenders:
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(i) Approval of Borrowings with less than full
compliance with requirements of Article IIIB (Section 2.04);
(ii) Consent to modification of the Leases (Sections
5.03);
(iii) Consent to modification to or waiver of
financial reporting requirements or production of additional financial
or other information (Section 5.08);
(iv) Approval of a change in the method of
calculation of any financial covenants, standards or terms as a result
of a change in accounting principle (Section 6.21);
(v) Direct Agent Bank to declare the unpaid balance
of the Credit Facility fully due and payable (Section 7.02);
(vi) Direct the disposition of insurance proceeds or
condemnation awards under certain circumstances (Section 8.02);
(vii) Approval of appointment of successor Agent Bank
(Section 9.09);
(viii) Approval of certain Protective Advances (Section
9.11(a));
(ix) Approval of a Post-Foreclosure Plan and related
matters (Section 9.11(e));
(x) Consent to action or proceeding against Borrowers
or the Collateral by any Lender (Section 9.12); or
(xi) Except as referred to in subsection (b) and (c)
below, approval of any amendment, modification or termination of this
Credit Agreement or any other Loan Documents, or waiver of any
provision herein (Section 10.01).
b. Each consent, approval, amendment, modification or
waiver specifically enumerated in this Section 9.10(b) shall require the
consent of Majority Lenders:
(i) Consents, approvals, amendments, modifications or
waivers relating to Contingent
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Liabilities in excess of Ten Million Dollars ($10,000,000.00)
(Section 6.07);
(ii) Consents, approvals, amendments, modifications or
waivers relating to Investments (Section 6.08);
(iii) Consents, approvals, amendments, modifications or
waivers relating to creation of Subsidiaries by an Operating
Subsidiary (Section 6.19);
(iv) Consents, approvals, amendments, modifications or
waivers relating to Consolidations, Mergers and Sale of Assets
(Section 6.14); and
(v) waiver of covenants proposed to be contained in
any Subordinated Debt that are more restrictive than the Financial
Covenants as provided in subsection (c) in the definition of
Subordinated Debt.
c. Each consent, approval, amendment, modification or
waiver specifically enumerated in Section 10.01(i), (ii) or (iii) shall
require the consent of all Lenders.
d. In addition to the required consents or approvals
referred to in subsection (a) above, Agent Bank may at any time request
instructions from Requisite Lenders with respect to any actions or approvals
which, by the terms of this Credit Agreement or of any of the Loan Documents,
Agent Bank is permitted or required to take or to grant without instructions
from any Lenders, and if such instructions are promptly requested, Agent Bank
shall be absolutely entitled to refrain from taking any action or to withhold
any approval and shall not be under any liability whatsoever to any Person
for refraining from taking any action or withholding any approval under any
of the Loan Documents until it shall have received such instructions from
Requisite Lenders. Without limiting the foregoing, no Lender shall have any
right of action whatsoever against Agent Bank as a result of Agent Bank
acting or refraining from acting under this Credit Agreement, the Security
Documentation or any of the other Loan Documents in accordance with the
instructions of Majority Lenders or Requisite Lenders or, where applicable,
all Lenders. Agent Bank shall promptly notify each Lender at any time that
the Requisite Lenders have instructed Agent Bank to act or refrain from
acting pursuant hereto.
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e. Each Lender agrees that any action taken by Agent
Bank at the direction or with the consent of Majority Lenders or Requisite
Lenders, as applicable, in accordance with the provisions of this Credit
Agreement or any Loan Document, and the exercise by Agent Bank at the
direction or with the consent of Majority Lenders or Requisite Lenders, as
applicable, of the powers set forth herein or therein, together with such
other powers as are reasonably incidental thereto, shall be authorized and
binding upon all Lenders, except for actions specifically requiring the
approval of all Lenders. All communications from Agent Bank to Lenders
requesting Lenders' determination, consent, approval or disapproval (i) shall
be given in the form of a written notice to each Lender, (ii) shall be
accompanied by a description of the matter or thing as to which such
determination, approval, consent or disapproval is requested, or shall advise
each Lender where such matter or thing may be inspected, or shall otherwise
describe the matter or issue to be resolved, (iii) shall include, if
reasonably requested by a Lender and to the extent not previously provided to
such Lender, written materials provided to Agent Bank by Borrowers in respect
of the matter or issue to be resolved, and (iv) shall include Agent Bank's
recommended course of action or determination in respect thereof. Each
Lender shall reply promptly, but in any event within ten (10) Banking
Business Days (the "Lender Reply Period"). Unless a Lender shall give
written notice to Agent Bank that it objects to the recommendation or
determination of Agent Bank (together with a written explanation of the
reasons behind such objection) within the Lender Reply Period, such Lender
shall be deemed to have approved of or consented to such recommendation or
determination. With respect to decisions requiring the approval of Majority
Lenders, Requisite Lenders or all Lenders, Agent Bank shall submit its
recommendation or determination for approval of or consent to such
recommendation or determination to all Lenders and upon receiving the
required approval or consent shall follow the course of action or
determination recommended to Lenders by Agent Bank or such other course of
action recommended by Majority Lenders or Requisite Lenders, as applicable,
and each non-responding Lender shall be deemed to have concurred with such
recommended course of action.
Section 9.11. AGENCY PROVISIONS RELATING TO COLLATERAL.
a. Agent Bank is hereby authorized on behalf of all
Lenders, without the necessity of any notice to or further consent from any
Lender, from time to time prior to an Event of Default, to take any action
with respect to any Collateral or Loan Document which may be necessary to
perfect and maintain Liens of the Security Documentation upon the
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Collateral granted pursuant to the Loan Documents. Agent Bank may make, and
shall be reimbursed by Lenders (in accordance with their Pro Rata Shares), to
the extent not reimbursed by Borrowers, for, Protective Advance(s) during any
one (1) calendar year with respect to the Collateral up to the sum of (i)
amounts expended to pay real estate taxes, assessments and governmental
charges or levies imposed upon such Collateral, (ii) amounts expended to pay
insurance premiums for policies of insurance related to such Collateral, and
(iii) One Hundred Thousand Dollars ($100,000.00). Protective Advances in
excess of said sum during any calendar year for any Collateral shall require
the consent of Requisite Lenders.
b. Lenders hereby irrevocably authorize Agent Bank, at
its option and in its discretion, to release any Security Documentation
granted to or held by Agent Bank upon all or substantially all of the
Collateral (i) upon Bank Facility Termination and repayment and satisfaction
of all Borrowings, and all other Obligations and the termination of this
Credit Agreement, or (ii) if approved, authorized or ratified in writing by
Agent Bank at the direction of all Lenders. Lenders hereby irrevocably
authorize Agent Bank to release any Collateral that may be sold, transferred,
disposed of or otherwise conveyed by the Borrower Consolidation in accordance
with the terms of this Credit Agreement or as contemplated in Section 5.16.
Agent Bank shall not be required to execute any document to evidence the
release of the Security Documentation granted to Agent Bank for the benefit
of Lenders herein or pursuant hereto upon any Collateral if, in Agent Bank's
opinion, such document would expose Agent Bank to liability or create any
obligation or entail any consequence other than the release of such Security
Documentation without recourse or warranty, and such release shall not in any
manner discharge, affect or impair the Obligations or any Security
Documentation upon (or obligations of Borrowers in respect of) any property
which shall continue to constitute part of the Collateral.
c. Except as provided in this Credit Agreement, Agent
Bank shall have no obligation whatsoever to any Lender or to any other Person
to assure that the Collateral exists or is owned by Borrowers or is cared
for, protected or insured or has been encumbered or that the Security
Documentation granted to Agent Bank herein or in any of the other Loan
Documents or pursuant hereto or thereto have been properly or sufficiently or
lawfully created, perfected, protected or enforced or are entitled to any
particular priority.
d. Should Agent Bank (i) employ counsel for advice or
other representation (whether or not any suit has
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been or shall be filed) with respect to any Collateral or any part thereof,
or any of the Loan Documents, or the attempt to enforce any security interest
or Security Documentation on any of the Collateral, or (ii) commence any
proceeding or in any way seek to enforce its rights or remedies under the
Loan Documents, irrespective of whether as a result thereof Agent Bank shall
acquire title to any Collateral, either through foreclosure, deed in lieu of
foreclosure or otherwise, each Lender, upon demand therefor from time to
time, shall contribute its share (based on its Pro Rata Share) of the
reasonable costs and/or expenses of any such advice or other representation,
enforcement or acquisition, including, but not limited to, fees of receivers
or trustees, court costs, title company charges, filing and recording fees,
appraisers' fees and fees and expenses of attorneys to the extent not
otherwise reimbursed by Borrowers; provided that Agent Bank shall not be
entitled to reimbursement of its attorneys' fees and expenses incurred in
connection with the resolution of disputes between Agent Bank and other
Lenders unless Agent Bank shall be the prevailing party in any such dispute.
Any loss of principal and interest resulting from any Event of Default shall
be shared by Lenders in accordance with their respective Pro Rata Shares. It
is understood and agreed that in the event Agent Bank determines it is
necessary to engage counsel for Lenders from and after the occurrence of an
Event of Default, said counsel shall be selected by Agent Bank.
e. In the event that all or any portion of the
Collateral is acquired by Agent Bank as the result of a foreclosure or the
acceptance of a fgdeed or assignment in lieu of foreclosure, or is retained
in satisfaction of all or any part of Borrowers' obligations, title to any
such Collateral or any portion thereof shall be held in the name of Agent
Bank or a nominee or subsidiary of Agent Bank, as agent, for the ratable
benefit of Agent Bank and Lenders. Agent Bank shall prepare a recommended
course of action for such Collateral (the "Post-Foreclosure Plan"), which
shall be subject to the approval of the Requisite Lenders. In the event that
Requisite Lenders do not approve such Post-Foreclosure Plan, any Lender shall
be permitted to submit an alternative Post-Foreclosure Plan to Agent Bank,
and Agent Bank shall submit any and all such additional Post-Foreclosure
Plans to the Lenders for evaluation and the approval of Requisite Lenders.
In accordance with the approved Post-Foreclosure Plan, Agent Bank shall
manage, operate, repair, administer, complete, construct, restore or
otherwise deal with the Collateral acquired and administer all transactions
relating thereto, including, without limitation, employing a management
agent, leasing agent and other agents, contractors and employees, including
agents of the sale of such Collateral, and the collecting of rents and other
sums from such Collateral and
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paying the expenses of such Collateral; actions taken by Agent Bank with
respect to the Collateral, which are not provided for in the approved
Post-Foreclosure Plan or reasonably incidental thereto, shall require the
consent of Requisite Lenders by way of supplement to such Post-Foreclosure
Plan. Upon demand therefor from time to time, each Lender will contribute
its share (based on its Pro Rata Share) of all reasonable costs and expenses
incurred by Agent Bank pursuant to the Post-Foreclosure Plan in connection
with the construction, operation, management, maintenance, leasing and sale
of such Collateral. In addition, Agent Bank shall render or cause to be
rendered by the managing agent, to each of the Lenders, monthly, an income
and expense statement for such Collateral, and each of the Lenders shall
promptly contribute its Pro Rata Share of any operating loss for such
Collateral, and such other expenses and operating reserves as Agent Bank
shall deem reasonably necessary pursuant to and in accordance with the
Post-Foreclosure Plan. To the extent there is net operating income from such
Collateral, Agent Bank shall, in accordance with all applicable Gaming Laws
and the Post-Foreclosure Plan, determine the amount and timing of
distributions to Lenders. All such distributions shall be made to Lenders in
accordance with their respective Pro Rata Shares. Lenders acknowledge that
if title to any Collateral is obtained by Agent Bank or its nominee, such
Collateral will not be held as a permanent investment but will be liquidated
as soon as practicable. Agent Bank shall undertake to sell such Collateral,
at such price and upon such terms and conditions as the Requisite Lenders
shall reasonably determine to be most advantageous. Any purchase money
mortgage or deed of trust taken in connection with the disposition of such
Collateral in accordance with the immediately preceding sentence shall name
Agent Bank, as agent for Lenders, as the beneficiary or mortgagee. In such
case, Agent Bank and Lenders shall enter into an agreement with respect to
such purchase money mortgage defining the rights of Lenders in the same Pro
Rata Shares as provided hereunder, which agreement shall be in all material
respects similar to this Article IX insofar as the same is appropriate or
applicable.
Section 9.12. LENDER ACTIONS AGAINST COLLATERAL AND RESTRICTION ON
EXERCISE OF SET-OFF. Each Lender agrees that it will not take any action,
nor institute any actions or proceedings, against Borrowers or any other
obligor hereunder, under the Security Documentation or under any other Loan
Documents with respect to exercising claims against or rights in any
Collateral or exercise any set-off under Section 10.23 or under common law
without the prior consent of Requisite Lenders.
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Section 9.13. RATABLE SHARING. Subject to Section 9.03 and 9.04,
upon the occurrence of an Event of Default, Lenders agree among themselves
that (i) with respect to all amounts received by them which are applicable to
the payment of the Obligations, equitable adjustment will be made so that, in
effect, all such amounts will be shared among them ratably in accordance with
their Pro Rata Shares, whether received by voluntary payment, by counterclaim
or cross action or by the enforcement of any or all of the Obligations, or
the Collateral, (ii) if any of them shall by voluntary payment or by the
exercise of any right of counterclaim or otherwise, receive payment of a
proportion of the aggregate amount of the Obligations held by it which is
greater than its Pro Rata Share of the payments on account of the
Obligations, the one receiving such excess payment shall purchase, without
recourse or warranty, an undivided interest and participation (which it shall
be deemed to have done simultaneously upon the receipt of such payment) in
such Obligations owed to the others so that all such recoveries with respect
to such Obligations shall be applied ratably in accordance with their Pro
Rata Shares; provided, that if all or part of such excess payment received by
the purchasing party is thereafter recovered from it, those purchases shall
be rescinded and the purchase prices paid for such participations shall be
returned to that party to the extent necessary to adjust for such recovery,
but without interest except to the extent the purchasing party is required to
pay interest in connection with such recovery. Borrowers agree that any
Lender so purchasing a participation from another Lender pursuant to this
Section 9.13 may, to the fullest extent permitted by law, exercise all its
rights of payment with respect to such participation as fully as if such
Lender were the direct creditor of Borrowers in the amount of such
participation. No Lender shall exercise any setoff, banker's lien or other
similar right in respect to any Obligations without the prior written
approval by Agent Bank.
Section 9.14. DELIVERY OF DOCUMENTS. Agent Bank shall as soon as
reasonably practicable distribute to each Lender at its primary address set
forth on the appropriate counterpart signature page hereof, or at such other
address as a Lender may request in writing, (i)copies of all documents to
which such Lender is a party or of which is executed or held by Agent Bank on
behalf of such Lender, (ii) all documents of which Agent Bank receives copies
from Borrowers pursuant to Article VI and Section 10.03, (iii) all other
documents or information which Agent Bank is required to send to Lenders
pursuant to the terms of this Credit Agreement, (iv) other information or
documents received by Agent Bank at the request of any Lender, and (v) all
notices received by Agent Bank pursuant to Section 5.21. In addition, within
fifteen (15) Banking Business Days after receipt of a request in writing
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from a Lender for written information or documents provided by or prepared by
Borrowers, Agent Bank shall deliver such written information or documents to
such requesting Lender if Agent Bank has possession of such written
information or documents in its capacity as Agent Bank or as a Lender.
Section 9.15. NOTICE OF EVENTS OF DEFAULT. Agent Bank shall not
be deemed to have knowledge or notice of the occurrence of any Default or
Event of Default (other than nonpayment of principal of or interest on the
Bank Facilities) unless Agent Bank has received notice in writing from a
Lender or Borrowers referring to this Credit Agreement or the other Loan
Documents, describing such event or condition and expressly stating that such
notice is a notice of a Default or Event of Default. Should Agent Bank
receive such notice of the occurrence of a Default or Event of Default, or
should Agent Bank send Borrowers a notice of Default or Event of Default,
Agent Bank shall promptly give notice thereof to each Lender.
ARTICLE X
GENERAL TERMS AND CONDITIONS
The following terms and conditions shall be applicable until Bank
Facility Termination:
Section 10.01. AMENDMENTS AND WAIVERS. (a) No amendment or
modification of any provision of this Credit Agreement shall be effective
without the written agreement of Majority Lenders or Requisite Lenders, as
set forth in Section 9.10 or otherwise herein required (after notice to all
Lenders) and Borrowers (except for rights and priorities of Lenders as
amongst themselves as provided in Section 9.04(a) which do not require the
consent of Borrowers), and (b) no termination or waiver of any provision of
this Credit Agreement, or consent to any departure by Borrowers therefrom
shall in any event be effective without the written concurrence of Majority
Lenders or Requisite Lenders, as set forth in Section 9.10 or otherwise
herein required (after notice to all Lenders), which Majority Lenders or
Requisite Lenders, as applicable, shall have the right to grant or withhold
at their sole discretion, except that the following amendments, modifications
or waivers shall require the consent of all Lenders:
(i) modify any requirement hereunder that any
particular action be taken by all the Lenders or by the Requisite Lenders or
by the Majority Lenders, modify this Section 10.01 or change the definition
of "Requisite Lenders" or "Majority Lenders", or remove Agent Bank under
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Section 9.09(a) (without regard to the vote of Agent Bank as a Lender);
(ii) increase the Aggregate Commitment or increase the
Syndication Interest of any Lender or release any material portion of the
Collateral or release any Borrower or Subsidiary Guarantor except as
specifically provided in the Credit Agreement or extend the Maturity Date; or
(iii) reduce any fees described in Section 2.10(b) or (c)
or extend the due date for, or reduce or postpone the amount of, any payments
on the Credit Facility, or reduce the rate of interest or postpone the
payment of interest on the Credit Facility.
No amendment, modification, termination or waiver of any provision of Article
IX or any other provision referring to Agent Bank shall be effective without
the written concurrence of Agent Bank, but only if such amendment,
modification, termination or waiver alters the obligations or rights of Agent
Bank. Any waiver or consent shall be effective only in the specific instance
and for the specific purpose for which it was given. No notice to or demand
on Borrowers in any case shall entitle Borrowers to any other further notice
or demand in similar or other circumstances. Any amendment, modification,
termination, waiver or consent effected in accordance with this Section 10.01
shall be binding on each assignee, transferee or recipient of Agent Bank's or
any Lender's respective Syndication Interest in the Credit Facility at the
time outstanding. No modification of Section 2.08 or the Swingline Note
shall be made without the consent of the Swingline Lender. No modification
of Section 2.09 shall be made without the consent of the L/C Issuer.
Section 10.02. FAILURE TO EXERCISE RIGHTS. Nothing herein
contained shall impose upon Banks or Borrowers any obligation to enforce any
terms, covenants or conditions contained herein. Failure of Banks or
Borrowers, in any one or more instances, to insist upon strict performance by
Borrowers or Banks of any terms, covenants or conditions of this Credit
Agreement or the other Loan Documents, shall not be considered or taken as a
waiver or relinquishment by Banks or Borrowers of their right to insist upon
and to enforce in the future, by injunction or other appropriate legal or
equitable remedy, strict compliance by Borrowers or Banks with all the terms,
covenants and conditions of this Credit Agreement and the other Loan
Documents. The consent of Banks or Borrowers to any act or omission by
Borrowers or Banks shall not be construed to be a consent to any other or
subsequent act or omission or to waive the requirement for
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Banks' or Borrowers' consent to be obtained in any future or other instance.
Section 10.03. NOTICES AND DELIVERY. Unless otherwise specifically
provided herein, any consent, notice or other communication herein required
or permitted to be given shall be in writing and may be personally served,
telecopied or sent by courier service or United States mail and shall be
deemed to have been given when delivered in person or by courier service,
upon receipt of a telecopy (or on the next Banking Business Day if such
telecopy is received on a non-Banking Business Day or after 5:00 p.m. on a
Banking Business Day) or four (4) Banking Business Days after deposit in the
United States mail (registered or certified, with postage prepaid and
properly addressed). Notices to Agent Bank pursuant to Articles II shall not
be effective until received by Agent Bank. For the purposes hereof, the
addresses of the parties hereto (until notice of a change thereof is
delivered as provided in this Section 10.03) shall be as set forth below each
party's name on the signature pages hereof, or, as to each party, at such
other address as may be designated by such party in an Assignment and
Assumption Agreement or in a written notice to all of the other parties. All
deliveries to be made to Agent Bank for distribution to the Lenders shall be
made to Agent Bank at the addresses specified for notice on the signature
page hereto and in addition, a sufficient number of copies of each such
delivery shall be delivered to Agent Bank for delivery to each Lender at the
address specified for deliveries on the signature page hereto or such other
address as may be designated by Agent Bank in a written notice.
Section 10.04. MODIFICATION IN WRITING. This Credit Agreement and
the other Loan Documents constitute the entire agreement between the parties
and supersede all prior agreements whether written or oral with respect to
the subject matter hereof, including, but not limited to, the Existing Credit
Agreement, the Existing Revolving Credit Note and any term sheets furnished
by any of the Banks to Borrowers. Neither this Credit Agreement, nor any
other Loan Documents, nor any provision herein, or therein, may be changed,
waived, discharged or terminated orally, but only by an instrument in writing
signed by the party against whom enforcement of the change, waiver, discharge
or termination is sought.
Section 10.05. OTHER AGREEMENTS. If the terms of any documents,
certificates or agreements delivered in connection with this Credit Agreement
are inconsistent with the terms of the Loan Documents, Borrowers shall use
their best efforts to amend such document, certificate or agreement to the
satisfaction of Agent Bank to remove such inconsistency.
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Section 10.06. COUNTERPARTS. This Credit Agreement may be executed
by the parties hereto in any number of separate counterparts with the same
effect as if the signatures hereto and hereby were upon the same instrument.
All such counterparts shall together constitute but one and the same document.
Section 10.07. RIGHTS, POWERS AND REMEDIES ARE CUMULATIVE. None of
the rights, powers and remedies conferred upon or reserved to Agent Bank,
Banks or Borrowers in this Credit Agreement are intended to be exclusive of
any other available right, power or remedy, but each and every such right,
power and remedy shall be cumulative and not alternative, and shall be in
addition to every right, power and remedy herein specifically given or now or
hereafter existing at law, in equity or by statute. Any forbearance, delay
or omission by Agent Bank, Banks or Borrowers in the exercise of any right,
power or remedy shall not impair any such right, power or remedy or be
considered or taken as a waiver or relinquishment of the right to insist upon
and to enforce in the future, by injunction or other appropriate legal or
equitable remedy, any of said rights, powers and remedies given to Agent
Bank, Banks or Borrowers herein. The exercise of any right or partial
exercise thereof by Agent Bank, Banks or Borrowers shall not preclude the
further exercise thereof and the same shall continue in full force and effect
until specifically waived by an instrument in writing executed by Agent Bank
or Banks, as the case may be.
Section 10.08. CONTINUING REPRESENTATIONS. All agreements,
representations and warranties made herein shall survive the execution and
delivery of this Credit Agreement, the making of the Bank Facilities
hereunder and the execution and delivery of each other Loan Document until
final payment of all sums owing under the Bank Facilities and Bank Facility
Termination has occurred.
Section 10.09. SUCCESSORS AND ASSIGNS. All of the terms,
covenants, warranties and conditions contained in this Credit Agreement shall
be binding upon and inure to the sole and exclusive benefit of the parties
hereto and their respective successors and assigns.
Section 10.10. ASSIGNMENT OF LOAN DOCUMENTS BY BORROWERS OR
SYNDICATION INTERESTS BY LENDERS.
a. This Credit Agreement and the other Loan Documents
to which Borrowers are a party will be binding upon and inure to the benefit
of Borrowers, the Agent Bank, each of the Banks, and their respective
successors and assigns, EXCEPT that, Borrowers may not assign their rights
hereunder or
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thereunder or any interest herein or therein without the prior written
consent of all the Lenders. Any attempted assignment or delegation in
contravention of the foregoing shall be null and void. Any Lender may at any
time pledge its Syndication Interest in the Credit Facility, the Credit
Agreement and the Loan Documents to a Federal Reserve Bank, but no such
pledge shall release that Lender from its obligations hereunder or grant to
such Federal Reserve Bank the rights of a Lender hereunder absent foreclosure
of such pledge.
b. Each Lender may assign all or any part of its
Syndication Interest in the Credit Facility to any Affiliate of such Lender
or to any other Lender without consent and to one or more financial
institutions that are Eligible Assignees with the prior consent of the Agent
Bank (which consent shall not be unreasonably withheld or delayed) and, so
long as no Default or Event of Default has occurred and remains continuing,
with the prior consent of the Borrowers (which consent shall not be
unreasonably withheld or delayed); PROVIDED, however, that the minimum amount
of each such assignment shall be Five Million Dollars ($5,000,000.00), or
such lesser amount as constitutes the remaining amount of a Lender's
Syndication Interest in the Credit Facility (except that there shall be no
minimum assignment among the Lenders or to their Affiliates), and each
assignee Lender (or assignor if so agreed between the assignee Lender and
such assignor) shall pay to the Agent Bank an assignment fee of Three
Thousand Five Hundred Dollars ($3,500.00) with respect to each such
assignment. Each such assignment shall be evidenced by an assignment
substantially in the form of an Assignment and Assumption Agreement or other
form reasonably acceptable to Agent Bank and Borrowers. Upon any such
assignment, the assignee financial institution shall become a Lender for all
purposes under the Credit Agreement and each of the Loan Documents and the
assigning Lender shall be released from its further obligations hereunder to
the extent of such assignment. Notwithstanding the foregoing, the rights of
the Lenders to make assignments shall be subject to the approval by the
Gaming Authorities of the assignee or participant, to the extent required by
applicable Gaming Laws, and to applicable securities laws.
c. Each Lender may sell participations without notice
to or consent of the Borrowers, or any of them, or Agent Bank to any bank or
financial institution which is not a competitor or an Affiliate of any
competitor of the Casino Facilities in the gaming industry (it being
acknowledged that a bank or financial institution shall not be deemed a
competitor or Affiliate of a competitor merely because it lends money or
otherwise extends credit to any such competitor or Affiliate of a
competitor), for all or any part
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of its Syndication Interest in the Credit Facility; PROVIDED, however, that
(i) such Lender shall remain responsible for its total obligations under the
Credit Agreement and each of the Loan Documents, (ii) the Borrowers and the
Agent Bank shall continue to deal solely with such Lender in connection with
such Lender's rights and obligations under the Credit Agreement and each of
the Loan Documents, and (iii) such Lender shall not sell any participation
under which the participant would have rights to approve any amendment or
waiver relating to the Credit Agreement or any Loan Document except to the
extent any such amendment or waiver would (w) extend the final maturity date
or the date for the payment of any installments of fees, principal or
interest due in respect of the Credit Facility, (x) reduce the interest rates
applicable to the Credit Facility or (y) release any material portion of the
Collateral or any Borrower or Subsidiary Guarantor. Notwithstanding the
foregoing, the rights of the Lenders to grant participations shall be subject
to the approval by the Gaming Authorities of the assignee or participant, to
the extent required by applicable Gaming Laws, and to applicable securities
laws.
d. In the event any Lender is found unsuitable as a
Lender under the Credit Facility by the Gaming Authorities or the
Governmental Authorities of any State of the United States ("Unsuitable
Lender"): (a) Agent Bank shall use its best efforts to find a replacement
Lender, (b) Borrowers shall have the right to make a Voluntary Reduction in
the amount necessary to reduce the Aggregate Commitment by the amount of the
Syndication Interest held by the Unsuitable Lender, and any payments required
in connection with such Voluntary Reduction shall be made to the Unsuitable
Lender and not on a pro rata basis to all Lenders, (without any penalties,
including any Breakage Charges) until a replacement Lender, if any, commits
to acquire the Syndication Interest of the Unsuitable Lender, at which time
the Aggregate Commitment shall be increased by the amount of the Voluntary
Reduction, and (c) upon full payment of all outstanding amounts of principal
and interest owing it, such Unsuitable Lender shall execute such documents as
may be required by Agent Bank, Borrowers or any applicable gaming authorities
to evidence the termination of its Syndication Interest in the Credit
Facility.
Section 10.11. ACTION BY LENDERS. Whenever Banks shall have the
right to make an election, or to exercise any right, or their consent shall
be required for any action under this Credit Agreement or the Loan Documents,
then such election, exercise or consent shall be given or made for all Banks
by Agent Bank in accordance with the provisions of Sections 10.01. Notices,
reports and other documents required
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to be given by Borrowers to Banks hereunder may be given by Borrowers to
Agent Bank on behalf of Banks, with sufficient copies for distribution to
each of the Banks, and the delivery to Agent Bank shall constitute delivery
to Banks. In the event any payment or payments are received by a Lender
other than Agent Bank, Borrowers consent to such payments being shared and
distributed as provided herein.
Section 10.12. TIME OF ESSENCE. Time shall be of the essence of
this Credit Agreement.
Section 10.13. CHOICE OF LAW AND FORUM. This Credit Agreement
shall be governed by and construed in accordance with the internal laws of
the State of Nevada without regard to principles of conflicts of law.
Borrowers, Lenders and Agent Bank further agree that a non-exclusive forum
for the determination of any action relating to this Credit Agreement, the
Loan Documents, or any other document or instrument delivered in favor of
Banks pursuant to the terms hereof may include an appropriate Court of the
State of Nevada or the United States District Court or United States
Bankruptcy Court for the District of Nevada and the Borrowers, Lenders and
Agent Bank hereby irrevocably submit to the jurisdiction thereof.
Section 10.14. ARBITRATION.
a. Upon the request of any party, whether made before
or after the institution of any legal proceeding, any action, dispute, claim
or controversy of any kind (e.g., whether in contract or in tort, statutory
or common law, legal or equitable) ("Dispute") now existing or hereafter
arising between the parties in any way arising out of, pertaining to or in
connection with the Credit Agreement, Loan Documents or any related
agreements, documents, or instruments (collectively the "Documents"), may, by
summary proceedings (e.g., a plea in abatement or motion to stay further
proceedings), bring an action in court to compel arbitration of any Dispute.
b. All Disputes between the parties shall be resolved
by binding arbitration governed by the Commercial Arbitration Rules of the
American Arbitration Association, which shall use the Federal Rules of Civil
Procedure with respect to all discovery matters. Judgment upon the award
rendered by the arbitrators may be entered in any court having jurisdiction.
c. No provision of, nor the exercise of any rights
under this arbitration clause shall limit the rights of any party, and the
parties shall have the right during any
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Dispute, to seek, use and employ ancillary or preliminary remedies, judicial
or otherwise, for the purposes of realizing upon, preserving, protecting or
foreclosing upon any property, real or personal, which is involved in a
Dispute, or which is subject to, or described in, the Documents, including,
without limitation, rights and remedies relating to: (i) foreclosing against
any real or personal property collateral or other security by the exercise of
a power of sale under the Security Documentation or other security agreement
or instrument, or applicable law, (ii) exercising self-help remedies
(including setoff rights) or (iii) obtaining provisional or ancillary
remedies such as injunctive relief, sequestration, attachment, garnishment or
the appointment of a receiver from a court having jurisdiction before, during
or after the pendency of any arbitration. The institution and maintenance of
an action for judicial relief or pursuit of provisional or ancillary remedies
or exercise of self-help remedies shall not constitute a waiver of the right
of any party, including the plaintiff, to submit the Dispute to arbitration
nor render inapplicable the compulsory arbitration provision hereof.
Section 10.15. WAIVER OF JURY TRIAL. TO THE MAXIMUM EXTENT
PERMITTED BY LAW, BORROWERS AND EACH OF THE BANKS EACH MUTUALLY HEREBY
EXPRESSLY WAIVE ANY RIGHT TO TRIAL BY JURY OF ANY ACTION, CAUSE OF ACTION,
CLAIM, DEMAND, OR PROCEEDING ARISING UNDER OR WITH RESPECT TO THIS CREDIT
AGREEMENT, THE NOTES OR ANY OF THE LOAN DOCUMENTS, OR IN ANY WAY CONNECTED
WITH, RELATED TO, OR INCIDENTAL TO THE DEALINGS OF BORROWERS AND BANKS WITH
RESPECT TO THIS CREDIT AGREEMENT, THE NOTES OR ANY OF THE LOAN DOCUMENTS, OR
THE TRANSACTIONS RELATED HERETO, IN EACH CASE WHETHER NOW EXISTING OR
HEREAFTER ARISING, AND IRRESPECTIVE OF WHETHER SOUNDING IN CONTRACT, TORT, OR
OTHERWISE. TO THE MAXIMUM EXTENT PERMITTED BY LAW, BORROWERS AND EACH OF THE
BANKS EACH MUTUALLY AGREE THAT ANY SUCH ACTION, CAUSE OF ACTION, CLAIM,
DEMAND, OR PROCEEDINGS SHALL BE DECIDED BY A COURT TRIAL WITHOUT A JURY AND
THAT THE DEFENDING PARTY MAY FILE AN ORIGINAL COUNTERPART OF THIS SECTION
WITH ANY COURT OR OTHER TRIBUNAL AS WRITTEN EVIDENCE OF THE CONSENT OF THE
COMPLAINING PARTY TO THE WAIVER OF ITS RIGHT TO TRIAL BY JURY.
Section 10.16. SCOPE OF APPROVAL AND REVIEW. Any inspection of the
Casino Facilities shall be deemed to be made solely for Banks' internal
purposes and shall not be relied upon by the Borrowers or any third party.
In no event shall Lenders be deemed or construed to be joint venturers or
partners of Borrowers.
Section 10.17. SEVERABILITY OF PROVISIONS. In the event any one or
more of the provisions contained in this Credit Agreement shall be invalid,
illegal or unenforceable in
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any respect, the validity, legality and enforceability of the remaining
provisions contained herein shall not in any way be affected or impaired
thereby.
Section 10.18. CUMULATIVE NATURE OF COVENANTS. All covenants
contained herein are cumulative and not exclusive of each other covenant.
Any action allowed by any covenant shall be allowed only if such action is
not prohibited by any other covenant.
Section 10.19. COSTS TO PREVAILING PARTY. If any action or
arbitration proceeding is brought by any party against any other party under
this Credit Agreement or any of the Loan Documents, the prevailing party
shall be entitled to recover such costs and attorney's fees as the court in
such action or proceeding may adjudge reasonable.
Section 10.20. EXPENSES.
a. GENERALLY. Borrowers agree within ten (10) Banking
Business Days following demand to pay, or reimburse Agent Bank for, all of
Agent Bank's documented reasonable out-of-pocket costs and expenses of every
type and nature incurred by Agent Bank at any time (whether prior to, on or
after the date of this Credit Agreement) in connection with (i) any requests
for consent, waiver or other modification of any Loan Document made by
Borrowers, other than to correct errors attributable to the Banks; (ii) the
negotiation, preparation and execution of this Credit Agreement (including,
without limitation, the satisfaction or attempted satisfaction of any of the
conditions set forth in Article III), the Security Documentation and the
other Loan Documents and the advance of Borrowings; (iii) the subordination
of any Collateral requested by Borrowers, including title charges, recording
fees and reasonable attorneys' fees and costs incurred in connection
therewith; (iv) any appraisals performed after the occurrence of an Event of
Default; (v) the creation, perfection or protection of the Security
Documentation on the Collateral (including, without limitation, any fees and
expenses for title and lien searches, local counsel in various jurisdictions,
filing and recording fees and taxes, duplication costs and corporate search
fees); and (vi) the protection, collection or enforcement of any of the
Obligations or the Collateral, including Protective Advances.
b. AFTER EVENT OF DEFAULT. Borrowers further agree to
pay, or reimburse Agent Bank and Lenders, for all reasonable out-of-pocket
costs and expenses, including without limitation reasonable attorneys' fees
and disbursements incurred by Agent Bank or Lenders after the occurrence of
an
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Event of Default (i) in enforcing any Obligation or in foreclosing against
the Collateral or exercising or enforcing any other right or remedy available
by reason of such Event of Default; (ii) in connection with any refinancing
or restructuring of the credit arrangements provided under this Credit
Agreement in the nature of a "work-out" or in any insolvency or bankruptcy
proceeding; (iii) in commencing, defending or intervening in any litigation
or in filing a petition, complaint, answer, motion or other pleadings in any
legal proceeding relating to Borrowers and related to or arising out of the
transactions contemplated hereby (whether in bankruptcy or otherwise); (iv)
in protecting, preserving, collecting, leasing, selling, taking possession
of, or liquidating any of the Collateral; or (v) in attempting to enforce or
enforcing any lien in any of the Collateral or any other rights under the
Security Documentation.
Section 10.21. SECURITY AND LOAN DOCUMENTATION. The Security
Documentation and other Loan Documents (other than this Credit Agreement) may
be held in the name of WFB as the Agent Bank of all Banks hereunder pursuant
to the terms of this Credit Agreement.
Section 10.22. SETOFF. In addition to any rights and remedies of
the Banks provided by law, if any Event of Default exists, Agent Bank is
authorized at any time and from time to time, without prior notice to the
Borrowers, any such notice being waived by the Borrowers to the fullest
extent permitted by law, to set-off and apply any and all deposits (general
or special, time or demand, provisional or final) at any time held by such
Bank to or for the credit or the account of Borrowers against any and all
obligations of Borrowers under the Bank Facilities, now or hereafter
existing, irrespective of whether or not the Agent Bank or any such Bank
shall have made demand under this Credit Agreement or any Loan Document and
although such amounts owed may be contingent or unmatured. Agent Bank agrees
promptly to notify the Borrowers and the Agent Bank (and Agent Bank shall
promptly notify each other Bank) after any such setoff and application made
by Agent Bank; provided, however, that the failure to give such notice shall
not affect the validity of such set-off and application. The rights of each
Bank under this Section 10.22 are in addition to the other rights and
remedies (including other rights of setoff) which each such Bank may have.
Section 10.23. BORROWERS' WAIVERS AND CONSENTS.
a. Each Borrower shall be jointly and severally liable
for the repayment of all Aggregate Outstandings.
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b. Each Borrower agrees that neither the Agent Bank nor
any Bank shall have any responsibility to inquire into the apportionment,
allocation or disposition of any Borrowings, Swingline Advances and/or
Letters of Credit as among the Borrowers.
c. For the purpose of implementing the joint borrower
provisions of this Credit Agreement and each of the Loan Documents, each
Borrower hereby irrevocably appoints each other Borrower as its agent and
attorney-in-fact for all purposes of this Credit Agreement and each of the
Loan Documents, including without limitation the giving and receiving of
notices and other communications, the making of requests for, or conversions
or continuations of, Borrowings, Swingline Advances and/or Letters of Credit,
the execution and delivery of certificates and the receipt and allocation of
disbursements from the Banks.
d. Each Borrower acknowledges that the handling of the
Bank Facilities on a joint borrowing basis as set forth in this Credit
Agreement is solely an accommodation to Borrowers and is done at their
request. Each Borrower agrees that neither the Agent Bank, nor any Bank,
shall incur any liability to any Borrower as a result thereof (except as a
result of the breach hereof by any such Person or such Person's gross
negligence or wilful misconduct). To induce the Agent Bank and the Banks to
enter into this Credit Agreement, and in consideration thereof, in accordance
with the provisions set forth in Section 5.14 of this Credit Agreement, each
Borrower hereby agrees to indemnify the Agent Bank and each Bank and hold
each such entity harmless from and against any and all liabilities, expenses,
losses, damages and/or claims of damage or injury asserted against such
entity (except as a result of the breach hereof by any such Person or such
Person's gross negligence or wilful misconduct) by any member of the Borrower
Consolidation arising from or incurred by reason of the structuring of the
Bank Facilities as herein provided, reliance by the Agent Bank or the Banks
on any requests or instructions from any Borrower. This Section shall
survive Bank Facility Termination.
e. Each Borrower represents and warrants to the Agent
Bank and the Banks that (i) it has established adequate means of obtaining
from each other Borrower on a continuing basis financial and other
information pertaining to the business, operations and condition (financial
and otherwise) of each of the other Borrowers and its respective property,
and (ii) each Borrower now is and hereafter will be familiar with the
business, operations and condition (financial and otherwise) of each other
Borrower, and its property. Each Borrower hereby waives and relinquishes any
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duty on the part of the Agent Bank or any Bank to disclose to such Borrower
any matter, fact or thing relating to the business, operations or condition
(financial or otherwise) of any other Borrower, or the property of any other
Borrower, whether now or hereafter known by the Agent Bank or any Bank at any
time through Bank Facility Termination.
f. Each Borrower acknowledges that the Aggregate
Outstandings, or portions thereof, may derive from value provided directly to
another Person and, in full recognition of that fact, each Borrower consents
and agrees that the Agent Bank and any Bank may, at any time and from time to
time, without notice or demand, and without affecting the enforceability or
security of the Loan Documents:
(i) accept partial payments on the Bank Facilities;
(ii) receive and hold additional security or guaranties for
the Bank Facilities or any part thereof;
(iii) release, reconvey, terminate, waive, abandon,
subordinate, exchange, substitute, transfer and enforce any security
or guaranties, and apply any security and direct the order or manner
of sale thereof, as the Agent Bank or such Bank in its sole and
absolute discretion may determine, in accordance with the terms of the
Loan Documents;
(iv) release any party or any guarantor from any personal
liability with respect to the Bank Facilities or any part thereof;
(v) settle, release on terms satisfactory to the Agent Bank or
such Bank or by operation of applicable laws or otherwise liquidate or
enforce any Bank Facilities and any security or guaranty in any
manner, consent to the transfer of any security and bid and purchase
at any sale, in accordance with the terms of the Loan Documents;
and/or
(vi) consent to the merger, change or any other
restructuring or termination of the corporate existence of any other
Borrower or any other Person, and correspondingly restructure the Bank
Facilities, continuing existence of any lien or encumbrance under any
other Loan Document to which any Borrower is a party or the
enforceability
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hereof or thereof with respect to all or any part of the Bank
Facilities.
Each Borrower expressly waives any right to require the Agent
Bank or any Bank to marshal assets in favor of any Borrower, any other
party or any other Person or to proceed against any other Borrower or
any other party or any Collateral provided by any other Borrower or
any other party, and agrees that the Agent Bank and any Bank may
proceed against Borrowers and/or the Collateral in such order as they
shall determine in their sole and absolute discretion. The Agent Bank
and any Bank may file a separate action or actions against any
Borrower, whether action is brought or prosecuted with respect to any
other security or against any other Person, or whether any other
Person is joined in any such action or actions. Each Borrower agrees
that the Agent Bank or any Bank and any other Borrower may deal with
each other in connection with the Bank Facilities or otherwise, or
alter any contracts or agreements now or hereafter existing between
any of them, in any manner whatsoever, all without in any way altering
or affecting the obligations of such Borrower under the Loan
Documents. Each Borrower expressly waives any and all defenses now or
hereafter arising or asserted by reason of: (a) any disability or
other defense of any other Borrower or any other party with respect to
any Bank Facilities, (b) the unenforceability or invalidity as to any
other Borrower or any other party of the Bank Facilities, (c) the
unenforceability or invalidity of any security or guaranty for the
Bank Facilities granted by any other Borrower or the lack of
perfection or continuing perfection or failure of priority of any
security for the Bank Facilities, (d) the cessation for any cause
whatsoever of the liability of any Borrower or any other party (other
than by reason of the full payment of all Bank Facilities), (e) any
failure of the Agent Bank or any Bank to give notice of sale or other
disposition to any Borrower or any defect in any notice that may be
given in connection with any sale or disposition, (f) any act or
omission of the Agent Bank or any Bank or others that directly or
indirectly results in or aids the discharge or release of any Borrower
or any other Person or the Bank Facilities or any other security or
guaranty therefor by operation of law or otherwise, (g) any law which
provides that the obligation of a surety
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or guarantor must neither be larger in amount nor in other respects
more burdensome than that of the principal or which reduces a
surety's or guarantor's obligation in proportion to the principal
obligation, (h) any failure of the Agent Bank or any Bank to file
or enforce a claim in any bankruptcy or other proceeding with
respect to any Person, (i) the election by the Agent Bank or any
Bank, in any bankruptcy proceeding of any Person, of the
application or non-application of Section 1111(b)(2) of the United
States Bankruptcy Code, (j) any extension of credit or the grant of
any lien or encumbrance under Section 364 of the United States
Bankruptcy Code, (k) any use of cash collateral under Section 363
of the United States Bankruptcy Code, (l) any agreement or
stipulation with respect to the provision of adequate protection in
any bankruptcy proceeding of any Person, (m) the avoidance of any
lien or encumbrance in favor of the Agent Bank or any Bank for any
reason, (n) any bankruptcy, insolvency, reorganization,
arrangement, readjustment of debt, liquidation or dissolution
proceeding commenced by or against any Person, including any
discharge of, or bar or stay against collecting, all or any of the
obligations (or any interest thereon) in or as a result of any such
proceeding, or (o) any election of remedies by the Agent Bank or
any Bank, even if the effect thereof is to destroy or impair any
Borrower's right to subrogation, reimbursement, exoneration,
indemnification or contribution.
g. In the event that all or any part of the Bank
Facilities at any time are secured by any one or more deeds of trust or
mortgages creating or granting liens on any interests in real property, each
Borrower authorizes the Agent Bank and any Bank, upon the occurrence of any
Default Notice Recording and the acceleration of the Indebtedness then owing
under the Bank Facilities, at their sole option, without any other notice or
demand and without affecting any of the Bank Facilities or the validity or
enforceability of any liens or encumbrance in favor of the Agent Bank or any
Bank on any Collateral, to foreclose any or all of such deeds of trust or
mortgages by judicial or nonjudicial sale. To the extent permitted by
applicable law, each Borrower expressly waives any defenses to the
enforcement of the Loan Documents or any liens or encumbrances created or
granted under the Loan Documents or to the recovery by the Agent Bank or any
Bank against any other Borrower or any guarantor or any other Person liable
therefor of any deficiency after a judicial or nonjudicial foreclosure or
sale, even though such a
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foreclosure or sale may impair the subrogation rights of a Borrower and may
preclude a Borrower from obtaining reimbursement or contribution from any
Borrower.
h. Notwithstanding anything to the contrary elsewhere
contained herein or in any other Loan Document to which any Borrower is a
party, each Borrower hereby expressly agrees with respect to the other
Borrowers and their successors and assigns (including any surety) and any
other Person which is directly or indirectly a creditor of the other
Borrowers or any surety for any other Borrower, not to exercise, until Bank
Facility Termination has irrevocably occurred, any rights at law or in equity
to subrogation, to reimbursement, to exoneration, to contribution, to setoff
or to any other rights that could accrue to a surety against a principal, to
a guarantor against a maker or obligor, to an accommodation party against the
party accommodated, or to a holder or transferee against a maker, and which
such Borrower may have or hereafter acquire against the other Borrowers or
any other such Person in connection with or as a result of such Borrower's
execution, delivery and/or performance of this Credit Agreement or any other
Loan Document to which such Borrower is a party.
Section 10.24. CONFIDENTIALITY. Each of the Banks agrees to hold
any non-public information that it may receive from Borrowers pursuant to
this Credit Agreement (or pursuant to any other Loan Document) in confidence
and consistent with their respective policies for handling material
non-public information, EXCEPT for disclosure: (a) To the other Banks; (b) To
legal counsel and accountants for Borrowers or any of the Banks; (c) To the
other professional advisors to Borrowers or any of the Banks, provided that
the recipient has accepted such information subject to a confidentiality
agreement substantially similar to this Section 10.24; (d) To regulatory
officials having jurisdiction over that Bank; (e) To any Gaming Authority
having regulatory jurisdiction over Borrowers or their respective
Subsidiaries, provided that each of the Banks shall notify Borrowers of any
such disclosure prior to such disclosure, if such prior notice is reasonably
possible; (f) As required by law or legal process or in connection with any
legal proceeding, provided that such disclosing Bank uses reasonable efforts
to notify Borrowers prior to any such disclosure; and (g) To another
financial institution in connection with a disposition or proposed
disposition to that financial institution of all or part of that Lender's
Syndication Interest hereunder or in the Revolving Credit Note, provided that
the recipient has accepted such information subject to a confidentiality
agreement substantially similar to this Section 10.24. For purposes of the
foregoing, "non-public information" shall mean
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any information respecting Borrowers or their respective Subsidiaries
reasonably considered by Borrowers to be material and not available to the
public, OTHER THAN (i) information previously filed with any governmental
agency and available to the public, (ii) information which is available to
the general public at the time of use or disclosure, (iii) information which
becomes available to the general public, other than by manner of unauthorized
disclosure or use, or (iv) information previously published in any public
medium from a source other than, directly or indirectly, that Bank. Nothing
in this Section shall be construed to create or give rise to any fiduciary
duty on the part of the Agent Bank or the Banks to Borrowers.
Section 10.25. THE EXISTING HARVEYS CREDIT AGREEMENT. The parties
hereto agree that as of the Closing Date the Existing Harveys Credit
Agreement, the Existing Harveys Bank Loan Security Documents and each other
"Loan Document" (as defined in the Existing Harveys Credit Agreement) shall
be and are hereby amended, superseded and restated in their entirety by this
Credit Agreement and the Loan Documents and shall be of no further force or
effect.
Section 10.26. TERMINATION OF BANK FACILITIES. Notwithstanding
anything herein contained or contained in any of the Loan Documents to the
contrary, in the event the Closing Date has not occurred on or before March
31, 1999, this Credit Agreement, the Notes and each of the Loan Documents
shall be automatically terminated and of no further force or effect.
Section 10.27. ACKNOWLEDGMENT OF RECEIPT OF DOCUMENTS. Borrowers
hereby acknowledge receipt of a complete and accurate copy of this Credit
Agreement and all other Loan Documents executed by Borrowers in connection
with the Credit Agreement at the time of execution.
Section 10.28. APPLICATION OF GAMING LAWS. Notwithstanding
anything contained in this Credit Agreement or any of the Loan Documents to
the contrary, all provisions of this Credit Agreement and each of the Loan
Documents, including, but not limited to, the rights and remedies of Agent
Bank, are subject to the provisions and requirements of, and approvals
required by, all Gaming Laws.
Section 10.29. EFFECTIVENESS. This Credit Agreement shall
constitute a binding and enforceable contract and agreement of the parties
hereto, as of the date of the execution and delivery of this Credit Agreement
by the Borrowers, the Agent Bank, the Swingline Lender, the L/C Issuer and
the initial Lenders party hereto. Notwithstanding
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the foregoing, prior to the occurrence of the Merger Effective Time and the
Closing Date: (i) no Indebtedness shall be incurred by the Borrowers under
this Credit Agreement, (ii) the Borrowers shall not be subject to the
covenants, agreements and Events of Default contained in Articles 5, 6, 7 and
8 hereof and (iii) the Lenders shall not be obligated to advance Borrowings,
Swingline Lender shall not be obligated to make Swingline Advances and L/C
Issuer shall not be obligated to issue Letters of Credit hereunder, it being
acknowledged and agreed that the Existing Harveys Credit Agreement shall not
be amended and restated pursuant to this Credit Agreement until the
occurrence of the Merger Effective Time and the Closing Date.
Section 10.30. SCHEDULES ATTACHED. Schedules are attached hereto and
incorporated herein and made a part hereof as follows:
<TABLE>
<S> <C>
Schedule 2.01(a) - Schedule of Lenders' Proportions in Credit
Facility
Schedule 2.01(c) - Aggregate Commitment Reduction Schedule
Schedule 2.09(e) - Schedule of Outstanding Letters of Credit
Schedule 3.11 - Schedule of Existing Bank Loan Security Documents
Schedule 3.20 - Schedule of Significant Litigation
Schedule 4.18 - Schedules of Spaceleases
(A) Tahoe Schedule of Spaceleases
(B) Colorado Schedule of Spaceleases
(C) Iowa Schedule of Spaceleases
Schedule 4.19 - Schedules of Equipment Leases and Contracts
(A) Tahoe Schedule of Equipment Leases
and Contracts
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(B) Colorado Schedule of Equipment
Leases and Contracts
(C) Iowa Schedule of Equipment Leases
and Contracts
Schedule 4.22 - Schedule of Restricted and Unrestricted
Subsidiaries
Schedule 4.27 - Schedule of Trademarks, Patents, Licenses,
Franchises, Formulas and Copyrights
Schedule 4.28 - Schedule of Contingent Liabilities
Schedule 6.09 - Schedule of Liens
</TABLE>
Section 10.31. EXHIBITS ATTACHED. Exhibits are attached hereto and
incorporated herein and made a part hereof as follows:
<TABLE>
<S> <C>
Exhibit A - Revolving Credit Note - Form
Exhibit B - Swingline Note - Form
Exhibit C - Notice of Borrowing - Form
Exhibit D - Continuation/Conversion Notice - Form
Exhibit E - Notice of Swingline Advance - Form
Exhibit F - Compliance Certificate - Form
Exhibit G - Pricing Certificate - Form
Exhibit H - Authorized Officer Certificate - Form
Exhibit I - Closing Certificate - Form
Exhibit J-1 - Legal Opinion (Nevada/Merger) - Form
Exhibit J-2 - Legal Opinion (Colorado) - Form
Exhibit J-3 - Legal Opinion (Iowa) - Form
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Exhibit K - Intentionally Omitted
Exhibit L - Assignment and Assumption Agreement - Form
Exhibit M - Cash Collateral Pledge Agreement - Form
Exhibit N - Stock Pledge (Gaming) - Form
Exhibit O - Stock Pledge (General) - Form
Exhibit P - Subsidiary Guaranty - Form
Exhibit Q - Tahoe Property - Description
Exhibit R - Colorado Property - Description
Exhibit S - Iowa Property - Description
</TABLE>
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IN WITNESS WHEREOF, the parties hereto have caused this Credit
Agreement to be executed as of the day and year first above written.
BORROWERS:
HARVEYS CASINO RESORTS,
a Nevada corporation
By /s/ Charles W. Scharer
--------------------------
Charles W. Scharer,
President and CEO
By /s/ John McLaughlin
--------------------------
John McLaughlin,
Senior Vice President,
Treasurer and CFO
Address:
Highway 50
P.O Box 128
Stateline, Nevada 89449
Telephone: (702) 586-6756
Facsimile: (702) 588-0601
HARVEYS C.C. MANAGEMENT
COMPANY, INC.,
a Nevada corporation
By /s/ Charles W. Scharer
--------------------------
Charles W. Scharer,
President and CFO
By /s/ John McLaughlin
--------------------------
John McLaughlin,
Secretary/Treasurer
Address:
Highway 50
P.O Box 128
Stateline, Nevada 89449
Telephone: (702) 586-6756
S-1
<PAGE>
Facsimile: (702) 588-0601
HARVEYS IOWA MANAGEMENT
COMPANY, INC.,
a Nevada corporation
By /s/ Charles W. Scharer
--------------------------
Charles W. Scharer,
President and CFO
By /s/ John McLaughlin
--------------------------
John McLaughlin,
Secretary/Treasurer
Address:
Highway 50
P.O Box 128
Stateline, Nevada 89449
Telephone: (702) 586-6756
Facsimile: (702) 588-0601
HARVEYS TAHOE MANAGEMENT
COMPANY, INC., a Nevada
corporation
By /s/ Charles W. Scharer
--------------------------
Charles W. Scharer,
President and CFO
By /s/ John McLaughlin
--------------------------
John McLaughlin,
Secretary/Treasurer
Address:
Highway 50
P.O. Box 128
Stateline, NV 89449
Telephone: (702) 586-6756
Facsimile: (702) 588-0601
S-2
<PAGE>
HCR SERVICES COMPANY, INC.,
a Nevada corporation
By /s/ Charles W. Scharer
--------------------------
Charles W. Scharer,
President and CFO
By /s/ John McLaughlin
--------------------------
John McLaughlin,
Secretary/Treasurer
Address:
Highway 50
P.O. Box 128
Stateline, NV 89449
Telephone: (702) 586-6756
Facsimile: (702) 588-0601
S-3
<PAGE>
BANKS:
WELLS FARGO BANK,
National Association,
Agent Bank, Lender,
Swingline Lender and L/C
Issuer
By /s/ Sue Fuller
--------------------------
Sue Fuller,
Vice President
Address:
One East First Street
Reno, Nevada 89501
Telephone: (702) 334-5633
Facsimile: (702) 334-5637
with a copy to:
Wells Fargo Bank, N.A.
Commercial Loan Service Center
Agency Dept. 2840
201 Third Street, 8th Floor
San Francisco, CA 94103
Attn: Kathryn Rich,
Syndication Specialist
Telephone: (415) 477-5330
Facsimile: (415) 512-9408
S-4
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THE FIRST NATIONAL BANK
OF CHICAGO,
Lender
By /s/ Mark A. Isley
--------------------------
Name: Mark A. Isley
------------------------
Title: First Vice President
-----------------------
Address:
777 South Figueroa Street
4th Floor
Los Angeles, CA 90017-5800
Telephone: (213) 683-4948
Facsimile: (213) 683-4999
FIRST SECURITY BANK,
N.A., Lender
By /s/ David P. Williams
--------------------------
Name: David P. Williams
------------------------
Title: Vice President
-----------------------
Address:
15 East 100 South
2nd Floor
Salt Lake City, UT 84111
Telephone: (801) 246-5540
Facsimile: (801) 246-5532
S-5
<PAGE>
U.S. BANK NATIONAL
ASSOCIATION,
Lender
By /s/ J. Andrew Backstrom
--------------------------
Name: J. Andrew Backstrom
------------------------
Title: Vice President
-----------------------
Address:
One East Liberty Street
2nd Floor
Reno, NV 89501
Telephone: (702) 688-6589
Facsimile: (702) 688-6597
CREDIT LYONNAIS
LOS ANGELES BRANCH
By /s/ Dianne M. Scott
-------------------------------------
Name: Dianne M. Scott
-----------------------------------
Title: First Vice President and Manager
----------------------------------
Address:
515 S. Flower Street, Ste. 2200
Los Angeles, CA 90071
Telephone: (213) 362-5955
Facsimile: (213) 623-3437
S-6
<PAGE>
SOCIETE GENERALE,
Lender
By /s/ Alex Y. Kim
--------------------------
Name: Alex Y. Kim
------------------------
Title: Vice President
-----------------------
Address:
2029 Century Park East
Suite 2900
Los Angeles, CA 90067
Telephone: (310) 788-7104
Facsimile: (310) 551-1537
IMPERIAL BANK,
Lender
By /s/ Steven K. Johnson
--------------------------
Name: Steven K. Johnson
------------------------
Title: Senior Vice President
-----------------------
Address:
9920 S. La Cienega
Ingelwood, CA 90301
Telephone: (310) 417-5657
Facsimile: (310) 338-6160
S-7
<PAGE>
HIBERNIA BANK,
Lender
By /s/ Ross S. Wales
--------------------------
Name: Ross S. Wales
------------------------
Title: Vice President
-----------------------
Address:
313 Carondelet St.
New Orleans, LA 70130
Telephone: (504) 533-5719
Facsimile: (504) 533-2060
BANK OF THE WEST,
Lender
By /s/ Dan McCartney
--------------------------
Name: Dan McCartney
------------------------
Title: Vice President
-----------------------
Address:
1450 Treat Boulevard
Walnut Creek, CA 94596
Telephone: (925) 942-8525
Facsimile: (925) 930-5636
S-8
<PAGE>
FIRST HAWAIIAN BANK
By /s/ Donald C. Young
--------------------------
Name: Donald C. Young
------------------------
Title: Vice President
-----------------------
Address:
Media Finance Division
999 Bishop St., 11th Floor
Honolulu, HI 96813
Telephone: (808) 525-8975
Facsimile: (808) 525-8973
S-9
<PAGE>
Exhibit 10.27
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made and entered into this 2nd day of February, 1999,
by and between HARVEYS CASINO RESORTS, a Nevada corporation, hereinafter
referred to as "HARVEYS" and/or "EMPLOYER," and CHARLES W. SCHARER, hereinafter
referred to as "EMPLOYEE," as follows:
W I T N E S S E T H:
WHEREAS, EMPLOYEE has previously served as an employee of HARVEYS
pursuant to that certain employment agreement, dated December 1, 1995, as
amended (the "Prior Agreement"); and
WHEREAS, HARVEYS and Harveys Acquisition Corporation, a Nevada
corporation ("ACQ CORP"), have entered into an Agreement and Plan of Merger
dated as of February 1, 1998 (the "Merger Agreement"), whereby ACQ CORP will be
merged with and into HARVEYS (the "Merger"); and
WHEREAS, in connection with the Merger Agreement, HARVEYS and EMPLOYEE,
together with other members of HARVEYS management, have entered into a
Memorandum of Understanding, dated February 1, 1998 (the "MOU"), which sets
forth, among other things, certain terms regarding EMPLOYEE'S employment with
HARVEYS following consummation of the Merger, including the execution of a new
employment agreement to replace the Prior Agreement; and
WHEREAS, following consummation of the Merger, 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, subject to consummation of the Merger, HARVEYS desires to
continue to engage the services of EMPLOYEE, who is desirous of continued
employment by HARVEYS, upon the terms and conditions set forth herein.
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:
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I.
DEFINITIONS
1.01 EMPLOYEE shall at all times mean Charles W. Scharer.
1.02 EMPLOYER shall at all times mean HARVEYS CASINO RESORTS, a Nevada
corporation, and its Successors in Interest together with its subsidiaries.
1.03 HARVEYS shall at all times mean HARVEYS CASINO RESORTS, a Nevada
corporation, and its Successor 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 is transferred.
II.
NATURE OF EMPLOYMENT AND DUTIES OF EMPLOYEE
2.01 Subject to and effective upon the consummation of the Merger,
EMPLOYEE shall continue to serve HARVEYS as President and Chief Executive
Officer of HARVEYS. EMPLOYEE shall at all times be subject to, observe and carry
out such rules, regulations, policies, directions, and restrictions as HARVEYS
Board of Directors (the "Board") may from time to time establish for senior
executive officers of the EMPLOYER.
2.02 Subject to the supervision and control of the Board, EMPLOYEE
shall do and perform all services and acts necessary or advisable to fulfill the
duties and responsibilities of his position and shall render such services on
the terms set forth herein. Without limiting the generality of the foregoing,
EMPLOYEE shall be responsible for developing, directing and implementing the
operation of the business and the Company's policies and plans as determined by
the Board of Directors. In addition, EMPLOYEE shall have such other executive
and managerial powers and duties with respect to HARVEYS and its subsidiaries
that are consistent with the offices of President and Chief Executive Officer
and as may reasonably be assigned to him by the Board, including without
limitation serving on the Board of Directors of any subsidiary of HARVEYS.
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<PAGE>
2.03 EMPLOYEE has reviewed and concurs with his responsibilities and
duties as set forth in Section 2.02 above.
2.04 During the Term (as defined below), EMPLOYEE shall devote
substantially all of his productive time, ability and attention to the business
of EMPLOYER. In addition, 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 Board, PROVIDED, that, subject to the provisions of Article X
hereof, EMPLOYEE shall not be precluded from involvement in charitable or civic
activities or his personal financial investments provided the same do not
materially interfere with his time or attention to the business of EMPLOYER, and
PROVIDED, further, that EMPLOYEE shall not serve as a director of any other
for-profit business that is not an affiliate of EMPLOYER.
2.05 EMPLOYEE agrees that he shall at all times (i) to the best of his
ability and experience conscientiously perform all of the duties and obligations
of his position with the EMPLOYER, (ii) use his best efforts to do and perform
all services, acts, or things necessary or advisable to assist in the management
and conduct of the business and otherwise advance the interests of EMPLOYER and
(iii) diligently and in the highest good faith carry out the lawful directives
of the Board, PROVIDED, that EMPLOYEE shall not be obligated to perform his
duties hereunder outside the Stateline, Nevada area, except for business trips
and directors meetings outside said area which arise and result from the normal
conduct of the business of HARVEYS.
2.06 EMPLOYEE shall continue to serve as a member of the Board (though
not as Chairman) following the closing of the Merger. In addition, during the
Term, EMPLOYEE shall be nominated for election to the Board of Directors at each
meeting of stockholders at which directors are to be elected, and EMPLOYER shall
use its best efforts to provide for EMPLOYEE's election to the Board of
Directors at each such meeting. Notwithstanding the foregoing provisions of this
Section 2.06, EMPLOYEE agrees to promptly resign his position on the Board and
become a non-voting observer on the Board (with rights equivalent to those of an
employee director other than voting rights) if, and for so long as (absent such
resignation) members of the Board who are also employees of Colony Capital, Inc.
or its affiliates (other than
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<PAGE>
EMPLOYER or any of its subsidiaries) would not otherwise constitute at least a
majority of the members of the Board. During such period as EMPLOYEE shall by
reason of such circumstances be a non-voting observer on the Board, EMPLOYER
shall diligently use commercially reasonable, good faith efforts (subject to
applicable gaming approvals, licensing requirements and other regulatory
determinations) to attempt to cause one or more additional employees of Colony
Capital, Inc. or its affiliates (other than EMPLOYER or any of its subsidiaries)
to be appointed to the Board, such that EMPLOYEE may resume his position as a
voting member of the Board consistent with the provisions of the immediately
preceding sentence. EMPLOYEE also agrees that effective upon notice being
provided of his termination of employment with EMPLOYER, he shall immediately
resign from his position as a non-voting observer or member of the Board, as
applicable.
III.
TERM AND GENERAL CONDITIONS OF EMPLOYMENT
3.01 Subject to and effective upon consummation of the Merger, EMPLOYER
hereby employs the EMPLOYEE, and EMPLOYEE hereby agrees to be employed by
HARVEYS for a period of five (5) years commencing on the date of consummation of
the Merger (the "Effective Date") and terminating on the fifth anniversary of
the Effective Date (as the same may be extended as set forth below, the "Term"),
unless extended by mutual written agreement of the parties; PROVIDED, that the
period of employment shall automatically be extended for successive one (1) year
periods if neither party has provided six (6) months prior written notice to the
other of its intention to have this Agreement lapse at the expiration of the
Term; and PROVIDED FURTHER, that the Term shall be subject to earlier
termination in accordance with Articles IV, V and VI below.
3.02 Notwithstanding anything to the contrary herein, in the event of
any termination of EMPLOYEE's employment for any or no reason, EMPLOYEE and
EMPLOYER shall
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<PAGE>
nevertheless continue to be bound by the terms and conditions set forth in
Articles IX through XII, in Section 13.08 and, to the extent provided therein,
Section 13.09 below.
3.03 Upon consummation of the Merger, the Prior Agreement shall be
cancelled and terminated without further obligation of EMPLOYER.
3.04 If the Merger Agreement shall be terminated prior to consummation
of the Merger, EMPLOYEE shall continue his employment with HARVEYS pursuant to
the terms of the Prior Agreement, which in such case shall remain in full force
and effect.
3.05 EMPLOYEE hereby acknowledges and agrees that his rights as set
forth herein to receive severance and other compensation and benefits hereunder
shall supersede and replace in its entirety any severance or other benefits that
might otherwise be payable pursuant to HARVEYS Change of Control Plan as in
effect as of the date hereof or as the same may be amended from time to time or
under any other severance plan, policy, agreement or arrangement in effect
immediately prior to the Effective Date. EMPLOYEE further acknowledges that as
of the Effective Date, EMPLOYEE shall no longer be a participant in or have any
rights under the Change of Control Plan (or under any such other severance plan,
policy, agreement or arrangement in effect immediately prior to the Effective
Date), regardless of the reasons or circumstances of his termination of
employment. EMPLOYEE further acknowledges that as of the Effective Date EMPLOYEE
shall no longer be a participant in or have any rights under the Company's Long
Term Incentive Plan or Supplemental Executive Retirement Plan.
IV.
TERMINATION OF EMPLOYMENT WITHOUT CAUSE
4.01 EMPLOYEE'S employment may be terminated at any time by HARVEYS,
with or without "Cause" (as defined in Section 6.01 below), at any time and for
any or no reason. Any such termination without Cause shall be effective only
upon thirty (30) days' prior written notice to EMPLOYEE (such effective date,
for purposes of this Article IV, the "Termination Date").
4.02 If EMPLOYEE'S termination by EMPLOYER shall be without Cause,
EMPLOYEE shall be entitled to the following benefits:
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<PAGE>
(a) Except as provided below, EMPLOYEE shall be entitled to
receive on the Termination Date a lump sum payment in an amount equal to the
product of (x) the Applicable Multiplier (as defined below) and (y) the sum of
his then Base Salary and then Annual Target Bonus (each as defined below).
(i) "Applicable Multiplier" shall mean the
lesser of (A) 2.0 and (B) a fraction, the denominator of which is 12,
and the numerator of which shall be the number of full plus partial
(calculated by the day) months remaining in the Term following the
Termination Date, which numerator shall be increased by the number of
full plus partial (calculated by the day) months during any Post-Term
Restriction Period (as defined below and further described in Annex E)
if an election to have such Post-Term Restriction Period apply to
EMPLOYEE is made by EMPLOYER pursuant to Section 10.01.
(ii) For purposes of this Section 4.02(a),
EMPLOYEE'S annual target bonus under the Annual Bonus Plan (as defined
in Section 7.02 below) for each fiscal year during the Term shall be
deemed to be 70 percent of EMPLOYEE'S Base Salary as in effect as of
the date the relevant business plan targets for such fiscal year are
established by the Board.
(iii) For purposes of this Agreement, the
"Post- Term Restriction Period" shall mean that period, if any,
following expiration of the Term during which EMPLOYEE would be subject
to the restrictions of Section 10.01 as determined under the first
paragraph of Section 10.01, without regard to any limitation of such
period by reason of Section 10.01(a). The Post-Term Restriction Period
is further described in Annex E hereto.
(iv) Notwithstanding the foregoing, in the
event that EMPLOYEE'S Termination Date shall be less than one year
prior to the expiration of the Term and the Applicable Multiplier
(determined as above by including any applicable Post-Term Restriction
Period) shall be less than 1.0, EMPLOYEE shall not be entitled to
receive the lump sum payment determined
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<PAGE>
under the first sentence of this Section 4.02(a), but shall instead be
entitled to receive (A) on the Termination Date a lump sum payment in
an amount equal to the product of (x) the Applicable Multiplier and (y)
his then Base Salary and (B) as applicable, a bonus as determined under
Annex E hereto.
(b) EMPLOYEE shall be entitled to continuation of his Benefits
(as defined below) for that number of months immediately following the
Termination Date equal to the product of (A) the Applicable Multiplier and (B)
12 (such number of months, the "Severance Period"), PROVIDED, that in the event
that during such period, pursuant to applicable law or the terms of the
applicable plan, any Benefits may not be provided pursuant to the terms of the
specific plan referenced herein, EMPLOYER shall provide substantially equivalent
benefits by alternate means.
(c) Subject to the provisions of the Award Agreement (as
defined in Section 7.03 below), EMPLOYEE shall vest as of the Termination Date
in that portion of the Stock Award and Stock Option grants (each as defined
below) that would otherwise have vested had EMPLOYEE remained in HARVEYS employ
for the duration of the Severance Period.
Except as set forth in this Section 4.02 and Section 13.08,
all other rights of EMPLOYEE (and, except as provided in Sections 4.02 and 3.02
above and Section 13.08, all obligations of the EMPLOYER) hereunder shall
terminate as of the Termination Date.
4.03 If during the term hereof EMPLOYEE'S employment shall terminate by
reason of his death or Disability (as defined below), he or his estate, as
applicable, shall be entitled to (i) all amounts of Base Salary and Benefits
accrued but unpaid through the date of such termination (which shall be the date
of death or the 45th day after the date EMPLOYER provides EMPLOYEE notice of
termination for Disability) and (ii) any death and/or disability benefits that
may be due EMPLOYEE under any benefit plans in effect from time to time.
"Disability" shall mean any physical or mental disability that prevents EMPLOYEE
from performing one or more of the essential functions of his position for a
period of not less than six (6) months in any continuous 12-month period. Except
as set forth in this Section 4.03 and Section 13.08, all other rights of
EMPLOYEE (and, except as provided in this Section 4.03 and Section 3.02 above
and
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<PAGE>
Section 13.08, all obligations of the EMPLOYER) hereunder shall terminate as of
the date of such termination of employment.
V.
TERMINATION OF EMPLOYMENT AT EMPLOYEE'S REQUEST
5.01 EMPLOYEE may, at EMPLOYEE'S sole option and right, terminate his
employment with EMPLOYER at any time, with or without Good Reason (as defined
below). Any such termination shall be effective only upon thirty (30) days'
prior written notice to HARVEYS.
(a) In the event of such termination of employment without
Good Reason, EMPLOYEE shall be entitled to receive all amounts of Base Salary
and Benefits accrued but unpaid through the date of such termination.
(b) In the event of such termination of employment with Good
Reason, EMPLOYEE shall be entitled to receive the benefits set forth in Sections
4.02(a)-(c) as if EMPLOYEE'S employment had been terminated by EMPLOYER without
Cause, with the "Termination Date" as used in such sections being the effective
date of termination pursuant to this Section 5.01.
For purposes of this Section 5.01, EMPLOYEE shall have "Good
Reason" to terminate his employment hereunder if (i) EMPLOYER shall, without
EMPLOYEE'S written consent, willfully and materially breach its obligations
under this Agreement, (ii) EMPLOYEE provides EMPLOYER written notice pursuant
hereto stating with specificity the respects in which EMPLOYEE believes EMPLOYER
to have willfully and materially breached its obligations under this Agreement
and (iii) within thirty (30) days following the date of such notice EMPLOYER
shall not have cured such breach. Except as set forth in this Section 5.01 (and,
as incorporated hereinabove by reference, Section 4.02) and Section 13.08, all
other rights of EMPLOYEE (and, except as provided in Section 3.02 above and
Section 13.08, all obligations of the EMPLOYER) hereunder shall terminate as of
the date of such termination of employment.
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<PAGE>
VI.
TERMINATION OF EMPLOYMENT FOR CAUSE
6.01 EMPLOYER may at any time, at its election, by written notice to
EMPLOYEE stating with specificity the reason for the termination, terminate
EMPLOYEE'S employment for "Cause," which shall be defined as EMPLOYEE'S:
(a) Gross negligence or willful malfeasance in the performance
of his duties under this Agreement;
(b) Failure to obtain or retain any permits, licenses, or
approvals which may be required by any state or local authorities in order to
permit the EMPLOYEE to continue his employment as contemplated by this
Agreement;
(c) Conviction of any felony or conviction of a crime
involving moral turpitude;
(d) Dishonesty with respect to EMPLOYER (including, without
limitation, fraud) resulting in a breach of duty to EMPLOYER involving
EMPLOYEE'S personal gain or profit;
(e) Engaging in any activity that is in violation of the
provisions of Article X of this Agreement, which shall not be cured following
ten days' written notice and a demand to cure such violation; or
(f) Use or imparting of any confidential or proprietary
information of EMPLOYER or any subsidiary or affiliate in violation of any
confidentiality or proprietary agreement to which EMPLOYEE is a party, including
without limitation the provisions of Article IX of this Agreement; PROVIDED,
that in the event such notice is provided pursuant to Section 6.01(b), EMPLOYEE
shall have a period of thirty (30) days following the date of such notice in
which to cure such failure, and if EMPLOYEE shall cure such failure within such
period, EMPLOYEE's employment hereunder shall be reinstated without prejudice.
6.02 Upon the provision of such notice (or, in the case of such notice
pursuant to Section 6.01(b), upon expiration of the applicable cure period
without cure), EMPLOYEE'S employment shall immediately cease and terminate for
Cause. In the event of such termination
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of employment, EMPLOYEE shall be entitled to receive all amounts of Base Salary
and benefits accrued but unpaid through the date of such termination. Except as
set forth in this Section 6.02 and Section 13.08, all other rights of EMPLOYEE
(and, except as provided in Section 3.02 above and Section 13.08, all
obligations of the EMPLOYER) hereunder shall terminate as of the date of such
termination of employment.
VII.
COMPENSATION OF EMPLOYEE
7.01 Base Salary - EMPLOYEE shall receive an annual base salary ("Base
Salary") of Five Hundred Twenty Thousand Dollars ($520,000), payable in at least
monthly installments, less all applicable Federal, state and local taxes, Social
Security and any other government mandated deductions. EMPLOYEE'S Base Salary
shall be reviewed by the Board no less frequently than annually relative to
specified performance-based criteria to be determined by the Board.
7.02 Annual Bonus - Following the Effective Time, EMPLOYEE shall be
eligible to participate in EMPLOYER'S Management Incentive Plan ("MIP") or, at
the election of EMPLOYER, in a new or equivalent annual bonus plan established
by EMPLOYER having a similar structure to the MIP providing for payment of an
annual bonus (the "Annual Bonus Plan"), but in either case with thresholds and
triggering events for payment based on the achievement of HARVEYS annual budget
and other business plan targets to be determined by the Board following the
Effective Date. EMPLOYEE's maximum annual bonus under the Annual Bonus Plan
shall not be less than $360,000. Notwithstanding the foregoing, the following
provisions shall apply with respect to EMPLOYEE'S participation in the Annual
Bonus Plan with respect to fiscal 1999:
(a) On the date hereof, EMPLOYER shall pay to EMPLOYEE a lump
sum amount in cash equal to 25% of EMPLOYEE'S maximum bonus under the Annual
Bonus Plan for fiscal 1999, which lump sum amount EMPLOYER and EMPLOYEE
acknowledge and agree to be $130,000 (the "Advance"). EMPLOYEE hereby
acknowledges receipt of the Advance.
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<PAGE>
(b) Following the end of fiscal 1999, the Board shall
determine EMPLOYEE'S bonus under the Annual Bonus Plan in the ordinary course
using the financial targets established by the Board prior to the date hereof,
without regard to the Advance (the "Overall 1999 Bonus Entitlement"). On the
date bonuses under the Annual Bonus Plan are paid generally to employees with
respect to fiscal 1999, EMPLOYEE shall be entitled to receive an annual bonus
payment equal to the excess, if any, of (i) EMPLOYEE'S Overall 1999 Bonus
Entitlement over (ii) the amount of the Advance. In the event the Advance shall
be greater than the Overall 1999 Bonus Entitlement, EMPLOYEE shall have no
obligation to repay any portion of the Advance to EMPLOYER, and no portion of
the Advance shall be offset against amounts otherwise payable to EMPLOYEE under
the Annual Bonus Plan with respect to subsequent fiscal years. However, in the
event EMPLOYEE'S employment is terminated by EMPLOYER without Cause or by
EMPLOYEE for Good Reason prior to December 31, 1999, the amount of the Advance
shall be offset dollar-for-dollar against amounts otherwise payable to EMPLOYEE
under Section 4.02(a).
7.03 Stock Grants and Stock Option - On the Effective Date, EMPLOYEE
shall receive (i) a restricted Stock Award consisting of 270 shares of the Class
A common stock, par value $.01 per share, of HARVEYS ("Class A Common Stock")
and 27,000 shares of the Class B common stock, par value $.01 per share, of
HARVEYS ("Class B Common Stock") and (ii) a Stock Option to purchase 360
additional shares of Class A Common Stock and 36,000 additional shares of Class
B Common Stock, each at a price of $20.06 per share; PROVIDED, that the Stock
Award and Stock Option shall each be subject in all respects to the terms of
HARVEYS 1999 Omnibus Incentive Plan, a copy of which is attached hereto as Annex
A (the "Omnibus Plan"), the individual stock option and restricted stock award
agreement to be entered into thereunder evidencing the Stock Award and Stock
Option, a copy of which is attached hereto as Annex B (the "Award Agreement"),
and that certain Stockholders Agreement among HARVEYS, Colony HCR Voteco, LLC, a
Nevada limited liability company, Colony Investors III, L.P., a Delaware limited
partnership, and the security holders of the Company (including EMPLOYEE) as
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identified from time to time on Schedule A thereto, a copy of which is attached
hereto as Annex C.
VIII.
BENEFITS AND PERQUISITES
During the Term, EMPLOYEE shall be entitled to the benefits and
perquisites as set forth in this Article VIII (collectively, "Benefits")
8.01 HARVEYS 401(k) Plan - During the employment term the EMPLOYEE
shall be allowed to participate in HARVEYS 401(k) Plan, or shall be provided
with benefits that are substantially identical to the benefits provided under
such plan as of the date hereof.
8.02 Vacation - EMPLOYEE shall be entitled to five weeks of paid
vacation per year. EMPLOYEE shall be afforded the usual holidays as EMPLOYER may
from time to time recognize.
8.03 Complimentary Privileges - EMPLOYEE shall be entitled such Level I
complimentary privileges as are afforded generally to senior executives of the
EMPLOYER from time to time pursuant to policies adopted by the Board of
Directors..
8.04 EMPLOYER shall provide EMPLOYEE with an automobile in accordance
with the Class I category of EMPLOYER'S Standard Automobile Policy and
Procedures, as from time to time amended.
8.05 Disability - EMPLOYEE shall also be entitled to short term
disability coverage and long term disability coverage under plans as in effect
from time to time as implemented by EMPLOYER.
8.06 Medical, Vision and Dental Insurance - EMPLOYER shall provide
medical, vision and dental benefits to EMPLOYEE, his spouse and dependents in
accordance with EMPLOYER'S Class One coverage under the Executive Medical Plan,
as amended from time to time.
8.07 Deferred Compensation Program - EMPLOYEE shall be allowed to
participate in the Deferred Compensation Program as is in effect from time to
time.
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8.08 Life Insurance - (a) During the Term. EMPLOYER shall furnish
EMPLOYEE with Group Term Life Insurance and Accidental Death/Dismemberment
Insurance, in each case subject to the terms of such plans as in effect from
time to time. (b) Convertible Term Life Insurance - During the Term, EMPLOYER
shall furnish EMPLOYEE with a Convertible Term Life Insurance Policy in the face
amount of FIVE HUNDRED THOUSAND DOLLARS ($500,000), PROVIDED, that EMPLOYEE
continues to be an insurable risk. Upon termination of EMPLOYEE's employment
under any circumstances, EMPLOYEE shall have the right to have such policy
assigned to him, PROVIDED, that EMPLOYEE agrees to bear all costs and expenses
of such assignment and of maintaining such policy following the date of such
termination of employment (and that he shall not have the benefit of EMPLOYER'S
group life insurance rates with respect thereto), and to hold harmless and
indemnify the Company with respect thereto. If such policy is not so assigned to
EMPLOYEE, EMPLOYEE'S rights thereunder shall expire as of the effective date of
his termination of employment with EMPLOYER.
8.09 Additional Employee Benefit Plans - EMPLOYEE shall be entitled to
participate in all additional employee benefits plans which may, in the future,
be made generally available to EMPLOYER'S most senior management employees,
PROVIDED, that separate employee benefits plans may be adopted for lower-ranking
management employees as to which EMPLOYER may determine EMPLOYEE ineligible for
participation, and PROVIDED, FURTHER, that EMPLOYEE shall not be entitled to
participate in (i) EMPLOYER'S Supplemental Executive Retirement Plan or any
other supplemental retirement plan or arrangement, (ii) EMPLOYER's Long Term
Incentive Plan or (iii) any severance plan, policy or arrangement of EMPLOYER.
This Section 8.09 shall not be construed to affect EMPLOYEE'S entitlement to
severance or bonus amounts as provided in this Agreement or hereafter.
8.10 Reimbursement of Expenses - EMPLOYER shall reimburse EMPLOYEE for
any expenses reasonably and necessarily incurred by him in furtherance of his
duties hereunder, including, travel, meals, and accommodations, upon submission
by him of vouchers or receipts
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<PAGE>
and in compliance with such rules and policies relating thereto as EMPLOYER may
from time to time adopt.
IX.
PROTECTION OF CONFIDENTIAL INFORMATION
EMPLOYEE acknowledges that during the course of his employment with the
EMPLOYER, its subsidiaries and affiliates, he has been and will be exposed to
documents and other information regarding the confidential affairs of the
EMPLOYER, its subsidiaries and affiliates, including without limitation
information about their past, present and future financial condition, the
markets for their products, key personnel, past, present or future actual or
threatened litigation, trade secrets, current and prospective customer lists,
operational methods, acquisition plans (including without limitation potential
acquisition targets), financing sources, prospects, plans for future development
and other business affairs and information about the EMPLOYER and its
subsidiaries and affiliates not readily available to the public (the
"Confidential Information"). EMPLOYEE further acknowledges that the services to
be performed under this Agreement are of a special, unique, unusual,
extraordinary and intellectual character. In recognition of the foregoing, the
EMPLOYEE covenants and agrees as follows:
9.01 At no time shall EMPLOYEE ever divulge, disclose, or otherwise use
any Confidential Information, unless and until such information is readily
available in the public domain by reason other than EMPLOYEE's unauthorized
disclosure or use thereof, unless such disclosure or use is made in good faith
and solely in furtherance of EMPLOYEE's duties hereunder or expressly authorized
by the Board in writing in advance of such disclosure or use.
9.02 Upon the termination of EMPLOYEE'S employment at any time and for
any or no reason, or at any other time the Board may so direct, EMPLOYEE shall
promptly deliver to the EMPLOYER's offices in Stateline, Nevada all of the
property and equipment of the EMPLOYER and its subsidiaries (including any
automobiles, cell phones, pagers, credit cards, personal computers, etc.) and
any and all documents, records, and files, including any notes, memoranda,
customer lists, reports or any and all other documents, including any copies
thereof, whether in hard copy form or on a computer disk or hard drive, which
relate to the EMPLOYER,
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<PAGE>
its subsidiaries, affiliates, successors or assigns, and/or their respective
past and present officers, directors, employees or consultants (collectively,
the "Employer Property, Records and Files"); it being expressly understood that,
upon termination of EMPLOYEE'S employment, EMPLOYEE shall not be authorized to
retain any of the Employer Property, Records and Files, except to the extent
expressly so authorized in writing by the Board.
X.
NONCOMPETITION AND OTHER MATTERS
10.01 During the Term and for the one year period following the date of
termination of EMPLOYEE'S employment at any time and for any or no reason
(PROVIDED, that such period shall be six months in the event Executive's
employment terminates upon expiration of the Term), EMPLOYEE shall not at any
time in any city, town, county, parish, other municipality in any state of the
United States or Native American territory (the names of each such city, town,
county, parish, other municipality or Native American territory, including,
without limitation, the name of each county in the State of Nevada being
expressly incorporated by reference herein), or any other place in the world,
where the EMPLOYER, or its subsidiaries, affiliates, successors, or assigns,
engages in owning, operating, managing and/or developing land-based or riverboat
casinos or hotels associated or materially competitive with casinos, or any
other business engaged in from time to time by the EMPLOYER or its subsidiaries,
affiliates, successors or assigns in which EMPLOYEE has had significant
authority and responsibility (the "Business"), directly or indirectly, (i)
engage in a competing business for EMPLOYEE'S own account; (ii) enter the employ
of, or render any consulting services to, any entity that competes with the
EMPLOYER, or its subsidiaries, affiliates, successors, or assigns, in the
Business; or (iii) become interested in any such entity in any capacity,
including, without limitation, as an individual, partner, shareholder, officer,
director, principal, agent, trustee or consultant; PROVIDED, HOWEVER, EMPLOYEE
may (A) own, directly or indirectly, solely as a passive investment, securities
of any entity traded on any national securities exchange or market if EMPLOYEE
is not a controlling person of, or a member of a group which controls, such
entity and does not, directly or indirectly, own 5% or more of any class of
securities of such entity and (B) subject to
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<PAGE>
the first sentence of Section 2.04 above, make passive investments in
hospitality enterprises not materially competitive with gaming and/or
enterprises which are principally bar/restaurant enterprises containing no more
than 50 gaming positions, PROVIDED, that such investments shall not materially
interfere with the performance of EMPLOYEE'S duties hereunder.
(a) Notwithstanding the foregoing, if (i) EMPLOYEE'S
employment is terminated by EMPLOYER other than for Cause or by EMPLOYEE for
Good Reason and (ii) the effective date of such termination as determined
hereunder occurs within the one year period prior to the expiration date of the
Term, the restrictions set forth in this Section 10.01 shall expire upon
expiration of the Term unless EMPLOYER provides written notice to EMPLOYEE not
later than two days after such effective date that it wishes the restrictions of
this Section 10.01 to apply during the Post-Term Restriction Period (as defined
in Section 4.02 above) and pays EMPLOYEE the severance compensation provided for
under Section 4.02(a) and provides the benefits provided for under Section
4.02(b).
(b) If EMPLOYEE'S employment is terminated for any other
reason or under any other circumstances, the provisions of this Section 10.01
shall be effective without regard to Section 10.01(a).
10.02 During the Term and for the two year period immediately following
the date of termination of EMPLOYEE'S employment at any time and for any or no
reason, EMPLOYEE shall not at any time, directly or indirectly, solicit or
induce any officer, director, employee, agent or consultant of the EMPLOYER or
any of its successors, assigns, subsidiaries or, to the best of EMPLOYEE'S
knowledge, affiliates, to terminate his, her or its employment or other
relationship with the EMPLOYER or its successors, assigns, subsidiaries or, to
the best of EMPLOYEE'S knowledge, affiliates, for the purpose of associating
with any competitor of the EMPLOYER or its successors, assigns, subsidiaries or,
to the best of EMPLOYEE'S knowledge, affiliates, or otherwise encourage any such
person or entity to leave or sever his, her or its employment or other
relationship with the EMPLOYER or its successors, assigns, subsidiaries or, to
the best of EMPLOYEE'S knowledge, affiliates, for any other reason.
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<PAGE>
10.03 During the Term and for the two year period immediately following
the date of termination of EMPLOYEE'S employment at any time and for any or no
reason, EMPLOYEE shall not at any time, directly or indirectly, solicit or
induce (i) any customers or clients of EMPLOYER or its successors, assigns,
subsidiaries or, to the best of EMPLOYEE'S knowledge, affiliates, or (ii) any
vendors, suppliers or consultants then under contract to the EMPLOYER or its
successors, assigns, subsidiaries or, to the best of EMPLOYEE'S knowledge,
affiliates, to terminate his, her or its relationship with the EMPLOYER or its
successors, assigns, subsidiaries or, to the best of EMPLOYEE'S knowledge,
affiliates, for the purpose of associating with any competitor of the EMPLOYER
or its successors, assigns, subsidiaries or, to the best of EMPLOYEE'S
knowledge, affiliates, or otherwise encourage such customers or clients, or
vendors, suppliers or consultants then under contract, to terminate his, her or
its relationship with the EMPLOYER or its successors, assigns, subsidiaries or,
to the best of EMPLOYEE'S knowledge, affiliates, for any other reason.
XI.
RIGHTS AND REMEDIES UPON BREACH
If EMPLOYEE breaches any of the provisions of Articles IX or X above
(the "Restrictive Covenants"), the EMPLOYER and its subsidiaries, affiliates,
successors or assigns shall have the rights and remedies set forth below in this
Article XI, each of which shall be independent of the others and severally
enforceable, and each of which shall be in addition to, and not in lieu of, any
other rights or remedies available to the EMPLOYER or its subsidiaries,
affiliates, successors or assigns at law or in equity.
11.01 The right and remedy to have the Restrictive Covenants
specifically enforced by any court of competent jurisdiction by injunctive
decree or otherwise, it being agreed that any breach of the Restrictive
Covenants would cause irreparable injury to the EMPLOYER or its subsidiaries,
affiliates, successors or assigns and that money damages would not provide an
adequate remedy to the EMPLOYER or its subsidiaries, affiliates, successors or
assigns.
11.02 EMPLOYEE acknowledges and agrees that the Restrictive Covenants
are reasonable and valid in geographic and temporal scope and in all other
respects. If any court
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<PAGE>
determines that any of the Restrictive Covenants, or any part thereof, is
invalid or unenforceable, the remainder of the Restrictive Covenants shall not
thereby be affected and shall be given full force and effect without regard to
the invalid portions.
11.03 If any court determines that any of the Restrictive Covenants, or
any part thereof, is unenforceable because of the duration or scope of such
provision, such court shall have the power to reduce the duration or scope of
such provision, as the case may be (it being the intent of the parties that any
such reduction be limited to the minimum extent necessary to render such
provision enforceable), and, in its reduced form, such provision shall then be
enforceable.
11.04 EMPLOYEE intends to and hereby confers jurisdiction to enforce
the Restrictive Covenants upon the courts of any jurisdiction within the
geographic scope of such covenants. If the courts of any one or more of such
jurisdictions hold the Restrictive Covenants unenforceable by reason of the
breadth of such scope or otherwise, it is the intention of EMPLOYEE that such
determination not bar or in any way affect the right of the EMPLOYER or its
subsidiaries, affiliates, successors or assigns to the relief provided herein in
the courts of any other jurisdiction within the geographic scope of such
covenants, as to breaches of such covenants in such other respective
jurisdictions, such covenants as they relate to each jurisdiction being, for
this purpose, severable into diverse and independent covenants.
XII.
ARBITRATION
Except as necessary for the 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 relating to this Agreement, or any dispute that relates in any
way, in whole or in part, to EMPLOYEE'S employment with the 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 Las Vegas, 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
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<PAGE>
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 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 any other state or
federal law.
XIII.
MISCELLANEOUS
13.01 If any action to specifically enforce or enjoin a breach of this
Agreement is necessary, the prevailing party 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.
13.02 This Agreement shall be construed and governed by the laws of the
State of Nevada, without giving effect to conflicts of laws principles thereof
which might refer such interpretations to the laws of a different state or
jurisdiction.
13.03 This Agreement, and all of the terms and conditions hereof, shall
bind the EMPLOYER and its successors and assigns and shall bind the EMPLOYEE and
his heirs, executors and administrators. No transfer or assignment of this
Agreement shall release EMPLOYER from any obligation to EMPLOYEE hereunder.
Neither this Agreement, nor any of EMPLOYER'S rights or obligations hereunder,
may be assigned or otherwise subject to hypothecation by EMPLOYEE. EMPLOYER may
assign the rights and obligations of
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<PAGE>
EMPLOYER hereunder, in whole or in part, to any of EMPLOYER'S subsidiaries,
affiliates or parent corporations, or to any other successor or assign in
connection with the sale of all or substantially all of HARVEYS' assets or stock
or in connection with any merger, acquisition and/or reorganization.
13.04 Notices - All notices and other communications under this
Agreement shall be in writing and shall be given by first class mail, certified
or registered with return receipt requested, or by a nationally recognized
overnight delivery service to the respective parties named below:
EMPLOYEE:
Charles W. Scharer
P.O. Box 4735
148 Granite Springs Drive
Stateline, Nevada 89449
Facsimile: 775-586-6756
WITH A COPY TO:
Michael Forman
Klehr, Harrison, Harvey, Branzburg & Ellers LLP
1401 Walnut Street
Philadelphia, PA 19102
Facsimile: 215-568-3206
EMPLOYER:
HARVEYS CASINO RESORTS
Attn: Corporate Secretary
Highway 50 and Stateline Avenue
Post Office Box 128
Stateline, NV 89449
Facsimile: 775-586-6852
WITH A COPY TO:
Kelvin L. Davis
Colony Capital, Inc.
Suite 1200
1999 Avenue of the Stars
Los Angeles, CA 90067
Facsimile: 310-282-8808
AND TO:
Jonathan Grunzweig
Skadden, Arps, Slate, Meagher & Flom LLP
Suite 3400
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<PAGE>
300 South Grand Avenue
Los Angeles, CA 90071
Facsimile: 213-687-5600
13.05 Nothing contained in this Agreement shall be construed to require
the commencement of any act contrary to law, and when there is 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, then
the latter shall prevail; but in such an 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.
13.06 The several rights and remedies provided for in this Agreement
shall be construed as being cumulative, and no one of 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.
13.07 This Agreement supersedes any and all other agreements, either
oral or in writing, between the parties hereto with respect to the employment of
the EMPLOYEE by the EMPLOYER (including, without limitation, the Prior
Agreement, Harveys Change in Control Plan and, insofar as it relates to the
subject matter hereof, but except as provided in Section 13.08, the MOU) and,
together with all other plans, agreements and other documents specifically
referenced herein, contains all of the covenants, conditions and agreements
between the parties with respect to such employment. Annex F hereto sets forth a
list of payments to EMPLOYEE pursuant to the MOU, and EMPLOYEE hereby
acknowledges receipt of all such payments. Each party to this Agreement
acknowledges that no representations, inducements, promises or other agreements,
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 writing and signed by the parties to be charged.
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<PAGE>
13.08 To the extent applicable, EMPLOYEE shall be entitled to receive a
gross-up payment with respect to payments made hereunder (including under
agreements referenced herein) and under the MOU to account for the payment of
Internal Revenue Code Section 4999 excise taxes as well as taxes imposed on such
gross up payments, as determined pursuant to the procedures set forth in Annex
D, PROVIDED, that EMPLOYEE shall reasonably cooperate with EMPLOYER in
structuring such payments and taking such other actions to limit the extent to
which such payments may be subject to such excise tax, provided that such
restructuring does not cause EMPLOYEE to suffer additional costs or other
adverse consequences. Notwithstanding anything contained to the contrary
contained herein, the provisions of this Section 13.08 and Annex D hereto shall
survive the expiration or termination of this Agreement for any or no reason.
13.09 If EMPLOYEE'S employment with the Company is terminated by the
Company without Cause either (i) as a result of a Change in Control (as defined
in the Award Agreement) or (ii) within the 12 month period immediately preceding
a Change in Control (or such longer period, not to exceed 18 months prior to
such Change in Control, during which significant discussions or other material
action regarding such Change in Control occurred) at the request, directly or
indirectly, of a third party who has taken steps reasonably calculated to effect
a Change in Control or otherwise in connection with, or in anticipation of a
Change in Control, EMPLOYEE shall be entitled to receive, at the effective date
of such termination (or, if payable in respect of clause (ii), within ten
business days following such Change in Control), a lump sum payout at maximum of
the bonus otherwise payable to EMPLOYEE with respect to the then current fiscal
year under the Annual Bonus Plan, such amount pro rated through the effective
date of such termination of employment. The amount provided for in the
immediately preceding sentence shall also be paid if EMPLOYEE'S employment with
the Company is terminated for Good Reason if the grounds constituting Good
Reason occur as the result of a Change in Control or within the stated time
frame at the request, directly or indirectly, of such a third party or otherwise
in connection with, or in anticipation of a Change in Control. If (x) no payment
is made pursuant to either of the two immediately preceding sentences, (y)
following a Change in
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<PAGE>
Control and prior to the effective date of termination of EMPLOYEE'S employment
the Annual Bonus Plan is terminated or amendments are made that materially
adversely affect EMPLOYEE and (z) EMPLOYEE'S employment is not terminated prior
to the end of the fiscal year in which such termination or amendments occur,
then, in lieu of any other amounts payable to EMPLOYEE under the Annual Bonus
Plan with respect to such fiscal year, EMPLOYEE shall receive a lump sum payout
at maximum within sixty (60) days following the termination of the Annual Bonus
Plan or the fiscal year during which any such material amendments were made. The
provisions of this Section 13.09 shall survive the expiration of the Term, but
only to the extent necessary to determine whether a Change in Control occurs
within the 12 to 18 month period described in clause (ii) of the first sentence
of this Section 13.09.
13.10 The section headings contained herein are for reference purposes
only and shall not in any way affect the meaning or interpretation of this
Agreement.
13.11 Unless expressly provided herein or therein, the expiration of
the Term shall not alter or affect any rights or obligations of EMPLOYER or
EMPLOYEE under any other agreement or plan including, without limitation, the
Award Agreement, the Omnibus Plan, the Deferred Compensation Agreement, of even
date herewith, between EMPLOYER and EMPLOYEE, and, to the extent provided under
Section 7.02 above, the Annual Bonus Plan.
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<PAGE>
13.12 This Agreement may be executed by the parties hereto in separate
counterparts, each of which when so executed and delivered shall be an original
but all such counterparts together shall constitute one and the same instrument.
DATED this 2nd day of February, 1999.
EMPLOYEE:
/s/ Charles W. Scharer
-------------------------------------------
CHARLES W. SCHARER
EMPLOYER:
HARVEYS CASINO RESORTS
By:/s/ John J. McLaughlin
----------------------------------------
Name: John McLaughlin
Its: Chief Financial Officer
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<PAGE>
ANNEX A: 1999 OMNIBUS STOCK
INCENTIVE PLAN
See Exhibit 10.33, 1999 Omnibus Stock Incentive Plan.
<PAGE>
ANNEX B: STOCK OPTION AND RESTRICTED
STOCK AGREEMENT
See Exhibit 10.43, Stock Option and Restricted Stock Agreement dated as
of February 2, 1999 by and between Harveys Casino Resorts and Charles W.
Scharer.
<PAGE>
ANNEX C: STOCKHOLDERS AGREEMENT
See Exhibit 10.34, Stockholders Agreement entered into as of February 2,
1999 by and among Harveys Casino Resorts, Colony HCR Voteco LLC, Colony
Investors III, L.P. and the securityholders of the Company as identified
from time to time on Schedule A thereto.
<PAGE>
ANNEX D
DETERMINATION OF GROSS-UP PAYMENT
In the event that any payment or benefit received or to be received by
Executive or paid by the Company on behalf of Executive under this Agreement,
the MOU or under any other plan, arrangement or agreement with the Company or
any person whose actions result in a change in control of the Company or any
person affiliated with the Company or such person (collectively, the "Total
Payments") will be subject to the excise tax (the "Excise Tax") imposed by
section 4999 (or any successor provision) of the Internal Revenue Code of 1986,
as amended (the "Code"), the Company shall pay to Executive an additional amount
(the "Gross-Up Payment") such that the net amount retained or to be retained by
Executive, after deduction of any Excise Tax on the Total Payments and on any
federal, state and local income, excise and/or other taxes (including the Excise
Taxes) upon the Gross-Up Payment provided for hereunder, shall be equal to the
Total Payments.
For purposes of determining whether any of the Total Payments will be
subject to the Excise Tax and the amount of such Excise Tax, (i) the Total
Payments shall be treated as "parachute payments" within the meaning of section
280G(b)(2) of the Code, and all "excess parachute payments" within the meaning
of section 280G(b)(l) of the Code shall be treated as subject to the Excise Tax,
unless in the opinion of tax counsel selected by the Company's independent
auditors (x) the Total Payments (in whole or in part) do not constitute
parachute payments, including by reason of Section 280G(b)(4)(A) of the Code, or
(y) such excess parachute payments (in whole or in part) (1) represent
reasonable compensation for services actually rendered, within the meaning of
section 280G(b)(4)(B) of the Code, in excess of the Base Amount (as defined in
Section 280G(b)(3) of the Code) allocable to such reasonable compensation, or
(2) are otherwise not subject to the Excise Tax, and (ii) the value of any
non-cash benefits or any deferred payment or benefit shall be determined by the
Company's independent auditors in accordance with the principles of sections
280G(d)(3) and (4) of the Code.
For purposes of determining the amount of the Gross-Up Payment,
Executive shall be deemed to pay federal income and other taxes at the highest
applicable marginal rate of taxation in the calendar year in which the Gross-Up
Payment is to be made and state and local income and other taxes at the highest
applicable marginal rate of taxation in the state and locality of Executive's
residence for income tax purposes on the date the Gross-Up Payment is to be
<PAGE>
made, net of the maximum reduction in federal income taxes which could be
obtained from deduction of such state and local taxes and any other taxes. (For
purposes of the immediately preceding sentence, if Executive shall be subject to
income taxation in more than one state, the marginal rate of taxation for each
such state shall be taken into account proportionately based on the extent to
which the Total Payments are treated under applicable law as having been earned
in or otherwise having a relevant nexus with such state for income tax
purposes.) In the event that the Excise Tax is subsequently determined to be
less than the amount originally taken into account hereunder, Executive shall
repay to the Company, within ten (10) business days of Executive's receipt of
notice that the amount of such reduction in Excise Tax is finally determined,
the portion of the Gross-Up Payment attributable to such reduction (plus that
portion of the Gross-Up Payment attributable to the Excise Tax and federal,
state and local income and other taxes imposed on the Gross-Up Payment being
repaid by Executive to the extent that such repayment results in an actual
reduction in Excise Tax and/or a federal, state or local income tax deduction)
plus interest on the amount of such repayment at the rate provided in section
1274(b)(2)(B) of the Code (provided, however, that if all or any portion of the
amount of any repayment made to Executive by any governmental entity shall be
made at a higher rate of interest than that provided under section 1274(b)(2)(B)
of the Code (the "Higher Interest Rate Amount"), Executive shall also repay to
the Company interest on the Higher Interest Rate Amount at a rate equal to the
excess of such higher rate of interest over the rate provided under section
1274(b)(2)(B) of the Code). In the event that the Excise Tax is determined to
exceed the amount originally taken into account hereunder (including by reason
of any payment the existence or amount of which cannot be determined at the time
of the Gross-Up Payment), the Company shall make an additional Gross-Up Payment
in respect of such excess (plus any interest, penalties or additions to tax
payable by Executive with respect to such excess) within ten (10) business days
of the Company's receipt of notice that the amount of such excess is finally
determined. The parties agree that such excess will be considered to have been
finally determined at the conclusion of Internal Revenue Service administrative
appellate proceedings, unless the parties mutually agree to pay or settle such
amount earlier, or agree to pursue an appeal further. Executive and the Company
shall each reasonably cooperate with the other in connection with any
administrative or judicial proceedings concerning the existence or amount of
liability for Excise Tax with respect to the Total Payments.
The Gross-Up Payment payable pursuant hereto shall be payable (or, as
applicable, withheld), in whole or in part as applicable, on the earlier of (i)
the date the Company is required to withhold the Excise Tax pursuant
2
<PAGE>
to section 4999 of the Code or (ii) the date Executive is required to pay the
Excise Tax.
Executive shall notify the Company of any audit or review by the
Internal Revenue Service of Executive's federal income tax return for the year
in which a payment under this Agreement is made within twenty (20) business days
of Executive's receipt of such audit or review. In addition, Executive shall
also notify the Company of the final resolution of such audit or review within
twenty (20) days of such resolution.
3
<PAGE>
Annex E: Example of the Post-Term Restriction Period and Severance Payments
Applicable in Certain Instances in the Event of Termination by
EMPLOYER without Cause or by EMPLOYEE for Good Reason
Suppose that the Term is scheduled expire on February 2, 2004,
and that notice has been provided pursuant to Section 3.01 that there will be no
automatic extension of the Term. Suppose, further, that EMPLOYEE'S employment is
terminated on November 2, 2003, I.E., less than one year prior to the expiration
of the Term. Under Section 4.02(a), on these facts, the amount of EMPLOYEE'S
severance will depend on whether EMPLOYER elects to have the non-competition
restrictions of Section 10.01 apply during the Post-Term Restriction Period.
The length of the Post-Term Restriction Period is measured by
determining the length of time following the scheduled expiration date of the
Term (I.E., February 2, 2004) during which the twelve-month post-termination
non-competition period as set forth in the first paragraph of Section 10.01
would apply if EMPLOYER makes an election so that the provisions of Section
10.01(a), which would otherwise cut off the non-competition period as of the end
of the Term, will not apply. Since EMPLOYEE'S Termination Date, November 2,
2003, is 3 months prior to the scheduled expiration date of the Term, the
Post-Term Restriction Period is (12 minus 3) or 9 months.
SCENARIO A: THE POST-TERM RESTRICTION PERIOD APPLIES
If EMPLOYER elects pursuant to Section 10.01(a) to have the
non-competition period extend through the end of the Post-Term Restriction
Period, EMPLOYEE'S severance is determined under Section 4.02(a), without regard
to Section 4.02(a)(iii). Accordingly, EMPLOYEE'S severance would be equal to the
product of (x) the Applicable Multiplier, which would be (3 + 9) divided by 12,
or 1.0, and (y) the sum of EMPLOYEE'S Base Salary and Annual Bonus as of the
Termination Date. EMPLOYEE would be subject to the restrictions of the first
paragraph of Section 10.01 until November 2, 2004.
SCENARIO B: THE POST-TERM RESTRICTION PERIOD DOES NOT APPLY
If EMPLOYER does not elect to have the non-competition period
extend through the end of the Post-Term Restriction Period, EMPLOYEE'S severance
would be determined under Section 4.02(a)(iii). The first part of EMPLOYEE'S
severance would be equal to the product of (x) the Applicable Multiplier, which
would be 3 divided by 12 (or 0.25), and (y) EMPLOYEE'S Base Salary as of the
Termination Date.
The second or bonus portion of EMPLOYEE'S severance would be
determined by the Board following the end of the 2003 fiscal year. The Board
would determine the amount of the Annual Bonus EMPLOYEE would have been entitled
to receive under the Annual Bonus Plan as if EMPLOYEE had remained employed
through the end of the 2003 fiscal year, based on HARVEYS (and, as applicable,
EMPLOYEE'S) actual performance (without proration) during the 2003 fiscal year,
as compared with the bonus targets previously established for such year.
EMPLOYER would then be required to pay such bonus amount to EMPLOYEE at the time
bonuses under the Annual Bonus Plan were paid to participants in the plan
generally. Under this
<PAGE>
arrangement, all other things being equal, EMPLOYEE would receive the same bonus
whether his employment was terminated on June 1, 2003, November 2, 2003 or
January 4, 2004.
However, to avoid unjust enrichment, if EMPLOYEE'S employment
were to be terminated following the date on which bonuses were determined and
paid for fiscal 2003 (say that the bonuses were paid on January 10, 2004 and
EMPLOYEE'S employment was terminated on January 15, 2004), EMPLOYEE would not be
entitled to receive any severance amount in respect of bonus, but would receive
as severance only Base Salary for the 18 day period between January 15, 2004 and
February 2, 2004.
Similar determinations would apply if the Term were
automatically extended for one or more years beyond the fifth anniversary of the
Effective Date, assuming that EMPLOYEE'S employment was terminated within the
one-year period prior to the scheduled expiration of the Term, as so extended.
It is agreed for purposes of Scenario B under this Annex E that bonuses for the
last full fiscal year of the Term will be determined no later than January 31 in
the year in which the Term expires.
<PAGE>
ANNEX F: SCHEDULE OF PAYMENTS UNDER THE MOU
<TABLE>
<CAPTION>
NATURE OF PAYMENT AMOUNT
- ---------------------------------------------------------------------------------------------------
<S> <C>
Payment in consideration of termination of right to participate in Long $965,373.00
Term Incentive Plan
- ---------------------------------------------------------------------------------------------------
Prior payment under Management Incentive Plan in respect of fiscal 1998 $448,800.00
- ---------------------------------------------------------------------------------------------------
Payment in partial consideration of termination of right to participate in $699,717.50
Supplemental Executive Retirement Plan
- ---------------------------------------------------------------------------------------------------
Advance under Management Incentive Plan in respect of fiscal 1999 $130,000.00
- ---------------------------------------------------------------------------------------------------
Total: $2,243,890.50
</TABLE>
<PAGE>
Exhibit 10.28
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made and entered into this 2nd day of February, 1999, by
and between HARVEYS CASINO RESORTS, a Nevada corporation, hereinafter referred
to as "HARVEYS" and/or "EMPLOYER," and STEPHEN L. CAVALLARO, hereinafter
referred to as "EMPLOYEE," as follows:
W I T N E S S E T H:
WHEREAS, EMPLOYEE has previously served as an employee of HARVEYS pursuant
to that certain employment agreement, dated January 13, 1994, as amended (the
"Prior Agreement"); and
WHEREAS, HARVEYS and Harveys Acquisition Corporation, a Nevada corporation
("ACQ CORP"), have entered into an Agreement and Plan of Merger dated as of
February 1, 1998 (the "Merger Agreement"), whereby ACQ CORP will be merged with
and into HARVEYS (the "Merger"); and
WHEREAS, in connection with the Merger Agreement, HARVEYS and EMPLOYEE,
together with other members of HARVEYS management, have entered into a
Memorandum of Understanding, dated February 1, 1998 (the "MOU"), which sets
forth, among other things, certain terms regarding EMPLOYEE'S employment with
HARVEYS following consummation of the Merger, including the execution of a new
employment agreement to replace the Prior Agreement; and
WHEREAS, following consummation of the Merger, 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, subject to consummation of the Merger, HARVEYS desires to continue
to engage the services of EMPLOYEE, who is desirous of continued employment by
HARVEYS, upon the terms and conditions set forth herein.
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:
<PAGE>
I.
DEFINITIONS
1.01 EMPLOYEE shall at all times mean Stephen L. Cavallaro.
1.02 EMPLOYER shall at all times mean HARVEYS CASINO RESORTS, a Nevada
corporation, and its Successors in Interest together with its subsidiaries.
1.03 HARVEYS shall at all times mean HARVEYS CASINO RESORTS, a Nevada
corporation, and its Successor 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 is transferred.
II.
NATURE OF EMPLOYMENT AND DUTIES OF EMPLOYEE
2.01 Subject to and effective upon the consummation of the Merger, EMPLOYEE
shall continue to serve HARVEYS as Executive Vice President and Chief Operating
Officer of HARVEYS. EMPLOYEE shall at all times be subject to, observe and carry
out such rules, regulations, policies, directions, and restrictions as HARVEYS
Board of Directors (the "Board") may from time to time establish for senior
executive officers of the EMPLOYER.
2.02 Subject to the supervision and control of the Board and EMPLOYER'S
Chief Executive Officer, EMPLOYEE shall do and perform all services and acts
necessary or advisable to fulfill the duties and responsibilities of his
position and shall render such services on the terms set forth herein. Without
limiting the generality of the foregoing, EMPLOYEE shall be responsible for
directing EMPLOYER'S property operations and implementing EMPLOYER'S policies
and goals at such properties. In addition, EMPLOYEE shall have such other
executive and managerial powers and duties with respect to HARVEYS and its
subsidiaries that are consistent with the office of Executive Vice President and
Chief Operating Officer and as may reasonably be assigned to him by the Board,
including without limitation serving on the Board of Directors of any subsidiary
of HARVEYS.
- 2 -
<PAGE>
2.03 EMPLOYEE has reviewed and concurs with his responsibilities and duties
as set forth in Section 2.02 above.
2.04 During the Term (as defined below), EMPLOYEE shall devote
substantially all of his productive time, ability and attention to the business
of EMPLOYER. In addition, except as permitted by clause (C) of Section 10.01,
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 Board,
PROVIDED, that, subject to the provisions of Article X hereof, EMPLOYEE shall
not be precluded from involvement in charitable or civic activities or his
personal financial investments provided the same do not materially interfere
with his time or attention to the business of EMPLOYER, and PROVIDED, FURTHER,
that except as permitted by clause (C) of Section 10.01, EMPLOYEE shall not
serve as a director of any other for-profit business that is not an affiliate of
EMPLOYER.
2.05 EMPLOYEE agrees that he shall at all times (i) to the best of his
ability and experience conscientiously perform all of the duties and obligations
of his position with the EMPLOYER, (ii) use his best efforts to do and perform
all services, acts, or things necessary or advisable to assist in the management
and conduct of the business and otherwise advance the interests of EMPLOYER and
(iii) diligently and in the highest good faith carry out the lawful directives
of the Board, PROVIDED, that EMPLOYEE shall not be obligated to perform his
duties hereunder outside the Las Vegas, Nevada area, except for business trips
and directors meetings outside said area which arise and result from the normal
conduct of the business of HARVEYS.
2.06 During the Term and until such time as he shall be appointed as a
member of the Board pursuant to the following sentence, EMPLOYEE shall be
entitled to serve as a non-voting observer on the Board, with rights equivalent
to those of an employee director other than voting rights. As soon as reasonably
practicable following the completion of HARVEYS' Initial Public Offering (as
defined below), EMPLOYEE shall be appointed as a member of the Board.
Subsequently during the Term, EMPLOYEE shall be nominated for election to the
Board of Directors at each meeting of stockholders at which directors are to be
elected, and EMPLOYER shall use its best efforts to provide for EMPLOYEE's
election to the Board of Directors at each
- 3 -
<PAGE>
such meeting. Notwithstanding the foregoing provisions of this Section 2.06,
EMPLOYEE agrees that effective upon notice being provided of his termination of
employment with EMPLOYER, he shall immediately resign from his position as a
non-voting observer or member of the Board, as applicable. For purposes of this
Agreement, "Initial Public Offering" shall mean the closing of a public offering
pursuant to an effective registration statement under the Securities Act of
1933, as amended covering shares of HARVEYS common stock, which shares are
approved for listing or quotation on the New York Stock Exchange, American Stock
Exchange or Nasdaq National Market.
III.
TERM AND GENERAL CONDITIONS OF EMPLOYMENT
3.01 Subject to and effective upon consummation of the Merger, EMPLOYER
hereby employs the EMPLOYEE, and EMPLOYEE hereby agrees to be employed by
HARVEYS for a period of five (5) years commencing on the date of consummation of
the Merger (the "Effective Date") and terminating on the fifth anniversary of
the Effective Date (as the same may be extended as set forth below, the "Term"),
unless extended by mutual written agreement of the parties; PROVIDED, that the
period of employment shall automatically be extended for successive one (1) year
periods if neither party has provided six (6) months prior written notice to the
other of its intention to have this Agreement lapse at the expiration of the
Term; and PROVIDED FURTHER, that the Term shall be subject to earlier
termination in accordance with Articles IV, V and VI below.
3.02 Notwithstanding anything to the contrary herein, in the event of any
termination of EMPLOYEE's employment for any or no reason, EMPLOYEE and EMPLOYER
shall nevertheless continue to be bound by the terms and conditions set forth in
Articles IX through XII, in Section 13.08 and, to the extent provided therein,
Section 13.09 below.
3.03 Upon consummation of the Merger, the Prior Agreement shall be
cancelled and terminated without further obligation of EMPLOYER.
- 4 -
<PAGE>
3.04 If the Merger Agreement shall be terminated prior to consummation of
the Merger, EMPLOYEE shall continue his employment with HARVEYS pursuant to the
terms of the Prior Agreement, which in such case shall remain in full force and
effect.
3.05 EMPLOYEE hereby acknowledges and agrees that his rights as set forth
herein to receive severance and other compensation and benefits hereunder shall
supersede and replace in its entirety any severance or other benefits that might
otherwise be payable pursuant to HARVEYS Change of Control Plan as in effect as
of the date hereof or as the same may be amended from time to time or under any
other severance plan, policy, agreement or arrangement in effect immediately
prior to the Effective Date. EMPLOYEE further acknowledges that as of the
Effective Date, EMPLOYEE shall no longer be a participant in or have any rights
under the Change of Control Plan (or under any such other severance plan,
policy, agreement or arrangement in effect immediately prior to the Effective
Date), regardless of the reasons or circumstances of his termination of
employment. EMPLOYEE further acknowledges that as of the Effective Date EMPLOYEE
shall no longer be a participant in or have any rights under the Company's Long
Term Incentive Plan or Supplemental Executive Retirement Plan.
IV.
TERMINATION OF EMPLOYMENT WITHOUT CAUSE
4.01 EMPLOYEE'S employment may be terminated at any time by HARVEYS, with
or without "Cause" (as defined in Section 6.01 below), at any time and for any
or no reason. Any such termination without Cause shall be effective only upon
thirty (30) days' prior written notice to EMPLOYEE (such effective date, for
purposes of this Article IV, the "Termination Date").
4.02 If EMPLOYEE'S termination by EMPLOYER shall be without Cause, EMPLOYEE
shall be entitled to the following benefits:
(a) Except as provided below, EMPLOYEE shall be entitled to receive on
the Termination Date a lump sum payment in an amount equal to the product of (x)
the Applicable Multiplier (as defined below) and (y) the sum of his then Base
Salary and then Annual Target Bonus (each as defined below).
- 5 -
<PAGE>
(i) "Applicable Multiplier" shall mean the lesser of (A) 1.5 and
(B) a fraction, the denominator of which is 12, and the numerator of which
shall be the number of full plus partial (calculated by the day) months
remaining in the Term following the Termination Date, which numerator shall
be increased by the number of full plus partial (calculated by the day)
months during any Post-Term Restriction Period (as defined below and
further described in Annex E) if an election to have such Post-Term
Restriction Period apply to EMPLOYEE is made by EMPLOYER pursuant to
Section 10.01.
(ii) For purposes of this Section 4.02(a), EMPLOYEE'S annual
target bonus under the Annual Bonus Plan (as defined in Section 7.02 below)
for each fiscal year during the Term shall be deemed to be 50 percent of
EMPLOYEE'S Base Salary as in effect as of the date the relevant business
plan targets for such fiscal year are established by the Board.
(iii) For purposes of this Agreement, the "Post-Term Restriction
Period" shall mean that period, if any, following expiration of the Term
during which EMPLOYEE would be subject to the restrictions of Section 10.01
as determined under the first paragraph of Section 10.01, without regard to
any limitation of such period by reason of Section 10.01(a). The Post-Term
Restriction Period is further described in Annex E hereto.
(iv) Notwithstanding the foregoing, in the event that EMPLOYEE'S
Termination Date shall be less than one year prior to the expiration of the
Term and the Applicable Multiplier (determined as above by including any
applicable Post-Term Restriction Period) shall be less than 1.0, EMPLOYEE
shall not be entitled to receive the lump sum payment determined under the
first sentence of this Section 4.02(a), but shall instead be entitled to
receive (A) on the Termination Date a lump sum payment in an amount equal
to the product of (x) the Applicable Multiplier and (y) his then Base
Salary and (B) as applicable, a bonus as determined under Annex E hereto.
- 6 -
<PAGE>
(b) EMPLOYEE shall be entitled to continuation of his Benefits (as
defined below) for that number of months immediately following the Termination
Date equal to the product of (A) the Applicable Multiplier and (B) 12 (such
number of months, the "Severance Period"), PROVIDED, that in the event that
during such period, pursuant to applicable law or the terms of the applicable
plan, any Benefits may not be provided pursuant to the terms of the specific
plan referenced herein, EMPLOYER shall provide substantially equivalent benefits
by alternate means.
(c) Subject to the provisions of the Award Agreement (as defined in
Section 7.03 below), EMPLOYEE shall vest as of the Termination Date in that
portion of the Stock Award and Stock Option grants (each as defined below) that
would otherwise have vested had EMPLOYEE remained in HARVEYS employ for the
duration of the Severance Period.
Except as set forth in this Section 4.02 and Section 13.08, all other
rights of EMPLOYEE (and, except as provided in Sections 4.02 and 3.02 above and
Section 13.08, all obligations of the EMPLOYER) hereunder shall terminate as of
the Termination Date.
4.03 If during the term hereof EMPLOYEE'S employment shall terminate by
reason of his death or Disability (as defined below), he or his estate, as
applicable, shall be entitled to (i) all amounts of Base Salary and Benefits
accrued but unpaid through the date of such termination (which shall be the date
of death or the 45th day after the date EMPLOYER provides EMPLOYEE notice of
termination for Disability) and (ii) any death and/or disability benefits that
may be due EMPLOYEE under any benefit plans in effect from time to time.
"Disability" shall mean any physical or mental disability that prevents EMPLOYEE
from performing one or more of the essential functions of his position for a
period of not less than six (6) months in any continuous 12-month period. Except
as set forth in this Section 4.03 and Section 13.08, all other rights of
EMPLOYEE (and, except as provided in this Section 4.03 and Section 3.02 above
and Section 13.08, all obligations of the EMPLOYER) hereunder shall terminate as
of the date of such termination of employment.
V.
TERMINATION OF EMPLOYMENT AT EMPLOYEE'S REQUEST
- 7 -
<PAGE>
5.01 EMPLOYEE may, at EMPLOYEE'S sole option and right, terminate his
employment with EMPLOYER at any time, with or without Good Reason (as defined
below). Any such termination shall be effective only upon thirty (30) days'
prior written notice to HARVEYS.
(a) In the event of such termination of employment without Good
Reason, EMPLOYEE shall be entitled to receive all amounts of Base Salary and
Benefits accrued but unpaid through the date of such termination.
(b) In the event of such termination of employment with Good Reason,
EMPLOYEE shall be entitled to receive the benefits set forth in Sections
4.02(a)-(c) as if EMPLOYEE'S employment had been terminated by EMPLOYER without
Cause, with the "Termination Date" as used in such sections being the effective
date of termination pursuant to this Section 5.01.
For purposes of this Section 5.01, EMPLOYEE shall have "Good Reason"
to terminate his employment hereunder if (i) EMPLOYER shall, without EMPLOYEE'S
written consent, willfully and materially breach its obligations under this
Agreement, (ii) EMPLOYEE provides EMPLOYER written notice pursuant hereto
stating with specificity the respects in which EMPLOYEE believes EMPLOYER to
have willfully and materially breached its obligations under this Agreement and
(iii) within thirty (30) days following the date of such notice EMPLOYER shall
not have cured such breach. Except as set forth in this Section 5.01 (and, as
incorporated hereinabove by reference, Section 4.02) and Section 13.08, all
other rights of EMPLOYEE (and, except as provided in Section 3.02 above and
Section 13.08, all obligations of the EMPLOYER) hereunder shall terminate as of
the date of such termination of employment.
VI.
TERMINATION OF EMPLOYMENT FOR CAUSE
6.01 EMPLOYER may at any time, at its election, by written notice to
EMPLOYEE stating with specificity the reason for the termination, terminate
EMPLOYEE'S employment for "Cause," which shall be defined as EMPLOYEE'S:
- 8 -
<PAGE>
(a) Gross negligence or willful malfeasance in the performance of his
duties under this Agreement;
(b) Failure to obtain or retain any permits, licenses, or approvals
which may be required by any state or local authorities in order to permit the
EMPLOYEE to continue his employment as contemplated by this Agreement;
(c) Conviction of any felony or conviction of a crime involving moral
turpitude;
(d) Dishonesty with respect to EMPLOYER (including, without
limitation, fraud) resulting in a breach of duty to EMPLOYER involving
EMPLOYEE'S personal gain or profit;
(e) Engaging in any activity that is in violation of the provisions of
Article X of this Agreement, which shall not be cured following ten days'
written notice and a demand to cure such violation; or
(f) Use or imparting of any confidential or proprietary information of
EMPLOYER or any subsidiary or affiliate in violation of any confidentiality or
proprietary agreement to which EMPLOYEE is a party, including without limitation
the provisions of Article IX of this Agreement; PROVIDED, that in the event such
notice is provided pursuant to Section 6.01(b), EMPLOYEE shall have a period of
thirty (30) days following the date of such notice in which to cure such
failure, and if EMPLOYEE shall cure such failure within such period, EMPLOYEE's
employment hereunder shall be reinstated without prejudice.
6.02 Upon the provision of such notice (or, in the case of such notice
pursuant to Section 6.01(b), upon expiration of the applicable cure period
without cure), EMPLOYEE'S employment shall immediately cease and terminate for
Cause. In the event of such termination of employment, EMPLOYEE shall be
entitled to receive all amounts of Base Salary and benefits accrued but unpaid
through the date of such termination. Except as set forth in this Section 6.02
and Section 13.08, all other rights of EMPLOYEE (and, except as provided in
Section 3.02 above and Section 13.08, all obligations of the EMPLOYER) hereunder
shall terminate as of the date of such termination of employment.
- 9 -
<PAGE>
VII.
COMPENSATION OF EMPLOYEE
7.01 Base Salary - EMPLOYEE shall receive an annual base salary ("Base
Salary") of Four Hundred Thousand Dollars ($400,000), payable in at least
monthly installments, less all applicable Federal, state and local taxes, Social
Security and any other government mandated deductions. EMPLOYEE'S Base Salary
shall be reviewed by the Board no less frequently than annually relative to
specified performance-based criteria to be determined by the Board.
7.02 Annual Bonus - Following the Effective Time, EMPLOYEE shall be
eligible to participate in EMPLOYER'S Management Incentive Plan ("MIP") or, at
the election of EMPLOYER, in a new or equivalent annual bonus plan established
by EMPLOYER having a similar structure to the MIP providing for payment of an
annual bonus (the "Annual Bonus Plan"), but in either case with thresholds and
triggering events for payment based on the achievement of HARVEYS annual budget
and other business plan targets to be determined by the Board following the
Effective Date. EMPLOYEE's maximum annual bonus under the Annual Bonus Plan
shall not be less than $240,000. Notwithstanding the foregoing, the following
provisions shall apply with respect to EMPLOYEE'S participation in the Annual
Bonus Plan with respect to fiscal 1999:
(a) On the date hereof, EMPLOYER shall pay to EMPLOYEE a lump sum
amount in cash equal to 25% of EMPLOYEE'S maximum bonus under the Annual Bonus
Plan for fiscal 1999, which lump sum amount EMPLOYER and EMPLOYEE acknowledge
and agree to be $73,750 (the "Advance"). EMPLOYEE hereby acknowledges receipt of
the Advance.
(b) Following the end of fiscal 1999, the Board shall determine
EMPLOYEE'S bonus under the Annual Bonus Plan in the ordinary course using the
financial targets established by the Board prior to the date hereof, without
regard to the Advance (the "Overall 1999 Bonus Entitlement"). On the date
bonuses under the Annual Bonus Plan are paid generally to employees with respect
to fiscal 1999, EMPLOYEE shall be entitled to receive an annual bonus payment
equal to the excess, if any, of (i) EMPLOYEE'S Overall 1999 Bonus Entitlement
over (ii) the amount of the Advance. In the event the Advance shall be greater
than
- 10 -
<PAGE>
the Overall 1999 Bonus Entitlement, EMPLOYEE shall have no obligation to repay
any portion of the Advance to EMPLOYER, and no portion of the Advance shall be
offset against amounts otherwise payable to EMPLOYEE under the Annual Bonus Plan
with respect to subsequent fiscal years. However, in the event EMPLOYEE'S
employment is terminated by EMPLOYER without Cause or by EMPLOYEE for Good
Reason prior to December 31, 1999, the amount of the Advance shall be offset
dollar-for-dollar against amounts otherwise payable to EMPLOYEE under Section
4.02(a).
7.03 Stock Grants and Stock Option - On the Effective Date, EMPLOYEE shall
receive (i) a restricted Stock Award consisting of 210 shares of the Class A
common stock, par value $.01 per share, of HARVEYS ("Class A Common Stock") and
21,000 shares of the Class B common stock, par value $.01 per share, of HARVEYS
("Class B Common Stock") and (ii) a Stock Option to purchase 280 additional
shares of Class A Common Stock and 28,000 additional shares of Class B Common
Stock, each at a price of $20.06 per share; PROVIDED, that the Stock Award and
Stock Option shall each be subject in all respects to the terms of HARVEYS 1999
Omnibus Incentive Plan, a copy of which is attached hereto as Annex A (the
"Omnibus Plan"), the individual stock option and restricted stock award
agreement to be entered into thereunder evidencing the Stock Award and Stock
Option, a copy of which is attached hereto as Annex B (the "Award Agreement"),
and that certain Stockholders Agreement among HARVEYS, Colony HCR Voteco, LLC, a
Nevada limited liability company, Colony Investors III, L.P., a Delaware limited
partnership, and the security holders of the Company (including EMPLOYEE) as
identified from time to time on Schedule A thereto, a copy of which is attached
hereto as Annex C.
VIII.
BENEFITS AND PERQUISITES
During the Term, EMPLOYEE shall be entitled to the benefits and perquisites
as set forth in this Article VIII (collectively, "Benefits")
- 11 -
<PAGE>
8.01 HARVEYS 401(k) Plan - During the employment term the EMPLOYEE shall be
allowed to participate in HARVEYS 401(k) Plan, or shall be provided with
benefits that are substantially identical to the benefits provided under such
plan as of the date hereof.
8.02 Vacation - EMPLOYEE shall be entitled to four weeks of paid vacation
per year in the first three years of the Term and five weeks of paid vacation
per year in the fourth and fifth years of the Term. EMPLOYEE shall be afforded
the usual holidays as EMPLOYER may from time to time recognize.
8.03 Complimentary Privileges - EMPLOYEE shall be entitled such Level I
complimentary privileges as are afforded generally to senior executives of the
EMPLOYER from time to time pursuant to policies adopted by the Board of
Directors.
8.04 EMPLOYER shall provide EMPLOYEE with an automobile in accordance with
the Class II category of EMPLOYER'S Standard Automobile Policy and Procedures,
as from time to time amended.
8.05 Disability - EMPLOYEE shall also be entitled to short term disability
coverage and long term disability coverage under plans as in effect from time to
time as implemented by EMPLOYER.
8.06 Medical, Vision and Dental Insurance - EMPLOYER shall provide medical,
vision and dental benefits to EMPLOYEE, his spouse and dependents in accordance
with EMPLOYER'S Class One coverage under the Executive Medical Plan, as amended
from time to time.
8.07 Deferred Compensation Program - EMPLOYEE shall be allowed to
participate in the Deferred Compensation Program as is in effect from time to
time.
8.08 Life Insurance - During the Term. EMPLOYER shall furnish EMPLOYEE with
Group Term Life Insurance and Accidental Death/Dismemberment Insurance, in each
case subject to the terms of such plans as in effect from time to time. Upon
termination of EMPLOYEE's employment under any circumstances, EMPLOYEE shall
have the right to have such policy assigned to him, PROVIDED, that EMPLOYEE
agrees to bear all costs and expenses of such assignment and of maintaining such
policy following the date of such termination of
- 12 -
<PAGE>
employment (and that he shall not have the benefit of EMPLOYER'S group life
insurance rates with respect thereto), and to hold harmless and indemnify the
Company with respect thereto. If such policy is not so assigned to EMPLOYEE,
EMPLOYEE'S rights thereunder shall expire as of the effective date of his
termination of employment with EMPLOYER.
8.09 Additional Employee Benefit Plans - EMPLOYEE shall be entitled to
participate in all additional employee benefits plans which may, in the future,
be made generally available to EMPLOYER'S most senior management employees,
PROVIDED, that separate employee benefits plans may be adopted for lower-ranking
management employees as to which EMPLOYER may determine EMPLOYEE ineligible for
participation, and PROVIDED, FURTHER, that EMPLOYEE shall not be entitled to
participate in (i) EMPLOYER'S Supplemental Executive Retirement Plan or any
other supplemental retirement plan or arrangement, (ii) EMPLOYER's Long Term
Incentive Plan or (iii) any severance plan, policy or arrangement of EMPLOYER.
This Section 8.09 shall not be construed to affect EMPLOYEE'S entitlement to
severance or bonus amounts as provided in this Agreement or hereafter.
8.10 Reimbursement of Expenses - EMPLOYER shall reimburse EMPLOYEE for any
expenses reasonably and necessarily incurred by him in furtherance of his duties
hereunder, including, travel, meals, and accommodations, upon submission by him
of vouchers or receipts and in compliance with such rules and policies relating
thereto as EMPLOYER may from time to time adopt.
IX.
PROTECTION OF CONFIDENTIAL INFORMATION
EMPLOYEE acknowledges that during the course of his employment with the
EMPLOYER, its subsidiaries and affiliates, he has been and will be exposed to
documents and other information regarding the confidential affairs of the
EMPLOYER, its subsidiaries and affiliates, including without limitation
information about their past, present and future financial condition, the
markets for their products, key personnel, past, present or future actual or
threatened litigation, trade secrets, current and prospective customer lists,
operational methods, acquisition plans (including without limitation potential
acquisition targets), financing sources,
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<PAGE>
prospects, plans for future development and other business affairs and
information about the EMPLOYER and its subsidiaries and affiliates not readily
available to the public (the "Confidential Information"). EMPLOYEE further
acknowledges that the services to be performed under this Agreement are of a
special, unique, unusual, extraordinary and intellectual character. In
recognition of the foregoing, the EMPLOYEE covenants and agrees as follows:
9.01 At no time shall EMPLOYEE ever divulge, disclose, or otherwise use any
Confidential Information, unless and until such information is readily available
in the public domain by reason other than EMPLOYEE's unauthorized disclosure or
use thereof, unless such disclosure or use is made in good faith and solely in
furtherance of EMPLOYEE's duties hereunder or expressly authorized by the Board
in writing in advance of such disclosure or use.
9.02 Upon the termination of EMPLOYEE'S employment at any time and for any
or no reason, or at any other time the Board may so direct, EMPLOYEE shall
promptly deliver to the EMPLOYER's offices in Stateline, Nevada all of the
property and equipment of the EMPLOYER and its subsidiaries (including any
automobiles, cell phones, pagers, credit cards, personal computers, etc.) and
any and all documents, records, and files, including any notes, memoranda,
customer lists, reports or any and all other documents, including any copies
thereof, whether in hard copy form or on a computer disk or hard drive, which
relate to the EMPLOYER, its subsidiaries, affiliates, successors or assigns,
and/or their respective past and present officers, directors, employees or
consultants (collectively, the "Employer Property, Records and Files"); it being
expressly understood that, upon termination of EMPLOYEE'S employment, EMPLOYEE
shall not be authorized to retain any of the Employer Property, Records and
Files, except to the extent expressly so authorized in writing by the Board.
X.
NONCOMPETITION AND OTHER MATTERS
10.01 During the Term and for the one year period following the date of
termination of EMPLOYEE'S employment at any time and for any or no reason
(PROVIDED, that such period shall be six months in the event Executive's
employment terminates upon expiration of the Term), EMPLOYEE shall not at any
time in any city, town, county, parish, other municipality in
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<PAGE>
any state of the United States or Native American territory (the names of each
such city, town, county, parish, other municipality or Native American
territory, including, without limitation, the name of each county in the State
of Nevada being expressly incorporated by reference herein), or any other place
in the world, where the EMPLOYER, or its subsidiaries, affiliates, successors,
or assigns, engages in owning, operating, managing and/or developing land-based
or riverboat casinos or hotels associated or materially competitive with
casinos, or any other business engaged in from time to time by the EMPLOYER or
its subsidiaries, affiliates, successors or assigns in which EMPLOYEE has had
significant authority and responsibility (the "Business"), directly or
indirectly, (i) engage in a competing business for EMPLOYEE'S own account; (ii)
enter the employ of, or render any consulting services to, any entity that
competes with the EMPLOYER, or its subsidiaries, affiliates, successors, or
assigns, in the Business; or (iii) become interested in any such entity in any
capacity, including, without limitation, as an individual, partner, shareholder,
officer, director, principal, agent, trustee or consultant; PROVIDED, HOWEVER,
EMPLOYEE may (A) own, directly or indirectly, solely as a passive investment,
securities of any entity traded on any national securities exchange or market if
EMPLOYEE is not a controlling person of, or a member of a group which controls,
such entity and does not, directly or indirectly, own 5% or more of any class of
securities of such entity, (B) subject to the first sentence of Section 2.04
above and clause (C) below, make passive investments in hospitality enterprises
not materially competitive with gaming and/or enterprises which are principally
bar/restaurant enterprises containing no more than 50 gaming positions, and (C)
own, serve as a director of and perform limited management services for the
Village Pub and Casino, 2610 Regatta Drive, Las Vegas, Nevada (the "Pub"),
PROVIDED that the Pub remains principally a bar/restaurant enterprise and
contains no more than 50 gaming positions, and PROVIDED, FURTHER, that such
investments and activities shall not materially interfere with the performance
of EMPLOYEE'S duties hereunder. If EMPLOYEE'S employment is terminated under any
circumstances and for any or no reason, then to the extent EMPLOYEE remains
governed by Section 10.01 as provided herein, clause (C) of the first paragraph
of section 10.01 shall apply as if the word "limited" and the last clause
beginning "PROVIDED, FURTHER" did not appear.
- 15 -
<PAGE>
(a) Notwithstanding the foregoing, if (i) EMPLOYEE'S employment is
terminated by EMPLOYER other than for Cause or by EMPLOYEE for Good Reason and
(ii) the effective date of such termination as determined hereunder occurs
within the one year period prior to the expiration date of the Term, the
restrictions set forth in this Section 10.01 shall expire upon expiration of the
Term unless EMPLOYER provides written notice to EMPLOYEE not later than two days
after such effective date that it wishes the restrictions of this Section 10.01
to apply during the Post-Term Restriction Period (as defined in Section 4.02
above) and pays EMPLOYEE the severance compensation provided for under Section
4.02(a) and provides the benefits provided for under Section 4.02(b).
(b) If EMPLOYEE'S employment is terminated for any other reason or
under any other circumstances, the provisions of this Section 10.01 shall be
effective without regard to Section 10.01(a).
10.02 During the Term and for the two year period immediately following the
date of termination of EMPLOYEE'S employment at any time and for any or no
reason, EMPLOYEE shall not at any time, directly or indirectly, solicit or
induce any officer, director, employee, agent or consultant of the EMPLOYER or
any of its successors, assigns, subsidiaries or, to the best of EMPLOYEE'S
knowledge, affiliates, to terminate his, her or its employment or other
relationship with the EMPLOYER or its successors, assigns, subsidiaries or, to
the best of EMPLOYEE'S knowledge, affiliates, for the purpose of associating
with any competitor of the EMPLOYER or its successors, assigns, subsidiaries or,
to the best of EMPLOYEE'S knowledge, affiliates, or otherwise encourage any such
person or entity to leave or sever his, her or its employment or other
relationship with the EMPLOYER or its successors, assigns, subsidiaries or, to
the best of EMPLOYEE'S knowledge, affiliates, for any other reason.
10.03 During the Term and for the two year period immediately following the
date of termination of EMPLOYEE'S employment at any time and for any or no
reason, EMPLOYEE shall not at any time, directly or indirectly, solicit or
induce (i) any customers or clients of EMPLOYER or its successors, assigns,
subsidiaries or, to the best of EMPLOYEE'S knowledge, affiliates, or (ii) any
vendors, suppliers or consultants then under contract to the EMPLOYER or
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<PAGE>
its successors, assigns, subsidiaries or, to the best of EMPLOYEE'S knowledge,
affiliates, to terminate his, her or its relationship with the EMPLOYER or its
successors, assigns, subsidiaries or, to the best of EMPLOYEE'S knowledge,
affiliates, for the purpose of associating with any competitor of the EMPLOYER
or its successors, assigns, subsidiaries or, to the best of EMPLOYEE'S
knowledge, affiliates, or otherwise encourage such customers or clients, or
vendors, suppliers or consultants then under contract, to terminate his, her or
its relationship with the EMPLOYER or its successors, assigns, subsidiaries or,
to the best of EMPLOYEE'S knowledge, affiliates, for any other reason.
XI.
RIGHTS AND REMEDIES UPON BREACH
If EMPLOYEE breaches any of the provisions of Articles IX or X above (the
"Restrictive Covenants"), the EMPLOYER and its subsidiaries, affiliates,
successors or assigns shall have the rights and remedies set forth below in this
Article XI, each of which shall be independent of the others and severally
enforceable, and each of which shall be in addition to, and not in lieu of, any
other rights or remedies available to the EMPLOYER or its subsidiaries,
affiliates, successors or assigns at law or in equity.
11.01 The right and remedy to have the Restrictive Covenants specifically
enforced by any court of competent jurisdiction by injunctive decree or
otherwise, it being agreed that any breach of the Restrictive Covenants would
cause irreparable injury to the EMPLOYER or its subsidiaries, affiliates,
successors or assigns and that money damages would not provide an adequate
remedy to the EMPLOYER or its subsidiaries, affiliates, successors or assigns.
11.02 EMPLOYEE acknowledges and agrees that the Restrictive Covenants are
reasonable and valid in geographic and temporal scope and in all other respects.
If any court determines that any of the Restrictive Covenants, or any part
thereof, is invalid or unenforceable, the remainder of the Restrictive Covenants
shall not thereby be affected and shall be given full force and effect without
regard to the invalid portions.
11.03 If any court determines that any of the Restrictive Covenants, or any
part thereof, is unenforceable because of the duration or scope of such
provision, such court shall have the
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<PAGE>
power to reduce the duration or scope of such provision, as the case may be (it
being the intent of the parties that any such reduction be limited to the
minimum extent necessary to render such provision enforceable), and, in its
reduced form, such provision shall then be enforceable.
11.04 EMPLOYEE intends to and hereby confers jurisdiction to enforce the
Restrictive Covenants upon the courts of any jurisdiction within the geographic
scope of such covenants. If the courts of any one or more of such jurisdictions
hold the Restrictive Covenants unenforceable by reason of the breadth of such
scope or otherwise, it is the intention of EMPLOYEE that such determination not
bar or in any way affect the right of the EMPLOYER or its subsidiaries,
affiliates, successors or assigns to the relief provided herein in the courts of
any other jurisdiction within the geographic scope of such covenants, as to
breaches of such covenants in such other respective jurisdictions, such
covenants as they relate to each jurisdiction being, for this purpose, severable
into diverse and independent covenants.
XII.
ARBITRATION
Except as necessary for the 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 relating to this Agreement, or any dispute that relates in any
way, in whole or in part, to EMPLOYEE'S employment with the 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 Las Vegas, 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
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<PAGE>
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 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 any other state or
federal law.
XIII.
MISCELLANEOUS
13.01 If any action to specifically enforce or enjoin a breach of this
Agreement is necessary, the prevailing party 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.
13.02 This Agreement shall be construed and governed by the laws of the
State of Nevada, without giving effect to conflicts of laws principles thereof
which might refer such interpretations to the laws of a different state or
jurisdiction.
13.03 This Agreement, and all of the terms and conditions hereof, shall
bind the EMPLOYER and its successors and assigns and shall bind the EMPLOYEE and
his heirs, executors and administrators. No transfer or assignment of this
Agreement shall release EMPLOYER from any obligation to EMPLOYEE hereunder.
Neither this Agreement, nor any of EMPLOYER'S rights or obligations hereunder,
may be assigned or otherwise subject to hypothecation by EMPLOYEE. EMPLOYER may
assign the rights and obligations of EMPLOYER hereunder, in whole or in part, to
any of EMPLOYER'S subsidiaries, affiliates or parent corporations, or to any
other successor or assign in connection with the sale of all or substantially
all of HARVEYS' assets or stock or in connection with any merger, acquisition
and/or reorganization.
- 19 -
<PAGE>
13.04 Notices - All notices and other communications under this Agreement
shall be in writing and shall be given by first class mail, certified or
registered with return receipt requested, or by a nationally recognized
overnight delivery service to the respective parties named below:
EMPLOYEE:
Stephen L. Cavallaro
8824 Montagna Drive
Las Vegas, NV 89134
Facsimile: 702-363-4461
WITH A COPY TO:
Michael Forman
Klehr, Harrison, Harvey, Branzburg & Ellers LLP
1401 Walnut Street
Philadelphia, PA 19102
Facsimile: 215-568-3206
EMPLOYER:
HARVEYS CASINO RESORTS
Attn: Corporate Secretary
Highway 50 and Stateline Avenue
Post Office Box 128
Stateline, NV 89449
Facsimile: 775-586-6852
WITH A COPY TO:
Kelvin L. Davis
Colony Capital, Inc.
Suite 1200
1999 Avenue of the Stars
Los Angeles, CA 90067
Facsimile: 310-282-8808
AND TO:
Jonathan Grunzweig
Skadden, Arps, Slate, Meagher & Flom LLP
Suite 3400
300 South Grand Avenue
Los Angeles, CA 90071
Facsimile: 213-687-5600
13.05 Nothing contained in this Agreement shall be construed to require the
commencement of any act contrary to law, and when there is any conflict between
any provision of this Agreement and any statute, law, ordinance, or regulation,
contrary to which the parties
- 20 -
<PAGE>
have no legal right to contract, then the latter shall prevail; but in such an
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.
13.06 The several rights and remedies provided for in this Agreement shall
be construed as being cumulative, and no one of 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.
13.07 This Agreement supersedes any and all other agreements, either oral
or in writing, between the parties hereto with respect to the employment of the
EMPLOYEE by the EMPLOYER (including, without limitation, the Prior Agreement,
Harveys Change in Control Plan and, insofar as it relates to the subject matter
hereof, but except as provided in Section 13.08, the MOU) and, together with all
other plans, agreements and other documents specifically referenced herein,
contains all of the covenants, conditions and agreements between the parties
with respect to such employment. Annex F hereto sets forth a list of payments to
EMPLOYEE pursuant to the MOU, and EMPLOYEE hereby acknowledges receipt of all
such payments. Each party to this Agreement acknowledges that no
representations, inducements, promises or other agreements, 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 writing and
signed by the parties to be charged.
13.08 To the extent applicable, EMPLOYEE shall be entitled to receive a
gross-up payment with respect to payments made hereunder (including under
agreements referenced herein) and under the MOU to account for the payment of
Internal Revenue Code Section 4999 excise taxes as well as taxes imposed on such
gross up payments, as determined pursuant to the procedures set forth in Annex
D, PROVIDED, that EMPLOYEE shall reasonably cooperate with EMPLOYER in
structuring such payments and taking such other actions to limit the extent to
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<PAGE>
which such payments may be subject to such excise tax, provided that such
restructuring does not cause EMPLOYEE to suffer additional costs or other
adverse consequences. Notwithstanding anything contained to the contrary
contained herein, the provisions of this Section 13.08 and Annex D hereto shall
survive the expiration or termination of this Agreement for any or no reason.
13.09 If EMPLOYEE'S employment with the Company is terminated by the
Company without Cause either (i) as a result of a Change in Control (as defined
in the Award Agreement) or (ii) within the 12 month period immediately preceding
a Change in Control (or such longer period, not to exceed 18 months prior to
such Change in Control, during which significant discussions or other material
action regarding such Change in Control occurred) at the request, directly or
indirectly, of a third party who has taken steps reasonably calculated to effect
a Change in Control or otherwise in connection with, or in anticipation of a
Change in Control, EMPLOYEE shall be entitled to receive, at the effective date
of such termination (or, if payable in respect of clause (ii), within ten
business days following such Change in Control), a lump sum payout at maximum of
the bonus otherwise payable to EMPLOYEE with respect to the then current fiscal
year under the Annual Bonus Plan, such amount pro rated through the effective
date of such termination of employment. The amount provided for in the
immediately preceding sentence shall also be paid if EMPLOYEE'S employment with
the Company is terminated for Good Reason if the grounds constituting Good
Reason occur as the result of a Change in Control or within the stated time
frame at the request, directly or indirectly, of such a third party or otherwise
in connection with, or in anticipation of a Change in Control. If (x) no payment
is made pursuant to either of the two immediately preceding sentences, (y)
following a Change in Control and prior to the effective date of termination of
EMPLOYEE'S employment the Annual Bonus Plan is terminated or amendments are made
that materially adversely affect EMPLOYEE and (z) EMPLOYEE'S employment is not
terminated prior to the end of the fiscal year in which such termination or
amendments occur, then, in lieu of any other amounts payable to EMPLOYEE under
the Annual Bonus Plan with respect to such fiscal year, EMPLOYEE shall receive a
lump sum payout at maximum within sixty (60) days following the termination of
the
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<PAGE>
Annual Bonus Plan or the fiscal year during which any such material amendments
were made. The provisions of this Section 13.09 shall survive the expiration of
the Term, but only to the extent necessary to determine whether a Change in
Control occurs within the 12 to 18 month period described in clause (ii) of the
first sentence of this Section 13.09.
13.10 The section headings contained herein are for reference purposes only
and shall not in any way affect the meaning or interpretation of this Agreement.
13.11 Unless expressly provided herein or therein, the expiration of the
Term shall not alter or affect any rights or obligations of EMPLOYER or EMPLOYEE
under any other agreement or plan including, without limitation, the Award
Agreement, the Omnibus Plan, the Deferred Compensation Agreement, of even date
herewith, between EMPLOYER and EMPLOYEE, and, to the extent provided under
Section 7.02 above, the Annual Bonus Plan.
- 23 -
<PAGE>
13.12 This Agreement may be executed by the parties hereto in separate
counterparts, each of which when so executed and delivered shall be an original
but all such counterparts together shall constitute one and the same instrument.
DATED this 2nd day of February, 1999.
EMPLOYEE:
/s/ Stephen L. Cavallaro
-----------------------------------------------
STEPHEN L. CAVALLARO
EMPLOYER:
HARVEYS CASINO RESORTS
By: /s/ Charles W. Scharer
-----------------------------------------------
Name: Charles W. Scharer
Its: President and Chief Executive Officer
- 24 -
<PAGE>
ANNEX A: 1999 OMNIBUS STOCK
INCENTIVE PLAN
See Exhibit 10.33, 1999 Omnibus Stock Incentive Plan.
<PAGE>
ANNEX B: STOCK OPTION AND RESTRICTED
STOCK AGREEMENT
See Exhibit 10.44, Stock Option and Restricted Stock Agreement dated as
of February 2, 1999 by and between Harveys Casino Resorts and Stephen L.
Cavallaro.
<PAGE>
ANNEX C: STOCKHOLDERS AGREEMENT
See Exhibit 10.34, Stockholders Agreement entered into as of February 2,
1999 by and among Harveys Casino Resorts, Colony HCR Voteco, LLC, Colony
Investors III, L.P. and the securityholders of the Company as identified from
time to time on Schedule A thereto.
<PAGE>
ANNEX D: DETERMINATION OF GROSS-UP PAYMENT
See Exhibit 10.27, Employment Agreement by and between Harveys Casino
Resorts and Charles W. Scharer, Annex D.
<PAGE>
Annex E: Example of the Post-Term Restriction Period and Severance Payments
Applicable in Certain Instances in the Event of Termination by EMPLOYER
without Cause or by EMPLOYEE for Good Reason
Suppose that the Term is scheduled expire on February 2, 2004, and
that notice has been provided pursuant to Section 3.01 that there will be no
automatic extension of the Term. Suppose, further, that EMPLOYEE'S employment is
terminated on November 2, 2003, I.E., less than one year prior to the expiration
of the Term. Under Section 4.02(a), on these facts, the amount of EMPLOYEE'S
severance will depend on whether EMPLOYER elects to have the non-competition
restrictions of Section 10.01 apply during the Post-Term Restriction Period.
The length of the Post-Term Restriction Period is measured by
determining the length of time following the scheduled expiration date of the
Term (I.E., February 2, 2004) during which the twelve-month post-termination
non-competition period as set forth in the first paragraph of Section 10.01
would apply if EMPLOYER makes an election so that the provisions of Section
10.01(a), which would otherwise cut off the non-competition period as of the end
of the Term, will not apply. Since EMPLOYEE'S Termination Date, November 2,
2003, is 3 months prior to the scheduled expiration date of the Term, the
Post-Term Restriction Period is (12 minus 3) or 9 months.
SCENARIO A: THE POST-TERM RESTRICTION PERIOD APPLIES
If EMPLOYER elects pursuant to Section 10.01(a) to have the
non-competition period extend through the end of the Post-Term Restriction
Period, EMPLOYEE'S severance is determined under Section 4.02(a), without regard
to Section 4.02(a)(iii). Accordingly, EMPLOYEE'S severance would be equal to the
product of (x) the Applicable Multiplier, which would be (3 + 9) divided by 12,
or 1.0, and (y) the sum of EMPLOYEE'S Base Salary and Annual Bonus as of the
Termination Date. EMPLOYEE would be subject to the restrictions of the first
paragraph of Section 10.01 until November 2, 2004.
SCENARIO B: THE POST-TERM RESTRICTION PERIOD DOES NOT APPLY
If EMPLOYER does not elect to have the non-competition period extend
through the end of the Post-Term Restriction Period, EMPLOYEE'S severance would
be determined under Section 4.02(a)(iii). The first part of EMPLOYEE'S severance
would be equal to the product of (x) the Applicable Multiplier, which would be 3
divided by 12 (or 0.25), and (y) EMPLOYEE'S Base Salary as of the Termination
Date.
The second or bonus portion of EMPLOYEE'S severance would be
determined by the Board following the end of the 2003 fiscal year. The Board
would determine the amount of the Annual Bonus EMPLOYEE would have been entitled
to receive under the Annual Bonus Plan as if EMPLOYEE had remained employed
through the end of the 2003 fiscal year, based on HARVEYS (and, as applicable,
EMPLOYEE'S) actual performance (without proration) during the 2003 fiscal year,
as compared with the bonus targets previously established for such year.
EMPLOYER would then be required to pay such bonus amount to EMPLOYEE at the time
bonuses under the Annual Bonus Plan were paid to participants in the plan
generally. Under this
<PAGE>
arrangement, all other things being equal, EMPLOYEE would receive the same bonus
whether his employment was terminated on June 1, 2003, November 2, 2003 or
January 4, 2004.
However, to avoid unjust enrichment, if EMPLOYEE'S employment were to
be terminated following the date on which bonuses were determined and paid for
fiscal 2003 (say that the bonuses were paid on January 10, 2004 and EMPLOYEE'S
employment was terminated on January 15, 2004), EMPLOYEE would not be entitled
to receive any severance amount in respect of bonus, but would receive as
severance only Base Salary for the 18 day period between January 15, 2004 and
February 2, 2004.
Similar determinations would apply if the Term were automatically
extended for one or more years beyond the fifth anniversary of the Effective
Date, assuming that EMPLOYEE'S employment was terminated within the one-year
period prior to the scheduled expiration of the Term, as so extended. It is
agreed for purposes of Scenario B under this Annex E that bonuses for the last
full fiscal year of the Term will be determined no later than January 31 in the
year in which the Term expires.
<PAGE>
ANNEX F: SCHEDULE OF PAYMENTS UNDER THE MOU
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
NATURE OF PAYMENT AMOUNT
<S> <C>
- -------------------------------------------------------------------------------------------------
Payment in consideration of termination of right to participate in Long $479,270.00
Term Incentive Plan
- -------------------------------------------------------------------------------------------------
Prior payment under Management Incentive Plan in respect of fiscal 1998 $263,630.00
- -------------------------------------------------------------------------------------------------
Payment in partial consideration of termination of right to participate in $390,939.00
Supplemental Executive Retirement Plan
- -------------------------------------------------------------------------------------------------
Advance under Management Incentive Plan in respect of fiscal 1999 $73,750.00
- -------------------------------------------------------------------------------------------------
Total: $1,207,589.00
</TABLE>
<PAGE>
Exhibit 10.29
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made and entered into this 2nd day of February, 1999,
by and between HARVEYS CASINO RESORTS, a Nevada corporation, hereinafter
referred to as "HARVEYS" and/or "EMPLOYER," and JOHN J. MCLAUGHLIN, hereinafter
referred to as "EMPLOYEE," as follows:
W I T N E S S E T H:
WHEREAS, EMPLOYEE has previously served as an employee of HARVEYS
pursuant to that certain employment agreement, dated August 14, 1995, as amended
(the "Prior Agreement"); and
WHEREAS, HARVEYS and Harveys Acquisition Corporation, a Nevada
corporation ("ACQ CORP"), have entered into an Agreement and Plan of Merger
dated as of February 1, 1998 (the "Merger Agreement"), whereby ACQ CORP will be
merged with and into HARVEYS (the "Merger"); and
WHEREAS, in connection with the Merger Agreement, HARVEYS and EMPLOYEE,
together with other members of HARVEYS management, have entered into a
Memorandum of Understanding, dated February 1, 1998 (the "MOU"), which sets
forth, among other things, certain terms regarding EMPLOYEE'S employment with
HARVEYS following consummation of the Merger, including the execution of a new
employment agreement to replace the Prior Agreement; and
WHEREAS, following consummation of the Merger, 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, subject to consummation of the Merger, HARVEYS desires to
continue to engage the services of EMPLOYEE, who is desirous of continued
employment by HARVEYS, upon the terms and conditions set forth herein.
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:
<PAGE>
I.
DEFINITIONS
1.01 EMPLOYEE shall at all times mean John J. McLaughlin.
1.02 EMPLOYER shall at all times mean HARVEYS CASINO RESORTS, a Nevada
corporation, and its Successors in Interest together with its subsidiaries.
1.03 HARVEYS shall at all times mean HARVEYS CASINO RESORTS, a Nevada
corporation, and its Successor 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 is transferred.
II.
NATURE OF EMPLOYMENT AND DUTIES OF EMPLOYEE
2.01 Subject to and effective upon the consummation of the Merger,
EMPLOYEE shall continue to serve HARVEYS as Senior Vice President, Chief
Financial Officer and Treasurer of HARVEYS. EMPLOYEE shall at all times be
subject to, observe and carry out such rules, regulations, policies, directions,
and restrictions as HARVEYS Board of Directors (the "Board") may from time to
time establish for senior executive officers of the EMPLOYER.
2.02 Subject to the supervision and control of the Board and EMPLOYER'S
Chief Executive Officer, EMPLOYEE shall do and perform all services and acts
necessary or advisable to fulfill the duties and responsibilities of his
position and shall render such services on the terms set forth herein. Without
limiting the generality of the foregoing, EMPLOYEE shall be responsible for the
EMPLOYER'S financial plans, policies and relationships with financial
institutions as well as managing the EMPLOYER'S controller, directing the
EMPLOYER'S treasury, national purchasing, budgeting, tax and accounting
functions and overseeing the EMPLOYER'S data processing functions. In addition,
EMPLOYEE shall have such other executive and managerial powers and duties with
respect to HARVEYS and its subsidiaries that are consistent with the offices of
Senior Vice President, Chief Financial Officer and Treasurer
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and as may reasonably be assigned to him by the Board, including without
limitation serving on the Board of Directors of any subsidiary of HARVEYS.
2.03 EMPLOYEE has reviewed and concurs with his responsibilities and
duties as set forth in Section 2.02 above.
2.04 During the Term (as defined below), EMPLOYEE shall devote
substantially all of his productive time, ability and attention to the business
of EMPLOYER. In addition, 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 Board, PROVIDED, that, subject to the provisions of Article X
hereof, EMPLOYEE shall not be precluded from involvement in charitable or civic
activities or his personal financial investments provided the same do not
materially interfere with his time or attention to the business of EMPLOYER, and
PROVIDED, further, that EMPLOYEE shall not serve as a director of any other
for-profit business that is not an affiliate of EMPLOYER.
2.05 EMPLOYEE agrees that he shall at all times (i) to the best of his
ability and experience conscientiously perform all of the duties and obligations
of his position with the EMPLOYER, (ii) use his best efforts to do and perform
all services, acts, or things necessary or advisable to assist in the management
and conduct of the business and otherwise advance the interests of EMPLOYER and
(iii) diligently and in the highest good faith carry out the lawful directives
of the Board, PROVIDED, that EMPLOYEE shall not be obligated to perform his
duties hereunder outside the Stateline, Nevada area, except for business trips
and directors meetings outside said area which arise and result from the normal
conduct of the business of HARVEYS.
III.
TERM AND GENERAL CONDITIONS OF EMPLOYMENT
3.01 Subject to and effective upon consummation of the Merger, EMPLOYER
hereby employs the EMPLOYEE, and EMPLOYEE hereby agrees to be employed by
HARVEYS for a period of five (5) years commencing on the date of consummation of
the Merger (the "Effective Date") and terminating on the fifth anniversary of
the Effective Date (as the same may be extended as set forth below, the "Term"),
unless extended by mutual written agreement of the
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parties; PROVIDED, that the period of employment shall automatically be extended
for successive one (1) year periods if neither party has provided six (6) months
prior written notice to the other of its intention to have this Agreement lapse
at the expiration of the Term; and PROVIDED FURTHER, that the Term shall be
subject to earlier termination in accordance with Articles IV, V and VI below.
3.02 Notwithstanding anything to the contrary herein, in the event of
any termination of EMPLOYEE's employment for any or no reason, EMPLOYEE and
EMPLOYER shall nevertheless continue to be bound by the terms and conditions set
forth in Articles IX through XII, in Section 13.08 and, to the extent provided
therein, Section 13.09 below.
3.03 Upon consummation of the Merger, the Prior Agreement shall be
cancelled and terminated without further obligation of EMPLOYER.
3.04 If the Merger Agreement shall be terminated prior to consummation
of the Merger, EMPLOYEE shall continue his employment with HARVEYS pursuant to
the terms of the Prior Agreement, which in such case shall remain in full force
and effect. 3.05 EMPLOYEE hereby acknowledges and agrees that his rights as set
forth herein to receive severance and other compensation and benefits hereunder
shall supersede and replace in its entirety any severance or other benefits that
might otherwise be payable pursuant to HARVEYS Change of Control Plan as in
effect as of the date hereof or as the same may be amended from time to time or
under any other severance plan, policy, agreement or arrangement in effect
immediately prior to the Effective Date. EMPLOYEE further acknowledges that as
of the Effective Date, EMPLOYEE shall no longer be a participant in or have any
rights under the Change of Control Plan (or under any such other severance plan,
policy, agreement or arrangement in effect immediately prior to the Effective
Date), regardless of the reasons or circumstances of his termination of
employment. EMPLOYEE further acknowledges that as of the Effective Date EMPLOYEE
shall no longer be a participant in or have any rights under the Company's Long
Term Incentive Plan or Supplemental Executive Retirement Plan.
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IV.
TERMINATION OF EMPLOYMENT WITHOUT CAUSE
4.01 EMPLOYEE'S employment may be terminated at any time by HARVEYS,
with or without "Cause" (as defined in Section 6.01 below), at any time and for
any or no reason. Any such termination without Cause shall be effective only
upon thirty (30) days' prior written notice to EMPLOYEE (such effective date,
for purposes of this Article IV, the "Termination Date").
4.02 If EMPLOYEE'S termination by EMPLOYER shall be without Cause,
EMPLOYEE shall be entitled to the following benefits:
(a) Except as provided below, EMPLOYEE shall be entitled to
receive on the Termination Date a lump sum payment in an amount equal to the
product of (x) the Applicable Multiplier (as defined below) and (y) the sum of
his then Base Salary and then Annual Target Bonus (each as defined below).
(i) "Applicable Multiplier" shall mean the
lesser of (A) 1.5 and (B) a fraction, the denominator of which is 12,
and the numerator of which shall be the number of full plus partial
(calculated by the day) months remaining in the Term following the
Termination Date, which numerator shall be increased by the number of
full plus partial (calculated by the day) months during any Post-Term
Restriction Period (as defined below and further described in Annex E)
if an election to have such Post-Term Restriction Period apply to
EMPLOYEE is made by EMPLOYER pursuant to Section 10.01.
(ii) For purposes of this Section 4.02(a),
EMPLOYEE'S annual target bonus under the Annual Bonus Plan (as defined
in Section 7.02 below) for each fiscal year during the Term shall be
deemed to be 50 percent of EMPLOYEE'S Base Salary as in effect as of
the date the relevant business plan targets for such fiscal year are
established by the Board.
(iii) For purposes of this
Agreement, the "Post-Term Restriction Period" shall mean that period,
if any, following expiration of the Term during which EMPLOYEE would be
subject to the restrictions of
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Section 10.01 as determined under the first paragraph of Section 10.01,
without regard to any limitation of such period by reason of Section
10.01(a). The Post-Term Restriction Period is further described in
Annex E hereto.
(iv) Notwithstanding the foregoing, in the
event that EMPLOYEE'S Termination Date shall be less than one year
prior to the expiration of the Term and the Applicable Multiplier
(determined as above by including any applicable Post-Term Restriction
Period) shall be less than 1.0, EMPLOYEE shall not be entitled to
receive the lump sum payment determined under the first sentence of
this Section 4.02(a), but shall instead be entitled to receive (A) on
the Termination Date a lump sum payment in an amount equal to the
product of (x) the Applicable Multiplier and (y) his then Base Salary
and (B) as applicable, a bonus as determined under Annex E hereto.
(b) EMPLOYEE shall be entitled to continuation of his Benefits
(as defined below) for that number of months immediately following the
Termination Date equal to the product of (A) the Applicable Multiplier and (B)
12 (such number of months, the "Severance Period"), PROVIDED, that in the event
that during such period, pursuant to applicable law or the terms of the
applicable plan, any Benefits may not be provided pursuant to the terms of the
specific plan referenced herein, EMPLOYER shall provide substantially equivalent
benefits by alternate means.
(c) Subject to the provisions of the Award Agreement (as
defined in Section 7.03 below), EMPLOYEE shall vest as of the Termination Date
in that portion of the Stock Award and Stock Option grants (each as defined
below) that would otherwise have vested had EMPLOYEE remained in HARVEYS employ
for the duration of the Severance Period.
Except as set forth in this Section 4.02 and Section 13.08,
all other rights of EMPLOYEE (and, except as provided in Sections 4.02 and 3.02
above and Section 13.08, all obligations of the EMPLOYER) hereunder shall
terminate as of the Termination Date.
4.03 If during the term hereof EMPLOYEE'S employment shall terminate by
reason of his death or Disability (as defined below), he or his estate, as
applicable, shall be entitled to (i) all
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amounts of Base Salary and Benefits accrued but unpaid through the date of such
termination (which shall be the date of death or the 45th day after the date
EMPLOYER provides EMPLOYEE notice of termination for Disability) and (ii) any
death and/or disability benefits that may be due EMPLOYEE under any benefit
plans in effect from time to time. "Disability" shall mean any physical or
mental disability that prevents EMPLOYEE from performing one or more of the
essential functions of his position for a period of not less than six (6) months
in any continuous 12-month period. Except as set forth in this Section 4.03 and
Section 13.08, all other rights of EMPLOYEE (and, except as provided in this
Section 4.03 and Section 3.02 above and Section 13.08, all obligations of the
EMPLOYER) hereunder shall terminate as of the date of such termination of
employment.
V.
TERMINATION OF EMPLOYMENT AT EMPLOYEE'S REQUEST
5.01 EMPLOYEE may, at EMPLOYEE'S sole option and right, terminate his
employment with EMPLOYER at any time, with or without Good Reason (as defined
below). Any such termination shall be effective only upon thirty (30) days'
prior written notice to HARVEYS.
(a) In the event of such termination of employment without
Good Reason, EMPLOYEE shall be entitled to receive all amounts of Base Salary
and Benefits accrued but unpaid through the date of such termination.
(b) In the event of such termination of employment with Good
Reason, EMPLOYEE shall be entitled to receive the benefits set forth in Sections
4.02(a)-(c) as if EMPLOYEE'S employment had been terminated by EMPLOYER without
Cause, with the "Termination Date" as used in such sections being the effective
date of termination pursuant to this Section 5.01.
For purposes of this Section 5.01, EMPLOYEE shall have "Good
Reason" to terminate his employment hereunder if (i) EMPLOYER shall, without
EMPLOYEE'S written consent, willfully and materially breach its obligations
under this Agreement, (ii) EMPLOYEE provides EMPLOYER written notice pursuant
hereto stating with specificity the respects in
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which EMPLOYEE believes EMPLOYER to have willfully and materially breached its
obligations under this Agreement and (iii) within thirty (30) days following the
date of such notice EMPLOYER shall not have cured such breach. Except as set
forth in this Section 5.01 (and, as incorporated hereinabove by reference,
Section 4.02) and Section 13.08, all other rights of EMPLOYEE (and, except as
provided in Section 3.02 above and Section 13.08, all obligations of the
EMPLOYER) hereunder shall terminate as of the date of such termination of
employment.
VI.
TERMINATION OF EMPLOYMENT FOR CAUSE
6.01 EMPLOYER may at any time, at its election, by written notice to
EMPLOYEE stating with specificity the reason for the termination, terminate
EMPLOYEE'S employment for "Cause," which shall be defined as EMPLOYEE'S:
(a) Gross negligence or willful malfeasance in the
performance of his duties
under this Agreement;
(b) Failure to obtain or retain any permits, licenses, or
approvals which may be required by any state or local
authorities in order to permit the EMPLOYEE to
continue his employment as contemplated by this
Agreement;
(c) Conviction of any felony or conviction of a crime
involving moral turpitude;
(d) Dishonesty with respect to EMPLOYER (including,
without limitation, fraud) resulting in a breach of
duty to EMPLOYER involving EMPLOYEE'S personal gain
or profit;
(e) Engaging in any activity that is in violation of the
provisions of Article X of this Agreement, which
shall not be cured following ten days' written notice
and a demand to cure such violation; or
(f) Use or imparting of any confidential or proprietary
information of EMPLOYER or any subsidiary or
affiliate in violation of any confidentiality or
proprietary agreement to which EMPLOYEE is a party,
including without limitation the provisions of
Article IX of this Agreement; PROVIDED, that in the
event such notice is provided pursuant to
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Section 6.01(b), EMPLOYEE shall have a period of thirty (30) days following the
date of such notice in which to cure such failure, and if EMPLOYEE shall cure
such failure within such period, EMPLOYEE's employment hereunder shall be
reinstated without prejudice.
6.02 Upon the provision of such notice (or, in the case of such notice
pursuant to Section 6.01(b), upon expiration of the applicable cure period
without cure), EMPLOYEE'S employment shall immediately cease and terminate for
Cause. In the event of such termination of employment, EMPLOYEE shall be
entitled to receive all amounts of Base Salary and benefits accrued but unpaid
through the date of such termination. Except as set forth in this Section 6.02
and Section 13.08, all other rights of EMPLOYEE (and, except as provided in
Section 3.02 above and Section 13.08, all obligations of the EMPLOYER) hereunder
shall terminate as of the date of such termination of employment.
VII.
COMPENSATION OF EMPLOYEE
7.01 Base Salary - EMPLOYEE shall receive an annual base salary
("Base Salary") of Three Hundred Thousand Dollars ($300,000), payable in at
least monthly installments, less all applicable Federal, state and local taxes,
Social Security and any other government mandated deductions. EMPLOYEE'S Base
Salary shall be reviewed by the Board no less frequently than annually relative
to specified performance-based criteria to be determined by the Board.
7.02 Annual Bonus - Following the Effective Time, EMPLOYEE shall be
eligible to participate in EMPLOYER'S Management Incentive Plan ("MIP") or, at
the election of EMPLOYER, in a new or equivalent annual bonus plan established
by EMPLOYER having a similar structure to the MIP providing for payment of an
annual bonus (the "Annual Bonus Plan"), but in either case with thresholds and
triggering events for payment based on the achievement of HARVEYS annual budget
and other business plan targets to be determined by the Board following the
Effective Date. EMPLOYEE's maximum annual bonus under the Annual Bonus Plan
shall not be less than $165,000. Notwithstanding the foregoing, the following
provisions shall apply with respect to EMPLOYEE'S participation in the Annual
Bonus Plan with respect to fiscal 1999:
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(a) On the date hereof, EMPLOYER shall pay to EMPLOYEE a lump
sum amount in cash equal to 25% of EMPLOYEE'S maximum bonus under the Annual
Bonus Plan for fiscal 1999, which lump sum amount EMPLOYER and EMPLOYEE
acknowledge and agree to be $55,625 (the "Advance"). EMPLOYEE hereby
acknowledges receipt of the Advance.
(b) Following the end of fiscal 1999, the Board shall
determine EMPLOYEE'S bonus under the Annual Bonus Plan in the ordinary course
using the financial targets established by the Board prior to the date hereof,
without regard to the Advance (the "Overall 1999 Bonus Entitlement"). On the
date bonuses under the Annual Bonus Plan are paid generally to employees with
respect to fiscal 1999, EMPLOYEE shall be entitled to receive an annual bonus
payment equal to the excess, if any, of (i) EMPLOYEE'S Overall 1999 Bonus
Entitlement over (ii) the amount of the Advance. In the event the Advance shall
be greater than the Overall 1999 Bonus Entitlement, EMPLOYEE shall have no
obligation to repay any portion of the Advance to EMPLOYER, and no portion of
the Advance shall be offset against amounts otherwise payable to EMPLOYEE under
the Annual Bonus Plan with respect to subsequent fiscal years. However, in the
event EMPLOYEE'S employment is terminated by EMPLOYER without Cause or by
EMPLOYEE for Good Reason prior to December 31, 1999, the amount of the Advance
shall be offset dollar-for-dollar against amounts otherwise payable to EMPLOYEE
under Section 4.02(a).
7.03 Stock Grants and Stock Option - On the Effective Date, EMPLOYEE
shall receive (i) a restricted Stock Award consisting of 180 shares of the Class
A common stock, par value $.01 per share, of HARVEYS ("Class A Common Stock")
and 18,000 shares of the Class B common stock, par value $.01 per share, of
HARVEYS ("Class B Common Stock") and (ii) a Stock Option to purchase 240
additional shares of Class A Common Stock and 24,000 additional shares of Class
B Common Stock, each at a price of $20.06 per share; PROVIDED, that the Stock
Award and Stock Option shall each be subject in all respects to the terms of
HARVEYS 1999 Omnibus Incentive Plan, a copy of which is attached hereto as Annex
A (the "Omnibus Plan"), the individual stock option and restricted stock award
agreement to be entered into thereunder evidencing the Stock Award and Stock
Option, a copy of which is attached hereto as Annex B
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(the "Award Agreement"), and that certain Stockholders Agreement among HARVEYS,
Colony HCR Voteco, LLC, a Nevada limited liability company, Colony Investors
III, L.P., a Delaware limited partnership, and the security holders of the
Company (including EMPLOYEE) as identified from time to time on Schedule A
thereto, a copy of which is attached hereto as Annex C.
VIII.
BENEFITS AND PERQUISITES
During the Term, EMPLOYEE shall be entitled to the benefits and
perquisites as set forth in this Article VIII (collectively, "Benefits")
8.01 HARVEYS 401(k) Plan - During the employment term the EMPLOYEE
shall be allowed to participate in HARVEYS 401(k) Plan, or shall be provided
with benefits that are substantially identical to the benefits provided under
such plan as of the date hereof.
8.02 Vacation - EMPLOYEE shall be entitled to four weeks of paid
vacation per year in the first three years of the Term and five weeks of paid
vacation per year in the fourth and fifth years of the Term. EMPLOYEE shall be
afforded the usual holidays as EMPLOYER may from time to time recognize.
8.03 Complimentary Privileges - EMPLOYEE shall be entitled such
Level I complimentary privileges as are afforded generally to senior executives
of the EMPLOYER from time to time pursuant to policies adopted by the Board of
Directors..
8.04 EMPLOYER shall provide EMPLOYEE with an automobile in accordance
with the Class II category of EMPLOYER'S Standard Automobile Policy and
Procedures, as from time to time amended.
8.05 Disability - EMPLOYEE shall also be entitled to short term
disability coverage and long term disability coverage under plans as in effect
from time to time as implemented by EMPLOYER.
8.06 Medical, Vision and Dental Insurance - EMPLOYER shall provide
medical, vision and dental benefits to EMPLOYEE, his spouse and dependents in
accordance with
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EMPLOYER'S Class One coverage under the Executive Medical Plan, as amended from
time to time.
8.07 Deferred Compensation Program - EMPLOYEE shall be allowed to
participate in the Deferred Compensation Program as is in effect from time to
time.
8.08 Life Insurance - During the Term. EMPLOYER shall furnish
EMPLOYEE with Group Term Life Insurance and Accidental Death/Dismemberment
Insurance, in each case subject to the terms of such plans as in effect from
time to time.
8.09 Additional Employee Benefit Plans - EMPLOYEE shall be entitled
to participate in all additional employee benefits plans which may, in the
future, be made generally available to EMPLOYER'S most senior management
employees, PROVIDED, that separate employee benefits plans may be adopted for
lower-ranking management employees as to which EMPLOYER may determine EMPLOYEE
ineligible for participation, and PROVIDED, FURTHER, that EMPLOYEE shall not be
entitled to participate in (i) EMPLOYER'S Supplemental Executive Retirement Plan
or any other supplemental retirement plan or arrangement, (ii) EMPLOYER's Long
Term Incentive Plan or (iii) any severance plan, policy or arrangement of
EMPLOYER. This Section 8.09 shall not be construed to affect EMPLOYEE'S
entitlement to severance or bonus amounts as provided in this Agreement or
hereafter.
8.10 Reimbursement of Expenses - EMPLOYER shall reimburse EMPLOYEE
for any expenses reasonably and necessarily incurred by him in furtherance of
his duties hereunder, including, travel, meals, and accommodations, upon
submission by him of vouchers or receipts and in compliance with such rules and
policies relating thereto as EMPLOYER may from time to time adopt.
IX.
PROTECTION OF CONFIDENTIAL INFORMATION
EMPLOYEE acknowledges that during the course of his employment with the
EMPLOYER, its subsidiaries and affiliates, he has been and will be exposed to
documents and other information regarding the confidential affairs of the
EMPLOYER, its subsidiaries and affiliates, including without limitation
information about their past, present and future financial
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condition, the markets for their products, key personnel, past, present or
future actual or threatened litigation, trade secrets, current and prospective
customer lists, operational methods, acquisition plans (including without
limitation potential acquisition targets), financing sources, prospects, plans
for future development and other business affairs and information about the
EMPLOYER and its subsidiaries and affiliates not readily available to the public
(the "Confidential Information"). EMPLOYEE further acknowledges that the
services to be performed under this Agreement are of a special, unique, unusual,
extraordinary and intellectual character. In recognition of the foregoing, the
EMPLOYEE covenants and agrees as follows:
9.01 At no time shall EMPLOYEE ever divulge, disclose, or otherwise
use any Confidential Information, unless and until such information is readily
available in the public domain by reason other than EMPLOYEE's unauthorized
disclosure or use thereof, unless such disclosure or use is made in good faith
and solely in furtherance of EMPLOYEE's duties hereunder or expressly authorized
by the Board in writing in advance of such disclosure or use.
9.02 Upon the termination of EMPLOYEE'S employment at any time and
for any or no reason, or at any other time the Board may so direct, EMPLOYEE
shall promptly deliver to the EMPLOYER's offices in Stateline, Nevada all of the
property and equipment of the EMPLOYER and its subsidiaries (including any
automobiles, cell phones, pagers, credit cards, personal computers, etc.) and
any and all documents, records, and files, including any notes, memoranda,
customer lists, reports or any and all other documents, including any copies
thereof, whether in hard copy form or on a computer disk or hard drive, which
relate to the EMPLOYER, its subsidiaries, affiliates, successors or assigns,
and/or their respective past and present officers, directors, employees or
consultants (collectively, the "Employer Property, Records and Files"); it being
expressly understood that, upon termination of EMPLOYEE'S employment, EMPLOYEE
shall not be authorized to retain any of the Employer Property, Records and
Files, except to the extent expressly so authorized in writing by the Board.
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X.
NONCOMPETITION AND OTHER MATTERS
10.01 During the Term and for the one year period following the date
of termination of EMPLOYEE'S employment at any time and for any or no reason
(PROVIDED, that such period shall be six months in the event Executive's
employment terminates upon expiration of the Term), EMPLOYEE shall not at any
time in any city, town, county, parish, other municipality in any state of the
United States or Native American territory (the names of each such city, town,
county, parish, other municipality or Native American territory, including,
without limitation, the name of each county in the State of Nevada being
expressly incorporated by reference herein), or any other place in the world,
where the EMPLOYER, or its subsidiaries, affiliates, successors, or assigns,
engages in owning, operating, managing and/or developing land-based or riverboat
casinos or hotels associated or materially competitive with casinos, or any
other business engaged in from time to time by the EMPLOYER or its subsidiaries,
affiliates, successors or assigns in which EMPLOYEE has had significant
authority and responsibility (the "Business"), directly or indirectly, (i)
engage in a competing business for EMPLOYEE'S own account; (ii) enter the employ
of, or render any consulting services to, any entity that competes with the
EMPLOYER, or its subsidiaries, affiliates, successors, or assigns, in the
Business; or (iii) become interested in any such entity in any capacity,
including, without limitation, as an individual, partner, shareholder, officer,
director, principal, agent, trustee or consultant; PROVIDED, HOWEVER, EMPLOYEE
may (A) own, directly or indirectly, solely as a passive investment, securities
of any entity traded on any national securities exchange or market if EMPLOYEE
is not a controlling person of, or a member of a group which controls, such
entity and does not, directly or indirectly, own 5% or more of any class of
securities of such entity and (B) subject to the first sentence of Section 2.04
above, make passive investments in hospitality enterprises not materially
competitive with gaming and/or enterprises which are principally bar/restaurant
enterprises containing no more than 50 gaming positions, PROVIDED, that such
investments shall not materially interfere with the performance of EMPLOYEE'S
duties hereunder.
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(a) Notwithstanding the foregoing, if (i) EMPLOYEE'S
employment is terminated by EMPLOYER other than for Cause or by EMPLOYEE for
Good Reason and (ii) the effective date of such termination as determined
hereunder occurs within the one year period prior to the expiration date of the
Term, the restrictions set forth in this Section 10.01 shall expire upon
expiration of the Term unless EMPLOYER provides written notice to EMPLOYEE not
later than two days after such effective date that it wishes the restrictions of
this Section 10.01 to apply during the Post-Term Restriction Period (as defined
in Section 4.02 above) and pays EMPLOYEE the severance compensation provided for
under Section 4.02(a) and provides the benefits provided for under Section
4.02(b).
(b) If EMPLOYEE'S employment is terminated for any other
reason or under any other circumstances, the provisions of this Section 10.01
shall be effective without regard to Section 10.01(a).
10.02 During the Term and for the two year period immediately
following the date of termination of EMPLOYEE'S employment at any time and for
any or no reason, EMPLOYEE shall not at any time, directly or indirectly,
solicit or induce any officer, director, employee, agent or consultant of the
EMPLOYER or any of its successors, assigns, subsidiaries or, to the best of
EMPLOYEE'S knowledge, affiliates, to terminate his, her or its employment or
other relationship with the EMPLOYER or its successors, assigns, subsidiaries
or, to the best of EMPLOYEE'S knowledge, affiliates, for the purpose of
associating with any competitor of the EMPLOYER or its successors, assigns,
subsidiaries or, to the best of EMPLOYEE'S knowledge, affiliates, or otherwise
encourage any such person or entity to leave or sever his, her or its employment
or other relationship with the EMPLOYER or its successors, assigns, subsidiaries
or, to the best of EMPLOYEE'S knowledge, affiliates, for any other reason.
10.03 During the Term and for the two year period immediately
following the date of termination of EMPLOYEE'S employment at any time and for
any or no reason, EMPLOYEE shall not at any time, directly or indirectly,
solicit or induce (i) any customers or clients of EMPLOYER or its successors,
assigns, subsidiaries or, to the best of EMPLOYEE'S knowledge, affiliates, or
(ii) any vendors, suppliers or consultants then under contract to the EMPLOYER
or
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its successors, assigns, subsidiaries or, to the best of EMPLOYEE'S knowledge,
affiliates, to terminate his, her or its relationship with the EMPLOYER or its
successors, assigns, subsidiaries or, to the best of EMPLOYEE'S knowledge,
affiliates, for the purpose of associating with any competitor of the EMPLOYER
or its successors, assigns, subsidiaries or, to the best of EMPLOYEE'S
knowledge, affiliates, or otherwise encourage such customers or clients, or
vendors, suppliers or consultants then under contract, to terminate his, her or
its relationship with the EMPLOYER or its successors, assigns, subsidiaries or,
to the best of EMPLOYEE'S knowledge, affiliates, for any other reason.
XI.
RIGHTS AND REMEDIES UPON BREACH
If EMPLOYEE breaches any of the provisions of Articles IX or X above
(the "Restrictive Covenants"), the EMPLOYER and its subsidiaries, affiliates,
successors or assigns shall have the rights and remedies set forth below in this
Article XI, each of which shall be independent of the others and severally
enforceable, and each of which shall be in addition to, and not in lieu of, any
other rights or remedies available to the EMPLOYER or its subsidiaries,
affiliates, successors or assigns at law or in equity.
11.01 The right and remedy to have the Restrictive Covenants
specifically enforced by any court of competent jurisdiction by injunctive
decree or otherwise, it being agreed that any breach of the Restrictive
Covenants would cause irreparable injury to the EMPLOYER or its subsidiaries,
affiliates, successors or assigns and that money damages would not provide an
adequate remedy to the EMPLOYER or its subsidiaries, affiliates, successors or
assigns.
11.02 EMPLOYEE acknowledges and agrees that the Restrictive Covenants
are reasonable and valid in geographic and temporal scope and in all other
respects. If any court determines that any of the Restrictive Covenants, or any
part thereof, is invalid or unenforceable, the remainder of the Restrictive
Covenants shall not thereby be affected and shall be given full force and effect
without regard to the invalid portions.
11.03 If any court determines that any of the Restrictive Covenants,
or any part thereof, is unenforceable because of the duration or scope of such
provision, such court shall have the
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power to reduce the duration or scope of such provision, as the case may be (it
being the intent of the parties that any such reduction be limited to the
minimum extent necessary to render such provision enforceable), and, in its
reduced form, such provision shall then be enforceable.
11.04 EMPLOYEE intends to and hereby confers jurisdiction to enforce
the Restrictive Covenants upon the courts of any jurisdiction within the
geographic scope of such covenants. If the courts of any one or more of such
jurisdictions hold the Restrictive Covenants unenforceable by reason of the
breadth of such scope or otherwise, it is the intention of EMPLOYEE that such
determination not bar or in any way affect the right of the EMPLOYER or its
subsidiaries, affiliates, successors or assigns to the relief provided herein in
the courts of any other jurisdiction within the geographic scope of such
covenants, as to breaches of such covenants in such other respective
jurisdictions, such covenants as they relate to each jurisdiction being, for
this purpose, severable into diverse and independent covenants.
XII.
ARBITRATION
Except as necessary for the 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 relating to this Agreement, or any dispute that relates in any
way, in whole or in part, to EMPLOYEE'S employment with the 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 Las Vegas, 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
- 17 -
<PAGE>
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 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 any other state or
federal law.
XIII.
MISCELLANEOUS
13.01 If any action to specifically enforce or enjoin a breach of this
Agreement is necessary, the prevailing party 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.
13.02 This Agreement shall be construed and governed by the laws of
the State of Nevada, without giving effect to conflicts of laws principles
thereof which might refer such interpretations to the laws of a different state
or jurisdiction.
13.03 This Agreement, and all of the terms and conditions hereof,
shall bind the EMPLOYER and its successors and assigns and shall bind the
EMPLOYEE and his heirs, executors and administrators. No transfer or assignment
of this Agreement shall release EMPLOYER from any obligation to EMPLOYEE
hereunder. Neither this Agreement, nor any of EMPLOYER'S rights or obligations
hereunder, may be assigned or otherwise subject to hypothecation by EMPLOYEE.
EMPLOYER may assign the rights and obligations of EMPLOYER hereunder, in whole
or in part, to any of EMPLOYER'S subsidiaries, affiliates or parent
corporations, or to any other successor or assign in connection with the sale of
all or substantially all of HARVEYS' assets or stock or in connection with any
merger, acquisition and/or reorganization.
- 18 -
<PAGE>
13.04 Notices - All notices and other communications under this
Agreement shall be in writing and shall be given by first class mail, certified
or registered with return receipt requested, or by a nationally recognized
overnight delivery service to the respective parties named below:
EMPLOYEE:
John J. McLaughlin
106 Willow Drive
Zephyr Cove, Nevada 89448
Facsimile: 775-588-6348
WITH A COPY TO:
Michael Forman
Klehr, Harrison, Harvey, Branzburg &
Ellers LLP
1401 Walnut Street
Philadelphia, PA 19102
Facsimile: 215-568-3206
EMPLOYER:
HARVEYS CASINO RESORTS
Attn: Corporate Secretary
Highway 50 and Stateline Avenue
Post Office Box 128
Stateline, NV 89449
Facsimile: 775-586-6852
WITH A COPY TO:
Kelvin L. Davis
Colony Capital, Inc.
Suite 1200
1999 Avenue of the Stars
Los Angeles, CA 90067
Facsimile: 310-282-8808
AND TO:
Jonathan Grunzweig
Skadden, Arps, Slate, Meagher & Flom LLP
Suite 3400
300 South Grand Avenue
Los Angeles, CA 90071
Facsimile: 213-687-5600
13.05 Nothing contained in this Agreement shall be construed to
require the commencement of any act contrary to law, and when there is any
conflict between any provision of this Agreement and any statute, law,
ordinance, or regulation, contrary to which the parties
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<PAGE>
have no legal right to contract, then the latter shall prevail; but in such an
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.
13.06 The several rights and remedies provided for in this Agreement
shall be construed as being cumulative, and no one of 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.
13.07 This Agreement supersedes any and all other agreements, either
oral or in writing, between the parties hereto with respect to the employment of
the EMPLOYEE by the EMPLOYER (including, without limitation, the Prior
Agreement, Harveys Change in Control Plan and, insofar as it relates to the
subject matter hereof, but except as provided in Section 13.08, the MOU) and,
together with all other plans, agreements and other documents specifically
referenced herein, contains all of the covenants, conditions and agreements
between the parties with respect to such employment. Annex F hereto sets forth a
list of payments to EMPLOYEE pursuant to the MOU, and EMPLOYEE hereby
acknowledges receipt of all such payments. Each party to this Agreement
acknowledges that no representations, inducements, promises or other agreements,
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 writing and signed by the parties to be charged.
13.08 To the extent applicable, EMPLOYEE shall be entitled to receive
a gross-up payment with respect to payments made hereunder (including under
agreements referenced herein) and under the MOU to account for the payment of
Internal Revenue Code Section 4999 excise taxes as well as taxes imposed on such
gross up payments, as determined pursuant to the procedures set forth in Annex
D, provided, that EMPLOYEE shall reasonably cooperate with EMPLOYER in
structuring such payments and taking such other actions to limit the extent to
- 20 -
<PAGE>
which such payments may be subject to such excise tax, provided that such
restructuring does not cause EMPLOYEE to suffer additional costs or other
adverse consequences. Notwithstanding anything contained to the contrary
contained herein, the provisions of this Section 13.08 and Annex D hereto shall
survive the expiration or termination of this Agreement for any or no reason.
13.09 If EMPLOYEE'S employment with the Company is terminated by the
Company without Cause either (i) as a result of a Change in Control (as defined
in the Award Agreement) or (ii) within the 12 month period immediately preceding
a Change in Control (or such longer period, not to exceed 18 months prior to
such Change in Control, during which significant discussions or other material
action regarding such Change in Control occurred) at the request, directly or
indirectly, of a third party who has taken steps reasonably calculated to effect
a Change in Control or otherwise in connection with, or in anticipation of a
Change in Control, EMPLOYEE shall be entitled to receive, at the effective date
of such termination (or, if payable in respect of clause (ii), within ten
business days following such Change in Control), a lump sum payout at maximum of
the bonus otherwise payable to EMPLOYEE with respect to the then current fiscal
year under the Annual Bonus Plan, such amount pro rated through the effective
date of such termination of employment. The amount provided for in the
immediately preceding sentence shall also be paid if EMPLOYEE'S employment with
the Company is terminated for Good Reason if the grounds constituting Good
Reason occur as the result of a Change in Control or within the stated time
frame at the request, directly or indirectly, of such a third party or otherwise
in connection with, or in anticipation of a Change in Control. If (x) no payment
is made pursuant to either of the two immediately preceding sentences, (y)
following a Change in Control and prior to the effective date of termination of
EMPLOYEE'S employment the Annual Bonus Plan is terminated or amendments are made
that materially adversely affect EMPLOYEE and (z) EMPLOYEE'S employment is not
terminated prior to the end of the fiscal year in which such termination or
amendments occur, then, in lieu of any other amounts payable to EMPLOYEE under
the Annual Bonus Plan with respect to such fiscal year, EMPLOYEE shall receive a
lump sum payout at maximum within sixty (60) days following the termination of
the
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<PAGE>
Annual Bonus Plan or the fiscal year during which any such material amendments
were made. The provisions of this Section 13.09 shall survive the expiration of
the Term, but only to the extent necessary to determine whether a Change in
Control occurs within the 12 to 18 month period described in clause (ii) of the
first sentence of this Section 13.09.
13.10 The section headings contained herein are for reference purposes
only and shall not in any way affect the meaning or interpretation of this
Agreement.
13.11 Unless expressly provided herein or therein, the expiration of
the Term shall not alter or affect any rights or obligations of EMPLOYER or
EMPLOYEE under any other agreement or plan including, without limitation, the
Award Agreement, the Omnibus Plan, the Deferred Compensation Agreement, of even
date herewith, between EMPLOYER and EMPLOYEE, and, to the extent provided under
Section 7.02 above, the Annual Bonus Plan.
- 22 -
<PAGE>
13.12 This Agreement may be executed by the parties hereto in separate
counterparts, each of which when so executed and delivered shall be an original
but all such counterparts together shall constitute one and the same instrument.
DATED this 2nd day of February, 1999.
EMPLOYEE:
/s/ John Mclaughlin
------------------------------------
JOHN J. MCLAUGHLIN
EMPLOYER:
HARVEYS CASINO RESORTS
By: /s/ Charles Scharer
--------------------------------
Name: Charles W. Scharer
Its: President and
Chief Executive Officer
- 23 -
<PAGE>
ANNEX A: 1999 OMNIBUS STOCK
INCENTIVE PLAN
See Exhibit 10.33, 1999 Omnibus Stock Incentive Plan.
<PAGE>
ANNEX B: STOCK OPTION AND RESTRICTED
STOCK AGREEMENT
See Exhibit 10.45, Stock Option and Restricted Stock Agreement dated as
of February 2, 1999 by and between Harveys Casino Resorts and John J.
McLaughlin.
<PAGE>
ANNEX C: STOCKHOLDERS AGREEMENT
See Exhibit 10.34, Stockholders Agreement entered into as of February 2,
1999 by and among Harveys Casino Resorts, Colony HCR Voteco, LLC, Colony
Investors III, L.P. and the securityholders of the Company as identified from
time to time on Schedule A thereto.
<PAGE>
ANNEX D: DETERMINATION OF GROSS-UP PAYMENT
See Exhibit 10.27, Employment Agreement by and between Harveys Casino
Resorts and Charles W. Scharer, Annex D.
<PAGE>
Annex E: Example of the Post-Term Restriction Period and Severance Payments
Applicable in Certain Instances in the Event of Termination by EMPLOYER without
Cause or by EMPLOYEE for GOOD REASON
Suppose that the Term is scheduled expire on February 2, 2004,
and that notice has been provided pursuant to Section 3.01 that there will be no
automatic extension of the Term. Suppose, further, that EMPLOYEE'S employment is
terminated on November 2, 2003, I.E., less than one year prior to the expiration
of the Term. Under Section 4.02(a), on these facts, the amount of EMPLOYEE'S
severance will depend on whether EMPLOYER elects to have the non-competition
restrictions of Section 10.01 apply during the Post-Term Restriction Period.
The length of the Post-Term Restriction Period is measured by
determining the length of time following the scheduled expiration date of the
Term (I.E., February 2, 2004) during which the twelve-month post-termination
non-competition period as set forth in the first paragraph of Section 10.01
would apply if EMPLOYER makes an election so that the provisions of Section
10.01(a), which would otherwise cut off the non-competition period as of the end
of the Term, will not apply. Since EMPLOYEE'S Termination Date, November 2,
2003, is 3 months prior to the scheduled expiration date of the Term, the
Post-Term Restriction Period is (12 minus 3) or 9 months.
Scenario A: The Post-Term Restriction Period Applies
If EMPLOYER elects pursuant to Section 10.01(a) to have the
non-competition period extend through the end of the Post-Term Restriction
Period, EMPLOYEE'S severance is determined under Section 4.02(a), without regard
to Section 4.02(a)(iii). Accordingly, EMPLOYEE'S severance would be equal to the
product of (x) the Applicable Multiplier, which would be (3 + 9) divided by 12,
or 1.0, and (y) the sum of EMPLOYEE'S Base Salary and Annual Bonus as of the
Termination Date. EMPLOYEE would be subject to the restrictions of the first
paragraph of Section 10.01 until November 2, 2004.
Scenario B: The Post-Term Restriction Period Does Not Apply
If EMPLOYER does not elect to have the non-competition period
extend through the end of the Post-Term Restriction Period, EMPLOYEE'S severance
would be determined under Section 4.02(a)(iii). The first part of EMPLOYEE'S
severance would be equal to the product of (x) the Applicable Multiplier, which
would be 3 divided by 12 (or 0.25), and (y) EMPLOYEE'S Base Salary as of the
Termination Date.
The second or bonus portion of EMPLOYEE'S severance would be
determined by the Board following the end of the 2003 fiscal year. The Board
would determine the amount of the Annual Bonus EMPLOYEE would have been entitled
to receive under the Annual Bonus Plan as if EMPLOYEE had remained employed
through the end of the 2003 fiscal year, based on HARVEYS (and, as applicable,
EMPLOYEE'S) actual performance (without proration) during the 2003 fiscal year,
as compared with the bonus targets previously established for such year.
EMPLOYER would then be required to pay such bonus amount to EMPLOYEE at the time
bonuses under the Annual Bonus Plan were paid to participants in the plan
generally. Under this
<PAGE>
arrangement, all other things being equal, EMPLOYEE would receive the same bonus
whether his employment was terminated on June 1, 2003, November 2, 2003 or
January 4, 2004.
However, to avoid unjust enrichment, if EMPLOYEE'S employment
were to be terminated following the date on which bonuses were determined and
paid for fiscal 2003 (say that the bonuses were paid on January 10, 2004 and
EMPLOYEE'S employment was terminated on January 15, 2004), EMPLOYEE would not be
entitled to receive any severance amount in respect of bonus, but would receive
as severance only Base Salary for the 18 day period between January 15, 2004 and
February 2, 2004.
Similar determinations would apply if the Term were
automatically extended for one or more years beyond the fifth anniversary of the
Effective Date, assuming that EMPLOYEE'S employment was terminated within the
one-year period prior to the scheduled expiration of the Term, as so extended.
It is agreed for purposes of Scenario B under this Annex E that bonuses for the
last full fiscal year of the Term will be determined no later than January 31 in
the year in which the Term expires.
<PAGE>
ANNEX F: SCHEDULE OF PAYMENTS UNDER THE MOU
<TABLE>
<CAPTION>
NATURE OF PAYMENT AMOUNT
<S> <C>
- -------------------------------------------------------------------------------------------------------------
Payment in consideration of termination of right to participate in Long $311,195.00
Term Incentive Plan
- -------------------------------------------------------------------------------------------------------------
Prior payment under Management Incentive Plan in respect of fiscal 1998 $179,250.00
- -------------------------------------------------------------------------------------------------------------
Payment in partial consideration of termination of right to participate in $225,000.00
Supplemental Executive Retirement Plan
- -------------------------------------------------------------------------------------------------------------
Advance under Management Incentive Plan in respect of fiscal 1999 $55,625.00
- -------------------------------------------------------------------------------------------------------------
Total: $771,070.00
</TABLE>
<PAGE>
Exhibit 10.30
DEFERRED COMPENSATION AGREEMENT
DEFERRED COMPENSATION AGREEMENT (this "Agreement"), dated as of
February 2, 1999 (the "Effective Date"), by and between Harveys Casino Resorts,
a Nevada corporation (the "Company"), and Charles W. Scharer (the "Executive"),
an employee of the Company or a Subsidiary of the Company.
Prior to the date hereof, Executive has been a participant in the
Company's Supplemental Executive Retirement Plan (the "SERP"). The SERP is a
non-funded retirement arrangement, and Executive has no current right to receive
the value of his accrued benefits under the SERP. In connection with the pending
merger of the Company and Harveys Acquisition Corporation, a Nevada corporation
(the "Merger"), Executive's participation in the SERP will cease, whereupon
one-half of Executive's gross accrued benefits under the SERP will be paid to
him (subject to applicable withholding requirements), and the remaining one-half
of his gross accrued benefits will continue to be deferred pursuant to this
Agreement.
In addition, Executive and the Company have entered into that certain
Stock Option and Restricted Stock Award Agreement (the "Award Agreement"), of
even date herewith, which provides, among other things, for the automatic
deferral pursuant to this Agreement of restricted shares of Class A Common Stock
and restricted shares of Class B Common Stock of the Company (the "Deferred
Shares"), at such time as the value of such restricted shares would otherwise be
includable in Executive's gross income (the "Deferral Date"). Executive and the
Company may also enter into additional agreements ("Additional Award
Agreements") regarding shares of restricted stock (also referred to as "Deferred
Shares") providing for an identical deferral mechanism to that set forth in the
Award Agreement.
1. AMOUNT DEFERRED; DEFERRAL PERIOD. (a) The amount of Executive's
accrued benefits under the SERP to be deferred pursuant to this Agreement is
$699,717.50 (the "Initial Amount").
(b) The number of Deferred Shares to be deferred under this
Agreement shall be as determined under the Award Agreement or the relevant
Additional Award Agreement, as applicable.
(c) The deferral period shall commence on the date hereof with
respect to the Initial Amount and on the Deferral Date with respect to Deferred
<PAGE>
Shares, and shall continue in each case until the occurrence of a Distribution
Event as set forth in Section 5 hereof.
2. DEEMED INVESTMENT IN SHARES OF COMPANY COMMON STOCK. (a) As of the
date hereof, the Initial Amount shall be deemed to be invested in 361.8996
shares of the Class A Common Stock, par value $.01 per share, of the Company,
including fractional shares (the "Deemed Class A SERP Shares") and 36,189.964
shares of the Class B Common Stock, par value $.01 per share, of the Company,
including fractional shares (the "Deemed Class B SERP Shares") (the Deemed Class
A SERP Shares and the Deemed Class B SERP Shares being collectively referred to
herein as the "Deemed SERP Shares"), based on a price of $19.14314156 per share
of Class A Common Stock and $19.14314156 per share of Class B Common Stock (the
Class A Common Stock and the Class B Common Stock being collectively referred to
herein as the "Common Stock").
(b) As of the Deferral Date, the Deferred Shares shall be deemed
to be invested in an identical number of shares of the same class of Company
capital stock as the Deferred Shares themselves (the "Deemed Deferred Shares"
and, together with the Deemed SERP Shares, the "Deemed Shares").
(c) The Company shall establish an unfunded bookkeeping account
(the "Account") to track the number of Deemed Shares held on Executive's behalf.
The Account shall be divided into two sub-accounts, one to track the number of
Deemed SERP Shares (the "SERP Sub-Account"), and the other to track the number
of Deemed Deferred Shares (the "Restricted Stock Sub-Account"). The Account
shall at all times prior to the occurrence of a Distribution Event be unfunded
and Executive's rights under the Account shall be subject to claims of the
general creditors of the Company. The Executive shall have no voting rights and
no rights to receive a distribution of dividends with respect to the Deemed
Shares, except as provided in Section 2(f) below.
(d) The value of the SERP Sub-Account as of any date shall be
equal to the sum of (x) the product of (i) the Fair Market Value (as defined in
Section 4) of one share of Class A Common Stock on such date and (ii) the number
of Deemed Class A Shares under the SERP Sub-Account on such date and (y) the
product of (i) the Fair Market Value of one share of Class B Common Stock on
such date and (ii) the number of Deemed Class B Shares under the SERP
Sub-Account on such date (the "Fair Market Value Formula"); PROVIDED, that in
the event Executive's employment shall be terminated (A) at any time prior to
the fifth
2
<PAGE>
anniversary of the Effective Date by the Executive other than for Good Reason or
(B) at any time by the Company for Cause (each as defined in the Employment
Agreement, of even date herewith, between the Company and the Executive (the
"Employment Agreement") as in effect as of the date hereof or as the same may
be amended from time to time, regardless of the termination of the Employment
Agreement prior to the effective date of Executive's termination of employment),
the value of the SERP Sub-Account as of the date of such valuation shall be
determined as the LESSER of (x) the value of the Deemed SERP Shares as
determined under the Fair Market Value Formula as of such valuation date and (y)
the Initial Amount as increased at the rate of 8% per year, compounded annually,
from the Effective Date through such valuation date.
(e) The value of the Restricted Stock Sub-Account on any date
shall be as determined by applying the Fair Market Value Formula to the Deemed
Deferred Shares; PROVIDED, that from and after the effective date of Executive's
termination of employment by the Company without Cause or by the Executive for
Good Reason, the value of the Restricted Stock Sub-Account shall be determined
as the LESSER of (x) the value of the Deemed Deferred Shares as determined under
the Fair Market Value Formula as of such valuation date and (y) the value of the
Deemed Deferred Shares as of the effective date of such termination as
determined under the Fair Market Formula, as increased at the rate of 12% per
year, compounded annually, from such effective date through such valuation date;
and PROVIDED, further, that from and after the effective date of Executive's
termination of employment for any reason other than by the Company without Cause
or by Executive for Good Reason, including without limitation by reason of
Executive's death or Disability (as defined in the Employment Agreement), the
value of the Restricted Stock Sub-Account shall be determined as the LESSER of
(x) the value of the Deemed Deferred Shares as determined under the Fair Market
Value Formula as of such valuation date and (y) the value of the Deemed Deferred
Shares as of the effective date of such termination as determined under the Fair
Market Value Formula, as increased at the rate of 8% per year, compounded
annually, from such effective date through such valuation date.
(f) On any date prior to a Distribution Event that dividends are
distributed by the Company to its stockholders in respect of the Class A Common
Stock or Class B Common Stock, each Deemed Share credited to the Account shall,
as applicable, be credited with a dividend equivalent, which shall be a dollar
amount equal to the dividends, if any, payable by the Company on such date,
either in cash or property, in respect of a share of such class of Common Stock.
In
3
<PAGE>
the case of dividends payable in property, the amount of the dividend equivalent
shall be based on the fair market value of such property at the time of
distribution of the dividend, as determined in good faith by the Board of
Directors of the Company (the "Board"). The dividend equivalents so credited to
the Account shall be automatically converted as of the dividend distribution
date into Deemed Shares (or fractions thereof) based upon the Fair Market Value
of such Deemed Shares as of such date.
3. ADJUSTMENTS. In the event of any merger, reorganization,
consolidation, recapitalization, stock dividend, stock split or similar change
affecting the Class A or Class B Common Stock, or any other class of shares of
Company capital stock to which the Deemed Shares may from time to time relate,
an equitable substitution or proportionate adjustment shall be made in the kind
and number of Deemed Shares held under the Account as may be determined in good
faith by the Board.
4. FAIR MARKET VALUE. For purposes of this Agreement, "Fair Market
Value" (when capitalized, unless the context clearly indicates otherwise) means,
as of any given date, (A) if the Common Stock is publicly traded, the closing
sale price of the Common Stock on such date (or the nearest preceding date on
which the Common Stock was traded) as reported in the Western Edition of THE
WALL STREET JOURNAL, or (B) if the Common Stock is not publicly traded, the fair
market value of the Common Stock as determined in accordance with the procedures
set forth below, in each case based on the per share value of the Company as a
whole as of the relevant date, without any discount for the sale of a minority
interest and without considering lack of liquidity, including transfer and other
restrictions on the Common Stock:
(a) The Board shall determine the fair market value of the Common
Stock in good faith, using commercially reasonable methods and at the Company's
sole expense, PROVIDED, that if Executive is a member of or non-voting observer
on the Board, Executive shall recuse himself from all deliberations of the Board
regarding such determination, and except as otherwise provided herein shall not
be entitled to receive or be provided access to any minutes or other records of
the Board with respect to such determination. The Board shall communicate the
per share valuation as so determined in writing to Executive within 20 business
days following the date Executive provides written notice of, or the Board shall
otherwise acknowledge, the need to determine the Fair Market Value of the Common
Stock hereunder, and upon Executive's request, the Board shall provide Executive
appropriate supporting documentation regarding the methods, assumptions and
other bases
4
<PAGE>
used in arriving at such valuation. If acceptable to Executive, the fair market
value of the Common Stock shall be as so determined.
(b) If the fair market value as determined under (a) is not
acceptable to Executive, Executive shall determine the fair market value of the
Common Stock in good faith, using commercially reasonable methods and at
Executive's sole expense, and shall communicate the per share valuation as so
determined in writing to the Board within 20 business days following the Board's
communication to Executive of the per share valuation pursuant to (a) above and,
upon the Board's request, Executive shall provide to the Board appropriate
supporting documentation regarding the methods, assumptions and other bases used
in arriving at such valuation. If acceptable to the Board, the fair market value
of the Common Stock shall be as so determined.
(c) If the fair market value as determined under (b) is not
acceptable to the Board, the Board and Executive shall then negotiate in good
faith to agree upon the fair market value of the Common Stock, based on the
valuations under (a) and (b) above.
(d) If the Board and Executive shall be unable by the foregoing
means to agree upon the fair market value of the Common Stock within ten
business days after the Board has been advised of Executive's valuation, the
issue shall then be submitted to binding arbitration in Las Vegas, Nevada
according to the rules and procedures of the American Arbitration Association.
The Company and Executive shall each submit to the arbitrator their valuations
under (a) and (b) above, together with all supporting documentation regarding
the methods, assumptions and other bases used in arriving at such valuation. The
arbitrator shall then be instructed to choose which of the two valuations more
closely reflects the fair market value of the Common Stock, and shall not have
the right to choose a third valuation as the appropriate fair market value of
the Common Stock. The party whose valuation is not so chosen by the arbitrator
shall pay any and all costs and expenses of the arbitration (but not the initial
valuation of the other party), including without limitation reasonable
attorneys' fees and other fees incurred by the prevailing party in such
arbitration. Judgment may be entered on the arbitrator's determination and
award.
5. DISTRIBUTION EVENTS. (a) Upon the occurrence of a Mandatory
Distribution Event (as defined in Section 5(b)), the value of the Account as of
the date of such Mandatory Distribution Event shall be paid in whole to
Executive at the
5
<PAGE>
election of the Company (i) in cash, (ii) in shares of Company capital stock, or
(iii) a combination of cash or shares of Company capital stock, in each case
having a Fair Market Value equal to the value of the Account as of the date of
such Mandatory Distribution Event. Upon the occurrence of a Special Distribution
Event, the Executive shall be distributed shares of Company capital stock having
a Fair Market Value equal to the lesser of the Applicable Value (as defined in
Section 5(c)) and the value of the Account as of the date of such Special
Distribution Event. In addition, at any time on or following the effective date
of Executive's termination of employment, the Company shall have the right, in
its sole and absolute discretion, to distribute the value of the Account, in
whole or in part (a "Permissive Distribution Event" and, together with a
Mandatory Distribution Event and a Special Distribution Event, a "Distribution
Event"), at the election of the Company (i) in cash, (ii) in shares of Company
capital stock, or (iii) a combination of cash or shares of Company capital
stock, in each case having a Fair Market Value equal to the value of the Account
(or portion thereof being distributed) as of the date of such Permissive
Distribution Event, PROVIDED, that after giving effect to the distribution and
the election, the Tax Liability Condition (as defined in Section 5(c)) for the
Permissive Distribution Event would be satisfied with respect thereto. Except as
necessary to satisfy the Tax Liability Condition, the shares distributed in
connection with a Mandatory Distribution Event or a Permissive Distribution
Event need not be Marketable Securities (as defined in Section 5(d)).
(b) The first to occur of the following events shall constitute a
Mandatory Distribution Event:
(i) The earliest date following the closing of an Initial
Public Offering (as such term is defined in Section 6(e)) upon which all
underwriter lock-up arrangements applicable to Executive, if any, shall
have expired; PROVIDED, that after giving effect to the distribution and
the election referred to in Section 5(a), the Tax Liability Condition (as
defined below) for the Mandatory Distribution Event would be satisfied with
respect thereto;
(ii) The occurrence of a Change in Control (as defined under
the Award Agreement); PROVIDED, that after giving effect to the
distribution and the election referred to in Section 5(a) (assuming the
Deemed Shares represented Common Stock for the purposes of this
calculation), the Tax Liability Condition (as defined below) for the
Mandatory Distribution Event would be satisfied with respect thereto; and
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(iii) The last day of the Company's fifteenth fiscal year
commencing after the Effective Date (the "Maximum Deferral Distribution
Event").
A Special Distribution Event shall occur each time that Executive
has the opportunity to sell Restricted Securities (as defined in the
Stockholders Agreement, of even date herewith, among the Company and certain
stockholders (the "Stockholders Agreement"), pursuant to Section 2.5 or 3.1
(under an effective registration statement) of the Stockholders Agreement.
(c) For purposes of this Section 5, (i) the Tax Liability
Condition shall be satisfied if, in respect of any Distribution Event, the sum
of any cash and Marketable Securities represented by the Deemed Shares would
equal or exceed Executive's Tax Liability in respect of such Distribution Event;
and (ii) the Applicable Value shall be the dollar amount obtained by dividing
the maximum income tax rate (federal, state and local) for Executive in the
state and locality of his residence for income tax purposes as determined
pursuant to Section 5(e), including without limitation impositions in respect of
Medicare, into the dollar value of the total consideration which is comprised of
cash and Marketable Securities to which Executive would be entitled to receive
pursuant to the Stockholders Agreement as a result of the Special Distribution
Event.
(d) For purposes of this Section 5, Marketable Securities shall
mean shares of capital stock of or other equity interests in any entity that,
upon distribution to Executive, are freely tradeable by Executive under the
Securities Act of 1933, as amended (the "Securities Act"), and are not subject
to any contractual restrictions or limitations imposed by the Company on the
rights of Executive to sell such shares.
(e) For purposes of this Section 5, Executive's Tax Liability in
respect of any Distribution Event shall mean the product of (i) the maximum
income tax rate (federal, state and local) for Executive in the state and
locality of his residence for income tax purposes, including without limitation
impositions in respect of Medicare and (ii) the amount of income to be
recognized by Executive upon such Distribution Event, in each case as determined
by the Company's independent auditors, a copy of which determination shall be
provided to Executive. For purposes of the immediately preceding sentence, if
Executive shall be subject to income taxation in more than one state, the
maximum rate of taxation for each such state shall be taken into account
proportionately based on the extent to
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which the income so recognized would be treated under applicable law as having
been earned in or otherwise having a relevant nexus with such state for income
tax purposes.
(f) The value of the Account shall be distributed to Executive
within five business days following the occurrence of the Distribution Event or,
if later, within five business days after the final determination of the Fair
Market Value of the Account pursuant to Section 4.
(g) Executive hereby agrees that commencing upon and for the
180-day period following a Mandatory Distribution Event pursuant to clause
(b)(i) above (which Mandatory Distribution Event does not also constitute a
Special Distribution Event), Executive shall not, directly or indirectly, sell,
make any short sale of, loan, hypothecate, pledge, offer, grant or sell any
option or other contract for the purchase of, purchase any option or other
contract for the sale of, or otherwise dispose of or transfer, or agree to
engage in any of the foregoing transactions with respect to, any shares of
Common Stock to be distributed to Executive pursuant to such Distribution Event
other than (a) shares having a Fair Market Value no greater than Executive's Tax
Liability in respect of such Distribution Event and (b) such number of shares as
may be sold by Executive, subject to the volume limitations of Rule 144(e) under
the Securities Act as if Rule 144 applied to such sale and as if Executive were
an affiliate of the Company for such purposes.
6. CALL RIGHTS. (a) In the event all or any portion of the value of
the Account is distributed to the Executive pursuant to Section 5 prior to the
Company's Initial Public Offering in shares of capital stock or other equity
interests of any entity that are not Marketable Securities (the "Illiquid
Distributed Shares"), the Company shall have the right (the "Call"), exercisable
at any time prior to the Company's Initial Public Offering (the "Call Exercise
Period") by giving written notice to the Executive pursuant hereto, to purchase
any or all of the Illiquid Distributed Shares in exchange for an amount in cash
equal to the Fair Market Value of such Illiquid Distributed Shares as of the
date on which such notice is provided (the "Call Price"); PROVIDED, that if
Executive is exercising "tag-along" rights pursuant to Section 2.5 of the
Stockholders Agreement, then until completion of such tag-along offer, the Call
Price shall not be less than the price per share attainable by Executive under
such tag-along offer.
(b) The closing with respect to the exercise of the Call shall
take place at the Company's executive offices within 30 days following the date
the
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Company provides Executive written notice of its intention to exercise the Call
or, if later, within five business days after the final determination of the
Fair Market Value of the Illiquid Distributed Shares pursuant to Section 4.
(c) Notwithstanding any other provision hereof, the Company may
assign, without the consent of the Executive, its rights under this Section 6;
PROVIDED, that no such assignment shall release the Company from its obligations
hereunder.
(d) Notwithstanding anything herein or in the Stockholders
Agreement to the contrary, during the Call Exercise Period the Call shall
continue to apply to the Illiquid Distributed Shares following any transfer
thereof by the Executive under any circumstances, including pursuant to any
arrangement, proceeding, decree, judgment, order or application of law relating
to the division of property for domestic relations purposes.
(e) The Call shall terminate upon the closing of the Company's
Initial Public Offering. For purposes of this Agreement, "Initial Public
Offering" shall mean the closing of a public offering pursuant to an effective
registration statement under the Securities Act covering shares of the Company's
Common Stock, which shares are approved for listing or quotation on the New York
Stock Exchange, American Stock Exchange or Nasdaq National Market.
7. STOCKHOLDERS AGREEMENT. Executive is a party to the Stockholders
Agreement and Executive and the Company agree that any shares of Company capital
stock issuable to Executive under this Agreement shall be subject in all
respects to the Stockholders Agreement, the provisions of which shall be deemed
to be incorporated herein by reference.
8. NOTICES. All notices and other communications under this Agreement
shall be in writing and shall be given by first class mail, certified or
registered with return receipt requested, or by a nationally recognized
overnight delivery service to the respective parties named below:
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If to Company: Harveys Casino Resorts
Highway 50 and Stateline Avenue
P.O. Box 128
Lake Tahoe, Nevada 89449
Attention: Corporate Secretary
Facsimile: 775-586-6811
with a copy to: Colony Capital, Inc.
1999 Avenue of the Stars
Los Angeles, California 90067
Attention: Kelvin L. Davis
Facsimile: 310-282-8808
and a copy to: Skadden, Arps, Slate, Meagher & Flom LLP
300 South Grand Avenue
Los Angeles, California 90071
Attention: Jonathan H. Grunzweig
Facsimile: 213-687-5600
If to the Executive: Charles W. Scharer
P.O. Box 4735
148 Granite Springs Drive
Stateline, Nevada 89449
Facsimile: 775-588-6399
with a copy to: Michael Forman
Klehr, Harrison, Harvey, Branzburg & Ellers LLP
1401 Walnut Street
Philadelphia, Pennsylvania 19102
Facsimile: 215-568-3206
Either party hereto may change such party's address for notices by notice duly
given pursuant hereto.
9. WITHHOLDING REQUIREMENTS. Executive shall, no later than the date
amounts become payable hereunder pursuant to a Distribution Event, pay to the
Company, or make arrangements satisfactory to the Company, including, as
applicable, by means of any cash distributable pursuant to Section 5, regarding
payment of any federal, state, or local taxes or other amounts of any kind
required by law to be
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withheld with respect to such Distribution Event. The obligations of the Company
hereunder shall be conditional on the making of such payments or arrangements,
and the Company shall, to the extent permitted by law, have the right to deduct
any such taxes from any payment of any kind otherwise due to Executive.
10. FAILURE TO ENFORCE NOT A WAIVER. The failure to enforce at any
time any provision of this Agreement shall in no way be construed to be a waiver
of such provision or of any other provision hereof.
11. GOVERNING LAW. This Agreement shall be governed by and construed
according to the laws of the State of Nevada without regard to its principles of
conflict of laws.
12. AMENDMENTS. This Agreement may be amended or modified at any time
only by an instrument in writing signed by each of the parties hereto.
13. AGREEMENT NOT A CONTRACT OF EMPLOYMENT. This Agreement shall not
constitute or be evidence of any agreement or understanding, express or implied,
that the Executive has a right to continue as an employee of the Company or any
Subsidiary or affiliate of the Company for any period of time or at any specific
rate of compensation.
14. DISPUTE RESOLUTION. Any dispute arising under this Agreement shall
be resolved in accordance with the arbitration provisions of the Employment
Agreement as in effect as of the date hereof, or as the same may be amended from
time to time, regardless of the expiration of the Employment Agreement prior to
the resolution of such dispute, and such arbitration provisions shall be deemed
to be incorporated herein by this reference.
15. MARKET STAND-OFF. In connection with any underwritten public
offering by the Company of its equity securities pursuant to an effective
registration statement filed under the Securities Act for such period as the
Company or its underwriters may request (such period not to exceed 180 days
following the date of the applicable offering), the Executive shall not,
directly or indirectly, sell, make any short sale of, loan, hypothecate, pledge,
offer, grant or sell any option or other contract for the purchase of, purchase
any option or other contract for the sale of, or otherwise dispose of or
transfer, or agree to engage in any of the foregoing transactions with respect
to, any shares of Company capital stock acquired under this Agreement without
the prior written consent of the Company or its underwriters,
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PROVIDED, that the Executive shall not be required to be subject to "lock-up"
restrictions that are more restrictive than such restrictions to which any
other Employee Stockholder (as defined in the Stockholders Agreement) having
commensurate job duties and responsibilities in the Company is subject, or that
would prevent the Executive from effectuating a sale pursuant to Section 2.5 of
the Stockholders Agreement or Section 3.1 of the Stockholders Agreement.
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IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement on the day and year first above written.
HARVEYS CASINO RESORTS
By /s/ John J. McLaughlin
----------------------------------
Name: John J. McLaughlin
Title: Chief Financial Officer
/s/ Charles W. Scharer
----------------------------------
CHARLES W. SCHARER
Address: P.O. Box 4735
148 Granite Springs Drive
Stateline, Nevada 89449
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Exhibit 10.31
DEFERRED COMPENSATION AGREEMENT
DEFERRED COMPENSATION AGREEMENT (this "Agreement"), dated as of February 2,
1999 (the "Effective Date"), by and between Harveys Casino Resorts, a Nevada
corporation (the "Company"), and Stephen L. Cavallaro (the "Executive"), an
employee of the Company or a Subsidiary of the Company.
Prior to the date hereof, Executive has been a participant in the Company's
Supplemental Executive Retirement Plan (the "SERP"). The SERP is a non-funded
retirement arrangement, and Executive has no current right to receive the value
of his accrued benefits under the SERP. In connection with the pending merger of
the Company and Harveys Acquisition Corporation, a Nevada corporation (the
"Merger"), Executive's participation in the SERP will cease, whereupon one-half
of Executive's gross accrued benefits under the SERP will be paid to him
(subject to applicable withholding requirements), and the remaining one-half of
his gross accrued benefits will continue to be deferred pursuant to this
Agreement.
In addition, Executive and the Company have entered into that certain Stock
Option and Restricted Stock Award Agreement (the "Award Agreement"), of even
date herewith, which provides, among other things, for the automatic deferral
pursuant to this Agreement of restricted shares of Class A Common Stock and
restricted shares of Class B Common Stock of the Company (the "Deferred
Shares"), at such time as the value of such restricted shares would otherwise be
includable in Executive's gross income (the "Deferral Date"). Executive and the
Company may also enter into additional agreements ("Additional Award
Agreements") regarding shares of restricted stock (also referred to as "Deferred
Shares") providing for an identical deferral mechanism to that set forth in the
Award Agreement.
1. AMOUNT DEFERRED; DEFERRAL PERIOD. (a) The amount of Executive's accrued
benefits under the SERP to be deferred pursuant to this Agreement is $390,939
(the "Initial Amount").
(b) The number of Deferred Shares to be deferred under this Agreement
shall be as determined under the Award Agreement or the relevant Additional
Award Agreement, as applicable.
(c) The deferral period shall commence on the date hereof with respect
to the Initial Amount and on the Deferral Date with respect to Deferred
<PAGE>
Shares, and shall continue in each case until the occurrence of a Distribution
Event as set forth in Section 5 hereof.
2. DEEMED INVESTMENT IN SHARES OF COMPANY COMMON STOCK. (a) As of the date
hereof, the Initial Amount shall be deemed to be invested in 202.1969 shares of
the Class A Common Stock, par value $.01 per share, of the Company, including
fractional shares (the "Deemed Class A SERP Shares") and 20,219.6862 shares of
the Class B Common Stock, par value $.01 per share, of the Company, including
fractional shares (the "Deemed Class B SERP Shares") (the Deemed Class A SERP
Shares and the Deemed Class B SERP Shares being collectively referred to herein
as the "Deemed SERP Shares"), based on a price of $19.14314156 per share of
Class A Common Stock and $19.14314156 per share of Class B Common Stock (the
Class A Common Stock and the Class B Common Stock being collectively referred to
herein as the "Common Stock").
(b) As of the Deferral Date, the Deferred Shares shall be deemed to be
invested in an identical number of shares of the same class of Company capital
stock as the Deferred Shares themselves (the "Deemed Deferred Shares" and,
together with the Deemed SERP Shares, the "Deemed Shares").
(c) The Company shall establish an unfunded bookkeeping account (the
"Account") to track the number of Deemed Shares held on Executive's behalf. The
Account shall be divided into two sub-accounts, one to track the number of
Deemed SERP Shares (the "SERP Sub-Account"), and the other to track the number
of Deemed Deferred Shares (the "Restricted Stock Sub-Account"). The Account
shall at all times prior to the occurrence of a Distribution Event be unfunded
and Executive's rights under the Account shall be subject to claims of the
general creditors of the Company. The Executive shall have no voting rights and
no rights to receive a distribution of dividends with respect to the Deemed
Shares, except as provided in Section 2(f) below.
(d) The value of the SERP Sub-Account as of any date shall be equal to
the sum of (x) the product of (i) the Fair Market Value (as defined in Section
4) of one share of Class A Common Stock on such date and (ii) the number of
Deemed Class A Shares under the SERP Sub-Account on such date and (y) the
product of (i) the Fair Market Value of one share of Class B Common Stock on
such date and (ii) the number of Deemed Class B Shares under the SERP Sub-
Account on such date (the "Fair Market Value Formula"); PROVIDED, that in the
event Executive's employment shall be terminated (A) at any time prior to the
fifth
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anniversary of the Effective Date by the Executive other than for Good
Reason or (B) at any time by the Company for Cause (each as defined in the
Employment Agreement, of even date herewith, between the Company and the
Executive (the "Employment Agreement") as in effect as of the date hereof or as
the same may be amended from time to time, regardless of the termination of the
Employment Agreement prior to the effective date of Executive's termination of
employment), the value of the SERP Sub-Account as of the date of such valuation
shall be determined as the LESSER of (x) the value of the Deemed SERP Shares as
determined under the Fair Market Value Formula as of such valuation date and (y)
the Initial Amount as increased at the rate of 8% per year, compounded annually,
from the Effective Date through such valuation date.
(e) The value of the Restricted Stock Sub-Account on any date shall be
as determined by applying the Fair Market Value Formula to the Deemed Deferred
Shares; PROVIDED, that from and after the effective date of Executive's
termination of employment by the Company without Cause or by the Executive for
Good Reason, the value of the Restricted Stock Sub-Account shall be determined
as the LESSER of (x) the value of the Deemed Deferred Shares as determined under
the Fair Market Value Formula as of such valuation date and (y) the value of the
Deemed Deferred Shares as of the effective date of such termination as
determined under the Fair Market Formula, as increased at the rate of 12% per
year, compounded annually, from such effective date through such valuation date;
and PROVIDED, further, that from and after the effective date of Executive's
termination of employment for any reason other than by the Company without Cause
or by Executive for Good Reason, including without limitation by reason of
Executive's death or Disability (as defined in the Employment Agreement), the
value of the Restricted Stock Sub-Account shall be determined as the LESSER of
(x) the value of the Deemed Deferred Shares as determined under the Fair Market
Value Formula as of such valuation date and (y) the value of the Deemed Deferred
Shares as of the effective date of such termination as determined under the Fair
Market Value Formula, as increased at the rate of 8% per year, compounded
annually, from such effective date through such valuation date.
(f) On any date prior to a Distribution Event that dividends are
distributed by the Company to its stockholders in respect of the Class A Common
Stock or Class B Common Stock, each Deemed Share credited to the Account shall,
as applicable, be credited with a dividend equivalent, which shall be a dollar
amount equal to the dividends, if any, payable by the Company on such date,
either in cash or property, in respect of a share of such class of Common Stock.
In
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<PAGE>
the case of dividends payable in property, the amount of the dividend
equivalent shall be based on the fair market value of such property at the time
of distribution of the dividend, as determined in good faith by the Board of
Directors of the Company (the "Board"). The dividend equivalents so credited to
the Account shall be automatically converted as of the dividend distribution
date into Deemed Shares (or fractions thereof) based upon the Fair Market Value
of such Deemed Shares as of such date.
3. ADJUSTMENTS. In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend, stock split or similar change affecting the
Class A or Class B Common Stock, or any other class of shares of Company capital
stock to which the Deemed Shares may from time to time relate, an equitable
substitution or proportionate adjustment shall be made in the kind and number of
Deemed Shares held under the Account as may be determined in good faith by the
Board.
4. FAIR MARKET VALUE. For purposes of this Agreement, "Fair Market Value"
(when capitalized, unless the context clearly indicates otherwise) means, as of
any given date, (A) if the Common Stock is publicly traded, the closing sale
price of the Common Stock on such date (or the nearest preceding date on which
the Common Stock was traded) as reported in the Western Edition of THE WALL
STREET JOURNAL, or (B) if the Common Stock is not publicly traded, the fair
market value of the Common Stock as determined in accordance with the procedures
set forth below, in each case based on the per share value of the Company as a
whole as of the relevant date, without any discount for the sale of a minority
interest and without considering lack of liquidity, including transfer and other
restrictions on the Common Stock:
(a) The Board shall determine the fair market value of the Common
Stock in good faith, using commercially reasonable methods and at the Company's
sole expense, PROVIDED, that if Executive is a member of or non-voting observer
on the Board, Executive shall recuse himself from all deliberations of the Board
regarding such determination, and except as otherwise provided herein shall not
be entitled to receive or be provided access to any minutes or other records of
the Board with respect to such determination. The Board shall communicate the
per share valuation as so determined in writing to Executive within 20 business
days following the date Executive provides written notice of, or the Board shall
otherwise acknowledge, the need to determine the Fair Market Value of the Common
Stock hereunder, and upon Executive's request, the Board shall provide Executive
appropriate supporting documentation regarding the methods, assumptions and
other bases
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<PAGE>
used in arriving at such valuation. If acceptable to Executive, the fair market
value of the Common Stock shall be as so determined.
(b) If the fair market value as determined under (a) is not acceptable
to Executive, Executive shall determine the fair market value of the Common
Stock in good faith, using commercially reasonable methods and at Executive's
sole expense, and shall communicate the per share valuation as so determined in
writing to the Board within 20 business days following the Board's communication
to Executive of the per share valuation pursuant to (a) above and, upon the
Board's request, Executive shall provide to the Board appropriate supporting
documentation regarding the methods, assumptions and other bases used in
arriving at such valuation. If acceptable to the Board, the fair market value of
the Common Stock shall be as so determined.
(c) If the fair market value as determined under (b) is not acceptable
to the Board, the Board and Executive shall then negotiate in good faith to
agree upon the fair market value of the Common Stock, based on the valuations
under (a) and (b) above.
(d) If the Board and Executive shall be unable by the foregoing means
to agree upon the fair market value of the Common Stock within ten business days
after the Board has been advised of Executive's valuation, the issue shall then
be submitted to binding arbitration in Las Vegas, Nevada according to the rules
and procedures of the American Arbitration Association. The Company and
Executive shall each submit to the arbitrator their valuations under (a) and (b)
above, together with all supporting documentation regarding the methods,
assumptions and other bases used in arriving at such valuation. The arbitrator
shall then be instructed to choose which of the two valuations more closely
reflects the fair market value of the Common Stock, and shall not have the right
to choose a third valuation as the appropriate fair market value of the Common
Stock. The party whose valuation is not so chosen by the arbitrator shall pay
any and all costs and expenses of the arbitration (but not the initial valuation
of the other party), including without limitation reasonable attorneys' fees and
other fees incurred by the prevailing party in such arbitration. Judgment may be
entered on the arbitrator's determination and award.
5. DISTRIBUTION EVENTS. (a) Upon the occurrence of a Mandatory
Distribution Event (as defined in Section 5(b)), the value of the Account as of
the date of such Mandatory Distribution Event shall be paid in whole to
Executive at the
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election of the Company (i) in cash, (ii) in shares of Company capital stock, or
(iii) a combination of cash or shares of Company capital stock, in each case
having a Fair Market Value equal to the value of the Account as of the date of
such Mandatory Distribution Event. Upon the occurrence of a Special Distribution
Event, the Executive shall be distributed shares of Company capital stock having
a Fair Market Value equal to the lesser of the Applicable Value (as defined in
Section 5(c)) and the value of the Account as of the date of such Special
Distribution Event. In addition, at any time on or following the effective date
of Executive's termination of employment, the Company shall have the right, in
its sole and absolute discretion, to distribute the value of the Account, in
whole or in part (a "Permissive Distribution Event" and, together with a
Mandatory Distribution Event and a Special Distribution Event, a "Distribution
Event"), at the election of the Company (i) in cash, (ii) in shares of Company
capital stock, or (iii) a combination of cash or shares of Company capital
stock, in each case having a Fair Market Value equal to the value of the Account
(or portion thereof being distributed) as of the date of such Permissive
Distribution Event, PROVIDED, that after giving effect to the distribution and
the election, the Tax Liability Condition (as defined in Section 5(c)) for the
Permissive Distribution Event would be satisfied with respect thereto. Except as
necessary to satisfy the Tax Liability Condition, the shares distributed in
connection with a Mandatory Distribution Event or a Permissive Distribution
Event need not be Marketable Securities (as defined in Section 5(d)).
(b) The first to occur of the following events shall constitute a
Mandatory Distribution Event:
(i) The earliest date following the closing of an Initial Public
Offering (as such term is defined in Section 6(e)) upon which all
underwriter lock-up arrangements applicable to Executive, if any, shall
have expired; PROVIDED, that after giving effect to the distribution and
the election referred to in Section 5(a), the Tax Liability Condition (as
defined below) for the Mandatory Distribution Event would be satisfied with
respect thereto;
(ii) The occurrence of a Change in Control (as defined under the
Award Agreement); PROVIDED, that after giving effect to the distribution
and the election referred to in Section 5(a) (assuming the Deemed Shares
represented Common Stock for the purposes of this calculation), the Tax
Liability Condition (as defined below) for the Mandatory Distribution Event
would be satisfied with respect thereto; and
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(iii) The last day of the Company's fifteenth fiscal year
commencing after the Effective Date (the "Maximum Deferral Distribution
Event").
A Special Distribution Event shall occur each time that Executive has
the opportunity to sell Restricted Securities (as defined in the Stockholders
Agreement, of even date herewith, among the Company and certain stockholders
(the "Stockholders Agreement"), pursuant to Section 2.5 or 3.1 (under an
effective registration statement) of the Stockholders Agreement.
(c) For purposes of this Section 5, (i) the Tax Liability Condition
shall be satisfied if, in respect of any Distribution Event, the sum of any cash
and Marketable Securities represented by the Deemed Shares would equal or exceed
Executive's Tax Liability in respect of such Distribution Event; and (ii) the
Applicable Value shall be the dollar amount obtained by dividing the maximum
income tax rate (federal, state and local) for Executive in the state and
locality of his residence for income tax purposes as determined pursuant to
Section 5(e), including without limitation impositions in respect of Medicare,
into the dollar value of the total consideration which is comprised of cash and
Marketable Securities to which Executive would be entitled to receive pursuant
to the Stockholders Agreement as a result of the Special Distribution Event.
(d) For purposes of this Section 5, Marketable Securities shall mean
shares of capital stock of or other equity interests in any entity that, upon
distribution to Executive, are freely tradeable by Executive under the
Securities Act of 1933, as amended (the "Securities Act"), and are not subject
to any contractual restrictions or limitations imposed by the Company on the
rights of Executive to sell such shares.
(e) For purposes of this Section 5, Executive's Tax Liability in
respect of any Distribution Event shall mean the product of (i) the maximum
income tax rate (federal, state and local) for Executive in the state and
locality of his residence for income tax purposes, including without limitation
impositions in respect of Medicare and (ii) the amount of income to be
recognized by Executive upon such Distribution Event, in each case as determined
by the Company's independent auditors, a copy of which determination shall be
provided to Executive. For purposes of the immediately preceding sentence, if
Executive shall be subject to income taxation in more than one state, the
maximum rate of taxation for each such state shall be taken into account
proportionately based on the
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extent to which the income so recognized would be treated under applicable law
as having been earned in or otherwise having a relevant nexus with such state
for income tax purposes.
(f) The value of the Account shall be distributed to Executive within
five business days following the occurrence of the Distribution Event or, if
later, within five business days after the final determination of the Fair
Market Value of the Account pursuant to Section 4.
(g) Executive hereby agrees that commencing upon and for the 180-day
period following a Mandatory Distribution Event pursuant to clause (b)(i) above
(which Mandatory Distribution Event does not also constitute a Special
Distribution Event), Executive shall not, directly or indirectly, sell, make any
short sale of, loan, hypothecate, pledge, offer, grant or sell any option or
other contract for the purchase of, purchase any option or other contract for
the sale of, or otherwise dispose of or transfer, or agree to engage in any of
the foregoing transactions with respect to, any shares of Common Stock to be
distributed to Executive pursuant to such Distribution Event other than (a)
shares having a Fair Market Value no greater than Executive's Tax Liability in
respect of such Distribution Event and (b) such number of shares as may be sold
by Executive, subject to the volume limitations of Rule 144(e) under the
Securities Act as if Rule 144 applied to such sale and as if Executive were an
affiliate of the Company for such purposes.
6. CALL RIGHTS. (a) In the event all or any portion of the value of
the Account is distributed to the Executive pursuant to Section 5 prior to the
Company's Initial Public Offering in shares of capital stock or other equity
interests of any entity that are not Marketable Securities (the "Illiquid
Distributed Shares"), the Company shall have the right (the "Call"), exercisable
at any time prior to the Company's Initial Public Offering (the "Call Exercise
Period") by giving written notice to the Executive pursuant hereto, to purchase
any or all of the Illiquid Distributed Shares in exchange for an amount in cash
equal to the Fair Market Value of such Illiquid Distributed Shares as of the
date on which such notice is provided (the "Call Price"); PROVIDED, that if
Executive is exercising "tag-along" rights pursuant to Section 2.5 of the
Stockholders Agreement, then until completion of such tag-along offer, the Call
Price shall not be less than the price per share attainable by Executive under
such tag-along offer.
(b) The closing with respect to the exercise of the Call shall take
place at the Company's executive offices within 30 days following the date the
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Company provides Executive written notice of its intention to exercise the Call
or, if later, within five business days after the final determination of the
Fair Market Value of the Illiquid Distributed Shares pursuant to Section 4.
(c) Notwithstanding any other provision hereof, the Company may
assign, without the consent of the Executive, its rights under this Section 6;
PROVIDED, that no such assignment shall release the Company from its obligations
hereunder.
(d) Notwithstanding anything herein or in the Stockholders Agreement
to the contrary, during the Call Exercise Period the Call shall continue to
apply to the Illiquid Distributed Shares following any transfer thereof by the
Executive under any circumstances, including pursuant to any arrangement,
proceeding, decree, judgment, order or application of law relating to the
division of property for domestic relations purposes.
(e) The Call shall terminate upon the closing of the Company's Initial
Public Offering. For purposes of this Agreement, "Initial Public Offering" shall
mean the closing of a public offering pursuant to an effective registration
statement under the Securities Act covering shares of the Company's Common
Stock, which shares are approved for listing or quotation on the New York Stock
Exchange, American Stock Exchange or Nasdaq National Market.
7. STOCKHOLDERS AGREEMENT. Executive is a party to the Stockholders
Agreement and Executive and the Company agree that any shares of Company capital
stock issuable to Executive under this Agreement shall be subject in all
respects to the Stockholders Agreement, the provisions of which shall be deemed
to be incorporated herein by reference.
8. NOTICES. All notices and other communications under this Agreement shall
be in writing and shall be given by first class mail, certified or registered
with return receipt requested, or by a nationally recognized overnight delivery
service to the respective parties named below:
If to Company: Harveys Casino Resorts
Highway 50 and Stateline Avenue
P.O. Box 128
Lake Tahoe, Nevada 89449
Attention:
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Facsimile: 702-586-6811
with a copy to: Colony Capital, Inc.
1999 Avenue of the Stars
Los Angeles, California 90067
Attention: Kelvin L. Davis
Facsimile: 310-282-8808
and a copy to: Skadden, Arps, Slate, Meagher & Flom LLP
300 South Grand Avenue
Los Angeles, California 90071
Attention: Jonathan H. Grunzweig
Facsimile: 213-687-5600
If to the Executive: Stephen L. Cavallaro
8824 Montagna Drive
Las Vegas, Nevada 89134
Facsimile: 702-363-4461
with a copy to: Michael Forman
Klehr, Harrison, Harvey, Branzburg & Ellers LLP
1401 Walnut Street
Philadelphia, Pennsylvania 19102
Facsimile: 215-568-3206
Either party hereto may change such party's address for notices by notice duly
given pursuant hereto.
9. WITHHOLDING REQUIREMENTS. Executive shall, no later than the date
amounts become payable hereunder pursuant to a Distribution Event, pay to the
Company, or make arrangements satisfactory to the Company, including, as
applicable, by means of any cash distributable pursuant to Section 5, regarding
payment of any federal, state, or local taxes or other amounts of any kind
required by law to be withheld with respect to such Distribution Event. The
obligations of the Company hereunder shall be conditional on the making of such
payments or arrangements, and the Company shall, to the extent permitted by law,
have the right to deduct any such taxes from any payment of any kind otherwise
due to Executive.
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10. FAILURE TO ENFORCE NOT A WAIVER. The failure to enforce at any time any
provision of this Agreement shall in no way be construed to be a waiver of such
provision or of any other provision hereof.
11. GOVERNING LAW. This Agreement shall be governed by and construed
according to the laws of the State of Nevada without regard to its principles of
conflict of laws.
12. AMENDMENTS. This Agreement may be amended or modified at any time only
by an instrument in writing signed by each of the parties hereto.
13. AGREEMENT NOT A CONTRACT OF EMPLOYMENT. This Agreement shall not
constitute or be evidence of any agreement or understanding, express or implied,
that the Executive has a right to continue as an employee of the Company or any
Subsidiary or affiliate of the Company for any period of time or at any specific
rate of compensation.
14. DISPUTE RESOLUTION. Any dispute arising under this Agreement shall be
resolved in accordance with the arbitration provisions of the Employment
Agreement as in effect as of the date hereof, or as the same may be amended from
time to time, regardless of the expiration of the Employment Agreement prior to
the resolution of such dispute, and such arbitration provisions shall be deemed
to be incorporated herein by this reference.
15. MARKET STAND-OFF. In connection with any underwritten public offering
by the Company of its equity securities pursuant to an effective registration
statement filed under the Securities Act for such period as the Company or its
underwriters may request (such period not to exceed 180 days following the date
of the applicable offering), the Executive shall not, directly or indirectly,
sell, make any short sale of, loan, hypothecate, pledge, offer, grant or sell
any option or other contract for the purchase of, purchase any option or other
contract for the sale of, or otherwise dispose of or transfer, or agree to
engage in any of the foregoing transactions with respect to, any shares of
Company capital stock acquired under this Agreement without the prior written
consent of the Company or its underwriters, PROVIDED, that the Executive shall
not be required to be subject to "lock-up" restrictions that are more
restrictive than such restrictions to which any other Employee Stockholder (as
defined in the Stockholders Agreement) having commensurate job duties and
responsibilities in the Company is subject, or that would prevent the Executive
from effectuating a sale pursuant to
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Section 2.5 of the Stockholders Agreement or Section 3.1 of the Stockholders
Agreement.
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IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement on the day and year first above written.
HARVEYS CASINO RESORTS
By: /s/ Charles W. Scharer
-----------------------------------
Name: Charles W. Scharer
Title: President and
Chief Executive Officer
/s/ Stephen L. Cavallaro
--------------------------------------
STEPHEN L. CAVALLARO
Address: 8824 Montagna Drive
Las Vegas, Nevada 89134
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Exhibit 10.32
DEFERRED COMPENSATION AGREEMENT
DEFERRED COMPENSATION AGREEMENT (this "Agreement"), dated as of February 2,
1999 (the "Effective Date"), by and between Harveys Casino Resorts, a Nevada
corporation (the "Company"), and John J. McLaughlin (the "Executive"), an
employee of the Company or a Subsidiary of the Company.
Prior to the date hereof, Executive has been a participant in the Company's
Supplemental Executive Retirement Plan (the "SERP"). The SERP is a non-funded
retirement arrangement, and Executive has no current right to receive the value
of his accrued benefits under the SERP. In connection with the pending merger of
the Company and Harveys Acquisition Corporation, a Nevada corporation (the
"Merger"), Executive's participation in the SERP will cease, whereupon one-half
of Executive's gross accrued benefits under the SERP will be paid to him
(subject to applicable withholding requirements), and the remaining one-half of
his gross accrued benefits will continue to be deferred pursuant to this
Agreement.
In addition, Executive and the Company have entered into that certain Stock
Option and Restricted Stock Award Agreement (the "Award Agreement"), of even
date herewith, which provides, among other things, for the automatic deferral
pursuant to this Agreement of restricted shares of Class A Common Stock and
restricted shares of Class B Common Stock of the Company (the "Deferred
Shares"), at such time as the value of such restricted shares would otherwise be
includable in Executive's gross income (the "Deferral Date"). Executive and the
Company may also enter into additional agreements ("Additional Award
Agreements") regarding shares of restricted stock (also referred to as "Deferred
Shares") providing for an identical deferral mechanism to that set forth in the
Award Agreement.
1. AMOUNT DEFERRED; DEFERRAL PERIOD. (a) The amount of Executive's accrued
benefits under the SERP to be deferred pursuant to this Agreement is $225,000
(the "Initial Amount").
(b) The number of Deferred Shares to be deferred under this Agreement
shall be as determined under the Award Agreement or the relevant Additional
Award Agreement, as applicable.
(c) The deferral period shall commence on the date hereof with respect
to the Initial Amount and on the Deferral Date with respect to Deferred
<PAGE>
Shares, and shall continue in each case until the occurrence of a Distribution
Event as set forth in Section 5 hereof.
2. DEEMED INVESTMENT IN SHARES OF COMPANY COMMON STOCK. (a) As of the date
hereof, the Initial Amount shall be deemed to be invested in 116.3718 shares of
the Class A Common Stock, par value $.01 per share, of the Company, including
fractional shares (the "Deemed Class A SERP Shares") and 11,637.1849 shares of
the Class B Common Stock, par value $.01 per share, of the Company, including
fractional shares (the "Deemed Class B SERP Shares") (the Deemed Class A SERP
Shares and the Deemed Class B SERP Shares being collectively referred to herein
as the "Deemed SERP Shares"), based on a price of $19.14314156 per share of
Class A Common Stock and $19.14314156 per share of Class B Common Stock (the
Class A Common Stock and the Class B Common Stock being collectively referred to
herein as the "Common Stock").
(b) As of the Deferral Date, the Deferred Shares shall be deemed to be
invested in an identical number of shares of the same class of Company capital
stock as the Deferred Shares themselves (the "Deemed Deferred Shares" and,
together with the Deemed SERP Shares, the "Deemed Shares").
(c) The Company shall establish an unfunded bookkeeping account (the
"Account") to track the number of Deemed Shares held on Executive's behalf. The
Account shall be divided into two sub-accounts, one to track the number of
Deemed SERP Shares (the "SERP Sub-Account"), and the other to track the number
of Deemed Deferred Shares (the "Restricted Stock Sub-Account"). The Account
shall at all times prior to the occurrence of a Distribution Event be unfunded
and Executive's rights under the Account shall be subject to claims of the
general creditors of the Company. The Executive shall have no voting rights and
no rights to receive a distribution of dividends with respect to the Deemed
Shares, except as provided in Section 2(f) below.
(d) The value of the SERP Sub-Account as of any date shall be equal to
the sum of (x) the product of (i) the Fair Market Value (as defined in Section
4) of one share of Class A Common Stock on such date and (ii) the number of
Deemed Class A Shares under the SERP Sub-Account on such date and (y) the
product of (i) the Fair Market Value of one share of Class B Common Stock on
such date and (ii) the number of Deemed Class B Shares under the SERP Sub-
Account on such date (the "Fair Market Value Formula"); PROVIDED, that in the
event Executive's employment shall be terminated (A) at any time prior to the
fifth
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anniversary of the Effective Date by the Executive other than for Good Reason or
(B) at any time by the Company for Cause (each as defined in the Employment
Agreement, of even date herewith, between the Company and the Executive (the
"Employment Agreement") as in effect as of the date hereof or as the same may be
amended from time to time, regardless of the termination of the Employment
Agreement prior to the effective date of Executive's termination of employment),
the value of the SERP Sub-Account as of the date of such valuation shall be
determined as the LESSER of (x) the value of the Deemed SERP Shares as
determined under the Fair Market Value Formula as of such valuation date and (y)
the Initial Amount as increased at the rate of 8% per year, compounded annually,
from the Effective Date through such valuation date.
(e) The value of the Restricted Stock Sub-Account on any date
shall be as determined by applying the Fair Market Value Formula to the Deemed
Deferred Shares; PROVIDED, that from and after the effective date of Executive's
termination of employment by the Company without Cause or by the Executive for
Good Reason, the value of the Restricted Stock Sub-Account shall be determined
as the LESSER of (x) the value of the Deemed Deferred Shares as determined under
the Fair Market Value Formula as of such valuation date and (y) the value of the
Deemed Deferred Shares as of the effective date of such termination as
determined under the Fair Market Formula, as increased at the rate of 12% per
year, compounded annually, from such effective date through such valuation date;
and PROVIDED, further, that from and after the effective date of Executive's
termination of employment for any reason other than by the Company without Cause
or by Executive for Good Reason, including without limitation by reason of
Executive's death or Disability (as defined in the Employment Agreement), the
value of the Restricted Stock Sub-Account shall be determined as the LESSER of
(x) the value of the Deemed Deferred Shares as determined under the Fair Market
Value Formula as of such valuation date and (y) the value of the Deemed Deferred
Shares as of the effective date of such termination as determined under the Fair
Market Value Formula, as increased at the rate of 8% per year, compounded
annually, from such effective date through such valuation date.
(f) On any date prior to a Distribution Event that dividends are
distributed by the Company to its stockholders in respect of the Class A Common
Stock or Class B Common Stock, each Deemed Share credited to the Account shall,
as applicable, be credited with a dividend equivalent, which shall be a dollar
amount equal to the dividends, if any, payable by the Company on such date,
either in cash or property, in respect of a share of such class of Common Stock.
In
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the case of dividends payable in property, the amount of the dividend
equivalent shall be based on the fair market value of such property at the time
of distribution of the dividend, as determined in good faith by the Board of
Directors of the Company (the "Board"). The dividend equivalents so credited to
the Account shall be automatically converted as of the dividend distribution
date into Deemed Shares (or fractions thereof) based upon the Fair Market Value
of such Deemed Shares as of such date.
3. ADJUSTMENTS. In the event of any merger, reorganization,
consolidation, recapitalization, stock dividend, stock split or similar change
affecting the Class A or Class B Common Stock, or any other class of shares of
Company capital stock to which the Deemed Shares may from time to time relate,
an equitable substitution or proportionate adjustment shall be made in the kind
and number of Deemed Shares held under the Account as may be determined in good
faith by the Board.
4. FAIR MARKET VALUE. For purposes of this Agreement, "Fair Market
Value" (when capitalized, unless the context clearly indicates otherwise) means,
as of any given date, (A) if the Common Stock is publicly traded, the closing
sale price of the Common Stock on such date (or the nearest preceding date on
which the Common Stock was traded) as reported in the Western Edition of THE
WALL STREET JOURNAL, or (B) if the Common Stock is not publicly traded, the fair
market value of the Common Stock as determined in accordance with the procedures
set forth below, in each case based on the per share value of the Company as a
whole as of the relevant date, without any discount for the sale of a minority
interest and without considering lack of liquidity, including transfer and other
restrictions on the Common Stock:
(a) The Board shall determine the fair market value of the Common
Stock in good faith, using commercially reasonable methods and at the Company's
sole expense, PROVIDED, that if Executive is a member of or non-voting observer
on the Board, Executive shall recuse himself from all deliberations of the Board
regarding such determination, and except as otherwise provided herein shall not
be entitled to receive or be provided access to any minutes or other records of
the Board with respect to such determination. The Board shall communicate the
per share valuation as so determined in writing to Executive within 20 business
days following the date Executive provides written notice of, or the Board shall
otherwise acknowledge, the need to determine the Fair Market Value of the Common
Stock hereunder, and upon Executive's request, the Board shall provide Executive
appropriate supporting documentation regarding the methods, assumptions and
other bases
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<PAGE>
used in arriving at such valuation. If acceptable to Executive, the fair market
value of the Common Stock shall be as so determined.
(b) If the fair market value as determined under (a) is not
acceptable to Executive, Executive shall determine the fair market value of the
Common Stock in good faith, using commercially reasonable methods and at
Executive's sole expense, and shall communicate the per share valuation as so
determined in writing to the Board within 20 business days following the Board's
communication to Executive of the per share valuation pursuant to (a) above and,
upon the Board's request, Executive shall provide to the Board appropriate
supporting documentation regarding the methods, assumptions and other bases
used in arriving at such valuation. If acceptable to the Board, the fair market
value of the Common Stock shall be as so determined.
(c) If the fair market value as determined under (b) is not
acceptable to the Board, the Board and Executive shall then negotiate in good
faith to agree upon the fair market value of the Common Stock, based on the
valuations under (a) and (b) above.
(d) If the Board and Executive shall be unable by the foregoing
means to agree upon the fair market value of the Common Stock within ten
business days after the Board has been advised of Executive's valuation, the
issue shall then be submitted to binding arbitration in Las Vegas, Nevada
according to the rules and procedures of the American Arbitration Association.
The Company and Executive shall each submit to the arbitrator their valuations
under (a) and (b) above, together with all supporting documentation regarding
the methods, assumptions and other bases used in arriving at such valuation. The
arbitrator shall then be instructed to choose which of the two valuations more
closely reflects the fair market value of the Common Stock, and shall not have
the right to choose a third valuation as the appropriate fair market value of
the Common Stock. The party whose valuation is not so chosen by the arbitrator
shall pay any and all costs and expenses of the arbitration (but not the initial
valuation of the other party), including without limitation reasonable
attorneys' fees and other fees incurred by the prevailing party in such
arbitration. Judgment may be entered on the arbitrator's determination and
award.
5. DISTRIBUTION EVENTS. (a) Upon the occurrence of a Mandatory
Distribution Event (as defined in Section 5(b)), the value of the Account as of
the date of such Mandatory Distribution Event shall be paid in whole to
Executive at the
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election of the Company (i) in cash, (ii) in shares of Company capital stock, or
(iii) a combination of cash or shares of Company capital stock, in each case
having a Fair Market Value equal to the value of the Account as of the date of
such Mandatory Distribution Event. Upon the occurrence of a Special Distribution
Event, the Executive shall be distributed shares of Company capital stock having
a Fair Market Value equal to the lesser of the Applicable Value (as defined in
Section 5(c)) and the value of the Account as of the date of such Special
Distribution Event. In addition, at any time on or following the effective date
of Executive's termination of employment, the Company shall have the right, in
its sole and absolute discretion, to distribute the value of the Account, in
whole or in part (a "Permissive Distribution Event" and, together with a
Mandatory Distribution Event and a Special Distribution Event, a "Distribution
Event"), at the election of the Company (i) in cash, (ii) in shares of Company
capital stock, or (iii) a combination of cash or shares of Company capital
stock, in each case having a Fair Market Value equal to the value of the Account
(or portion thereof being distributed) as of the date of such Permissive
Distribution Event, PROVIDED, that after giving effect to the distribution and
the election, the Tax Liability Condition (as defined in Section 5(c)) for the
Permissive Distribution Event would be satisfied with respect thereto. Except as
necessary to satisfy the Tax Liability Condition, the shares distributed in
connection with a Mandatory Distribution Event or a Permissive Distribution
Event need not be Marketable Securities (as defined in Section 5(d)).
(b) The first to occur of the following events shall constitute a
Mandatory Distribution Event:
(i) The earliest date following the closing of an Initial Public
Offering (as such term is defined in Section 6(e)) upon which all
underwriter lock-up arrangements applicable to Executive, if any, shall
have expired; PROVIDED, that after giving effect to the distribution and
the election referred to in Section 5(a), the Tax Liability Condition (as
defined below) for the Mandatory Distribution Event would be satisfied with
respect thereto;
(ii) The occurrence of a Change in Control (as defined under the
Award Agreement); PROVIDED, that after giving effect to the distribution
and the election referred to in Section 5(a) (assuming the Deemed Shares
represented Common Stock for the purposes of this calculation), the Tax
Liability Condition (as defined below) for the Mandatory Distribution Event
would be satisfied with respect thereto; and
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(iii) The last day of the Company's fifteenth fiscal year
commencing after the Effective Date (the "Maximum Deferral Distribution
Event").
A Special Distribution Event shall occur each time that Executive has
the opportunity to sell Restricted Securities (as defined in the Stockholders
Agreement, of even date herewith, among the Company and certain stockholders
(the "Stockholders Agreement"), pursuant to Section 2.5 or 3.1 (under an
effective registration statement) of the Stockholders Agreement.
(c) For purposes of this Section 5, (i) the Tax Liability Condition
shall be satisfied if, in respect of any Distribution Event, the sum of any cash
and Marketable Securities represented by the Deemed Shares would equal or exceed
Executive's Tax Liability in respect of such Distribution Event; and (ii) the
Applicable Value shall be the dollar amount obtained by dividing the maximum
income tax rate (federal, state and local) for Executive in the state and
locality of his residence for income tax purposes as determined pursuant to
Section 5(e), including without limitation impositions in respect of Medicare,
into the dollar value of the total consideration which is comprised of cash and
Marketable Securities to which Executive would be entitled to receive pursuant
to the Stockholders Agreement as a result of the Special Distribution Event.
(d) For purposes of this Section 5, Marketable Securities shall mean
shares of capital stock of or other equity interests in any entity that, upon
distribution to Executive, are freely tradeable by Executive under the
Securities Act of 1933, as amended (the "Securities Act"), and are not subject
to any contractual restrictions or limitations imposed by the Company on the
rights of Executive to sell such shares.
(e) For purposes of this Section 5, Executive's Tax Liability in
respect of any Distribution Event shall mean the product of (i) the maximum
income tax rate (federal, state and local) for Executive in the state and
locality of his residence for income tax purposes, including without limitation
impositions in respect of Medicare and (ii) the amount of income to be
recognized by Executive upon such Distribution Event, in each case as determined
by the Company's independent auditors, a copy of which determination shall be
provided to Executive. For purposes of the immediately preceding sentence, if
Executive shall be subject to income taxation in more than one state, the
maximum rate of taxation for each such state shall be taken into account
proportionately based on the extent to
7
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which the income so recognized would be treated under applicable law as having
been earned in or otherwise having a relevant nexus with such state for income
tax purposes.
(f) The value of the Account shall be distributed to Executive within
five business days following the occurrence of the Distribution Event or, if
later, within five business days after the final determination of the Fair
Market Value of the Account pursuant to Section 4.
(g) Executive hereby agrees that commencing upon and for the 180-day
period following a Mandatory Distribution Event pursuant to clause (b)(i) above
(which Mandatory Distribution Event does not also constitute a Special
Distribution Event), Executive shall not, directly or indirectly, sell, make any
short sale of, loan, hypothecate, pledge, offer, grant or sell any option or
other contract for the purchase of, purchase any option or other contract for
the sale of, or otherwise dispose of or transfer, or agree to engage in any of
the foregoing transactions with respect to, any shares of Common Stock to be
distributed to Executive pursuant to such Distribution Event other than (a)
shares having a Fair Market Value no greater than Executive's Tax Liability in
respect of such Distribution Event and (b) such number of shares as may be sold
by Executive, subject to the volume limitations of Rule 144(e) under the
Securities Act as if Rule 144 applied to such sale and as if Executive were an
affiliate of the Company for such purposes.
6. CALL RIGHTS. (a) In the event all or any portion of the value of the
Account is distributed to the Executive pursuant to Section 5 prior to the
Company's Initial Public Offering in shares of capital stock or other equity
interests of any entity that are not Marketable Securities (the "Illiquid
Distributed Shares"), the Company shall have the right (the "Call"), exercisable
at any time prior to the Company's Initial Public Offering (the "Call Exercise
Period") by giving written notice to the Executive pursuant hereto, to purchase
any or all of the Illiquid Distributed Shares in exchange for an amount in cash
equal to the Fair Market Value of such Illiquid Distributed Shares as of the
date on which such notice is provided (the "Call Price"); PROVIDED, that if
Executive is exercising "tag-along" rights pursuant to Section 2.5 of the
Stockholders Agreement, then until completion of such tag-along offer, the Call
Price shall not be less than the price per share attainable by Executive under
such tag-along offer.
(b) The closing with respect to the exercise of the Call shall take
place at the Company's executive offices within 30 days following the date the
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Company provides Executive written notice of its intention to exercise the Call
or, if later, within five business days after the final determination of the
Fair Market Value of the Illiquid Distributed Shares pursuant to Section 4.
(c) Notwithstanding any other provision hereof, the Company may
assign, without the consent of the Executive, its rights under this Section 6;
PROVIDED, that no such assignment shall release the Company from its obligations
hereunder.
(d) Notwithstanding anything herein or in the Stockholders Agreement
to the contrary, during the Call Exercise Period the Call shall continue to
apply to the Illiquid Distributed Shares following any transfer thereof by the
Executive under any circumstances, including pursuant to any arrangement,
proceeding, decree, judgment, order or application of law relating to the
division of property for domestic relations purposes.
(e) The Call shall terminate upon the closing of the Company's
Initial Public Offering. For purposes of this Agreement, "Initial Public
Offering" shall mean the closing of a public offering pursuant to an effective
registration statement under the Securities Act covering shares of the Company's
Common Stock, which shares are approved for listing or quotation on the New York
Stock Exchange, American Stock Exchange or Nasdaq National Market.
7. STOCKHOLDERS AGREEMENT. Executive is a party to the Stockholders
Agreement and Executive and the Company agree that any shares of Company
capital stock issuable to Executive under this Agreement shall be subject in all
respects to the Stockholders Agreement, the provisions of which shall be deemed
to be incorporated herein by reference.
8. NOTICES. All notices and other communications under this Agreement shall
be in writing and shall be given by first class mail, certified or registered
with return receipt requested, or by a nationally recognized overnight delivery
service to the respective parties named below:
If to Company: Harveys Casino Resorts
Highway 50 and Stateline Avenue
P.O. Box 128
Lake Tahoe, Nevada 89449
Attention: Corporate Secretary
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Facsimile: 775-586-6811
with a copy to: Colony Capital, Inc.
1999 Avenue of the Stars
Los Angeles, California 90067
Attention: Kelvin L. Davis
Facsimile: 310-282-8808
and a copy to: Skadden, Arps, Slate, Meagher & Flom LLP
300 South Grand Avenue
Los Angeles, California 90071
Attention: Jonathan H. Grunzweig
Facsimile: 213-687-5600
If to the Executive: John J. McLaughlin
106 Willow Drive
Zephyr Cove, Nevada 89448
Facsimile: 775-588-0998
with a copy to: Michael Forman
Klehr, Harrison, Harvey, Branzburg & Ellers LLP
1401 Walnut Street
Philadelphia, Pennsylvania 19102
Facsimile: 215-568-3206
Either party hereto may change such party's address for notices by notice duly
given pursuant hereto.
9. WITHHOLDING REQUIREMENTS. Executive shall, no later than the date
amounts become payable hereunder pursuant to a Distribution Event, pay to the
Company, or make arrangements satisfactory to the Company, including, as
applicable, by means of any cash distributable pursuant to Section 5, regarding
payment of any federal, state, or local taxes or other amounts of any kind
required by law to be withheld with respect to such Distribution Event. The
obligations of the Company hereunder shall be conditional on the making of such
payments or arrangements, and the Company shall, to the extent permitted by law,
have the right to deduct any such taxes from any payment of any kind otherwise
due to Executive.
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10. FAILURE TO ENFORCE NOT A WAIVER. The failure to enforce at any
time any provision of this Agreement shall in no way be construed to be a waiver
of such provision or of any other provision hereof.
11. GOVERNING LAW. This Agreement shall be governed by and construed
according to the laws of the State of Nevada without regard to its principles
of conflict of laws.
12. AMENDMENTS. This Agreement may be amended or modified at any time
only by an instrument in writing signed by each of the parties hereto.
13. AGREEMENT NOT A CONTRACT OF EMPLOYMENT. This Agreement shall not
constitute or be evidence of any agreement or understanding, express or implied,
that the Executive has a right to continue as an employee of the Company or any
Subsidiary or affiliate of the Company for any period of time or at any specific
rate of compensation.
14. DISPUTE RESOLUTION. Any dispute arising under this Agreement shall
be resolved in accordance with the arbitration provisions of the Employment
Agreement as in effect as of the date hereof, or as the same may be amended from
time to time, regardless of the expiration of the Employment Agreement prior to
the resolution of such dispute, and such arbitration provisions shall be deemed
to be incorporated herein by this reference.
15. MARKET STAND-OFF. In connection with any underwritten public
offering by the Company of its equity securities pursuant to an effective
registration statement filed under the Securities Act for such period as the
Company or its underwriters may request (such period not to exceed 180 days
following the date of the applicable offering), the Executive shall not,
directly or indirectly, sell, make any short sale of, loan, hypothecate, pledge,
offer, grant or sell any option or other contract for the purchase of, purchase
any option or other contract for the sale of, or otherwise dispose of or
transfer, or agree to engage in any of the foregoing transactions with respect
to, any shares of Company capital stock acquired under this Agreement without
the prior written consent of the Company or its underwriters, PROVIDED, that the
Executive shall not be required to be subject to "lock-up" restrictions that
are more restrictive than such restrictions to which any other Employee
Stockholder (as defined in the Stockholders Agreement) having commensurate job
duties and responsibilities in the Company is subject, or that would prevent the
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Executive from effectuating a sale pursuant to Section 2.5 of the Stockholders
Agreement or Section 3.1 of the Stockholders Agreement.
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IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement on the day and year first above written.
HARVEYS CASINO RESORTS
By: /s/ Charles W. Scharer
--------------------------------
Name: Charles W. Scharer
Title: President and
Chief Executive Officer
/s/ John J. McLaughlin
-------------------------------------
JOHN J. McLAUGHLIN
Address: 106 Willow Drive
Zephyr Cove, Nevada 89448
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Exhibit 10.33
HARVEYS CASINO RESORTS
1999 OMNIBUS STOCK INCENTIVE PLAN
SECTION 1. GENERAL PURPOSE OF PLAN; DEFINITIONS.
The name of this plan is the Harveys Casino Resorts 1999 Omnibus Stock
Incentive Plan (the "Plan"). The Plan was adopted by the Board on February 2,
1999, subject to the approval of the stockholders of the Company, which approval
was obtained on the same date, and subject to and effective upon the closing of
the Merger. The purpose of the Plan is to enable the Company to attract and
retain highly qualified personnel who will contribute to the Company's success
by their ability, ingenuity and industry and to provide incentives to the
participating officers, directors, employees, consultants and advisors that are
linked directly to increases in stockholder value and will therefore inure to
the benefit of all stockholders of the Company.
For purposes of the Plan, the following terms shall be defined as set
forth below:
(1) "ADMINISTRATOR" means the Board, or if and to the extent the Board
does not administer the Plan, the Committee in accordance with Section 2.
(2) "BOARD" means the Board of Directors of the Company.
(3) "CLASS A COMMON STOCK" means the Class A common stock, par value
$.01 per share, of the Company.
(4) "CLASS B COMMON STOCK" means the Class B common stock, par value
$.01 per share, of the Company.
(5) "CODE" means the Internal Revenue Code of 1986, as amended from
time to time, or any successor thereto.
(6) "COMMITTEE" means the Compensation and Stock Option Committee of
the Board or any committee the Board may subsequently appoint to administer the
Plan. To the extent applicable, the Committee shall be composed
<PAGE>
entirely of individuals who meet the qualifications referred to in Section
162(m) of the Code and Rule 16b-3 under the Securities Exchange Act of 1934, as
amended. If at any time or to any extent the Board shall not administer the
Plan, then the functions of the Board specified in the Plan shall be exercised
by the Committee.
(7) "COMPANY" means Harveys Casino Resorts, a Nevada corporation (or
any successor corporation).
(8) "DEFERRED STOCK" means an award made pursuant to Section 7 below
of the right to receive Stock at the end of a specified deferral period.
(9) "DISABILITY" means any physical or mental disability that prevents
a Participant from performing one or more of the essential functions of his
position for a period of ninety days or more in any 12-month period and/or which
is expected to be of permanent duration; provided that if such term is otherwise
defined in any employment agreement to which the Participant and the Company are
party, such other definition shall prevail.
(10) "EFFECTIVE DATE" means the date set forth in Section 11.
(11) "ELIGIBLE RECIPIENT" means an officer, director, employee,
consultant or advisor of the Company or any Subsidiary.
(12) "FAIR MARKET VALUE" means, as of any given date, with respect to
any awards granted hereunder, (A) if the Stock is publicly traded, the closing
sale price of the Stock on such date as reported in the Western Edition of the
WALL STREET JOURNAL, or (B) if the Stock is not publicly traded, then except to
the extent alternate provision is made in the individual award agreement
evidencing any award hereun der, the fair market value of the Stock as
determined in good faith by the Board of Directors based on the advice of one of
the nationally recognized investment bank, valuation or accounting firms listed
on Appendix A, which is attached hereto, and such firm shall determine the fair
market value of the Stock based upon the per share value of the Company as a
whole, without any discount for sale of a minority interest and without
considering lack of liquidity of the Stock, including without limitation by
reason of transfer and other restrictions on the Stock.
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(13) "INCENTIVE STOCK OPTION" means any Stock Option intended to be
designated as an "incentive stock option" within the meaning of Section 422 of
the Code.
(14) "LIMITED STOCK APPRECIATION RIGHT" means a Stock Appreciation
Right that can be exercised only in the event of a "Change in Control" (as
defined in the award evidencing such Limited Stock Appreciation Right).
(15) "MERGER" means the merger of Harveys Acquisition Corporation, a
Nevada corporation ("Acq Corp."), with and into the Company, which was
consummated on February 2, 1999, pursuant to that certain Agreement and Plan of
Merger, dated as of February 1, 1998 between Acq Corp and the Company.
(16) "NON-QUALIFIED STOCK OPTION" means any Stock Option that is not
an Incentive Stock Option, including any Stock Option that provides (as of the
time such option is granted) that it will not be treated as an Incentive Stock
Option.
(17) "PARENT CORPORATION" means, with respect to any Person, any other
Person which owns, directly or indirectly, a majority of the voting capital
stock or is a general partner or otherwise has the power to control, by
agreement or otherwise, the management and general business affairs of the
referenced Person.
(18) "PARTICIPANT" means any Eligible Recipient selected by the
Administrator, pursuant to the Administrator's authority in Section 2 below, to
receive grants of Stock Options, Stock Appreciation Rights, Limited Stock
Apprecia tion Rights, Restricted Stock awards, Deferred Stock awards,
Performance Share awards or any combination of the foregoing.
(19) "PERFORMANCE SHARES" means an award of shares of Stock pursuant
to Section 7 that is subject to restrictions based upon the attainment of
specified performance objectives.
(20) "PERSON" means an individual, partnership, limited liability
company, joint venture, corporation, trust or unincorporated organization or any
other similar entity.
(21) "RESTRICTED STOCK" means an award granted pursuant to Section 7
of shares of Stock subject to certain restrictions.
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(22) "STOCK" means the Class A Common Stock and/or the Class B Common
Stock.
(23) "STOCK APPRECIATION RIGHT" means the right pursuant to an award
granted under Section 6 to receive an amount equal to the excess, if any, of (A)
the Fair Market Value, as of the date such Stock Appreciation Right or portion
thereof is surrendered, of the shares of Stock covered by such right or such
portion thereof, over (B) the aggregate exercise price of such right or such
portion thereof.
(24) "STOCK OPTION" means any option to purchase shares of Stock
granted pursuant to Section 5.
(25) "SUBSIDIARY" means, with respect to any Person, all other Persons
of which such Person owns, directly or indirectly, a majority of the voting
capital stock or is a general partner or otherwise has the power to control, by
agreement or otherwise, the management and general business affairs of such
other Person.
SECTION 2. ADMINISTRATION.
The Plan shall be administered in accordance with the requirements of
Section 162(m) of the Code (but only to the extent necessary to maintain
qualification of awards under the Plan under Section 162(m) of the Code) and,
to the extent applicable, Rule 16b-3 under the Securities Exchange Act of 1934,
as amended ("Rule 16b-3"), by the Board or, at the Board's sole discretion, by
the Committee, which shall be appointed by the Board and which shall serve at
the pleasure of the Board.
Pursuant to the terms of the Plan, the Administrator shall have the
power and authority to grant to Eligible Recipients pursuant to the terms of the
Plan: (a) Stock Options, (b) Stock Appreciation Rights or Limited Stock
Appreciation Rights, (c) Restricted Stock, (d) Performance Shares, (e) Deferred
Stock or (f) any combination of the foregoing.
In particular, the Administrator shall have the authority:
(a) to select those Eligible Recipients who shall be
Participants;
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(b) to determine whether and to what extent Stock Options, Stock
Appreciation Rights, Limited Stock Appreciation Rights, Restricted Stock,
Deferred Stock, Performance Shares or a combination of the foregoing, are to be
granted hereunder to Participants, and whether such awards shall relate to
shares of Class A Common Stock or shares of Class B Common Stock, or both;
(c) to determine the number of shares of Stock to be covered by
each such award granted hereunder;
(d) to determine the terms and conditions, not inconsistent with
the terms of the Plan, of any award granted hereunder (including, but not
limited to, (x) the restrictions applicable to Restricted Stock or Deferred
Stock awards and the conditions under which restrictions applicable to such
Restricted Stock or Deferred Stock shall lapse, and (y) the performance goals
and periods applicable to the award of Performance Shares); and
(e) to determine the terms and conditions, not inconsistent with
the terms of the Plan, which shall govern all written instruments evidencing the
Stock Options, Stock Appreciation Rights, Limited Stock Appreciation Rights,
Restricted Stock, Deferred Stock, Performance Shares or any combination of the
foregoing granted hereunder to Participants.
The Administrator shall have the authority, in its discretion, to
adopt, alter and repeal such administrative rules, guidelines and practices
governing the Plan as it shall from time to time deem advisable; to interpret
the terms and provisions of the Plan and any award issued under the Plan (and
any agreements relating thereto); and to otherwise supervise the administration
of the Plan. Notwithstanding the foregoing, the Administrator may not amend the
terms of any grant once made to an Eligible Participant without the written
consent of such Eligible Participant.
All decisions made by the Administrator pursuant to the provisions of
the Plan shall be final, conclusive and binding on all persons, including the
Company and the Participants.
SECTION 3. STOCK SUBJECT TO PLAN.
The total number of shares of Class A Common Stock reserved and
available for issuance under the Plan shall be 2,000, and the total number of
shares
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<PAGE>
of Class B Common Stock reserved and available for issuance under the
Plan shall be 200,000. Such shares may consist, in whole or in part, of
authorized and unissued shares or treasury shares. The aggregate number of
shares of Stock as to which Stock Options, Stock Appreciation Rights, Restricted
Stock and Performance Shares may be granted to any individual during any
calendar year may not, subject to adjustment as provided in this Section 3,
exceed 80% of the shares of Stock reserved for the purposes of the Plan in
accordance with the provisions of this Section 3.
Consistent with the provisions of Section 162(m) of the Code, as from
time to time applicable, to the extent that (i) a Stock Option expires or is
otherwise terminated without being exercised, or (ii) any shares of Stock
subject to any Restricted Stock, Deferred Stock or Performance Share award
granted hereunder are forfeited, such shares shall again be available for
issuance in connection with future awards under the Plan. If any shares of Stock
have been pledged as collateral for indebtedness incurred by a Participant in
connection with the exercise of a Stock Option and such shares are returned to
the Company in satisfaction of such indebtedness, such shares shall again be
available for issuance in connection with future awards under the Plan.
In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend or other change in corporate structure
affecting the Stock, an equitable substitution or proportionate adjustment shall
be made in (i) the aggregate number of shares reserved for issuance under the
Plan, (ii) the kind, number and option price of shares subject to outstanding
Stock Options granted under the Plan, and (iii) the kind, number and purchase
price of shares issuable pursuant to awards of Restricted Stock, Deferred Stock
and Performance Shares, in each case as may be determined by the Administrator,
in good faith. Such other substitutions or adjustments shall be made as may be
determined by the Administrator, in its sole discretion. An adjusted option
price shall also be used to determine the amount payable by the Company upon the
exercise of any Stock Appreciation Right or Limited Stock Appreciation Right
related to any Stock Option. In connection with any event described in this
paragraph, the Administrator may provide, in its good faith discretion, for the
cancellation of any outstanding awards and payment of an equitable amount in
cash or securities therefor.
SECTION 4. ELIGIBILITY.
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Officers, directors and employees of the Company or any Subsidiary,
and consultants and advisors to the Company or any Subsidiary, who are
responsible for or are in a position to contribute to the management, growth
and/or profitability of the business of the Company shall be eligible to be
granted Stock Options, Stock Appreciation Rights, Limited Stock Appreciation
Rights, Restricted Stock awards, Deferred Stock awards or Performance Shares
hereunder. The Participants under the Plan shall be selected from time to time
by the Administrator, in its sole discretion, from among the Eligible Recipients
recommended by the senior management of the Company, and the Administrator shall
determine, in its sole discretion, the number of shares of Stock covered by each
award, and whether such award shall relate to shares of Class A Common Stock or
shares of Class B Common Stock, or both.
SECTION 5. STOCK OPTIONS.
Stock Options may be granted alone or in addition to other awards
granted under the Plan. Any Stock Option granted under the Plan shall be in such
form as the Administrator may from time to time approve, and the provisions of
Stock Option awards need not be the same with respect to each optionee. Recipi
ents of Stock Options shall enter into a subscription and/or award agreement
with the Company, in such form as the Administrator shall determine, which
agreement shall set forth, among other things, the exercise price of the option,
the term of the option and provisions regarding exercisability of the option
granted thereunder.
The Stock Options granted under the Plan may be of two types: (i)
Incentive Stock Options and (ii) Non-Qualified Stock Options.
The Administrator shall have the authority to grant any officer or
employee of the Company (including directors who are also officers of the
Company) Incentive Stock Options, Non-Qualified Stock Options, or both types of
Stock Options (in each case with or without Stock Appreciation Rights or Limited
Stock Appreciation Rights). Directors who are not officers of the Company,
consultants and advisors may only be granted Non-Qualified Stock Options (with
or without Stock Appreciation Rights or Limited Stock Appreciation Rights). To
the extent that any Stock Option does not qualify as an Incentive Stock Option,
it shall constitute a separate Non-Qualified Stock Option. More than one option
may be granted to the same optionee and be outstanding concurrently hereunder.
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Stock Options granted under the Plan shall be subject to the follow
ing terms and conditions and shall contain such additional terms and conditions,
not inconsistent with the terms of the Plan, as the Administrator shall deem
desirable:
(1) OPTION PRICE. The option price per share of Stock purchasable
under a Stock Option shall be determined by the Administrator in its sole
discretion at the time of grant but shall not, in the case of Incentive Stock
Options, be less than 100% of the Fair Market Value of the Stock on such date
and shall not, in any event, be less than the par value (if any) of the
Stock. If an employee owns or is deemed to own (by reason of the attribution
rules applicable under Section 424(d) of the Code) more than 10% of the
combined voting power of all classes of stock of the Company or any Parent
Corporation and an Incentive Stock Option is granted to such employee, the
option price of such Incentive Stock Option (to the extent required by the
Code at the time of grant) shall be no less than 110% of the Fair Market
Value of the Stock on the date such Incentive Stock Option is granted.
(2) OPTION TERM. The term of each Stock Option shall be fixed by the
Administrator, but no Stock Option shall be exercisable more than ten years
after the date such Stock Option is granted; PROVIDED, HOWEVER, that if an
employee owns or is deemed to own (by reason of the attribution rules of Section
424(d) of the Code) more than 10% of the combined voting power of all classes of
stock of the Company or any Parent Corporation and an Incentive Stock Option is
granted to such employee, the term of such Incentive Stock Option (to the extent
required by the Code at the time of grant) shall be no more than five years from
the date of grant.
(3) EXERCISABILITY. Stock Options shall be exercisable at such time or
times and subject to such terms and conditions as shall be determined by the
Administrator at grant. The Administrator may provide at the time of grant, in
its discretion, that any Stock Option shall be exercisable only in installments,
and the Administrator may waive such installment exercise provisions at any time
in whole or in part based on such factors as the Administrator may determine, in
its sole discretion, including but not limited to in connection with any "change
in control" of the Company, as defined in any stock option agreement.
(4) METHOD OF EXERCISE. Subject to Section 5(3) above, Stock Options
may be exercised in whole or in part at any time during the option period, by
giving written notice of exercise to the Company specifying the number of
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<PAGE>
shares to be purchased, accompanied by payment in full of the purchase price in
cash or its equivalent, as determined by the Administrator. As determined by the
Administrator, in its sole discretion, payment in whole or in part may also be
made (i) by means of any cashless exercise procedure approved by the
Administrator, (ii) in the form of unrestricted Stock already owned by the
optionee or (iii) in the case of the exercise of a Non-Qualified Stock Option,
in the form of Restricted Stock or Performance Shares subject to an award
hereunder (based, in each case, on the Fair Market Value of the Stock on the
date the option is exercised); PROVIDED, HOWEVER, that in the case of an
Incentive Stock Option, the right to make payment in the form of already owned
shares may be authorized only at the time of grant. If payment of the option
exercise price of a Non-Qualified Stock Option is made in whole or in part in
the form of Restricted Stock or Performance Shares, the shares received upon the
exercise of such Stock Option shall be restricted in accordance with the
original terms of the Restricted Stock or Performance Share award in question,
except that the Administrator may direct that such restrictions shall apply only
to that number of shares equal to the number of shares surrendered upon the
exercise of such option. An optionee shall generally have the rights to
dividends and any other rights of a stockholder with respect to the Stock
subject to the Stock Option only after the optionee has given written notice of
exercise, has paid in full for such shares, and, if requested, has given the
representation described in paragraph (1) of Section 10.
The Administrator may require the surrender of all or a portion of any
Stock Option granted under the Plan as a condition precedent to the grant of a
new Stock Option. Subject to the provisions of the Plan, such new Stock Option
shall be exercisable at the price, during such period and on such other terms
and conditions as are specified by the Administrator at the time the new Stock
Option is granted. Consistent with the provisions of Section 162(m), to the
extent applicable, upon their surrender, Stock Options shall be canceled and the
shares previously subject to such canceled Stock Options shall again be
available for grants of Stock Options and other awards hereunder.
(5) LOANS. The Company may make loans available to Stock Option
holders in connection with the exercise of outstanding options granted under the
Plan, as the Administrator, in its discretion, may determine. Such loans shall
(i) be evidenced by promissory notes entered into by the Stock Option holders in
favor of the Company, (ii) be subject to the terms and conditions set forth in
this Section 5(5) and such other terms and conditions, not inconsistent with the
Plan, as the Administrator shall determine, (iii) bear interest, if any, at such
rate as the
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Administrator shall determine, and (iv) be subject to Board approval (or to
approval by the Administrator to the extent the Board may delegate such author
ity). In no event may the principal amount of any such loan exceed the sum of
(x) the exercise price less the par value (if any) of the shares of Stock
covered by the option, or portion thereof, exercised by the holder, and (y) any
federal, state, and local income tax attributable to such exercise. The initial
term of the loan, the schedule of payments of principal and interest under the
loan, the extent to which the loan is to be with or without recourse against the
holder with respect to principal or interest and the conditions upon which the
loan will become payable in the event of the holder's termination of employment
shall be determined by the Administrator. Unless the Administrator determines
otherwise, when a loan is made, shares of Stock having a Fair Market Value at
least equal to the principal amount of the loan shall be pledged by the holder
to the Company as security for payment of the unpaid balance of the loan, and
such pledge shall be evidenced by a pledge agreement, the terms of which shall
be determined by the Administrator, in its discretion; PROVIDED, HOWEVER, that
each loan shall comply with all applicable laws, regulations and rules of the
Board of Governors of the Federal Reserve System and any other governmental
agency having jurisdiction.
(6) NON-TRANSFERABILITY OF OPTIONS. Except under the laws of descent
and distribution, unless otherwise determined by the Administrator, the optionee
shall not be permitted to sell, transfer, pledge or assign any Stock Option, and
all Stock Options shall be exercisable, during the optionee's lifetime, only by
the optionee; PROVIDED, HOWEVER, that the optionee shall be permitted to
transfer one or more Stock Options to a trust controlled by the optionee during
the optionee's lifetime for estate planning purposes.
(7) TERMINATION OF EMPLOYMENT OR SERVICE. If an optionee's employment
with or service as a director, consultant or advisor to the Company terminates
by reason of death, Disability or for any other reason, the Stock Option may
thereafter be exercised to the extent provided in the applicable subscription or
award agreement, or as otherwise determined by the Administrator.
(8) ANNUAL LIMIT ON INCENTIVE STOCK OPTIONS. To the extent
that the aggregate Fair Market Value (determined as of the date the Incentive
Stock Option is granted) of shares of Stock with respect to which Incentive
Stock Options granted to an Optionee under this Plan and all other option plans
of the Company or its Parent Corporation become exercisable for the first time
by the Optionee
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during any calendar year exceeds $100,000, such Stock Options shall be treated
as Non-Qualified Stock Options.
SECTION 6. STOCK APPRECIATION RIGHTS AND LIMITED STOCK APPRECIATION RIGHTS.
(1) GRANT AND EXERCISE. Stock Appreciation Rights and Limited Stock
Appreciation Rights may be granted either alone ("Free Standing Rights") or in
conjunction with all or part of any Stock Option granted under the Plan
("Related Rights"). In the case of a Non-Qualified Stock Option, Related Rights
may be granted either at or after the time of the grant of such Stock Option.
In the case of an Incentive Stock Option, Related Rights may be granted only at
the time of the grant of the Incentive Stock Option.
A Related Right or applicable portion thereof granted in conjunction
with a given Stock Option shall terminate and no longer be exercisable upon the
termination or exercise of the related Stock Option, except that, unless
otherwise provided by the Administrator at the time of grant, a Related Right
granted with respect to less than the full number of shares covered by a related
Stock Option shall only be reduced if and to the extent that the number of
shares covered by the exercise or termination of the related Stock Option
exceeds the number of shares not covered by the Related Right.
A Related Right may be exercised by an optionee, in accordance with
paragraph (2) of this Section 6, by surrendering the applicable portion of the
related Stock Option. Upon such exercise and surrender, the optionee shall be
entitled to receive an amount determined in the manner prescribed in paragraph
(2) of this Section 6. Stock Options which have been so surrendered, in whole or
in part, shall no longer be exercisable to the extent the Related Rights have
been so exercised.
(2) TERMS AND CONDITIONS. Stock Appreciation Rights shall be subject
to such terms and conditions, not inconsistent with the provisions of the Plan,
as shall be determined from time to time by the Administrator, including the
following:
(a) Stock Appreciation Rights that are Related Rights ("Related
Stock Appreciation Rights") shall be exercisable only at such time or times and
to the extent that the Stock Options to which they relate shall be exercisable
in accordance with the provisions of Section 5 and this Section 6 of the Plan;
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PROVIDED, HOWEVER, that no Related Stock Appreciation Right shall be exercisable
during the first six months of its term, except that this additional limitation
shall not apply in the event of death or Disability of the optionee prior to the
expiration of such six-month period.
(b) Upon the exercise of a Related Stock Appreciation Right, an
optionee shall be entitled to receive up to, but not more than, an amount in
cash or that number of shares of Stock (or in some combination of cash and
shares of Stock) equal in value to the excess of the Fair Market Value of one
share of Stock as of the date of exercise over the option price per share
specified in the related Stock Option multiplied by the number of shares of
Stock in respect of which the Related Stock Appreciation Right is being
exercised, with the Administrator having the right to determine the form of
payment.
(c) Related Stock Appreciation Rights shall be transferable only
when and to the extent that the underlying Stock Option would be transferable
under paragraph (6) of Section 5 of the Plan.
(d) Upon the exercise of a Related Stock Appreciation Right, the
Stock Option or part thereof to which such Related Stock Appreciation Right is
related shall be deemed to have been exercised for the purpose of the limitation
set forth in Section 3 of the Plan on the number of shares of Stock to be issued
under the Plan, but only to the extent of the number of shares issued under the
Related Stock Appreciation Right.
(e) A Related Stock Appreciation Right granted in connection
with an Incentive Stock Option may be exercised only if and when the Fair Market
Value of the Stock subject to the Incentive Stock Option exceeds the exercise
price of such Stock Option.
(f) Stock Appreciation Rights that are Free Standing Rights
("Free Standing Stock Appreciation Rights") shall be exercisable at such time or
times and subject to such terms and conditions as shall be determined by the
Administrator at or after grant; PROVIDED, HOWEVER, that no Free Standing Stock
Appreciation Right shall be exercisable during the first six months of its term,
except that this limitation shall not apply in the event of death or Disability
of the recipient of the Free Standing Stock Appreciation Right prior to the
expiration of such six-month period.
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(g) The term of each Free Standing Stock Appreciation Right shall
be fixed by the Administrator, but no Free Standing Stock Appreciation Right
shall be exercisable more than ten years after the date such right is granted.
(h) Upon the exercise of a Free Standing Stock Appreciation
Right, a recipient shall be entitled to receive up to, but not more than, an
amount in cash or that number of shares of Stock (or any combination of cash or
shares of Stock) equal in value to the excess of the Fair Market Value of one
share of Stock as of the date of exercise over the price per share specified in
the Free Standing Stock Appreciation Right (which price shall be no less than
100% of the Fair Market Value of the Stock on the date of grant) multiplied by
the number of shares of Stock in respect of which the right is being exercised,
with the Administrator having the right to determine the form of payment.
(i) Free Standing Stock Appreciation Rights shall be transferable
only when and to the extent that a Stock Option would be transferable under
paragraph (6) of Section 5 of the Plan.
(j) In the event of the termination of employment or service of a
Participant who has been granted one or more Free Standing Stock Appreciation
Rights, such rights shall be exercisable at such time or times and subject to
such terms and conditions as shall be determined by the Administrator at or
after grant.
(k) Limited Stock Appreciation Rights may only be exercised
within the 30-day period following a "Change in Control" (as defined by the
Administrator in the agreement evidencing such Limited Stock Appreciation Right)
and, with respect to Limited Stock Appreciation Rights that are Related Rights
("Related Limited Stock Appreciation Rights"), only to the extent that the Stock
Options to which they relate shall be exercisable in accordance with the
provisions of Section 5 and this Section 6 of the Plan.
(l) Upon the exercise of a Limited Stock Appreciation Right, the
recipient shall be entitled to receive an amount in cash equal in value to the
excess of the "Change in Control Price" (as defined in the agreement evidencing
such Limited Stock Appreciation Right) of one share of Stock as of the date of
exercise over (A) the option price per share specified in the related Stock
Option, or (B) in the case of a Limited Stock Appreciation Right which is a Free
Standing Stock Appreciation Right, the price per share specified in the Free
Standing Stock
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Appreciation Right, such excess to be multiplied by the number of shares in
respect of which the Limited Stock Appreciation Right shall have been exercised.
SECTION 7. RESTRICTED STOCK, DEFERRED STOCK AND PERFORMANCE SHARES.
(1) GENERAL. Restricted Stock, Deferred Stock or Performance Share
awards may be issued either alone or in addition to other awards granted under
the Plan. The Administrator shall determine the Eligible Recipients to whom, and
the time or times at which, grants of Restricted Stock, Deferred Stock or
Performance Share awards shall be made; the number of shares to be awarded; the
price, if any, to be paid by the recipient of Restricted Stock, Deferred Stock
or Performance Share awards; the Restricted Period (as defined in paragraph (3)
of this Section 7) applicable to Restricted Stock or Deferred Stock awards
(which may include income, earnings per share, cash flow, shareholder return or
such other relevant financial measures as the Administrator, in its discretion,
shall deem appropriate); the performance objectives applicable to Performance
Share or Deferred Stock awards; the date or dates on which restrictions
applicable to such Restricted Stock or Deferred Stock awards shall lapse during
such Restricted Period; and all other conditions of the Restricted Stock,
Deferred Stock and Performance Share awards. Subject to the requirements of
Section 162(m) of the Code, as applicable, the Administrator may also condition
the grant of Restricted Stock, Deferred Stock awards or Performance Shares upon
the exercise of Stock Options, or upon such other criteria as the Administrator
may determine, in its sole discretion. The provisions of Restricted Stock,
Deferred Stock or Performance Share awards need not be the same with respect to
each recipient. In the discretion of the Administrator, loans may be made to
Participants in connection with the purchase of Restricted Stock under
substantially the same terms and conditions as provided in Section 5(5) with
respect to the exercise of stock options.
(2) AWARDS AND CERTIFICATES. The prospective recipient of a Restricted
Stock, Deferred Stock or Performance Share award shall not have any rights with
respect to such award, unless and until such recipient has executed an agreement
evidencing the award (a "Restricted Stock Award Agreement," "De ferred Stock
Award Agreement" or "Performance Share Award Agreement," as appropriate) and
delivered a fully executed copy thereof to the Company, within a period of sixty
days (or such other period as the Administrator may specify) after the award
date. Except as otherwise provided below in this Section 7(2), (i) each
Participant who is awarded Restricted Stock or Performance Shares shall be
issued a stock certificate in respect of such shares of Restricted Stock or
Performance
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Shares; and (ii) such certificate shall be registered in the name of the
Participant, and shall bear an appropriate legend referring to the terms,
conditions, and restrictions applicable to such award.
The Company may require that the stock certificates evidencing
Restricted Stock or Performance Share awards hereunder be held in the custody of
the Company until the restrictions thereon shall have lapsed, and that, as a
condition of any Restricted Stock award or Performance Share award, the
Participant shall have delivered a stock power, endorsed in blank, relating to
the Stock covered by such award.
With respect to Deferred Stock awards, at the expiration of the
Restricted Period, stock certificates in respect of such shares of Deferred
Stock shall be delivered to the participant, or his legal representative, in a
number equal to the number of shares of Stock covered by the Deferred Stock
award.
(3) RESTRICTIONS AND CONDITIONS. The Restricted Stock, Deferred Stock
and Performance Share awards granted pursuant to this Section 7 shall be subject
to the following restrictions and conditions:
(a) Subject to the provisions of the Plan, any stockholders
agreement, and the Restricted Stock Award Agreement, Deferred Stock Award
Agreement or Performance Share Award Agreement, as appropriate, governing such
award, during such period as may be set by the Administrator commencing on the
grant date (the "Restricted Period"), the Participant shall not be permitted to
sell, transfer, pledge or assign shares of Restricted Stock, Performance Shares
or Deferred Stock awarded under the Plan; PROVIDED, HOWEVER, that the
Administrator may, in its sole discretion, provide for the lapse of such
restrictions (other than those pursuant to any stockholders agreement) in
installments and may accelerate or waive such restrictions in whole or in part
based on such factors and such circumstances as the Administrator may determine,
in its sole discretion, including, but not limited to, the attainment of
certain performance related goals, the Participant's termination of employment
or service, death or Disability or the occurrence of a "Change in Control" as
defined in the agreement evidencing such award.
(b) Except as provided in paragraph (3)(a) of this Section 7, the
Participant shall generally have, with respect to the shares of Restricted Stock
or Performance Shares, all of the rights of a stockholder with respect to such
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<PAGE>
stock during the Restricted Period. The Participant shall generally not have the
rights of a stockholder with respect to stock subject to Deferred Stock awards
during the Restricted Period; PROVIDED, HOWEVER, that dividends declared during
the Restricted Period with respect to the number of shares covered by a
Deferred Stock award shall be paid to the Participant. Certificates for shares
of unrestricted Stock shall be delivered to the Participant promptly after, and
only after, the Restricted Period shall expire without forfeiture in respect of
such shares of Restricted Stock, Performance Shares or Deferred Stock, except as
the Administrator, in its sole discretion, shall otherwise determine.
(c) The rights of holders of Restricted Stock, Deferred Stock and
Performance Share awards upon termination of employment or service for any
reason during the Restricted Period shall be set forth in the Restricted Stock
Award Agreement, Deferred Stock Award Agreement or Performance Share Award
Agreement, as appropriate, governing such awards.
SECTION 8. AMENDMENT AND TERMINATION.
The Board may amend, alter or discontinue the Plan, but no amendment,
alteration, or discontinuation shall be made that would impair the rights and
benefits of a Participant under any award theretofore granted without such
Participant's consent, or that, without the approval of the stockholders (as
described below), would:
(1) except as provided in Section 3, increase the total number of
shares of Stock reserved for the purpose of the Plan;
(2) change the class of directors, officers, employees, consultants
and advisors eligible to participate in the Plan; or
(3) extend the maximum option period under paragraph (2) of Section 5
of the Plan.
Notwithstanding the foregoing, stockholder approval under this Section
8 shall only be required at such time and under such circumstances as
stockholder approval would be required under Section 162(m) of the Code or other
applicable law, rule or regulation with respect to any material amendment to any
employee benefit plan of the Company.
16
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The Administrator may amend the terms of any award theretofore
granted, prospectively or retroactively, but, subject to Section 3 above, no
such amendment shall impair the rights and benefits of any holder without his or
her consent.
SECTION 9. UNFUNDED STATUS OF PLAN.
The Plan is intended to constitute an "unfunded" plan for incentive
compensation. With respect to any payments not yet made to a Participant by the
Company, nothing contained herein shall give any such Participant any rights
that are greater than those of a general creditor of the Company.
SECTION 10. GENERAL PROVISIONS.
(1) The Administrator may require each person purchasing shares
pursuant to a Stock Option to represent to and agree with the Company in writing
that such person is acquiring the shares without a view to distribution thereof.
The Administrator may require each person acquiring shares pursuant to the Plan
to become a party to any stockholders agreement with respect to the Company or
any Parent Corporation. The certificates for such shares may include any legend
which the Administrator deems appropriate to reflect any restrictions on
transfer.
All certificates for shares of Stock delivered under the Plan shall be
subject to such stock-transfer orders and other restrictions as the
Administrator may deem advisable under the rules, regulations, and other
requirements of the Securities and Exchange Commission, any stock exchange upon
which the Stock is then listed, and any applicable federal or state securities
law, and the Administrator may cause a legend or legends to be placed on any
such certificates to make appropriate reference to such restrictions.
(2) Nothing contained in the Plan shall prevent the Board from
adopting other or additional compensation arrangements, subject to stockholder
approval, if such approval is required; and such arrangements may be either
generally applicable or applicable only in specific cases. The adoption of the
Plan shall not confer upon any officer, director, employee, consultant or
advisor of the Company any right to continued employment or service with the
Company, as the case may be, nor shall it interfere in any way with the right of
the Company to terminate the employment or service of any of its officers,
directors, employees, consultants or advisors at any time.
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(3) Each Participant shall, no later than the date as of which the
value of an award first becomes includible in the gross income of the
Participant for federal income tax purposes, pay to the Company, or make
arrangements satisfactory to the Administrator regarding payment of, any
federal, state, or local taxes of any kind required by law to be withheld with
respect to the award. The obligations of the Company under the Plan shall be
conditional on the making of such payments or arrangements, and the Company
shall, to the extent permitted by law, have the right to deduct any such taxes
from any payment of any kind otherwise due to the Participant.
(4) No member of the Board or the Administrator, nor any officer or
employee of the Company acting on behalf of the Board or the Administrator,
shall be personally liable for any action, determination, or interpretation
taken or made in good faith with respect to the Plan, and all members of the
Board or the Administrator and each and any officer or employee of the Company
acting on their behalf shall, to the extent permitted by law, be fully
indemnified and protected by the Company in respect of any such action,
determination or interpretation.
SECTION 11. EFFECTIVE DATE OF PLAN.
The Plan became effective (the "Effective Date") on February 2, 1999,
the date the Merger was consummated.
SECTION 12. TERM OF PLAN.
No Stock Option, Stock Appreciation Right, Limited Stock Appreciation
Right, Restricted Stock, Deferred Stock or Performance Share award shall be
granted pursuant to the Plan on or after the tenth anniversary of the Effective
Date, but awards theretofore granted may extend beyond that date.
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STOCKHOLDERS AGREEMENT
This STOCKHOLDERS AGREEMENT (this "AGREEMENT") is entered into as
of February 2, 1999, by and among Harveys Casino Resorts, a Nevada
corporation (the "COMPANY"), Colony HCR Voteco, LLC, a Nevada limited
liability company ("VOTECO"), Colony Investors III, L.P., a Delaware limited
partnership ("COLONY III"), and the securityholders of the Company as
identified from time to time on Schedule A hereto (each an "EMPLOYEE
STOCKHOLDER" and, together with Voteco and Colony III, the "STOCKHOLDERS").
RECITALS
WHEREAS, Harveys Acquisition Corporation, a Nevada corporation
("HAC"), merged with and into the Company as of the date hereof (the "CLOSING
DATE"), with the Company being the surviving corporation, pursuant to an
Agreement and Plan of Merger dated as of February 1, 1998 (the "MERGER
AGREEMENT");
WHEREAS, in connection with the Merger Agreement, HAC, Charles W.
Scharer, Stephen L. Cavallaro and John J. McLaughlin entered into a
Memorandum of Understanding dated February 1, 1998, which provides, among
other things, that (1) HAC shall grant to certain executive officers of
Harveys the number of shares of Class A Common Stock, par value $.01 per
share ("CLASS A COMMON"), and Class B Common Stock, par value $.01 per share
("CLASS B COMMON" and, collectively with the Class A Common, "COMMON STOCK"),
equivalent in the aggregate to 3% of the Class A Common and Class B Common
outstanding as of the time the Merger becomes effective pursuant to the
Articles of Merger filed to effect the Merger, (2) HAC shall grant to such
officers certain options to acquire and other rights with respect to the
Common Stock and (3) certain such officers may acquire shares of Common Stock
utilizing certain amounts payable to them pursuant to the Company's
Supplemental Executive Retirement Plan; and
WHEREAS, the Company, Voteco, Colony III and the Employee
Stockholders desire to enter into this Agreement for the purpose of
regulating certain aspects of their relationships with regard to each other
and the Company.
NOW THEREFORE, in consideration of the mutual covenants herein
contained and for other good and valuable consideration, the Company and the
Stockholders agree as follows:
<PAGE>
ARTICLE I
DEFINITIONS
As used herein, the terms below shall have the following meanings.
Any such term, unless the context otherwise requires, may be used in the
singular or plural, depending upon reference.
"AFFILIATE" means (i) any Person or entity directly or indirectly
controlling or controlled by or under direct or indirect common control with
the Company (including, without limitation, each of the Stockholders and
their Related Parties), (ii) any spouse or non-adult child (including by
adoption) of such Person, (iii) any relative other than a spouse or non-adult
child (including by adoption) who has the same principal residence of any
natural person described in clause (i) above, (iv) any trust in which any
such Persons described in clause (i), (ii) or (iii) above has a beneficial
interest and (v) any corporation, partnership, limited liability company or
other organization of which any such Persons described in clause (i), (ii) or
(iii) above collectively own more than fifty percent (50%) of the equity of
such entity. For purposes of this definition, beneficial ownership of more
than ten percent (10%) of the voting common equity of a Person shall be
deemed to be control of such Person.
"APPROVED PURCHASER" means a proposed purchaser of Common Stock,
that, in connection with its proposed purchase of Common Stock, (i) has
obtained all licenses, permits, registrations, authorizations, consents,
waivers, orders, findings of suitability or other approvals required to be
obtained from, and has made all filings, notices or declarations required to
be made with, all Gaming Authorities under all applicable Gaming Laws or (ii)
is not required to obtain any such licenses, permits, registrations,
authorizations, consents, waivers, orders, findings of suitability or other
approvals.
"MR. BARRACK" means Thomas J. Barrack, Jr., an individual.
"BOARD" means the Board of Directors of the Company.
"CLASS A COMMON" has the meaning set forth in the recitals hereto.
"CLASS B COMMON" has the meaning set forth in the recitals hereto.
<PAGE>
"CLOSING DATE" has the meaning set forth in the recitals hereto.
"COMMISSION" means the Securities and Exchange Commission.
"COMMON STOCK" has the meaning set forth in the recitals hereto.
"MR. DAVIS" means Kelvin L. Davis, an individual.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"EXEMPT TRANSFER" means transfers of Restricted Securities (i) by
any Stockholder to such Stockholder's Related Parties, so long as effected
pursuant to a BONA FIDE transaction not intended to avoid the provisions of
this Agreement, (ii) subject to Section 2.4 hereof, by any Stockholder to any
other Person pursuant to an effective registration statement under the
Securities Act, and (iii) by any Employee Stockholder to the Company, Voteco,
Colony III or Affiliates of the Company, Voteco or Colony III, PROVIDED that
no transfer pursuant to the foregoing clause (i) shall be an Exempt Transfer
unless the transferee agrees in writing to be bound by this Agreement as if
such transferee were a Stockholder with respect to such transferred
securities and evidences such agreement by executing a joinder agreement
substantially in the form of Exhibit 1 hereto, and, PROVIDED FURTHER, that no
transfer pursuant to the foregoing clauses (i) or (ii) shall be permitted
unless the transferee is an Approved Purchaser.
"GAMING AUTHORITIES" means all governmental authorities or agencies
with regulatory control or jurisdiction over the gaming or gambling
operations of the Company and its Subsidiaries.
"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 the Company and its Subsidiaries.
"IPO" means the closing of a public offering pursuant to an
effective registration statement under the Securities Act covering shares of
the Company's Common Stock, which shares are approved for listing or
quotation on the New York Stock Exchange, the American Stock Exchange or the
Nasdaq National Market.
<PAGE>
"NRS" means the Revised Statutes of the State of Nevada.
"OFFERED SECURITIES" has the meaning provided in Section 2.4(a).
"OFFERING NOTICE" has the meaning provided in Section 2.4(a)(i).
"OFFERING STOCKHOLDER" has the meaning provided in Section 2.4(a).
"PERSON" means an individual, partnership, limited liability
company, joint venture, corporation, trust or unincorporated organization or
any other similar entity.
"QUALIFIED SALE" has the meaning set forth in Section 2.6(a).
"QUALIFIED STOCKHOLDERS" means Charles W. Scharer, Stephen L.
Cavallaro and John J. McLaughlin.
"REGISTRATION EXPENSES" means all expenses incident to the
Company's performance of or compliance with Section 3.1, including, without
limitation, all registration, filing and NASD fees, all stock exchange
listing fees, all fees and expenses of complying with securities or blue sky
laws, all word processing, duplicating and printing expenses, messenger and
delivery expenses, the fees and disbursements of counsel for the Company and
of its independent public accountants, including the expenses of any special
audits or "cold comfort" letters required by or incident to such performance
and compliance.
"RELATED PARTY" with respect to any Stockholder means (A) any
controlling stockholder, 80% (or more) owned Subsidiary, or spouse or
immediate family member (in the case of an individual) of such Stockholder or
(B) any trust, corporation, partnership or other entity, the beneficiaries,
stockholders, partners, owners or Persons beneficially holding an 80% or more
controlling interest of which consist of such Stockholder and/or such other
Persons referred to in the immediately preceding clause (A).
"REOFFERED SHARES" has the meaning provided in Section 2.4(a)(iv).
"RESTRICTED SECURITIES" means any Common Stock owned beneficially
or of record by any Stockholder, including, in the case of Employee
Stockholders, any shares of Common Stock that are subject to vesting, and
excluding any securities
<PAGE>
of the Company beneficially owned by Voteco, Colony III or their respective
Affiliates and convertible into, exchangeable for or otherwise providing the
holder thereof any right to acquire shares of Common Stock. In addition, for
purposes of determining a Qualified Stockholder's rights and obligations
under Section 2.5 or Article III hereof in connection with a particular
"tag-along" sale or registration, respectively, a Qualified Stockholder shall
be deemed to have beneficial ownership of shares of Common Stock to be
distributed to such Qualified Stockholder in a Special Distribution Event
under a Deferred Compensation Agreement to which such Qualified Stockholder
is a party to the extent such Special Distribution Event would occur as a
result of such "tag-along" sale or registration, as applicable.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SUBSIDIARY" means, with respect to any Person, all other Persons
of which such Person owns, directly or indirectly, a majority of the voting
capital stock or is a general partner or otherwise has the power to control,
by agreement or otherwise, the management and general business affairs of
such other Person.
"TAG-ALONG OFFEROR" has the meaning set forth in Section 2.5(a).
"TAG-ALONG NOTICE" has the meaning provided in Section 2.5(a).
"TAG-ALONG PERCENTAGE" has the meaning provided in Section 2.5(a).
"TAG-ALONG SHARES" has the meaning provided in Section 2.5(a).
"THIRD PARTY" has the meaning provided in Section 2.5(a).
"TRANSFER" has the meaning provided in Section 2.1.
"TRANSFER RESTRICTIONS AGREEMENT" has the meaning provided in
Section 2.5(a).
"TRANSFEREE" has the meaning provided in Section 2.2.
ARTICLE II
RESTRICTIONS ON TRANSFER
<PAGE>
Section 2.1 GENERAL. With respect to each Employee
Stockholder, prior to the earlier of (1) that day following consummation of
an IPO on which any agreement entered into with the underwriter or
underwriters of such IPO restricting the ability of such Stockholder to sell,
assign, hypothecate or otherwise transfer Restricted Securities expires or is
terminated and (2) if no such agreement is entered into, the second business
day following an IPO, no Stockholder shall, directly or indirectly, sell,
assign, hypothecate or otherwise transfer (in each case, a "TRANSFER")
Restricted Securities without the express, written consent of Voteco, which
may be granted or denied at Voteco's sole and absolute discretion.
Notwithstanding the immediately preceding sentence, this Agreement shall not
at any time limit, restrict or apply to (1) any pledge of Restricted
Securities held by an Employee Stockholder to secure obligations to the
Company, (2) any Exempt Transfer or (3) any sale or other disposition of
Restricted Securities by an Employee Stockholder pursuant to Section 2.5.
(a) The Company shall not, and shall not permit any transfer
agent or registrar for the Restricted Securities to, transfer upon the books
of the Company any Restricted Securities purportedly Transferred by any
Stockholder to any purported Transferee, in any manner, unless such purported
Transfer has occurred in accordance with this Agreement, and any such
purported Transfer not in compliance with this Agreement shall be void.
Section 2.2 LEGENDS; SECURITIES SUBJECT TO THIS AGREEMENT. In
the event a Stockholder shall Transfer any Restricted Securities (including
any such Restricted Securities acquired after the date hereof) to any Person
(all Persons acquiring Restricted Securities from a Stockholder, as described
in this Agreement, regardless of the method of transfer, shall be referred to
collectively as "TRANSFEREES" and individually as a "TRANSFEREE") in
accordance with this Agreement, such securities shall nonetheless bear
legends as provided in Section 4.1; PROVIDED that the provisions of this
Section 2.2 shall not apply in respect of a sale of Restricted Securities in
a registered public offering under the Securities Act or pursuant to Rule
144, or any successor rule, under the Securities Act, pursuant to which the
Transferee receives securities that are freely tradeable under the Federal
securities laws.
Section 2.3 NO VIOLATIONS OR BREACH. No Stockholder shall,
directly or indirectly, Transfer any Restricted Securities at any time if
such action would constitute a violation of any Federal or state securities
laws, a breach of the conditions to any exemption from registration of
Restricted Securities under any such laws, a breach of any undertaking or
agreement of such Stockholder entered
<PAGE>
into pursuant to such laws or in connection with obtaining an exemption
thereunder or a violation of any Gaming Laws. In order to enforce the
foregoing, the Company may request that, in addition to any other
documentation reasonably required pursuant to this Agreement, the
transferring Stockholder provide it with a written opinion of counsel, in
form and substance reasonably acceptable to counsel to the Company, to the
effect that such Transfer is exempt from registration under the Federal
securities laws and does not violate any Gaming Laws, and that the transferee
is an Approved Purchaser.
Section 2.4 RIGHT OF FIRST OFFER.
(a) GENERAL. Subject to Section 2.4(c) hereof, each time an
Employee Stockholder proposes to Transfer any Restricted Securities, such
Employee Stockholder (the "OFFERING STOCKHOLDER") shall first make an
offering of such Restricted Securities (referred to collectively herein as
the "OFFERED SECURITIES") to the Company in accordance with the following
provisions:
(i) The Offering Stockholder shall deliver a
notice (the "OFFERING NOTICE") to the Company stating (1) the Offering
Stockholder's bona fide intention to offer such Offered Securities;
(2) the number of shares of such Offered Securities to be offered for
sale; (3) the price and terms, if any, upon which the Offering
Stockholder proposes to offer such Offered Securities; and (4) that
the proposed purchaser (the "PROPOSED PURCHASER") of the Offered
Securities is an Approved Purchaser.
(ii) Within 15 days after the Offering Notice is
given, the Company may elect to purchase from the Offering
Stockholder, at the price and on the terms specified in the Offering
Notice, any or all of the shares of Offered Securities offered in the
Offering Notice. Such right shall be exercised by written notice
delivered to the Offering Stockholder by the Company prior to the
expiration of the 15-day exercise period.
(iii) The closing of the purchase of any
shares of Offered Securities by the Company shall take place at the
principal offices of the Company (or such other location as the
parties may agree on) within fifteen (15) business days after the
expiration of the 15-day period following the giving of the Offering
<PAGE>
Notice on a date and at a time reasonably acceptable to each of the
Company and the Offering Stockholder. At such closing, the Company
shall make payment in the appropriate amount by means of a certified
or cashier's check or a wire transfer for the benefit of the Offering
Stockholder against delivery of certificates representing the
securities so purchased, duly endorsed in blank by the Person or
Persons in whose name such certificate is registered or accompanied by
a duly executed and guarantied stock or security assignment separate
from the certificate. The Company's obligation to effect such payment
shall be conditioned on the delivery of such securities free and clear
of any mortgage, lien, pledge, charge, security interest or
encumbrance of any kind, except (a) as created by this Agreement, (b)
with respect to each Qualified Stockholder, the Stock Option and
Restricted Stock Agreement (the "STOCK AGREEMENT") and the Deferred
Compensation Agreement (the "DEFERRED COMPENSATION AGREEMENT"), each
of even date herewith and each between the Company and such Qualified
Stockholder, and (c) with respect to any Employee Stockholder, any
agreement entered into between such Employee Stockholder and the
Company subsequent to the date hereof that is similar to the Stock
Agreement or the Deferred Compensation Agreement.
(iv) In the event the Company does not elect to
purchase any or all of the shares of Offered Securities offered in the
Offering Notice, the Company shall give written notice to Voteco and
Colony III of its decision not to exercise its rights or of the number
of Offered Securities available for purchase (the "REOFFERED SHARES")
on or before the final day of such 15-day period. The right to
purchase such Reoffer Shares shall pass automatically from the Company
to Voteco and Colony III. Voteco and Colony III will have until the
25th day following the Offering Notice to the Company to exercise
their purchase rights under this Section 2.4 by written notice to the
Offering Stockholder and the Company. The closing of any purchase and
sale under this Subsection shall be held within 15 business days
following the exercise by Voteco or Colony III, as the case may be, of
the repurchase rights hereunder at the principal offices of the
Company (or such other location as the parties may agree) on a date
and at a time reasonably acceptable to each of Voteco or Colony III,
as the case may be, and the Offering Stock-
<PAGE>
holder. At such closing, Voteco or Colony III, as the case may be,
shall make payment in the appropriate amount by means of a certified or
cashier's check or a wire transfer for the benefit of the Offering
Stockholder against delivery of certificates representing the securities
so purchased, duly endorsed in blank by the Person or Persons in whose
name such certificate is registered or accompanied by a duly executed
and guarantied stock or security assignment separate from the
certificate. Voteco's or Colony III's obligation to effect such payment
shall be conditioned on the delivery of such securities free and clear
of any mortgage, lien, pledge, charge, security interest or encumbrance
of any kind, except as created by this Agreement, the Award Agreement or
the Deferred Compensation Agreement, except (a) as created by this
Agreement, (b) with respect to each Qualified Stockholder, the Stock
Agreement and the Deferred Compensation Agreement between the Company
and such Stockholder, and (c) with respect to any Employee Stockholder,
any agreement entered into between such Employee Stockholder and the
Company subsequent to the date hereof that is similar to the Stock
Agreement or the Deferred Compensation Agreement.
(b) RIGHT TO SELL. In the event that all of the Offered
Securities being offered are not purchased at the closings referred to in
Subsections (a)(iii) or (a)(iv), the Offering Stockholder shall have the
right to sell or otherwise dispose of all Offered Securities offered in the
Offering Notice and not so purchased at the price stated, and upon other
terms and conditions not materially more favorable to the Proposed Purchaser
in the aggregate than specified, in the Offering Notice. The Offering
Stockholder shall have such right for the 90-day period beginning on the
earlier of the receipt by the Offering Stockholder of notice from Voteco and
Colony III that they elect not to exercise their purchase right under
Subsection (a)(iv) and the closing of a purchase and sale under Subsection
(a)(iv), or such longer period not exceeding six months from the earlier of
the foregoing clauses (i) and (ii) as may be required for the Proposed
Purchaser to become an Approved Purchaser, so long as the Offering
Stockholder reasonably believes that the Proposed Purchaser will become, and
the Proposed Purchaser is exercising bona fide and good faith efforts to
become, an Approved Purchaser in connection with such proposed sale or other
disposition of Offered Securities. In the event that the Offering
Stockholder does not sell or otherwise dispose of such Offered Securities at
the price stated, and upon other terms and conditions not materially more
favorable to the Proposed Purchaser in the aggregate than specified, in the
Offering Notice
<PAGE>
within the period set forth in the previous sentence, the right of first
offer provided for in this Section 2.4 shall continue to be applicable to any
subsequent disposition of such Restricted Securities.
(c) EXCEPTION. Notwithstanding the terms and provisions of
Section 2.4(a) hereof, the right of first offer provided for in this Section
2.4 shall not be applicable to any repurchase of equity securities by the
Company upon the retirement or termination of an Employee Stockholder, except
as set forth in Subsection 2.4(e) below, or any Exempt Transfer and shall
terminate upon the consummation of an IPO.
(d) TRANSFEREES BOUND. In the event that the right of first
offer set forth in this Section 2.4 is not exercised, the purchaser of such
Restricted Securities shall be bound by the terms of this Agreement as
required by Section 2.2.
(e) TERMINATION OF EMPLOYMENT OF EMPLOYEE STOCKHOLDER. If an
Employee Stockholder ceases to be employed by the Company, for any or no
reason, and the repurchase by the Company of Restricted Securities owned by
such Employee Stockholder is not governed by any other agreement between the
Company and such Employee Stockholder, then (1) such Employee Stockholder
shall be deemed an Offering Stockholder, (2) any and all shares of Restricted
Securities owned by such Employee Stockholder (excluding (A) shares that are
subject to vesting but have not vested and (B) shares that are subject to
forfeiture and are forfeited, in each case upon such termination) shall be
deemed Offered Securities, (3) the proposed offer price of such Offered
Securities shall be the "Fair Market Value" of the Offered Securities on the
date of the termination of the Employee Stockholder's employment with the
Company and (4) the provisions of Subsections 2.4(a) to 2.4(d) shall be
applied.
For the purposes of this Agreement, "Fair Market Value" (when
capitalized, unless the context clearly indicates otherwise) means, as to a
Qualified Stockholder, as of any given date, (A) if shares of Common Stock
of the same class as the Offered Securities are publicly traded, the
closing sale price of such shares on such date (or the nearest preceding
date on which the Common Stock was traded) as reported in the Western
Edition of THE WALL STREET JOURNAL, or (B) if shares of Common Stock of the
same class as the Offered Securities are not publicly traded, the fair
market value of the Offered Securities as determined in accordance with the
procedures set forth below, in each case based on the per share value of
the Company as a whole
<PAGE>
as of the relevant date, without any discount for the sale of a minority
interest and without considering lack of liquidity of such Offered
Securities, including transfer and other restrictions on the Offered
Securities:
(1) The Board shall determine the fair market value of the
Offered Securities in good faith, using commercially reasonable
methods and at the Company's sole expense, PROVIDED, that if the
Qualified Stockholder is a member of or non-voting observer on the
Board, he shall recuse himself from all deliberations of the Board
regarding such determination, and except as otherwise provided herein
shall not be entitled to receive or be provided access to any minutes
or other records of the Board with respect to such determination. The
Board shall communicate the per share valuation as so determined in
writing to the Qualified Stockholder within twenty business days of
the date that his employment with the Company is terminated or the
Board takes cognizance of the need to determine the Fair Market Value
of the Common Stock, and, upon his request, shall provide to him
appropriate supporting documentation regarding the methods,
assumptions and other bases used in arriving at such valuation. If
acceptable to the Qualified Stockholder, the fair market value of the
Offered Securities shall be as so determined.
(2) If the fair market value as determined under (1) is not
acceptable to the Qualified Stockholder, he shall determine the fair
market value of the Offered Securities in good faith, using
commercially reasonable methods and at the Qualified Stockholder's
sole expense, and shall communicate the per share valuation (the
"Qualified Stockholder's Value") as so determined in writing to the
Board within 20 business days following the Board's communication to
the Qualified Stockholder of the per share valuation pursuant to
clause (1) above and, upon the Board's request, shall provide to the
Board appropriate supporting documentation regarding the methods,
assumptions and other bases used in arriving at such valuation. If
acceptable to the Board, the fair market value of the Offered
Securities shall be as so determined.
(3) If the fair market value as determined under (2) is not
acceptable to the Board, the Board and the Qualified Stockholder shall
<PAGE>
then negotiate in good faith to agree upon the fair market value of
the Offered Securities, based on the valuations under (1) and (2)
above.
(4) If the Board and the Qualified Stockholder shall be unable
by the foregoing means to agree upon the fair market value of the
Offered Securities within ten business days after the Board has been
advised of the Qualified Stockholder's Value, the issue shall then be
submitted to binding arbitration in Las Vegas, Nevada according to the
rules and procedures of the American Arbitration Association. The
Company and the Qualified Stockholder shall each submit to the
arbitrator their valuations under (1) and (2) above, together with all
supporting documentation regarding the methods, assumptions and other
bases used in arriving at such valuation. The arbitrator shall then
be instructed to choose which of the two valuations more closely
reflects the fair market value of the Offered Securities, and shall
not have the right to choose a third valuation as the appropriate fair
market value of the Offered Securities. The party whose valuation is
not so chosen by the arbitrator shall pay any and all costs and
expenses of the arbitration (but not the initial valuation by the
other party) including without limitation reasonable attorneys' fees
and other fees incurred by the prevailing party in such arbitration.
For the purposes of this Agreement, "Fair Market Value" (when
capitalized, unless the context clearly indicates otherwise) means, as to
the Employee Stockholders other than the Qualified Stockholders, as of any
given date, (A) if shares of Common Stock of the same class as the Offered
Securities are publicly traded, the closing sale price of such shares on
such date (or the nearest preceding date on which the Common Stock was
traded) as reported in the Western Edition of THE WALL STREET JOURNAL, or
(B) if shares of Common Stock of the same class as the Offered Securities
are not publicly traded, the value of the Offered Securities as determined
in good faith by the Board, based upon the per share value of the Company
as a whole, without any discount for sale of a minority interest and
without considering any lack of liquidity of such Offered Securities,
including transfer and other restrictions thereon.
Section 2.5 TAG-ALONG PROVISIONS.
<PAGE>
(a) GENERAL. Subject to the Transfer Restriction Agreement
dated as of the date hereof (the "TRANSFER RESTRICTIONS AGREEMENT") by and among
Mr. Barrack, Mr. Davis, Voteco and Colony III, in the event that Voteco or
Colony III (in such capacity, a "TAG-ALONG OFFEROR") proposes to offer
Restricted Securities to any Person or group of Persons other than an Affiliate
(a "THIRD PARTY" and collectively, "THIRD PARTIES"), such sale or other
disposition shall not be permitted unless the Tag-Along Offeror shall offer (or
cause the Third Party to offer) the Employee Stockholders the right to elect to
include, at the sole option of each Employee Stockholder, in the sale or other
disposition to the Third Party such number of shares of such class or classes of
Restricted Securities that the Tag-Along Offeror proposes to offer that are
owned by such Employee Stockholder as shall be determined in accordance with
Subsection 2.5(a)(i) (the "TAG-ALONG SHARES"). The Tag-Along Offeror shall
deliver a notice (the "TAG-ALONG NOTICE") to the Employee Stockholders stating
(1) the Tag-Along Offeror's bona fide intention to offer such Tag-Along Shares;
(2) the number of shares to be offered for sale; and (3) the price and terms, if
any, upon which the Tag-Along Offeror proposes to offer such Tag-Along Shares.
Notwithstanding any other provision of the Agreement, Voteco and Colony III
shall be permitted to transfer Restricted Securities to each other and to any
Affiliate of either of them, PROVIDED that any subsequent attempted transfer by
such Affiliate of such Restricted Securities shall be subject to this Subsection
2.5(a).
(i) Each Employee Stockholder shall have the
right to sell or include in the Third Party offer up to that
percentage (the "TAG-ALONG PERCENTAGE") of the number of Restricted
Securities owned by such Employee Stockholder (rounded up to the
nearest whole share) equal to the ratio of (1) the number of
Restricted Securities that the Tag-Along Offeror proposes to offer to
the Third Party to (2) the aggregate number of shares of Restricted
Securities owned by the Tag-Along Offeror.
(ii) The purchase from Employee Stockholders
pursuant to this Section 2.5(a) shall be on the same terms and
conditions, including the price per share, the form of consideration
and the date of sale or other disposition, as are received by the
Tag-Along Offeror.
(iii) Promptly (but in no event later than 15
business days) after the consummation of the sale or other disposition
of shares of Restricted Securities of the Tag-Along Offeror
<PAGE>
and the other Stockholders to the Third Party pursuant to the Third
Party offer, the Tag-Along Offeror shall (1) notify such Employee
Stockholders of the completion thereof, (2) cause to be remitted to such
Employee Stockholders the total sales price attributable to the
Tag-Along Shares which such Employee Stockholders sold or otherwise
disposed of pursuant to the Third Party offer, and (3) furnish such
other evidence of the completion and time of completion of such sale or
other disposition and the terms thereof as may be reasonably requested
by the Employee Stockholders.
(iv) If within 15 business days after the Tag-Along
Notice is given, an Employee Stockholder has not accepted the offer to
make an inclusion election, such Employee Stockholder will be deemed to
have waived any and all of its rights with respect to the sale or other
disposition of the Tag-Along Shares described in the Tag-Along Notice.
The Tag-Along Offeror shall have the right to sell or otherwise dispose
of the Restricted Securities of the Tag-Along Offeror to the Third Party
or any other Person upon terms and conditions (including the price per
securities) not materially more favorable to the Tag-Along Offeror than
were set forth in the Tag-Along Notice. The Tag-Along Offeror shall
have such right for the 60-day period beginning on the 15th day after
the Tag-Along Notice is given, or such longer period not exceeding six
months from the 15th day after the Tag-Along Notice is given as may be
required for the Third Party to become an Approved Purchaser, so long as
the Tag-Along Offeror reasonably believes that the Third Party will
become, and the Third Party is exercising bona fide and good faith
efforts to become, an Approved Purchaser in connection with such
proposed sale or other disposition.
(v) If, at the end of such period, the Tag-Along
Offeror has not completed the sale of shares of Restricted Securities of
the Tag-Along Offeror in accordance with the terms of the Third Party's
offer, all the restrictions on sale contained in this Agreement with
respect to Restricted Securities owned by the Tag-Along Offeror shall
again be in effect (unless such period is extended with the consent of
each of the Employee Stockholders).
<PAGE>
(b) EXCEPTION. Notwithstanding any provision herein to the
contrary, Employee Stockholders shall have no right to sell or dispose of
Tag-Along Shares pursuant to Subsection 2.5(a) if Voteco, Colony III or any
Affiliate of either of them, individually or collectively, proposes to sell
to a Third Party or Third Parties any number of shares of Common Stock, if
after such sale Voteco, Colony III and their respective Affiliates own in the
aggregate (x) if on or before an IPO, at least 80 percent of the
then-outstanding common equity of the Company, or (y) if after an IPO, at
least 50 percent of the then-outstanding common equity of the Company, or
shares of Common Stock representing in the aggregate no greater than 20
percent of the aggregate shares of Common Stock held by Voteco or Colony III
as of the date hereof.
(c) TAG-ALONGS BY QUALIFIED STOCKHOLDERS UPON A SPECIAL
DISTRIBUTION EVENT. Each Qualified Stockholder who will receive shares of
Common Stock in a Special Distribution Event under a Deferred Compensation
Agreement to which such Qualified Stockholder is a party, which Special
Distribution Event would arise as a result of the tag-along sale contemplated
by a Tag-Along Notice, shall have the following rights and obligations under
this Section 2.5 with respect to the sale contemplated by the Tag-Along
Notice: (i) if requested in writing by Voteco at the time the Tag-Along
Notice is provided, which request may be made in Voteco's sole and absolute
discretion, each such Qualified Stockholder must participate in the tag-along
sale by including the full Tag-Along Percentage of Restricted Securities
owned by such Qualified Stockholder; or (ii) if no such request is made by
Voteco, each such Qualified Stockholder may elect either (x) to include the
greater of (1) the full Tag-Along Percentage of Restricted Securities owned
by such Qualified Stockholder and (2) the number of shares of Common Stock to
be received by such Qualified Stockholder in the Special Distribution Event
(such number, the "SALE NUMBER"), or (y) to decline to participate in the
tag-along sale and instead to cause the Company to repurchase the Sale Number
of Restricted Securities from such Qualified Stockholder for cash at the same
price per share to be paid by the Third Party to the Tag-Along Offeror;
PROVIDED, that such Qualified Stockholder and the Company will consider in
good faith, as an alternative to such a cash repurchase under this clause
(y), a loan or similar arrangement mutually acceptable to the parties to
provide liquidity to the Qualified Stockholder for taxes resulting from the
Special Distribution Event.
(d) RELATIONSHIP TO SECTION 2.4. Any proposed Transfer by
any Employee Stockholder of Tag-Along Shares pursuant to this Section 2.5 is
exempt from Section 2.4, PROVIDED that Voteco or Colony III shall have the
right to
<PAGE>
acquire the Tag-Along Shares on the same terms and at the same time as such
shares would otherwise be sold to the Third Party.
Section 2.6 COMPANY SALE.
(a) GENERAL. If Voteco, Colony III or their respective
Affiliates propose at any time to sell to a Third Party or Third Parties that
are Approved Purchasers, Restricted Securities representing 90 percent or
more of the then-outstanding common equity of the Company (a "QUALIFIED
SALE") or propose to undertake an IPO, all Employee Stockholders (1) will
consent to and raise no objections against such Qualified Sale or IPO, (2) in
any vote of stockholders required to approve such Qualified Sale, vote the
Restricted Securities held by them in favor of such Qualified Sale, PROVIDED
that this Subsection 2.6(a)(2) shall not be deemed to subject any such
Qualified Sale to any such vote, (3) in such Qualified Sale, will agree to
sell the Restricted Securities held by them at the price and on the terms and
conditions upon which Voteco, Colony III or their respective Affiliates
propose to sell or otherwise dispose of Restricted Securities held by them
and (4) if requested by Voteco, Colony III or their respective Affiliates,
will consent to and raise no objections to any recapitalization or
reclassification of the equity securities of the Company, including any
related amendment to the Articles of Incorporation of the Company, required
to facilitate such Qualified Sale or IPO, PROVIDED that, as to each class of
Common Stock, all shares of such class are treated identically in such
recapitalization, reclassification and/or amendment. The Employee
Stockholders will take all actions in their capacity as stockholders that
Voteco, Colony III or their respective Affiliates reasonably deem necessary
or desirable in connection with the consummation of the Qualified Sale or
IPO, PROVIDED that, in connection with an IPO, any Employee Stockholder
employed by the Company at the time of such IPO shall not be required to be
subject to "lock-up" restrictions that are more restrictive than such
restrictions to which any other Employee Stockholder having commensurate job
duties and responsibilities in the Company is subject, and any Employee
Stockholder not employed by the Company at the time of such IPO shall not be
required to be subject to "lock-up" restrictions that are more restrictive
than such restrictions to which any other Stockholder is subject, and
PROVIDED FURTHER that, in connection with a Qualified Sale, the Employee
Stockholders shall not be required to be subject to "lock-up" restrictions
that are more restrictive than such restrictions to which any other
Stockholder is subject. Without limiting the generality of the foregoing, it
is expressly agreed that, in respect of a Qualified Sale or IPO in accordance
with this Section 2.6, no Stockholder will assert any "dissenters'" or
similar statutory or legal right, or otherwise assert any challenge to, such
Qualified Sale.
<PAGE>
(b) SAME CONSIDERATION TO ALL STOCKHOLDERS. The obligations
of the Employee Stockholders with respect to a Qualified Sale are subject to
the satisfaction of the condition that, upon the consummation of the
Qualified Sale, all of the holders of Restricted Securities will receive the
same form and amount of consideration per share of Restricted Securities, and
if any holders of Restricted Securities are given an option as to the form
and amount of consideration to be received, all holders will be given the
same option, it being understood that if required by applicable law,
appropriate tax withholdings shall be deducted.
(c) SECURITIES LAW COMPLIANCE. If Voteco and Colony III
enter into any negotiation or transaction for which Rule 506 under the
Securities Act (or any similar rule then in effect) may be available with
respect to such negotiation or transaction, such Employee Stockholders as
Voteco or Colony III may request will, upon such request, appoint a purchaser
representative (as such term is defined in Rule 501 under the Securities Act)
reasonably acceptable to Voteco and Colony III. If any Employee Stockholder
appoints a purchaser representative at the request of the Company, the
Company will pay the fees of such purchaser representative.
Section 2.7 PROPORTIONAL HOLDING REQUIREMENT. Notwithstanding
any provision herein to the contrary, in no case shall any Employee
Stockholder transfer Restricted Securities if, after giving effect to and as
a result of such transfer, such Employee Stockholder would hold a number of
shares of Class A Common and Class B Common other than in equal proportion to
the number of shares of Class A Common and Class B Common then outstanding,
respectively.
ARTICLE III
REGISTRATION RIGHTS
Section 3.1 INCIDENTAL REGISTRATION. If, after an IPO, the
Company proposes to register any of its Common Stock under the Securities Act
in connection with a public offering of such securities solely for cash
(other than by a registration in connection with an acquisition or in a
manner which would not permit registration of Restricted Securities), it will
each such time give prompt written notice to all holders of Restricted
Securities of such holders' rights under this Section 3.1. Upon the written
request of any such holder received by the Company within 15 days after the
receipt of any such notice (which request shall specify the Restricted
Securities intended to be disposed of by such holder and the intended method
of disposition thereof), the Company will, subject to the terms of this
Agreement, use its best
<PAGE>
efforts to effect the registration under the Securities Act of all Restricted
Securities which the Company has been so requested to register by the holders
thereof, to the extent requisite to permit the disposition (in accordance
with the intended methods thereof as aforesaid) of the Restricted Securities
to be so registered, by inclusion of such Restricted Securities in the
registration statement which covers the securities which the Company proposes
to register, PROVIDED that, if at any time after giving written notice of its
intention to register any securities and prior to the effective date of the
registration statement filed in connection with such registration, the
Company shall determine for any reason either not to register or to delay
registration of such securities, the Company may, at its election, give
written notice of such determination to each holder of Restricted Securities,
and thereupon the Company (i) in the case of a determination not to register,
shall be relieved of its obligation to register any Restricted Securities in
connection with such registration (but not from its obligation to pay the
Registration Expenses therewith) and (ii) in the case of a determination to
delay registering, shall be permitted to delay registering Restricted
Securities, for the same period as the delay in registering such other
securities. Notwithstanding the foregoing, during the first two years
following an IPO (or, in the case of a Qualified Stockholder, at any time if
the circumstances of the proposed registration or the sale of securities
contemplated thereby gives rise to a Special Distribution Event under a
Deferred Compensation Agreement to which such Qualified Stockholder is a
party), Restricted Securities held by an Employee Stockholder shall not be
eligible for incidental registration rights hereunder and shall not be
includible in any such registration statement unless Voteco, Colony or their
respective Affiliates are also including Restricted Securities in such
registration statement. In the event that during the first two years
following an IPO, Voteco, Colony or their respective Affiliates are including
Restricted Securities in a registration statement to which incidental
registration rights under this Section 3.1 otherwise apply, then each
Employee Stockholder shall be entitled to incidental registration rights
hereunder only with respect to that number of Restricted Securities bearing
the same proportion to all of his Restricted Securities as the Restricted
Securities to be registered by Voteco, Colony and their respective Affiliates
bears to all Restricted Securities owned by Voteco, Colony and their
respective Affiliates in the aggregate. The Company will pay all Registration
Expenses in connection with each registration of Restricted Securities
requested pursuant to this Section 3.1.
Section 3.2 PRIORITY IN INCIDENTAL REGISTRATIONS. If the
Company reasonably determines that the distribution of all or a specified
number of such Restricted Securities concurrently with the other securities
being distributed in the proposed registration would interfere with the
successful marketing thereof (such
<PAGE>
determination to state the basis of such belief and the approximate number of
such Restricted Securities which may be distributed without such effect), the
Company may, upon written notice to all holders of such Restricted
Securities, reduce pro rata the number of such Restricted Securities so that
the resultant aggregate number of such Restricted Securities so included in
such registration shall be equal to the number of shares stated in such
determination. The Company shall not enter into any agreement that would
result in either the number of Restricted Securities held by Employee
Stockholders to be included in a registration pursuant to Section 3.1 being
reduced pursuant to the foregoing sentence prior to any similar reduction of
shares of Common Stock held by any other holder to be included in such
registration pursuant to incidental registration rights, or (b) the reduction
rate provided for in the foregoing sentence with respect to the Restricted
Securities held by Employee Stockholders being greater than the reduction
rate applicable to Common Stock of any other holder to be included in such
registration pursuant to incidental registration rights.
ARTICLE IV
MISCELLANEOUS
Section 4.1 LEGEND. The certificates representing the Restricted
Securities to be held by each of the Stockholders shall bear the following
legend in addition to any other legend that may be required from time to time
under applicable law or pursuant to any other contractual obligation:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED,
SOLD, ASSIGNED, HYPOTHECATED OR OTHERWISE DISPOSED OF (A "TRANSFER")
EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF A STOCKHOLDERS AGREEMENT
DATED AS OF FEBRUARY 2, 1999. ANY TRANSFEREE OF THESE SECURITIES
TAKES SUBJECT TO THE TERMS OF SUCH AGREEMENT, A COPY OF WHICH IS ON
FILE WITH THE COMPANY.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") OR STATE
SECURITIES LAWS, AND NO TRANSFER OF THESE SECURITIES MAY BE MADE
EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION
<PAGE>
STATEMENT UNDER THE ACT, OR (B) PURSUANT TO AN EXEMPTION THEREFROM WITH
RESPECT TO WHICH THE COMPANY MAY, UPON REQUEST, REQUIRE A SATISFACTORY
OPINION OF COUNSEL FOR THE HOLDER THAT SUCH TRANSFER IS EXEMPT FROM THE
REQUIREMENTS OF THE ACT.
Each of the parties hereto agrees that it will not transfer any
Restricted Securities without complying with each of the restrictions set
forth herein and agrees that in connection with any such transfer it will, if
requested by the Company, deliver at its expense to the Company an opinion of
counsel, in form and substance reasonably satisfactory to the Company and
counsel for the Company, that such transfer is not in violation of the
securities laws of the United States of America or any state thereof or any
Gaming Laws.
Section 4.2 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 each party at the address of such party set forth below
such party's signature on this Agreement or to such address as the party to
whom notice is to be given may provide by like notice to each of the other
parties to this Agreement, a copy of which notice shall be on file with the
Secretary of the Company.
Section 4.3 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 Transfer Restrictions
Agreement and the transactions contemplated by it are transactions
contemplated by this Agreement. To the extent any restriction on the
activities of the Company or its Subsidiaries under the terms of this
Agreement 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.
<PAGE>
Section 4.4 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 4.5 ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES.
This Agreement constitutes the entire agreement, and supersede all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter of this agreement and are not intended to
confer upon any Person other than the parties any rights or remedies
hereunder.
Section 4.6 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 4.7 GAMING LAWS. Each of the provisions of this
Agreement is subject to and shall be enforced in compliance with the Gaming
Laws.
Section 4.8 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 consent of the other parties, PROVIDED that Voteco
and Colony III may assign, in its sole discretion, any of or all its rights,
interests and obligations under this Agreement to any affiliate of Colony
Capital, Inc. that assumes Voteco's and Colony III's obligations hereunder;
PROVIDED FURTHER that, notwithstanding any provision of this Agreement, no
consent of the parties hereto shall be required under this Section 4.8 for
the Company to consummate a merger or consolidation so long as such surviving
corporation assumes the Company'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 4.9 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
<PAGE>
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.
Section 4.10 AMENDMENTS AND WAIVERS. Except as expressly
provided herein, this Agreement may not be amended except by an instrument in
writing signed on behalf of the holders of not less than a majority of all
shares of Restricted Stock held by all Stockholders, PROVIDED that the
approval of Voteco shall be required in any event; PROVIDED FURTHER that any
amendment that (i) affects the rights of holders of any class of Common
Stock, which amendment does not equally affect the rights of all holders of
shares of such class equally on a per share basis, and (ii) affects adversely
the rights of any Employee Stockholder hereunder, shall require the written
consent of Employee Stockholders holding at least a majority of all
Restricted Securities held by Employee Stockholders; and PROVIDED FURTHER any
amendment shall not affect the rights as a holder of Restricted Securities of
any Employee Stockholder more adversely than any other Employee Stockholder.
Voteco shall not enter into any agreement or other arrangement in
contemplation or connection with such amendment or waiver with any individual
Employee Stockholder that is related to the matters governed by this
Agreement unless such agreement applies equally or pro rata to all Employee
Stockholders. The agreement or consent of the Company shall not be required
to amend this agreement
Section 4.11 SEVERABILITY. If one or more provisions of this
Agreement are held to be unenforceable under applicable law, such provision
shall be excluded from this Agreement and the balance of the Agreement shall
be interpreted as if such provision were so excluded and shall be enforceable
in accordance with its terms to the fullest extent permitted by law.
Section 4.12 CUMULATIVE REMEDIES. All rights and remedies of
either party hereto are cumulative of each other and of every other right or
remedy such party may otherwise have at law or in equity, and the exercise of
one or more rights or remedies shall not prejudice or impair the concurrent
or subsequent exercise of other rights or remedies.
<PAGE>
Section 4.13 ARBITRATION; DISPUTE RESOLUTION PROCESS. The
parties hereby agree that, in order to obtain prompt and expeditious
resolution of any disputes under this Agreement, each claim, dispute or
controversy of whatever nature, arising out of, in connection with, or in
relation to the interpretation, performance or breach of this Agreement (or
any other agreement contemplated by or related to this Agreement), including
without limitation any claim based on contract, tort or statute, or the
arbitrability of any claim hereunder (an "ARBITRABLE CLAIM"), shall be
settled, at the request of any party of this Agreement, exclusively by final
and binding arbitration conducted in Las Vegas, Nevada. All such Arbitrable
Claims shall be settled by three arbitrators in accordance with the
Commercial Arbitration Rules then in effect of the American Arbitration
Association (the "CAR"). EACH PARTY HERETO EXPRESSLY CONSENTS TO, AND WAIVES
ANY FUTURE OBJECTION TO, SUCH FORUM AND ARBITRATION RULES. Judgment upon any
award may be entered by any state or Federal court having jurisdiction
thereof. Except as required by law (including, without limitation, the rules
and regulations of the Commission and any stock exchange or quotation system
which the Restricted Securities are listed on or qualified for inclusion in),
no party nor the arbitrator shall disclose the existence, content, or results
of any arbitration hereunder without the prior written consent of all
parties. Except as provided herein, the Nevada Revised Statutes shall govern
the interpretation, enforcement and all proceedings pursuant to this Section
4.13.
The arbitrators referenced herein shall provide a written statement
to all parties to this Agreement setting forth the substantive basis of such
arbitrators' resolution of any Arbitrable Claim.
Adherence to this dispute resolution process shall not limit the
right of the parties hereto to obtain any provisional remedy, including
without limitation, injunctive or similar relief, from any court of competent
jurisdiction as may be necessary to protect their respective rights and
interests pending arbitration. Notwithstanding the foregoing sentence, this
dispute resolution procedure is intended to be the exclusive method of
resolving any Arbitrable Claims arising out of or relating to this Agreement.
The parties further agree that the nature, scope and timing of any
production of documents or other information or witness in respect of the
resolution of any Arbitrable Claim pursuant to this Section 4.13 shall be in
accordance with the CAR.
The arbitration procedures shall follow the substantive law of the
State of Nevada, including the provisions of statutory law dealing with
arbitration, as
<PAGE>
it may exist at the time of the demand for arbitration, insofar as said
provisions are not in conflict with this Agreement and specifically excepting
therefrom sections of any such statute dealing with discovery and sections
requiring notice of the hearing date by registered or certified mail.
Section 4.14 WAIVER OF JURY TRIAL. Consistent with Section 4.13,
each signatory to this Agreement further waives its respective right to a
jury trial of any claim or cause of action arising out of this Agreement or
any dealings between any of the signatories hereto relating to the subject
matter of this Agreement. The scope of this waiver is intended to be
all-encompassing of any and all disputes that may be filed in any court and
that relate to the subject matter of this Agreement, including, without
limitation, contract claims, tort claims, and all other common law and
statutory claims. This waiver is irrevocable, meaning that it may not be
modified either orally or in writing, and this waiver shall apply to any
subsequent amendments, supplements or other modifications to this Agreement
or to any other document or agreement relating to the transactions
contemplated by this Agreement.
Section 4.15 TERM. (a) Unless earlier terminated by an
instrument in writing amending this Agreement pursuant to Section 4.10, this
Agreement shall terminate if (1) Employee Stockholders or their Related
Parties no longer beneficially own any shares of Restricted Securities or (2)
Voteco, Colony III or their respective Affiliates own Restricted Securities
representing less than 25 percent of the then-outstanding common equity of
the Company (except if any purported Transfer of such Restricted Securities
that results a condition set forth in clause (1) or (2) is in violation of
this Agreement).
(b) Any Employee Stockholder, upon ceasing to beneficially
own any shares of Restricted Securities, shall cease to be party to or have
any rights under this Agreement.
Section 4.16 REPRESENTATION BY COUNSEL. Each party hereto
represents and agrees with each other that it has been represented by or had
the opportunity to be represented by, independent counsel of its own
choosing, and that it has had the full right and opportunity to consult with
its respective attorney(s), that to the extent, if any, that it desired, it
availed itself of this right and opportunity, that it or its authorized
officers (as the case may be) have carefully read and fully understand this
Agreement in its entirety and have had it fully explained to them by such
party's respective counsel, that each is fully aware of the contents thereof
and its meaning, intent and legal effect, and that it or its authorized
officer (as the case may be) is
<PAGE>
competent to execute this Agreement and has executed this Agreement free from
coercion, duress or undue influence. The parties to this Agreement
participated jointly in the negotiation and drafting of this Agreement. If
an ambiguity or question of intent or interpretation arises, then this
Agreement will be construed as if drafted jointly by the parties to this
Agreement, and no presumption or burden of proof will arise favoring or
disfavoring any party to this Agreement by virtue of the authorship of any of
the provisions of this Agreement.
Section 4.17 RELATIONSHIP TO OTHER AGREEMENTS. The provisions of
this Agreement shall be in addition to, and shall not be affected (except as
expressly provided herein) by, the provisions of the Stock Agreement and the
Deferred Compensation Agreement that the Company has entered into with each
Qualified Stockholder as of the date hereof and any modification thereof, or
the provisions of any other agreement that such parties may enter into
hereafter.
(Signature pages follow)
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed as of the date first above written.
HARVEYS CASINO RESORTS
By: /s/ JOHN J. MCLAUGHLIN
-----------------------------------
Name: John J. McLaughlin
Title: Senior Vice President, Chief
Financial Officer, Treasurer
ADDRESS: Highway 50 and Stateline Avenue
Lake Tahoe, Nevada 89449
Attn: President
COLONY HCR VOTECO, LLC
By: /s/ KELVIN L. DAVIS
----------------------------------
Name: Kelvin L. Davis
Title: Member
ADDRESS: 1999 Avenue of the Stars, Suite 1200
Los Angeles, California 92718
Telecopy: (310) 282-8813
STOCKHOLDERS AGREEMENT
<PAGE>
COLONY INVESTORS III, L.P.
By: COLONY CAPITAL III, L.P.,
its general partner
By: COLONY GP III, INC.,
its general partner
By: /s/ KELVIN L. DAVIS
------------------------------
Name: Kelvin L. Davis
Title: President and Chief
Operating Officer
ADDRESS: 1999 Avenue of the Stars,
Suite 1200
Los Angeles, California 92718
Telecopy: (310) 282-8813
/s/ CHARLES W. SCHARER
------------------------------
CHARLES W. SCHARER
ADDRESS: c/o Harveys Casino Resorts
Highway 50 and Stateline Avenue
Lake Tahoe, Nevada 89449
/s/ STEPHEN L. CAVALLARO
-----------------------------------
STEPHEN L. CAVALLARO
ADDRESS: c/o Harveys Casino Resorts
Highway 50 and Stateline Avenue
Lake Tahoe, Nevada 89449
STOCKHOLDERS AGREEMENT
<PAGE>
/s/ JOHN J. MCLAUGHLIN
------------------------------
JOHN J. MCLAUGHLIN
ADDRESS: c/o Harveys Casino Resorts
Highway 50 and Stateline Avenue
Lake Tahoe, Nevada 89449
STOCKHOLDERS AGREEMENT
<PAGE>
SCHEDULE A
LIST OF STOCKHOLDERS
Colony HCR Voteco, LLC
Colony Investors III, L.P.
Charles W. Scharer
Stephen L. Cavallaro
John J. McLaughlin
Gary D. Armentrout*
Edward B. Barraco*
John R. Bellotti*
James J. Rafferty*
Kevin O. Servatius*
Verne H. Welch, Jr.*
- ---------------
* To be party by Joinder dated no later than February 9, 1999.
<PAGE>
EXHIBIT 1
[FORM OF]
STOCKHOLDERS AGREEMENT JOINDER
As of the date set forth below, the undersigned is [acquiring from
_______________________ (" ")][being issued] [options to acquire]
__________ shares of the _________________ Stock (the "SHARES"), of Harvey
Casino Resorts (the "COMPANY"). By execution of this Stockholders Agreement
Joinder, the undersigned[, as successor to _______ in respect of the Shares,]
shall be deemed to be a party to that certain Stockholders Agreement, dated as
of February 2, 1999, by and between the Company and the Stockholders identified
therein (the "STOCKHOLDERS AGREEMENT"). Pursuant to Section 4.8 (but subject to
Sections 2.2 and 2.3) of the Stockholders Agreement, the undersigned[, as
successor to _______ in respect of the Shares,] shall have all rights, and shall
observe all the obligations, applicable to a "STOCKHOLDER" as set forth in the
Stockholders Agreement. In order to give effect to this transaction, please add
the undersigned to the list of "Stockholders" as set forth in Schedule A to the
Stockholders Agreement.
Name: __________________________
ADDRESS:
By: ____________________________
Name:
Title:
Date:
<PAGE>
EXHIBIT 10.36
AMENDMENT TO
OPTION AGREEMENT
Dated January 8, 1998
This Amendment to Option Agreement dated January 8, 1998 (AAmendment@) is
made and entered into this 15 day of September, 1998, by and between HARVEYS
CASINO RESORTS, a Nevada corporation (AHARVEYS@) and GRAND PLAZA LIMITED
PARTNERSHIP, a Nevada limited partnership (AGRAND@).
WHEREAS, on January 8, 1998,, HARVEYS and GRAND entered into an
Option Agreement (the "Agreement"), to purchase 33.3 acres of real property
located on the northeast corner of Harmon and Koval in Las Vegas, Nevada,
commonly known as the Grand Plaza Site (the AProperty@), and
WHEREAS, paragraph 2 of the Agreement defines the option period and
any extensions thereof; and
WHEREAS, paragraph 2 of the Agreement states that the option period
shall not extend beyond October 15, 1998; and
WHEREAS, HARVEYS and GRAND now desire to modify paragraph 2 of the
Agreement so as to provide HARVEYS with the ability to extend the option
period until April 15, 1999.
NOW, THEREFORE, in consideration and exchange of mutual promises,
covenants and other valuable consideration, receipt of which is hereby
acknowledged, the parties agree as follows:
A. Paragraph 2 of the Agreement is hereby amended to
read as follows:
2. OPTION PERIOD; EXTENSION OF OPTION PERIOD: The rights and
privileges granted hereunder shall commence on the date first
set forth above, and shall run through and including May 15,
1998.
Subject to the provisions of paragraph 4, HARVEYS shall have
the right to extend the Option on a month to month basis upon
payment to GRAND of Thirty Seven Thousand Five Hundred Dollars
($37,500.00) per month, which payment shall be due prior to the
expiration of the than current option period; provided,
however, that if HARVEYS extends the Option beyond August 15,
1998, the fee to extend the Option shall increase to Seventy
five Thousand Dollars ($75,000.00) per month. Provided,
further, that if HARVEYS extends the Option beyond October 15,
1998, the fee to extend the Option shall increase to One
Hundred and Thirty Thousand Dollars ($130,000.00) per month. In
no event may HARVEYS extend the Option beyond April 15, 1999.
In the
<PAGE>
event HARVEYS fails to timely make a required payment to
extend the Option in accordance with the terms of this
paragraph 2, this Agreement, and all rights hereunder, shall
terminate and GRAND shall retain all funds received prior to
the date of termination.
In the event HARVEYS exercises its right to purchase the
Property the Option Payment, as well as all payments to extend
the Option to October 15, 1998 shall be credited to the
purchase price. In addition, of the payments to extend the
Option from October 15, 1998 to April 15, 1999 Fifty Thousand
Dollars ($50,000.00) shall be credited to the purchase price.
B. Nothing in this Amendment shall in any way effect, modify or
change the remaining provisions of the Agreement.
IN WITNESS WHEREOF, the parties have executed this First Amendment as
of The date first written above wit the intent to be legally bound thereby.
"HARVEYS"
By: /s/ Charles W. Scharer
---------------------------
Its: Chairman/President and CEO
--------------------------
"GRAND"
GRAND PLAZA LIMITED PARTNERSHIP
By: TPF Trading, Inc., Its General Partner
By: /s/ Martin Egbert, President
----------------------------
<PAGE>
EXHIBIT 10.37
EXTENSION OF EMPLOYMENT AGREEMENT
THIS EXTENSION AGREEMENT is made and entered into this 19th day of
October, 1998, by and between HARVEYS CASINO RESORTS, a Nevada corporation,
hereinafter referred to as "Harveys", and JAMES J. RAFFERTY, hereinafter
referred to as "Employee", as follows:
W I T N E S S E T H:
WHEREAS, Harveys and Employee did, on the 23nd day of June, 1997,
enter into an Employment Agreement (the "Agreement"); and
WHEREAS, pursuant to paragraph 3.01 of the Agreement, Employee
agreed to be employed by Harveys for an additional period of at least two (2)
years commencing on the 23rd day of June, 1997, and terminating on the 22nd
day of June, 1999; and
WHEREAS, Harveys and the Employee desire to further extend the term
of employment;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained and other good and valuable consideration,
receipt whereof is hereby acknowledged, the parties hereto agree to extend
the term of employment for an additional year period, from June 23, 1999
through and including June 22, 2000.
Executed the day and year first above written.
EMPLOYEE:
/s/ James J. Rafferty
---------------------------------------
James J. Rafferty
EMPLOYER:
HARVEYS CASINO RESORTS, a Nevada corporation
By: /s/ Charles W. Scharer
----------------------------------
CHARLES W. SCHARER
President/CEO
<PAGE>
EXHIBIT 10.38
EXTENSION OF EMPLOYMENT AGREEMENT
THIS EXTENSION AGREEMENT is made and entered into this 26th day of
October, 1998, by and between HARVEYS CASINO RESORTS, a Nevada corporation,
hereinafter referred to as "Harveys", and GARY ARMENTROUT, hereinafter
referred to as "Employee", as follows:
W I T N E S S E T H:
WHEREAS, Harveys and Employee did, on the 9th day of May, 1995,
entered into an Employment Agreement (the "Agreement"); and
WHEREAS, Harveys and Employee did on the 23rd day of August, 1996,
extend the term of employment for an additional one (1) year from May 8, 1997
to and including May 8, 1998; and
WHEREAS, Harveys and Employee did on the 9th day of September, 1997,
extend the terms of employment for an additional one (1) year from May 8,
1998 through and including May 8, 1999; and
WHEREAS, Harveys and the Employee desire to extend the term of
employment;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained and other good and valuable consideration,
receipt whereof is hereby acknowledged, the parties hereto agree to extend
the term of employment of an additional one (1) year period, from May 8, 1999
through and including May 8, 2000.
Executed the day and year first above written.
EMPLOYEE:
/s/ Gary Armentrout
-------------------------------------------
Gary Armentrout
EMPLOYER:
HARVEYS CASINO RESORTS, a Nevada corporation
By: /s/ Charles W. Scharer
-------------------------------------
CHARLES W. SCHARER
President/CEO
<PAGE>
EXHIBIT 10.39
HARVYES CASINO RESORTS
DEFERRED COMPENSATION PARTICIPANTS
January 1, 1999
CORPORATE %/$
Aiazzi, Gary 2%
Bellotti, John $100**
Cavallaro, Steve 2.5%
Evans, Thomas *
Goldberg, Arthur 18%
Hewitt, John 5%
Ledbetter, Jessica *
Ledbetter, William *
Scharer, Charles 7.5%
Shore, Jerry 4%
Yturbide, Tom *
COLORADO
Barraco, Ed 7%
Clerkin, Geri 5%
Fletcher, Debi 5%
IOWA
French, William 8%
Hill, Art 8%
Picker, Bonnie 5%
Welch, Verne 15%
TAHOE
Blaume, Heinz *
Ewald, Sue 20%
Fletcher, William 15%
Herback, Phil 20%
Hurst, David 20%
Kelmanson, Lou 10%
Servatius, Kevin *
Wells, Joe 6%
* No current deduction
** Bi-Weekly
<PAGE>
Exhibit 10.43
STOCK OPTION
AND RESTRICTED STOCK AGREEMENT
STOCK OPTION AND RESTRICTED STOCK AGREEMENT (this
"Agreement"), dated as of February 2, 1999 (the "Effective Date"), by and
between Harveys Casino Resorts, a Nevada corporation (the "Company"), and
Charles W. Scharer (the "Executive"), an employee of the Company or a Subsid
iary of the Company.
Pursuant to the Company's 1999 Omnibus Stock Incentive Plan
(the "Plan"), the Board of Directors of the Company (the "Board"), as the
Administra tor of the Plan, has determined that the Executive is to be granted
(i) an option (the "Option") to purchase shares of the Company's Class A Common
Stock, par value $.01 per share (the "Class A Common Stock"), and shares of the
Company's Class B Common Stock, par value $.01 per share (the "Class B Common
Stock" and, together with the Class A Common Stock, the "Common Stock"), and
(ii) a Restricted Stock award consisting of additional shares of Class A Common
Stock and Class B Common Stock (the "Restricted Shares"), each on the terms and
conditions set forth herein, and hereby grants such Option and Restricted Stock
award. Such grants shall be deemed to satisfy in full the Company's obligations
under Section 7.03 of that certain Employment Agreement, of even date herewith,
between the Executive and the Company (the "Employment Agreement"). It is
intended that the Option shall constitute an "incentive stock option" within the
meaning of Section 422 of the Code (an "ISO") to the maximum extent permitted
under the Code. Additional provisions relating to the ISO status of the Option
are set forth in Section 1 below.
Any capitalized terms not defined herein shall have their
respective meanings set forth in the Plan.
1. TERMS OF OPTION GRANT. (a) The Option entitles the Execu
tive to purchase 360 shares of the Company's Class A Common Stock at a price
equal to $20.06 per share (the "Class A Option Exercise Price"), which the
parties acknowledge is not less than the fair market value of one share of the
Class A Common Stock as of the Effective Date. The Option also entitles the
Executive to purchase 36,000 shares of the Company's Class B Common Stock at a
price equal to $20.06 per share (the "Class B Option Exercise Price" and,
collectively with the Class A Option Exercise Price, the "Option Exercise
Price"), which the parties acknowledge is not less than the fair market value of
one share of the Class B
1
<PAGE>
Common Stock as of the Effective Date. The shares of Class A Common Stock
and Class B Common Stock subject to the Option are referred to herein as the
"Option Shares."
(b) The term of the Option (the "Option Term") shall
commence on the Effective Date (the "Date of Grant") and, unless the Option is
previously terminated pursuant to this Agreement, shall terminate upon the
expiration of ten (10) years from the Date of Grant. Upon expiration of the
Option Term, all rights of the Executive hereunder shall terminate.
(c) The Option shall vest as to 20% of the Option
Shares on each of the first five anniversaries of the Date of Grant, PROVIDED,
that
i) the Option and such vesting shall
be subject to the forfeiture provisions of Section 7(b) below (the
"Special Forfeiture Provisions"), such that any such vested portion of
the Option shall be exercisable from time to time only if and to the
extent that such vested portion shall not be subject to forfeiture
pursuant to the Special Forfeiture Provisions;
ii) upon the occurrence of a Change in
Control (as defined in Section 3 below) at any time prior to the
effective date (as determined under the Employment Agreement) of
Executive's termination of employment with the Company for any or no
reason, the Option shall immediately vest and become exercisable as to
100% of the Option Shares and the Special Forfeiture Provisions
shall immediately expire;
iii) if Executive's employment with the
Company is terminated (A) by the Company without Cause (as defined in
the Employment Agreement as in effect as of the date hereof, or as the
same may be amended from time to time, regardless of the termination
of the Employ ment Agreement prior to the effective date of
such termination) within the 12 month period immediately preceding a
Change in Control (or such longer period, not to exceed 18 months
prior to such Change in Control, during which significant
discussions or other material action regarding such Change in Control
occurred) at the request, directly or indirectly, of a third party who
has taken steps reasonably calculatedto effect a Change in Control or
otherwise in connection with, or in anticipation of a Change
in Control, or (B) by Executive for Good Reason (as defined
in the Employ-
2
<PAGE>
ment Agreement) if the grounds constituting Good Reason occur as the
result of a Change in Control or within the above-referenced time
frame at the request, directly or indirectly, of such a third party or
otherwise in connection with, or in anticipation of a Change in
Control, (i) the Option shall be deemed to have immediately vested and
become exercisable as to 100% of the Option Shares as of the effective
date of such Change in Control, (ii) the Special Forfeiture Provisions
shall be deemed to have immediately expired as of the effective date
of such Change in Control and (iii) the exercisability of the Option
shall be as determined under Section 7(a); and
iv) if Executive's employment with the
Company is terminated by the Company without Cause or by Executive
for Good Reason (as defined in the Employment Agreement), the
Option shall immediately vest and become exercisable and the Special
Forfeiture Provisions shall immediately expire as to that number of
Option Shares that would have vested pursuant to the first clause of
this Section 1(c) had Executive's employment continued without
interruption through the date that is 24 months following the
effective date of such termination as deter mined under the
Employment Agreement.
Those Option Shares which, as of any date, have vested pursuant to the first
clause of this Section 1(c) but remain subject to the Special Forfeiture
Provisions shall be referred to herein as "Vested Option Shares."
(d) Except as otherwise provided herein, the right of the Executive to
purchase Option Shares with respect to which the Option has become exercisable
may be exercised in whole or in part at any time or from time to time prior to
expiration of the Option Term, PROVIDED, that any exercise of the Option shall
be deemed to relate in tandem to both the Class A Common Stock and the Class B
Common Stock subject to the Option, such that the ratio of (i) the number of
shares of Class A Common Stock issuable upon such exercise to (ii) the total
number of shares of Class A Common Stock outstanding on the date hereof shall be
the same as the ratio of (iii) the number of shares of Class B Common Stock
issuable upon such exercise to (iv) the total number of shares of Class B Common
Stock outstanding on the date hereof.
(e) The Option may be exercised by means of written notice of exercise
to the Company specifying the number of Option Shares to be pur-
3
<PAGE>
chased, accompanied by payment in full of the aggregate Option Exercise
Price and any applicable withholding amounts (i) in cash or by check, (ii) at
any time following the closing of the Company's Initial Public Offering (as
defined in Section 3 below) by means of a broker cashless exercise procedure,
on terms reasonably acceptable to the Company, providing proceeds sufficient
to pay the exercise price and any applicable withholding amounts, or (iii) by
any other means of exercise authorized from time to time in the Plan and/or
by the Board. In addition, with respect to any exercise of the Option that
occurs following Execu tive's termination of employment with the Company at
any time prior to the closing of the Company's Initial Public Offering, the
Option may, at Executive's election, be exercised through withholding of
shares of Common Stock otherwise issuable upon exercise of the Option having
an aggregate Fair Market Value equivalent to the aggregate Option Exercise
Price plus applicable withholding amounts.
(f) To the extent the Option is intended to constitute an ISO,
the ratio of (i) the number of shares of Class A Common Stock to which the
ISO portion of the Option relates to (ii) the total number of shares of Class A
Common Stock outstanding on the date hereof shall be the same as the ratio of
(iii) the number of shares of Class B Common Stock to which the ISO portion of
the Option relates to (iv) the total number of shares of Class B Common Stock
outstanding on the date hereof.
2. TERMS OF RESTRICTED STOCK AWARD. (a) The Restricted Stock
award entitles the Executive as of the Date of Grant to receive 270 shares of
Class A Common Stock and 27,000 shares of Class B Common Stock (the "Restricted
Shares"), subject to the terms and conditions of this Agreement.
(b) Subject to the rights and obligations of Executive
pursuant to that certain Stockholders Agreement, of even date herewith, by and
among the Company, Executive and the other parties thereto (the "Stockholders
Agreement"), and except as provided in Section 2(c) below, the Restricted Shares
may not be sold, assigned, transferred, pledged, hypothecated or otherwise dis
posed of in any manner or under any circumstances (the "Transfer Restrictions").
(c) The Transfer Restrictions shall lapse as to 20%
of the Restricted Shares on each of the first five anniversaries of the Date of
Grant, PROVIDED, that
4
<PAGE>
i) the Restricted Shares and such lapse
shall be subject to the Special Forfeiture Provisions of Section 7(b),
such that the Transfer Restrictions shall continue to apply to the
Restricted Shares for so long and to the extent that the Restricted
Shares shall be subject to forfeiture pursuant to the Special
Forfeiture Provisions;
ii) upon the occurrence of a Change in
Control at any time prior to the effective date (as determined under
the Employment Agreement) of Executive's termination of employment
with the Company for any or no reason, the Transfer Restrictions shall
immediately lapse as to 100% of the Restricted Shares and the Special
Forfeiture Provisions shall immediately expire;
iii) if Executive's employment with the
Company is terminated under the circumstances set forth in
Section 1(c)(iii) above, (i) the Transfer Restrictions shall be
deemed to have immediately lapsed as to 100% of the Restricted Shares
as of the effective date of such Change in Control, and (ii) the
Special Forfeiture Provisions shall be deemed to have immediately
expired as of the effective date of the Change in Control; and
iv) if Executive's employment with the
Company is terminated by the Company without Cause or by Executive for
Good Reason (each as defined above), the Transfer Restrictions shall
immediately lapse and the Special Forfeiture Provisions shall
immediately expire as to that number of Restricted Shares as to which
the Transfer Restrictions would have lapsed pursuant to the first
clause of this Section 2(c) had Executive's employment continued
without interruption through the date that is 24 months following the
effective date of such termination as determined under the Employment
Agreement.
Those Restricted Shares as to which, as of any date, the Transfer Restrictions
have lapsed pursuant to the first clause of this Section 2(c) but which remain
subject to the Special Forfeiture Provisions shall be referred to herein as
"Lapsed Restricted Shares."
(d) From and after the Date of Grant and for so long
as the Restricted Shares are held by or for the benefit of the Executive, except
as limited by the Stockholders Agreement, the Transfer Restrictions and the
Special Forfeiture Provisions, the Executive shall have all the rights of a
stockholder of the Company
5
<PAGE>
with respect to the Restricted Shares, including but not limited to the right to
receive dividends on and the right to vote such shares.
3. CERTAIN DEFINITIONS. (a) For purposes of this Agreement,
"Initial Public Offering" shall mean the closing of a public offering pursuant
to an effective registration statement under the Securities Act of 1933, as
amended (the "Securities Act") covering shares of the Company's Common Stock,
which shares are approved for listing or quotation on the New York Stock
Exchange, American Stock Exchange or Nasdaq National Market.
(b) For purposes of this Agreement, "Change in Control"
means the occurrence of one or more of the following events:
i) the sale, lease, transfer,
conveyance or other disposition, in one or a series of related
transactions, of all or substantially all of the assets of the Company
and its Subsidiaries, taken as a whole;
ii) the adoption by the Company's
stockholders of a plan of liquidation or dissolution of the Company;
iii) prior to the time the Company or any
Parent Corporation completes an Initial Public Offering, the
Company becomes aware (by way of a report or any other filing pursuant
to Section 13(d of the Exchange Act, proxy vote, written notice or
otherwise) of the acquisi tion by any "Person" or related group
(within the meaning of Section 13(d)(3) or Section 14(d)(2) of the
Exchange Act, or any successor provision to either of the foregoing,
including any group" acting for the purpose of acquiring, holding or
disposing of securities within the meaning of Rule 13d-5(b)(1) under
the Exchange Act), other than a group consisting of the Principals and
their Related Parties, in a single transaction or in a related series
of transactions, by way of merger, consolidation or other business
combination or purchase of direct or indirect beneficial ownership
(within the meaning of Rule 13d-3 under the Exchange Act, or any
successor provision) of 50% or more of the total voting power entitled
to vote in the election of the Board of Directors of the Company or
such other Person surviving the transaction;
iv) subsequent to the time the Company or
any Parent Corporation completes an Initial Public Offering, the
Principals and
6
<PAGE>
their Related Parties shall directly or indirectly beneficially
own shares of capital stock representing less than 25% of the total
voting power entitled to vote in the election of the Board of
Directors of the Company and either (A) any other Person directly or
indirectly beneficially owns shares of capital stock representing
voting power in excess of the voting power represented by shares of
capital stock owned by the Principals and their Related Parties or (B)
individuals who were the voting members of the Company's Board of
Directors at the beginning of any two year period commencing
subsequent to the Initial Public Offering (together with any new
voting directors whose election or appointment by such board or whose
nomination for election by the shareholders of the Company was
approved by a vote of a majority of the directors then still in office
who were either directors at the beginning of such period or whose
election or nomination for election was previously so approved) cease
for any reason to constitute a majority of the Company's Board of
Directors then in office.
(c) For purposes of this Agreement, the following
terms shall have the meanings as set forth below:
i) "Exchange Act" means the Securities
Exchange Act of 1934, as amended, and the rules and regulations
promulgated there under;
ii) "Principals" means Colony
Investors III, L.P., Colony Capital, Inc. and any of their respective
affiliates and any of the Company's officers and directors; and
iii) "Related Party" with respect to any
Principal means (A) any controlling stockholder, 80% (or more) owned
Subsidiary, or spouse or immediate family member (in the case of an
individual) of such Principal or (B) any trust, corporation,
partnership or other entity, the beneficiaries, stockholders,
partners, owners or Persons beneficially holding an 80% or more
controlling interest of which consist of such Principal and/or such
other Persons referred to in the immediately preceding clause (A).
(d) For purposes of this Agreement, "Fair Market
Value"(when capitalized, unless the context clearly indicates otherwise) means,
as of any given date, (A) if the Common Stock is publicly traded, the closing
sale price of the
7
<PAGE>
Common Stock on such date (or the nearest preceding date on which the Common
Stock was traded) as reported in the Western Edition of THE WALL STREET JOURNAL,
or (B) if the Common Stock is not publicly traded, the fair market value of the
Common Stock as determined in accordance with the procedures set forth below, in
each case based on the per share value of the Company as a whole as of the
relevant date, without any discount for the sale of a minority interest and
without considering lack of liquidity, including transfer and other restrictions
on the Common Stock:
i) The Board shall determine the fair market
value of the Common Stock in good faith, using commercially reasonable
methods and at the Company's sole expense, PROVIDED, that if Executive
is a member of or non-voting observer on the Board, Executive shall
recuse himself from all deliberations of the Board regarding such
determination, and except as otherwise provided herein shall not be
entitled to receive or be provided access to any minutes or other
records of the Board with respect to such determination. The Board
shall communicate the per share valuation as so determined in writing
to Executive within 20 business days following the date written notice
is provided or the Board takes cognizance of the need to determine the
Fair Market Value of the Common Stock, and upon Execu tive's request,
the Board shall provide Executive appropriate supporting documentation
regarding the methods, assumptions and other bases used in arriving at
such valuation. If acceptable to Executive, the fair market value of
the Common Stock shall be as so determined.
ii) If the fair market value as determined
under (i) is not acceptable to Executive, Executive shall determine the
fair market value of the Common Stock in good faith, using
commercially reasonable methods and at Executive's sole expense, and
shall communicate the per share valuation as so determined in writing
to the Board within 20 business days following the Board's
communication to Executive of the per share valuation pursuant to (i)
above and, upon the Board's request, Executive shall provide to the
Board appropriate supporting documentation regarding the methods,
assumptions and other bases used in arriving at such valuation. If
acceptable to the Board, the fair market value of the Common Stock
shall be as so determined.
iii) If the fair market value as determined
under (ii) is not acceptable to the Board, the Board and Executive
shall then
8
<PAGE>
negotiate in good faith to agree upon the fair market value of the
Common Stock, based on the valuations under (i) and (ii) above.
iv) If the Board and Executive shall be unable by
the foregoing means to agree upon the fair market value of the Common
Stock within ten business days after the Board has been advised of
Execu tive's valuation, the issue shall then be submitted to binding
arbitration in Las Vegas, Nevada according to the rules and procedures
of the American Arbitration Association. The Company and Executive
shall each submit to the arbitrator their valuations under (i) and (ii)
above, together with all supporting documentation regarding the
methods, assumptions and other bases used in arriving at such
valuation. The arbitrator shall then be instructed to choose which of
the two valuations more closely reflects the fair market value of the
Common Stock, and shall not have the right to choose a third valuation
as the appropriate fair market value of the Common Stock. The party
whose valuation is not so chosen by the arbitrator shall pay any and
all costs and expenses of the arbitration (but not the initial
valuation of the other party), including without limitation reasonable
attor neys' fees and other fees incurred by the prevailing party in
such arbitration. Judgment may be entered on the arbitrator's
determination and award.
4. DEFERRED COMPENSATION ARRANGEMENT WITH RESPECT TO
RESTRICTED SHARES. Notwithstanding anything herein to the contrary, at any time
prior to the occurrence of a Distribution Event (as defined in the Deferred
Compen sation Agreement, of even date herewith, between Executive and the
Company (the "Deferred Compensation Agreement")) that the Transfer Restrictions
and Special Forfeiture Restrictions would otherwise lapse with respect to any
portion of the Restricted Shares and result in the recognition of income by
Executive, such Restricted Shares (the "Deferred Shares") shall be cancelled and
an equivalent number of Deemed Deferred Shares (as defined in the Deferred
Compensation Agreement) shall be added to the Restricted Stock Sub-Account under
the Deferred Compensation Agreement.
5. ADJUSTMENTS. In the event of any merger, reorganization,
consolidation, recapitalization, stock dividend, stock split or similar change
affecting the Common Stock, an equitable substitution or proportionate
adjustment shall be made in the kind and number of Restricted Shares and in the
kind, number and option price of shares of Common Stock subject to the Option,
as may be determined by the Board in good faith.
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6. NONTRANSFERABILITY OF OPTION AND OPTION SHARES; OPTION
SHARES AND RESTRICTED SHARES SUBJECT TO STOCKHOLDERS AGREEMENT. (a) The Option
and this Agreement shall not be transferable and, during the lifetime of
Executive, the Option may be exercised only by Executive; PROVIDED, HOWEVER,
that the Executive shall be permitted to transfer the Option and this Agreement
to a trust controlled by the Executive during the Executive's lifetime for
estate planning purposes, and provided, further, that the limited
transferability provisions set forth in the immediately preceding proviso shall
apply to any portion of the Option that constitutes an ISO only to the extent
such provisions are consistent with Section 422(b) of the Code. Without limiting
the generality of the foregoing, except as otherwise provided herein, the Option
may not be assigned, transferred, pledged or hypothecated in any way, shall not
be assignable by operation of law, and shall not be subject to execution,
attachment or similar process. Any attempted assignment, transfer, pledge,
hypothecation or other disposition of the Option contrary to the provisions
hereof, and the levy of any execution, attachment or similar process upon the
Option shall be null and void and without effect.
(b) The Executive, the Restricted Shares and, upon
exercise of the Option, the Option Shares, shall at all times and in all
respects be subject to the Stockholders Agreement, the provisions of which
shall be deemed to be incorporated into this Agreement.
7. EFFECT OF TERMINATION OF EMPLOYMENT; SPECIAL FORFEITURE
PROVISIONS. (a) Upon the termination of Executive's employment with the Com pany
under any circumstances and for any or no reason (including without limita tion
by reason of the death or Disability of the Executive or the sale of such
Subsidiary), the Option shall immediately terminate as to all Option Shares that
shall not have vested as of the effective date (as determined under the
Employment Agreement) of such termination of employment, and the Executive shall
forfeit all Restricted Shares as to which the Transfer Restrictions have not
lapsed as of such date of termination, in each case taking into account any
additional vesting and/or lapse that shall have occurred by reason of the
provisions of Sections 1(c)(iv) and 2(c)(iv). Notwithstanding the foregoing, to
the extent the provisions of Sections 1(c)(iii) and 2(c)(iii) shall apply in
connection with a Change in Control, (i) the Option shall be deemed to have been
vested and exercisable in full as of the effective date of Executive's
termination of employment, (ii) the Transfer Restric tions shall be deemed to
have lapsed in full and the Special Forfeiture Provisions shall be deemed to
have expired as of the effective date of such Change in Control
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and (iii) the exercise provisions of Section 7(c) shall apply as if Executive's
employment had been terminated as of the date of such Change in Control.
(b) In addition, in the event the Executive's
employment with the Company is terminated prior to the Forfeiture Provision
Expiration Date (as defined below) (i) at any time prior to the fifth
anniversary of the Date of Grant by the Executive other than for Good Reason or
(ii) at any time by the Company for Cause (each as defined above), Executive
shall thereupon forfeit that portion of the Vested Option Shares and Lapsed
Restricted Shares equal to the Applicable Reduction Percentage (as defined
below).
i) The "Applicable Reduction Percentage" shall
mean (A) at all times prior to the occurrence of an Initial Public
Offering, two-thirds and (B) at all times following an Initial Public
Offering but prior to the occurrence of a 50% Colony Sell-Down,
one-third.
ii) The Special Forfeiture Provisions shall expire
in their entirety as of the date of (x) the Company's Initial Public
Offering, if such Initial Public Offering occurs subsequent to a 50%
Colony Sell-Down, (y) a 50% Colony Sell-Down that occurs at any time
subsequent to the Company's Initial Public Offering or (z) a Change in
Control (the "Forfeiture Provision Expiration Date").
iii) A "50% Colony Sell-Down" shall be deemed
to occur when the Principals and their affiliates (excluding officers
and employees of the Company who are Principals or affiliates merely by
reason of their being such an officer or employee) shall, directly or
indirectly, beneficially own shares of capital stock of the Company
representing less than 50% of the largest total number of such shares
theretofore owned by such persons.
(c) Subject to the Company's call rights set forth in
Section 8, any portion of the Option that, pursuant to Section 1(c) above, shall
be vested and exercisable as of the effective date of Executive's termination of
employment (the "Termination Date") shall be exercisable in whole or in part for
a period of 90 days following the Termination Date (180 days in the event of
termination by reason of disability, and one year in the event of termination by
reason of death). All Option Shares with respect to which the Option shall be so
vested and exercis able shall be referred to herein as "Vested and Exercisable
Option Shares." Upon
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expiration of such period, any unexercised portion of the Option shall terminate
in full; provided, however, that if the Company provides notice to the Executive
of its intent to exercise the Call pursuant to Section 8, any portion of the
Option subject to such exercise shall terminate as of the closing of the Call.
8. CALL RIGHTS. In the event of (I) the termination of the
Executive's employment with the Company at any time, under any circumstances and
for any or no reason, (II) a Change in Control or (III) any transfer of any
Option Shares or Restricted Shares by the Executive under any circumstances
(other than to a trust controlled by Executive for estate planning purposes, the
trustee of which agrees in writing to be subject in all events and for all
purposes to the Company's Call as set forth herein), including pursuant to any
arrangement, proceeding, decree, judgement, order or application of law relating
to the division of property for domestic relations purposes, for a period
commencing on the date of such event and expiring upon the Company's Initial
Public Offering (the "Call Exercise Period"), the Company shall have the right
to purchase from the Execu tive, by giving written notice to the Executive
pursuant hereto and in accordance with the terms and conditions of Section 8(a)
below (the "Call") (x) any or all of such portion of the Option as shall relate
to Vested and Exercisable Option Shares as of the date such written notice is
given (the "Call Exercise Date"), (y) any or all Option Shares owned by the
Executive as of the end of business on the Call Exercise Date and/or (z) any or
all Restricted Shares as of the end of business on the Call Exercise Date as to
which the Transfer Restrictions shall have lapsed pursuant to Section 2(c) and
which shall not theretofore have been forfeited by Executive pursuant to Section
7(b).
(a) The following terms and conditions shall apply to the
exercise of the Call:
i) If exercising its rights under (x) above, the
Company shall pay the Executive an amount in cash equal to the product
of (A) the excess, if any, of the Fair Market Value of a share of Class
A Common Stock or Class B Common Stock, as applicable, as of the
Termina tion Date (the "Call Price") over the Class A Option Exercise
Price or Class B Option Exercise Price, as applicable, and (B) the
number of shares of Class A Common Stock or Class B Common Stock, as
applicable, that the portion of the Option being purchased by the
Company pursuant to the Call would otherwise entitle the Executive to
purchase.
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ii) If exercising its rights under (y) or (z) above,
the Company shall pay the Executive an amount equal to the product of
(A) the Call Price and (B) the number of Option Shares or Restricted
Shares, as applicable, being purchased pursuant thereto.
(b) The closing with respect to the exercise of the Call
shall take place at the Company's executive offices within 30 days following the
Call Exercise Date (the "Scheduled Closing Date").
(c) Notwithstanding any other provision hereof, the
Company may assign, without the consent of the Executive, its rights under this
Section 8; provided, that no such assignment shall release the Company from its
obligations hereunder.
(d) The Call shall terminate upon the closing of the
Company's Initial Public Offering.
9. INVESTMENT REPRESENTATION. The Executive hereby represents
and warrants to the Company that the Executive, by reason of the Executive's
business or financial experience (or the business or financial experience of the
Executive's professional advisors who are unaffiliated with and who are not
compensated by the Company or any affiliate or selling agent of the Company,
directly or indirectly), has the capacity to protect the Executive's own
interests in connection with the transactions contemplated under this Agreement.
10. NOTICES. All notices and other communications under this
Agreement shall be in writing and shall be given by first class mail, certified
or registered with return receipt requested, or by a nationally recognized
overnight delivery service to the respective parties named below:
If to Company: Harveys Casino Resorts
Highway 50 and Stateline Avenue
P.O. Box 128
Lake Tahoe, Nevada 89449
Attention: John J. McLaughlin
Facsimile: 775-586-6852
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with a copy to: Colony Capital, Inc.
1999 Avenue of the Stars
Los Angeles, California 90067
Attention: Kelvin L. Davis
Facsimile: 310-282-8808
and a copy to: Skadden, Arps, Slate, Meagher & Flom LLP
300 South Grand Avenue
Los Angeles, California 90071
Attention: Jonathan H. Grunzweig
Facsimile: 213-687-5600
If to the Executive: Charles W. Scharer
P.O. Box 4735
148 Granite Springs Drive
Stateline, Nevada 89449
Facsimile: 775-588-6399
with a copy to: Michael Forman
Klehr, Harrison, Harvey, Branzburg &
Ellers LLP
1401 Walnut Street
Philadelphia, Pennsylvania 19102
Facsimile: 215-568-3206
Either party hereto may change such party's address for notices by notice duly
given pursuant hereto.
11. SECURITIES LAWS REQUIREMENTS. The Option shall not be
exercisable to any extent, and the Company shall not be obligated to transfer
any Option Shares to the Executive upon exercise of the Option, if such
exercise, in the opinion of counsel for the Company, would violate the
Securities Act (or any other federal or state statutes having similar
requirements as may be in effect at that time). Further, the Company may require
as a condition of transfer of any Option Shares pursuant to any exercise of the
Option that the Executive furnish a written representation that he is purchasing
or acquiring the Option Shares for investment and not with a view to resale or
distribution to the public, and the Executive hereby represents and warrants
that he is acquiring the Restricted Shares for investment and not with a view to
resale or distribution to the public. The Executive hereby represents and
warrants that he understands that the Option Shares and the Re-
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stricted Shares are "restricted securities," as defined in Rule 144 under
the Securi ties Act, and that any resale of the Option Shares or the Restricted
Shares must be in compliance with the registration requirements of the
Securities Act or an exemp tion therefrom. Each certificate representing Option
Shares or Restricted Shares shall bear the legend set forth below:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED,
SOLD, ASSIGNED, HYPOTHECATED OR OTH ERWISE DISPOSED OF (A "TRANSFER")
EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF THAT CERTAIN STOCKHOLDERS
AGREEMENT, DATED AS OF FEBRUARY 2, 1999, BY AND AMONG HARVEYS CASINO
RESORTS, A NEVADA CORPORATION, AND CERTAIN OF ITS STOCKHOLDERS AND THAT
CERTAIN STOCK OPTION AND RESTRICTED AWARD AGREEMENT, OF EVEN DATE
HEREWITH, BETWEEN THE COMPANY AND ONE OF ITS SENIOR EXECUTIVES. ANY
TRANSFEREE OF THESE SECURITIES SHALL TAKE SUBJECT TO THE TERMS OF SUCH
AGREEMENTS, COPIES OF WHICH ARE ON FILE WITH THE COMPANY.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 (THE "ACT") OR ANY STATE SECURITIES
LAWS, AND NO TRANS FER OF THESE SECURITIES MAY BE MADE EXCEPT (A) PURSU
ANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, OR (B)
PURSUANT TO AN EXEMPTION THEREFROM WITH RESPECT TO WHICH THE COMPANY
MAY, UPON REQUEST, REQUIRE A SATISFACTORY OPINION OF COUNSEL FOR THE
HOLDER THAT SUCH TRANSFER IS EXEMPT FROM THE REQUIREMENTS OF THE ACT.
Further, if the Company determines that the listing or qualification of the
Option Shares under any securities or other applicable law is necessary in order
to avoid a violation of any securities laws, the Option shall not be
exercisable, in whole or in part, unless and until such listing or
qualification, or a consent or approval with respect thereto, shall have been
effected or obtained free of any conditions not acceptable to the Company,
PROVIDED, that the Company shall pursue such listing or qualification diligently
and in good faith.
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12. NO OBLIGATION TO REGISTER SHARES. Except as provided in
the Stockholders Agreement, the Company shall be under no obligation to register
the Restricted Shares or the Option Shares.
13. PROTECTIONS AGAINST VIOLATIONS OF AGREEMENT. No purported
sale, assignment, mortgage, hypothecation, transfer, pledge, encumbrance, gift,
transfer in trust (voting or other) or other disposition of, or creation of a
security interest in or lien on, any of the Restricted Shares or Option Shares
by any holder thereof in violation of the provisions of this Agreement, the
Stockholders Agree ment or the Certificate of Incorporation or the Bylaws of the
Company, will be valid, and the Company will not transfer any of said Restricted
Shares or Option Shares on its books nor will any of the Restricted Shares or
Option Shares be entitled to vote, nor will any dividends be paid thereon,
unless and until there has been full compliance with such provisions to the
satisfaction of the Company. The foregoing restrictions are in addition to and
not in lieu of any other remedies, legal or equitable, available to enforce such
provisions.
14. WITHHOLDING REQUIREMENTS. Executive shall, no later than
the date as of which the value of any award hereunder becomes includable in his
gross income (after taking into account the provisions of Section 4 hereof), pay
to the Company, or make arrangements satisfactory to the Company regarding
payment of, any federal, state, or local taxes or other amounts of any kind
required by law to be withheld with respect thereto. The obligations of the
Company hereunder shall be conditional on the making of such payments or
arrangements, and the Company shall, to the extent permitted by law, have the
right to deduct any such taxes from any payment of any kind otherwise due to
Executive.
15. FAILURE TO ENFORCE NOT A WAIVER. The failure to enforce at
any time any provision of this Agreement shall in no way be construed to be a
waiver of such provision or of any other provision hereof.
16. GOVERNING LAW. This Agreement shall be governed by and
construed according to the laws of the State of Nevada without regard to its
principles of conflict of laws.
17. INCORPORATION OF PLAN. The Plan is hereby incorporated by
reference and made a part hereof, and the Option, the Restricted Stock award and
this Agreement shall be subject to all terms and conditions of the Plan;
provided,
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however, that in the event of a conflict between the terms of this Agreement and
the Plan, the terms of this Agreement shall govern.
18. AMENDMENTS. This Agreement may be amended or modified at
any time only by an instrument in writing signed by each of the parties hereto.
19. RIGHTS AS A STOCKHOLDER. Neither the Executive nor any of
the Executive's successors in interest shall have any rights as a stockholder of
the Company with respect to any shares of Common Stock subject to the Option
until the date of issuance of a stock certificate for such shares of Common
Stock.
20. AGREEMENT NOT A CONTRACT OF EMPLOYMENT. Neither the Plan,
the granting of the Restricted Stock award and the Option, this Agreement nor
any other action taken pursuant to the Plan shall constitute or be evidence of
any agreement or understanding, express or implied, that the Executive has a
right to continue as an employee of the Company or any Subsidiary or affiliate
of the Company for any period of time or at any specific rate of compensation.
21. AUTHORITY OF THE BOARD. The Board shall have full
authority to interpret and construe the terms of the Plan and this Agreement,
and shall do so in good faith.
22. DISPUTE RESOLUTION. Any dispute arising under this
Agreement shall be resolved in accordance with the arbitration provisions of the
Employment Agreement as in effect as of the date hereof, or as the same may be
amended from time to time, regardless of the expiration of the Employment
Agreement prior to the resolution of such dispute, and such arbitration
provisions shall be deemed to be incorporated herein by this reference.
23. MARKET STAND-OFF. In connection with any underwritten
public offering by the Company of its equity securities pursuant to an effective
registration statement filed under the Securities Act for such period as the
Company or its underwriters may request (such period not to exceed 180 days
following the date of the applicable offering), the Executive shall not,
directly or indirectly, sell, make any short sale of, loan, hypothecate, pledge,
offer, grant or sell any option or other contract for the purchase of, purchase
any option or other contract for the sale of, or otherwise dispose of or
transfer, or agree to engage in any of the foregoing transactions with respect
to, any Restricted Shares or Option Shares acquired under this Agreement without
the prior written consent of the Company or its underwrit-
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ers, provided, that the Executive shall not be required to be subject to
"lock-up" restrictions that are more restrictive than such restrictions to which
any other Employee Stockholder (as defined in the Stockholders Agreement) having
commen surate job duties and responsibilities in the Company is subject, or that
would prevent the Executive from effectuating a sale pursuant to Section 2.5 of
the Stockholders Agreement or Section 3.1 of the Stockholders Agreement.
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Agreement on the day and year first above written.
HARVEYS CASINO RESORTS
By: /s/ John J. McLaughlin
--------------------------------
Name: John J. McLaughlin
Title: Chief Financial Officer
The undersigned hereby accepts and agrees
to all the terms and provisions of the
foregoing Agreement and to all the terms
and provisions of the Plan and the
Stockholders Agreement herein
incorporated by reference.
/s/ Charles W. Scharer
------------------------------------
CHARLES W. SCHARER
Address: P.O. Box 4735
148 Granite Springs Drive
Stateline, Nevada 89449
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Exhibit 10.44
STOCK OPTION
AND RESTRICTED STOCK AGREEMENT
STOCK OPTION AND RESTRICTED STOCK AGREEMENT (this
"Agreement"), dated as of February 2, 1999 (the "Effective Date"), by and
between Harveys Casino Resorts, a Nevada corporation (the "Company"), and
Stephen L. Cavallaro (the "Executive"), an employee of the Company or a
Subsidiary of the Company.
Pursuant to the Company's 1999 Omnibus Stock Incentive Plan
(the "Plan"), the Board of Directors of the Company (the "Board"), as the
Administra tor of the Plan, has determined that the Executive is to be granted
(i) an option (the "Option") to purchase shares of the Company's Class A Common
Stock, par value $.01 per share (the "Class A Common Stock"), and shares of the
Company's Class B Common Stock, par value $.01 per share (the "Class B Common
Stock" and, together with the Class A Common Stock, the "Common Stock"), and
(ii) a Restricted Stock award consisting of additional shares of Class A Common
Stock and Class B Common Stock (the "Restricted Shares"), each on the terms and
conditions set forth herein, and hereby grants such Option and Restricted Stock
award. Such grants shall be deemed to satisfy in full the Company's obligations
under Section 7.03 of that certain Employment Agreement, of even date herewith,
between the Executive and the Company (the "Employment Agreement"). It is
intended that the Option shall constitute an "incentive stock option" within the
meaning of Section 422 of the Code (an "ISO") to the maximum extent permitted
under the Code. Additional provisions relating to the ISO status of the Option
are set forth in Section 1 below.
Any capitalized terms not defined herein shall have their
respective meanings set forth in the Plan.
1. TERMS OF OPTION GRANT. (a) The Option entitles the Execu-
tive to purchase 280 shares of the Company's Class A Common Stock at a price
equal to $20.06 per share (the "Class A Option Exercise Price"), which the
parties acknowledge is not less than the fair market value of one share of the
Class A Common Stock as of the Effective Date. The Option also entitles the
Executive to purchase 28,000 shares of the Company's Class B Common Stock at a
price equal to $20.06 per share (the "Class B Option Exercise Price" and,
collectively with the Class A Option Exercise Price, the "Option Exercise
Price"), which the parties acknowledge is not less than the fair market value of
one share of the Class B
<PAGE>
Common Stock as of the Effective Date. The shares of Class A Common Stock
and Class B Common Stock subject to the Option are referred to herein as the
"Option Shares."
(b) The term of the Option (the "Option Term") shall commence
on the Effective Date (the "Date of Grant") and, unless the Option is previously
terminated pursuant to this Agreement, shall terminate upon the expiration of
ten (10) years from the Date of Grant. Upon expiration of the Option Term, all
rights of the Executive hereunder shall terminate.
(c) The Option shall vest as to 20% of the Option Shares on
each of the first five anniversaries of the Date of Grant, PROVIDED, that
i) the Option and such vesting shall be subject to the
forfeiture provisions of Section 7(b) below (the "Special Forfeiture
Provisions"), such that any such vested portion of the Option shall be
exercisable from time to time only if and to the extent that such
vested portion shall not be subject to forfeiture pursuant to the
Special Forfeiture Provisions;
ii) upon the occurrence of a Change in Control (as
defined in Section 3 below) at any time prior to the effective date (as
determined under the Employment Agreement) of Executive's termination
of employment with the Company for any or no reason, the Option shall
immediately vest and become exercisable as to 100% of the Option Shares
and the Special Forfeiture Provisions shall immediately expire;
iii) if Executive's employment with the Company is
terminated (A) by the Company without Cause (as defined in the
Employment Agreement as in effect as of the date hereof, or as the same
may be amended from time to time, regardless of the termination of the
Employment Agreement prior to the effective date of such termination)
within the 12 month period immediately preceding a Change in Control
(or such longer period, not to exceed 18 months prior to such Change in
Control, during which significant discussions or other material action
regarding such Change in Control occurred) at the request, directly or
indirectly, of a third party who has taken steps reasonably calculated
to effect a Change in Control or otherwise in connection with, or in
anticipation of a Change in Control, or (B) by Executive for Good
Reason (as defined in the Employment
2
<PAGE>
Agreement) if the grounds constituting Good Reason occur as the result
of a Change in Control or within the above-referenced time frame at the
request, directly or indirectly, of such a third party or otherwise in
connection with, or in anticipation of a Change in Control, (i) the
Option shall be deemed to have immediately vested and become
exercisable as to 100% of the Option Shares as of the effective date of
such Change in Control, (ii) the Special Forfeiture Provisions shall be
deemed to have immediately expired as of the effective date of such
Change in Control and (iii) the exercisability of the Option shall be
as determined under Section 7(a); and
iv) if Executive's employment with the Company is
terminated by the Company without Cause or by Executive for Good Reason
(as defined in the Employment Agreement), the Option shall immediately
vest and become exercisable and the Special Forfeiture Provisions shall
immediately expire as to that number of Option Shares that would have
vested pursuant to the first clause of this Section 1(c) had
Executive's employment continued without interruption through the date
that is 18 months following the effective date of such termination as
deter mined under the Employment Agreement.
Those Option Shares which, as of any date, have vested pursuant to the first
clause of this Section 1(c) but remain subject to the Special Forfeiture
Provisions shall be referred to herein as "Vested Option Shares."
(d) Except as otherwise provided herein, the right of the
Executive to purchase Option Shares with respect to which the Option has become
exercisable may be exercised in whole or in part at any time or from time to
time prior to expiration of the Option Term, PROVIDED, that any exercise of the
Option shall be deemed to relate in tandem to both the Class A Common Stock and
the Class B Common Stock subject to the Option, such that the ratio of (i) the
number of shares of Class A Common Stock issuable upon such exercise to (ii) the
total number of shares of Class A Common Stock outstanding on the date hereof
shall be the same as the ratio of (iii) the number of shares of Class B Common
Stock issuable upon such exercise to (iv) the total number of shares of Class B
Common Stock outstanding on the date hereof.
(e) The Option may be exercised by means of written notice of
exercise to the Company specifying the number of Option Shares to be purchased,
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<PAGE>
accompanied by payment in full of the aggregate Option Exercise Price and any
applicable withholding amounts (i) in cash or by check, (ii) at any time
following the closing of the Company's Initial Public Offering (as defined in
Section 3 below) by means of a broker cashless exercise procedure, on terms
reasonably acceptable to the Company, providing proceeds sufficient to pay the
exercise price and any applicable withholding amounts, or (iii) by any other
means of exercise authorized from time to time in the Plan and/or by the Board.
In addition, with respect to any exercise of the Option that occurs following
Executive's termination of employment with the Company at any time prior to the
closing of the Company's Initial Public Offering, the Option may, at Executive's
election, be exercised through withholding of shares of Common Stock otherwise
issuable upon exercise of the Option having an aggregate Fair Market Value
equivalent to the aggregate Option Exercise Price plus applicable withholding
amounts.
(f) To the extent the Option is intended to constitute an
ISO, the ratio of (i) the number of shares of Class A Common Stock to which the
ISO portion of the Option relates to (ii) the total number of shares of Class A
Common Stock outstanding on the date hereof shall be the same as the ratio of
(iii) the number of shares of Class B Common Stock to which the ISO portion of
the Option relates to (iv) the total number of shares of Class B Common Stock
outstanding on the date hereof.
2. TERMS OF RESTRICTED STOCK AWARD. (a) The Restricted Stock
award entitles the Executive as of the Date of Grant to receive 210 shares of
Class A Common Stock and 21,000 shares of Class B Common Stock (the "Restricted
Shares"), subject to the terms and conditions of this Agreement.
(b) Subject to the rights and obligations of Executive
pursuant to that certain Stockholders Agreement, of even date herewith, by and
among the Company, Executive and the other parties thereto (the "Stockholders
Agreement"), and except as provided in Section 2(c) below, the Restricted Shares
may not be sold, assigned, transferred, pledged, hypothecated or otherwise
disposed of in any manner or under any circumstances (the "Transfer
Restrictions").
(c) The Transfer Restrictions shall lapse as to 20% of the
Restricted Shares on each of the first five anniversaries of the Date of Grant,
PROVIDED, that
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i) the Restricted Shares and such lapse shall be subject
to the Special Forfeiture Provisions of Section 7(b), such that the
Transfer Restrictions shall continue to apply to the Restricted Shares
for so long and to the extent that the Restricted Shares shall be
subject to forfeiture pursuant to the Special Forfeiture Provisions;
ii) upon the occurrence of a Change in Control at any
time prior to the effective date (as determined under the Employment
Agreement) of Executive's termination of employment with the Company
for any or no reason, the Transfer Restrictions shall immediately lapse
as to 100% of the Restricted Shares and the Special Forfeiture
Provisions shall immediately expire;
iii) if Executive's employment with the Company is
terminated under the circumstances set forth in Section 1(c)(iii)
above, (i) the Transfer Restrictions shall be deemed to have
immediately lapsed as to 100% of the Restricted Shares as of the
effective date of such Change in Control, and (ii) the Special
Forfeiture Provisions shall be deemed to have immediately expired as of
the effective date of the Change in Control; and
iv) if Executive's employment with the Company is
terminated by the Company without Cause or by Executive for Good Reason
(each as defined above), the Transfer Restrictions shall immediately
lapse and the Special Forfeiture Provisions shall immediately expire as
to that number of Restricted Shares as to which the Transfer
Restrictions would have lapsed pursuant to the first clause of this
Section 2(c) had Executive's employment continued without interruption
through the date that is 18 months following the effective date of such
termination as determined under the Employment Agreement.
Those Restricted Shares as to which, as of any date, the Transfer Restrictions
have lapsed pursuant to the first clause of this Section 2(c) but which remain
subject to the Special Forfeiture Provisions shall be referred to herein as
"Lapsed Restricted Shares."
(d) From and after the Date of Grant and for so long as the
Restricted Shares are held by or for the benefit of the Executive, except as
limited by the Stockholders Agreement, the Transfer Restrictions and the Special
Forfeiture Provisions, the Executive shall have all the rights of a stockholder
of the
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Company with respect to the Restricted Shares, including but not limited to the
right to receive dividends on and the right to vote such shares.
3. CERTAIN DEFINITIONS. (a) For purposes of this Agreement,
"Initial Public Offering" shall mean the closing of a public offering pursuant
to an effective registration statement under the Securities Act of 1933, as
amended (the "Securities Act") covering shares of the Company's Common Stock,
which shares are approved for listing or quotation on the New York Stock
Exchange, American Stock Exchange or Nasdaq National Market.
(b) For purposes of this Agreement, "Change in Control" means
the occurrence of one or more of the following events:
i) the sale, lease, transfer, conveyance or other
disposition, in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Subsidiaries,
taken as a whole;
ii) the adoption by the Company's stockholders of a plan
of liquidation or dissolution of the Company;
iii) prior to the time the Company or any Parent
Corporation completes an Initial Public Offering, the Company becomes
aware (by way of a report or any other filing pursuant to Section 13(d)
of the Exchange Act, proxy vote, written notice or otherwise) of the
acquisi tion by any "Person" or related group (within the meaning of
Section 13(d)(3) or Section 14(d)(2) of the Exchange Act, or any
successor provi sion to either of the foregoing, including any "group"
acting for the pur pose of acquiring, holding or disposing of
securities within the meaning of Rule 13d-5(b)(1) under the Exchange
Act), other than a group consisting of the Principals and their Related
Parties, in a single transaction or in a related series of
transactions, by way of merger, consolidation or other business
combination or purchase of direct or indirect beneficial ownership
(within the meaning of Rule 13d-3 under the Exchange Act, or any
successor provision) of 50% or more of the total voting power entitled
to vote in the election of the Board of Directors of the Company or
such other Person surviving the transaction;
iv) subsequent to the time the Company or any Parent
Corporation completes an Initial Public Offering, the Principals and
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their Related Parties shall directly or indirectly beneficially own
shares of capital stock representing less than 25% of the total voting
power entitled to vote in the election of the Board of Directors of the
Company and either (A) any other Person directly or indirectly
beneficially owns shares of capital stock representing voting power in
excess of the voting power represented by shares of capital stock owned
by the Principals and their Related Parties or (B) individuals who were
the voting members of the Company's Board of Directors at the beginning
of any two year period commencing subsequent to the Initial Public
Offering (together with any new voting directors whose election or
appointment by such board or whose nomination for election by the
shareholders of the Company was approved by a vote of a majority of the
directors then still in office who were either directors at the
beginning of such period or whose election or nomination for election
was previously so approved) cease for any reason to constitute a
majority of the Company's Board of Directors then in office.
(c) For purposes of this Agreement, the following terms shall
have the meanings as set forth below:
i) "Exchange Act" means the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder;
ii) "Principals" means Colony Investors III, L.P., Colony
Capital, Inc. and any of their respective affiliates and any of the
Company's officers and directors; and
iii) "Related Party" with respect to any Principal means
(A) any controlling stockholder, 80% (or more) owned Subsidiary, or
spouse or immediate family member (in the case of an individual) of
such Principal or (B) any trust, corporation, partnership or other
entity, the beneficiaries, stockholders, partners, owners or Persons
beneficially holding an 80% or more controlling interest of which
consist of such Principal and/or such other Persons referred to in the
immediately preceding clause (A).
(d) For purposes of this Agreement, "Fair Market Value" (when
capitalized, unless the context clearly indicates otherwise) means, as of any
given date, (A) if the Common Stock is publicly traded, the closing sale price
of
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the Common Stock on such date (or the nearest preceding date on which the Common
Stock was traded) as reported in the Western Edition of THE WALL STREET JOURNAL,
or (B) if the Common Stock is not publicly traded, the fair market value of the
Common Stock as determined in accordance with the procedures set forth below, in
each case based on the per share value of the Company as a whole as of the
relevant date, without any discount for the sale of a minority interest and
without considering lack of liquidity, including transfer and other restrictions
on the Common Stock:
i) The Board shall determine the fair market value of the
Common Stock in good faith, using commercially reasonable methods and
at the Company's sole expense, PROVIDED, that if Executive is a member
of or non-voting observer on the Board, Executive shall recuse himself
from all deliberations of the Board regarding such determination, and
except as otherwise provided herein shall not be entitled to receive or
be provided access to any minutes or other records of the Board with
respect to such determination. The Board shall communicate the per
share valuation as so determined in writing to Executive within 20
business days following the date written notice is provided or the
Board takes cognizance of the need to determine the Fair Market Value
of the Common Stock, and upon Executive's request, the Board shall
provide Executive appropriate supporting documentation regarding the
methods, assumptions and other bases used in arriving at such
valuation. If acceptable to Executive, the fair market value of the
Common Stock shall be as so determined.
ii) If the fair market value as determined under (i) is
not acceptable to Executive, Executive shall determine the fair market
value of the Common Stock in good faith, using commercially reasonable
methods and at Executive's sole expense, and shall communicate the per
share valuation as so determined in writing to the Board within 20
business days following the Board's communication to Executive of the
per share valuation pursuant to (i) above and, upon the Board's
request, Executive shall provide to the Board appropriate supporting
documentation regarding the methods, assumptions and other bases used
in arriving at such valuation. If acceptable to the Board, the fair
market value of the Common Stock shall be as so determined.
iii) If the fair market value as determined under (ii) is
not acceptable to the Board, the Board and Executive shall then
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<PAGE>
negotiate in good faith to agree upon the fair market value of the
Common Stock, based on the valuations under (i) and (ii) above.
iv) If the Board and Executive shall be unable by the
foregoing means to agree upon the fair market value of the Common Stock
within ten business days after the Board has been advised of
Executive's valuation, the issue shall then be submitted to binding
arbitration in Las Vegas, Nevada according to the rules and procedures
of the American Arbitration Association. The Company and Executive
shall each submit to the arbitrator their valuations under (i) and (ii)
above, together with all supporting documentation regarding the
methods, assumptions and other bases used in arriving at such
valuation. The arbitrator shall then be instructed to choose which of
the two valuations more closely reflects the fair market value of the
Common Stock, and shall not have the right to choose a third valuation
as the appropriate fair market value of the Common Stock. The party
whose valuation is not so chosen by the arbitrator shall pay any and
all costs and expenses of the arbitration (but not the initial
valuation of the other party), including without limitation reasonable
attorneys' fees and other fees incurred by the prevailing party in such
arbitration. Judgment may be entered on the arbitrator's determination
and award.
4. DEFERRED COMPENSATION ARRANGEMENT WITH RESPECT TO
RESTRICTED SHARES. Notwithstanding anything herein to the contrary, at any time
prior to the occurrence of a Distribution Event (as defined in the Deferred
Compensation Agreement, of even date herewith, between Executive and the Company
(the "Deferred Compensation Agreement")) that the Transfer Restrictions and
Special Forfeiture Restrictions would otherwise lapse with respect to any
portion of the Restricted Shares and result in the recognition of income by
Executive, such Restricted Shares (the "Deferred Shares") shall be cancelled and
an equivalent number of Deemed Deferred Shares (as defined in the Deferred
Compensation Agreement) shall be added to the Restricted Stock Sub-Account under
the Deferred Compensation Agreement.
5. ADJUSTMENTS. In the event of any merger, reorganization,
consolidation, recapitalization, stock dividend, stock split or similar change
affecting the Common Stock, an equitable substitution or proportionate
adjustment shall be made in the kind and number of Restricted Shares and in the
kind, number
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and option price of shares of Common Stock subject to the Option, as may be
determined by the Board in good faith.
6. NONTRANSFERABILITY OF OPTION AND OPTION SHARES; OPTION
SHARES AND RESTRICTED SHARES SUBJECT TO STOCKHOLDERS AGREEMENT. (a) The Option
and this Agreement shall not be transferable and, during the lifetime of
Executive, the Option may be exercised only by Executive; PROVIDED, HOWEVER,
that the Executive shall be permitted to transfer the Option and this Agreement
to a trust controlled by the Executive during the Executive's lifetime for
estate planning purposes, and PROVIDED, further, that the limited
transferability provisions set forth in the immediately preceding proviso shall
apply to any portion of the Option that constitutes an ISO only to the extent
such provisions are consistent with Section 422(b) of the Code. Without limiting
the generality of the foregoing, except as otherwise provided herein, the Option
may not be assigned, transferred, pledged or hypothecated in any way, shall not
be assignable by operation of law, and shall not be subject to execution,
attachment or similar process. Any attempted assignment, transfer, pledge,
hypothecation or other disposition of the Option contrary to the provisions
hereof, and the levy of any execution, attachment or similar process upon the
Option shall be null and void and without effect.
(b) The Executive, the Restricted Shares and, upon exercise
of the Option, the Option Shares, shall at all times and in all respects be
subject to the Stockholders Agreement, the provisions of which shall be deemed
to be incorporated into this Agreement.
7. EFFECT OF TERMINATION OF EMPLOYMENT; SPECIAL FORFEITURE
PROVISIONS. (a) Upon the termination of Executive's employment with the Company
under any circumstances and for any or no reason (including without limitation
by reason of the death or Disability of the Executive or the sale of such
Subsidiary), the Option shall immediately terminate as to all Option Shares that
shall not have vested as of the effective date (as determined under the
Employment Agreement) of such termination of employment, and the Executive shall
forfeit all Restricted Shares as to which the Transfer Restrictions have not
lapsed as of such date of termination, in each case taking into account any
additional vesting and/or lapse that shall have occurred by reason of the
provisions of Sections 1(c)(iv) and 2(c)(iv). Notwithstanding the foregoing, to
the extent the provisions of Sections 1(c)(iii) and 2(c)(iii) shall apply in
connection with a Change in Control, (i) the Option shall be deemed to have been
vested and exercisable in full as of the effective date of Executive's
termination of employment, (ii) the Transfer Restric-
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<PAGE>
tions shall be deemed to have lapsed in full and the Special Forfeiture
Provisions shall be deemed to have expired as of the effective date of such
Change in Control and (iii) the exercise provisions of Section 7(c) shall apply
as if Executive's employment had been terminated as of the date of such Change
in Control.
(b) In addition, in the event the Executive's employment with
the Company is terminated prior to the Forfeiture Provision Expiration Date (as
defined below) (i) at any time prior to the fifth anniversary of the Date of
Grant by the Executive other than for Good Reason or (ii) at any time by the
Company for Cause (each as defined above), Executive shall thereupon forfeit
that portion of the Vested Option Shares and Lapsed Restricted Shares equal to
the Applicable Reduction Percentage (as defined below).
i) The "Applicable Reduction Percentage" shall mean (A)
at all times prior to the occurrence of an Initial Public Offering,
two-thirds and (B) at all times following an Initial Public Offering
but prior to the occurrence of a 50% Colony Sell-Down, one-third.
ii) The Special Forfeiture Provisions shall expire in
their entirety as of the date of (x) the Company's Initial Public
Offering, if such Initial Public Offering occurs subsequent to a 50%
Colony Sell-Down, (y) a 50% Colony Sell-Down that occurs at any time
subsequent to the Company's Initial Public Offering or (z) a Change in
Control (the "Forfeiture Provision Expiration Date").
iii) A "50% Colony Sell-Down" shall be deemed to occur
when the Principals and their affiliates (excluding officers and
employees of the Company who are Principals or affiliates merely by
reason of their being such an officer or employee) shall, directly or
indirectly, beneficially own shares of capital stock of the Company
representing less than 50% of the largest total number of such shares
theretofore owned by such persons.
(c) Subject to the Company's call rights set forth in Section
8, any portion of the Option that, pursuant to Section 1(c) above, shall be
vested and exercisable as of the effective date of Executive's termination of
employment (the "Termination Date") shall be exercisable in whole or in part for
a period of 90 days following the Termination Date (180 days in the event of
termination by reason of disability, and one year in the event of termination by
reason of death).
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All Option Shares with respect to which the Option shall be so vested and
exercis able shall be referred to herein as "Vested and Exercisable Option
Shares." Upon expiration of such period, any unexercised portion of the Option
shall terminate in full; PROVIDED, HOWEVER, that if the Company provides notice
to the Executive of its intent to exercise the Call pursuant to Section 8, any
portion of the Option subject to such exercise shall terminate as of the closing
of the Call.
8. CALL RIGHTS. In the event of (I) the termination of the
Executive's employment with the Company at any time, under any circumstances and
for any or no reason, (II) a Change in Control or (III) any transfer of any
Option Shares or Restricted Shares by the Executive under any circumstances
(other than to a trust controlled by Executive for estate planning purposes, the
trustee of which agrees in writing to be subject in all events and for all
purposes to the Company's Call as set forth herein), including pursuant to any
arrangement, proceeding, decree, judgement, order or application of law relating
to the division of property for domestic relations purposes, for a period
commencing on the date of such event and expiring upon the Company's Initial
Public Offering (the "Call Exercise Period"), the Company shall have the right
to purchase from the Executive, by giving written notice to the Executive
pursuant hereto and in accordance with the terms and conditions of Section 8(a)
below (the "Call") (x) any or all of such portion of the Option as shall relate
to Vested and Exercisable Option Shares as of the date such written notice is
given (the "Call Exercise Date"), (y) any or all Option Shares owned by the
Executive as of the end of business on the Call Exercise Date and/or (z) any or
all Restricted Shares as of the end of business on the Call Exercise Date as to
which the Transfer Restrictions shall have lapsed pursuant to Section 2(c) and
which shall not theretofore have been forfeited by Executive pursuant to Section
7(b).
(a) The following terms and conditions shall apply to the
exercise of the Call:
i) If exercising its rights under (x) above, the Company
shall pay the Executive an amount in cash equal to the product of (A)
the excess, if any, of the Fair Market Value of a share of Class A
Common Stock or Class B Common Stock, as applicable, as of the
Termination Date (the "Call Price") over the Class A Option Exercise
Price or Class B Option Exercise Price, as applicable, and (B) the
number of shares of Class A Common Stock or Class B Common Stock, as
applicable, that
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<PAGE>
the portion of the Option being purchased by the Company pursuant to
the Call would otherwise entitle the Executive to purchase.
ii) If exercising its rights under (y) or (z) above, the
Company shall pay the Executive an amount equal to the product of (A)
the Call Price and (B) the number of Option Shares or Restricted
Shares, as applicable, being purchased pursuant thereto.
(b) The closing with respect to the exercise of the Call
shall take place at the Company's executive offices within 30 days following the
Call Exercise Date (the "Scheduled Closing Date").
(c) Notwithstanding any other provision hereof, the Company
may assign, without the consent of the Executive, its rights under this Section
8; PROVIDED, that no such assignment shall release the Company from its
obligations hereunder.
(d) The Call shall terminate upon the closing of the
Company's Initial Public Offering.
9. INVESTMENT REPRESENTATION. The Executive hereby represents
and warrants to the Company that the Executive, by reason of the Executive's
business or financial experience (or the business or financial experience of the
Executive's professional advisors who are unaffiliated with and who are not
compensated by the Company or any affiliate or selling agent of the Company,
directly or indirectly), has the capacity to protect the Executive's own
interests in connection with the transactions contemplated under this Agreement.
10. NOTICES. All notices and other communications under this
Agreement shall be in writing and shall be given by first class mail, certified
or registered with return receipt requested, or by a nationally recognized
overnight delivery service to the respective parties named below:
If to Company: Harveys Casino Resorts
Highway 50 and Stateline Avenue
P.O. Box 128
Lake Tahoe, Nevada 89449
Attention: Charles Scharer
Facsimile: 775-586-6852
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with a copy to: Colony Capital, Inc.
1999 Avenue of the Stars
Los Angeles, California 90067
Attention: Kelvin L. Davis
Facsimile: 310-282-8808
and a copy to: Skadden, Arps, Slate, Meagher & Flom LLP
300 South Grand Avenue
Los Angeles, California 90071
Attention: Jonathan H. Grunzweig
Facsimile: 213-687-5600
If to the Executive: Stephen L. Cavallaro
8824 Montagna Drive
Las Vegas, Nevada 89134
Facsimile: 702-363-4461
with a copy to: Michael Forman
Klehr, Harrison, Harvey, Branzburg & Ellers LLP
1401 Walnut Street
Philadelphia, Pennsylvania 19102
Facsimile: 215/568-3206
Either party hereto may change such party's address for notices by notice duly
given pursuant hereto.
11. SECURITIES LAWS REQUIREMENTS. The Option shall not be
exercisable to any extent, and the Company shall not be obligated to transfer
any Option Shares to the Executive upon exercise of the Option, if such
exercise, in the opinion of counsel for the Company, would violate the
Securities Act (or any other federal or state statutes having similar
requirements as may be in effect at that time). Further, the Company may require
as a condition of transfer of any Option Shares pursuant to any exercise of the
Option that the Executive furnish a written representation that he is purchasing
or acquiring the Option Shares for investment and not with a view to resale or
distribution to the public, and the Executive hereby represents and warrants
that he is acquiring the Restricted Shares for investment and not with a view to
resale or distribution to the public. The Executive hereby represents and
warrants that he understands that the Option Shares and the Restricted Shares
are "restricted securities," as defined in Rule 144 under the
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Securities Act, and that any resale of the Option Shares or the Restricted
Shares must be in compliance with the registration requirements of the
Securities Act or an exemption therefrom. Each certificate representing Option
Shares or Restricted Shares shall bear the legend set forth below:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED,
SOLD, ASSIGNED, HYPOTHECATED OR OTHERWISE DISPOSED OF (A "TRANSFER")
EXCEPT IN ACCOR DANCE WITH THE PROVISIONS OF THAT CERTAIN STOCKHOLDERS
AGREEMENT, DATED AS OF FEBRUARY 2, 1999, BY AND AMONG HARVEYS CASINO
RESORTS, A NEVADA CORPORATION, AND CERTAIN OF ITS STOCKHOLDERS AND THAT
CERTAIN STOCK OPTION AND RESTRICTED AWARD AGREEMENT, OF EVEN DATE
HEREWITH, BETWEEN THE COMPANY AND ONE OF ITS SENIOR EXECUTIVES. ANY
TRANSFEREE OF THESE SECURITIES SHALL TAKE SUBJECT TO THE TERMS OF SUCH
AGREEMENTS, COPIES OF WHICH ARE ON FILE WITH THE COMPANY.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 (THE "ACT") OR ANY STATE SECURITIES
LAWS, AND NO TRANSFER OF THESE SECURITIES MAY BE MADE EXCEPT (A)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, OR (B)
PURSUANT TO AN EXEMPTION THEREFROM WITH RESPECT TO WHICH THE COMPANY
MAY, UPON RE QUEST, REQUIRE A SATISFACTORY OPINION OF COUNSEL FOR THE
HOLDER THAT SUCH TRANSFER IS EXEMPT FROM THE REQUIREMENTS OF THE ACT.
Further, if the Company determines that the listing or qualification of the
Option Shares under any securities or other applicable law is necessary in order
to avoid a violation of any securities laws, the Option shall not be
exercisable, in whole or in part, unless and until such listing or
qualification, or a consent or approval with respect thereto, shall have been
effected or obtained free of any conditions not acceptable to the Company,
PROVIDED, that the Company shall pursue such listing or qualification diligently
and in good faith.
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12. NO OBLIGATION TO REGISTER SHARES. Except as provided in
the Stockholders Agreement, the Company shall be under no obligation to register
the Restricted Shares or the Option Shares.
13. PROTECTIONS AGAINST VIOLATIONS OF AGREEMENT. No purported
sale, assignment, mortgage, hypothecation, transfer, pledge, encumbrance, gift,
transfer in trust (voting or other) or other disposition of, or creation of a
security interest in or lien on, any of the Restricted Shares or Option Shares
by any holder thereof in violation of the provisions of this Agreement, the
Stockholders Agree ment or the Certificate of Incorporation or the Bylaws of the
Company, will be valid, and the Company will not transfer any of said Restricted
Shares or Option Shares on its books nor will any of the Restricted Shares or
Option Shares be entitled to vote, nor will any dividends be paid thereon,
unless and until there has been full compliance with such provisions to the
satisfaction of the Company. The foregoing restrictions are in addition to and
not in lieu of any other remedies, legal or equitable, available to enforce such
provisions.
14. WITHHOLDING REQUIREMENTS. Executive shall, no later than
the date as of which the value of any award hereunder becomes includable in his
gross income (after taking into account the provisions of Section 4 hereof), pay
to the Company, or make arrangements satisfactory to the Company regarding
payment of, any federal, state, or local taxes or other amounts of any kind
required by law to be withheld with respect thereto. The obligations of the
Company hereunder shall be conditional on the making of such payments or
arrangements, and the Company shall, to the extent permitted by law, have the
right to deduct any such taxes from any payment of any kind otherwise due to
Executive.
15. FAILURE TO ENFORCE NOT A WAIVER. The failure to enforce at
any time any provision of this Agreement shall in no way be construed to be a
waiver of such provision or of any other provision hereof.
16. GOVERNING LAW. This Agreement shall be governed by and
construed according to the laws of the State of Nevada without regard to its
principles of conflict of laws.
17. INCORPORATION OF PLAN. The Plan is hereby incorporated by
reference and made a part hereof, and the Option, the Restricted Stock award and
this Agreement shall be subject to all terms and conditions of the Plan;
provided,
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however, that in the event of a conflict between the terms of this Agreement and
the Plan, the terms of this Agreement shall govern.
18. AMENDMENTS. This Agreement may be amended or modified at
any time only by an instrument in writing signed by each of the parties hereto.
19. RIGHTS AS A STOCKHOLDER. Neither the Executive nor any of
the Executive's successors in interest shall have any rights as a stockholder of
the Company with respect to any shares of Common Stock subject to the Option
until the date of issuance of a stock certificate for such shares of Common
Stock.
20. AGREEMENT NOT A CONTRACT OF EMPLOYMENT. Neither the Plan,
the granting of the Restricted Stock award and the Option, this Agreement nor
any other action taken pursuant to the Plan shall constitute or be evidence of
any agreement or understanding, express or implied, that the Executive has a
right to continue as an employee of the Company or any Subsidiary or affiliate
of the Company for any period of time or at any specific rate of compensation.
21. AUTHORITY OF THE BOARD. The Board shall have full
authority to interpret and construe the terms of the Plan and this Agreement,
and shall do so in good faith.
22. DISPUTE RESOLUTION. Any dispute arising under this Agree
ment shall be resolved in accordance with the arbitration provisions of the
Employ ment Agreement as in effect as of the date hereof, or as the same may be
amended from time to time, regardless of the expiration of the Employment
Agreement prior to the resolution of such dispute, and such arbitration
provisions shall be deemed to be incorporated herein by this reference.
23. MARKET STAND-OFF. In connection with any underwritten
public offering by the Company of its equity securities pursuant to an effective
registration statement filed under the Securities Act for such period as the
Company or its underwriters may request (such period not to exceed 180 days
following the date of the applicable offering), the Executive shall not,
directly or indi rectly, sell, make any short sale of, loan, hypothecate,
pledge, offer, grant or sell any option or other contract for the purchase of,
purchase any option or other contract for the sale of, or otherwise dispose of
or transfer, or agree to engage in any of the foregoing transactions with
respect to, any Restricted Shares or Option Shares acquired under this Agreement
without the prior written consent of the
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Company or its underwriters, PROVIDED, that the Executive shall not be required
to be subject to "lock-up" restrictions that are more restrictive than such
restrictions to which any other Employee Stockholder (as defined in the
Stockholders Agreement) having commensurate job duties and responsibilities in
the Company is subject, or that would prevent the Executive from effectuating a
sale pursuant to Section 2.5 of the Stockholders Agreement or Section 3.1 of the
Stockholders Agreement.
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Agreement on the day and year first above written.
HARVEYS CASINO RESORTS
By: /s/ Charles W. Scharer
-------------------------------
Name: Charles W. Scharer
Title: President and
Chief Executive Officer
The undersigned hereby accepts and
agrees to all the terms and
provisions of the foregoing
Agreement and to all the terms and
provisions of the Plan and the
Stockholders Agreement herein
incorporated by reference.
/s/ Stephen L. Cavallaro
-----------------------------------
STEPHEN L. CAVALLARO
Address: 8824 Montagna Drive
Las Vegas, Nevada 89134
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Exhibit 10.45
STOCK OPTION
AND RESTRICTED STOCK AGREEMENT
STOCK OPTION AND RESTRICTED STOCK AGREEMENT (this
"Agreement"), dated as of February 2, 1999 (the "Effective Date"), by and
between Harveys Casino Resorts, a Nevada corporation (the "Company"), and John
J. McLaughlin (the "Executive"), an employee of the Company or a Subsid iary of
the Company.
Pursuant to the Company's 1999 Omnibus Stock Incentive Plan
(the "Plan"), the Board of Directors of the Company (the "Board"), as the
Administrator of the Plan, has determined that the Executive is to be granted
(i) an option (the "Option") to purchase shares of the Company's Class A Common
Stock, par value $.01 per share (the "Class A Common Stock"), and shares of the
Company's Class B Common Stock, par value $.01 per share (the "Class B Common
Stock" and, together with the Class A Common Stock, the "Common Stock"), and
(ii) a Restricted Stock award consisting of additional shares of Class A Common
Stock and Class B Common Stock (the "Restricted Shares"), each on the terms and
conditions set forth herein, and hereby grants such Option and Restricted Stock
award. Such grants shall be deemed to satisfy in full the Company's obligations
under Section 7.03 of that certain Employment Agreement, of even date herewith,
between the Executive and the Company (the "Employment Agreement"). It is
intended that the Option shall constitute an "incentive stock option" within the
meaning of Section 422 of the Code (an "ISO") to the maximum extent permitted
under the Code. Additional provisions relating to the ISO status of the Option
are set forth in Section 1 below.
Any capitalized terms not defined herein shall have their
respective meanings set forth in the Plan.
1. TERMS OF OPTION GRANT. (a) The Option entitles the Execu-
tive to purchase 240 shares of the Company's Class A Common Stock at a price
equal to $20.06 per share (the "Class A Option Exercise Price"), which the
parties acknowledge is not less than the fair market value of one share of the
Class A Common Stock as of the Effective Date. The Option also entitles the
Executive to purchase 24,000 shares of the Company's Class B Common Stock at a
price equal to $20.06 per share (the "Class B Option Exercise Price" and,
collectively with the Class A Option Exercise Price, the "Option Exercise
Price"), which the parties acknowledge is not less than the fair market value of
one share of the Class B
<PAGE>
Common Stock as of the Effective Date. The shares of Class A Common Stock
and Class B Common Stock subject to the Option are referred to herein as the
"Option Shares."
(b) The term of the Option (the "Option Term") shall
commence on the Effective Date (the "Date of Grant") and, unless the Option is
previously terminated pursuant to this Agreement, shall terminate upon the
expiration of ten (10) years from the Date of Grant. Upon expiration of the
Option Term, all rights of the Executive hereunder shall terminate.
(c) The Option shall vest as to 20% of the Option
Shares on each of the first five anniversaries of the Date of Grant, PROVIDED,
that
i) the Option and such vesting shall be
subject to the forfeiture provisions of Section 7(b) below (the
"Special Forfeiture Provisions"), such that any such vested portion of
the Option shall be exercisable from time to time only if and to the
extent that such vested portion shall not be subject to forfeiture
pursuant to the Special Forfeiture Provisions;
ii) upon the occurrence of a Change in
Control (as defined in Section 3 below) at any time prior to the
effective date (as determined under the Employment Agreement) of
Executive's termination of employment with the Company for any or no
reason, the Option shall immediately vest and become exercisable as to
100% of the Option Shares and the Special Forfeiture Provisions shall
immediately expire;
iii) if Executive's employment with the
Company is terminated (A) by the Company without Cause (as defined in
the Employment Agreement as in effect as of the date hereof, or as the
same may be amended from time to time, regardless of the termination of
the Employment Agreement prior to the effective date of such
termination) within the 12 month period immediately preceding a Change
in Control (or such longer period, not to exceed 18 months prior to
such Change in Control, during which significant discussions or other
material action regarding such Change in Control occurred) at the
request, directly or indirectly, of a third party who has taken steps
reasonably calculated to effect a Change in Control or otherwise in
connection with, or in anticipation of a Change in Control, or (B) by
Executive for Good Reason (as defined in the Employ-
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ment Agreement) if the grounds constituting Good Reason occur as the
result of a Change in Control or within the above-referenced time frame
at the request, directly or indirectly, of such a third party or
otherwise in connection with, or in anticipation of a Change in
Control, (i) the Option shall be deemed to have immediately vested and
become exercisable as to 100% of the Option Shares as of the effective
date of such Change in Control, (ii) the Special Forfeiture Provisions
shall be deemed to have immediately expired as of the effective date of
such Change in Control and (iii) the exercisability of the Option shall
be as determined under Section 7(a); and
iv) if Executive's employment with the
Company is terminated by the Company without Cause or by Executive for
Good Reason (as defined in the Employment Agreement), the Option shall
immediately vest and become exercisable and the Special Forfeiture
Provisions shall immediately expire as to that number of Option Shares
that would have vested pursuant to the first clause of this Section
1(c) had Executive's employment continued without interruption through
the date that is 18 months following the effective date of such
termination as determined under the Employment Agreement.
Those Option Shares which, as of any date, have vested pursuant to the first
clause of this Section 1(c) but remain subject to the Special Forfeiture
Provisions shall be referred to herein as "Vested Option Shares."
(d) Except as otherwise provided herein, the right
of the Executive to purchase Option Shares with respect to which the
Option has become exercisable may be exercised in whole or in part at
any time or from time to time prior to expiration of the Option Term,
provided, that any exercise of the Option shall be deemed to relate in
tandem to both the Class A Common Stock and the Class B Common Stock
subject to the Option, such that the ratio of (i) the number of shares
of Class A Common Stock issuable upon such exercise to (ii) the total
number of shares of Class A Common Stock outstanding on the date hereof
shall be the same as the ratio of (iii) the number of shares of Class B
Common Stock issuable upon such exercise to (iv) the total number of
shares of Class B Common Stock outstanding on the date hereof.
(e) The Option may be exercised by means of written
notice of exercise to the Company specifying the number of Option
Shares to be pur-
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chased, accompanied by payment in full of the aggregate Option Exercise
Price and any applicable withholding amounts (i) in cash or by check,
(ii) at any time following the closing of the Company's Initial Public
Offering (as defined in Section 3 below) by means of a broker cashless
exercise procedure, on terms reasonably acceptable to the Company,
providing proceeds sufficient to pay the exercise price and any
applicable withholding amounts, or (iii) by any other means of exercise
authorized from time to time in the Plan and/or by the Board. In
addition, with respect to any exercise of the Option that occurs
following Executive's termination of employment with the Company at
any time prior to the closing of the Company's Initial Public Offering,
the Option may, at Executive's election, be exercised through
withholding of shares of Common Stock otherwise issuable upon exercise
of the Option having an aggregate Fair Market Value equivalent to the
aggregate Option Exercise Price plus applicable withholding amounts.
(f) To the extent the Option is intended to
constitute an ISO, the ratio of (i) the number of shares of Class A
Common Stock to which the ISO portion of the Option relates to (ii) the
total number of shares of Class A Common Stock outstanding on the date
hereof shall be the same as the ratio of (iii) the number of shares of
Class B Common Stock to which the ISO portion of the Option relates to
(iv) the total number of shares of Class B Common Stock outstanding on
the date hereof.
2. TERMS OF RESTRICTED STOCK AWARD. (a) The Restricted Stock
award entitles the Executive as of the Date of Grant to receive 180 shares of
Class A Common Stock and 18,000 shares of Class B Common Stock (the "Restricted
Shares"), subject to the terms and conditions of this Agreement.
(b) Subject to the rights and obligations of
Executive pursuant to that certain Stockholders Agreement, of even date
herewith, by and among the Company, Executive and the other parties
thereto (the "Stockholders Agreement"), and except as provided in
Section 2(c) below, the Restricted Shares may not be sold, assigned,
transferred, pledged, hypothecated or otherwise disposed of in any
manner or under any circumstances (the "Transfer Restrictions").
(c) The Transfer Restrictions shall lapse as to 20%
of the Restricted Shares on each of the first five anniversaries of the
Date of Grant, PROVIDED, that
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i) the Restricted Shares and such lapse
shall be subject to the Special Forfeiture Provisions of Section 7(b),
such that the Transfer Restrictions shall continue to apply to the
Restricted Shares for so long and to the extent that the Restricted
Shares shall be subject to forfeiture pursuant to the Special
Forfeiture Provisions;
ii) upon the occurrence of a Change in
Control at any time prior to the effective date (as determined under
the Employment Agreement) of Executive's termination of employment with
the Company for any or no reason, the Transfer Restrictions shall
immediately lapse as to 100% of the Restricted Shares and the Special
Forfeiture Provisions shall immediately expire;
iii) if Executive's employment with the
Company is terminated under the circumstances set forth in Section
1(c)(iii) above, (i) the Transfer Restrictions shall be deemed to have
immediately lapsed as to 100% of the Restricted Shares as of the
effective date of such Change in Control, and (ii) the Special
Forfeiture Provisions shall be deemed to have immediately expired as of
the effective date of the Change in Control; and
iv) if Executive's employment with the
Company is terminated by the Company without Cause or by Executive for
Good Reason (each as defined above), the Transfer Restrictions shall
immediately lapse and the Special Forfeiture Provisions shall
immediately expire as to that number of Restricted Shares as to which
the Transfer Restrictions would have lapsed pursuant to the first
clause of this Section 2(c) had Executive's employment continued
without interruption through the date that is 18 months following the
effective date of such termination as determined under the Employment
Agreement.
Those Restricted Shares as to which, as of any date, the Transfer Restrictions
have lapsed pursuant to the first clause of this Section 2(c) but which remain
subject to the Special Forfeiture Provisions shall be referred to herein as
"Lapsed Restricted Shares."
(d) From and after the Date of Grant and for so long
as the Restricted Shares are held by or for the benefit of the
Executive, except as limited by the Stockholders Agreement, the
Transfer Restrictions and the Special Forfeiture Provisions, the
Executive shall have all the rights of a stockholder of the Company
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<PAGE>
with respect to the Restricted Shares, including but not limited to the right to
receive dividends on and the right to vote such shares.
3. CERTAIN DEFINITIONS. (a) For purposes of this Agreement,
"Initial Public Offering" shall mean the closing of a public offering pursuant
to an effective registration statement under the Securities Act of 1933, as
amended (the "Securities Act") covering shares of the Company's Common Stock,
which shares are approved for listing or quotation on the New York Stock
Exchange, American Stock Exchange or Nasdaq National Market.
(b) For purposes of this Agreement, "Change in
Control" means the occurrence of one or more of the following events:
i) the sale, lease, transfer,
conveyance or other disposition, in one or a series of related
transactions, of all or substantially all of the assets of the Company
and its Subsidiaries, taken as a whole;
ii) the adoption by the Company's
stockholders of a plan of liquidation or dissolution of the Company;
iii) prior to the time the Company or
any Parent Corporation completes an Initial Public Offering, the
Company becomes aware (by way of a report or any other filing pursuant
to Section 13(d) of the Exchange Act, proxy vote, written notice or
otherwise) of the acquisition by any "Person" or related group (within
the meaning of Section 13(d)(3) or Section 14(d)(2) of the Exchange
Act, or any successor provision to either of the foregoing, including
any "group" acting for the purpose of acquiring, holding or disposing
of securities within the meaning of Rule 13d-5(b)(1) under the Exchange
Act), other than a group consisting of the Principals and their Related
Parties, in a single transaction or in a related series of
transactions, by way of merger, consolidation or other business
combination or purchase of direct or indirect beneficial ownership
(within the meaning of Rule 13d-3 under the Exchange Act, or any
successor provision) of 50% or more of the total voting power entitled
to vote in the election of the Board of Directors of the Company or
such other Person surviving the transaction;
iv) subsequent to the time the Company
or any Parent Corporation completes an Initial Public Offering, the
Principals and
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their Related Parties shall directly or indirectly beneficially own
shares of capital stock representing less than 25% of the total voting
power entitled to vote in the election of the Board of Directors of the
Company and either (A) any other Person directly or indirectly
beneficially owns shares of capital stock representing voting power in
excess of the voting power represented by shares of capital stock owned
by the Principals and their Related Parties or (B) individuals who were
the voting members of the Company's Board of Directors at the beginning
of any two year period commencing subsequent to the Initial Public
Offering (together with any new voting directors whose election or
appointment by such board or whose nomination for election by the
shareholders of the Company was approved by a vote of a majority of the
directors then still in office who were either directors at the
beginning of such period or whose election or nomination for election
was previously so approved) cease for any reason to constitute a
majority of the Company's Board of Directors then in office.
(c) For purposes of this Agreement, the following
terms shall have the meanings as set forth below:
i) "Exchange Act" means the Securities
Exchange Act of 1934, as amended, and the rules and regulations
promulgated there under;
ii) "Principals" means Colony Investors
III, L.P., Colony Capital, Inc. and any of their respective affiliates
and any of the Company's officers and directors; and
iii) "Related Party" with respect to any
Principal means (A) any controlling stockholder, 80% (or more) owned
Subsidiary, or spouse or immediate family member (in the case of an
individual) of such Principal or (B) any trust, corporation,
partnership or other entity, the beneficiaries, stockholders, partners,
owners or Persons beneficially holding an 80% or more controlling
interest of which consist of such Principal and/or such other Persons
referred to in the immediately preceding clause (A).
(d) For purposes of this Agreement, "Fair Market
Value" (when capitalized, unless the context clearly indicates
otherwise) means, as of any given date, (A) if the Common Stock is
publicly traded, the closing sale price of the
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<PAGE>
Common Stock on such date (or the nearest preceding date on which the Common
Stock was traded) as reported in the Western Edition of THE WALL STREET JOURNAL,
or (B) if the Common Stock is not publicly traded, the fair market value of the
Common Stock as determined in accordance with the procedures set forth below, in
each case based on the per share value of the Company as a whole as of the
relevant date, without any discount for the sale of a minority interest and
without considering lack of liquidity, including transfer and other restrictions
on the Common Stock:
i) The Board shall determine the fair
market value of the Common Stock in good faith, using commercially
reasonable methods and at the Company's sole expense, PROVIDED, that if
Executive is a member of or non-voting observer on the Board, Executive
shall recuse himself from all deliberations of the Board regarding such
determination, and except as otherwise provided herein shall not be
entitled to receive or be provided access to any minutes or other
records of the Board with respect to such determination. The Board
shall communicate the per share valuation as so determined in writing
to Executive within 20 business days following the date written notice
is provided or the Board takes cognizance of the need to determine the
Fair Market Value of the Common Stock, and upon Executive's request,
the Board shall provide Executive appropriate supporting documentation
regarding the methods, assumptions and other bases used in arriving at
such valuation. If acceptable to Executive, the fair market value of
the Common Stock shall be as so determined.
ii) If the fair market value as
determined under (i) is not acceptable to Executive, Executive shall
determine the fair market value of the Common Stock in good faith,
using commercially reasonable methods and at Executive's sole expense,
and shall communicate the per share valuation as so determined in
writing to the Board within 20 business days following the Board's
communication to Executive of the per share valuation pursuant to (i)
above and, upon the Board's request, Executive shall provide to the
Board appropriate supporting documentation regarding the methods,
assumptions and other bases used in arriving at such valuation. If
acceptable to the Board, the fair market value of the Common Stock
shall be as so determined.
iii) If the fair market value as
determined under (ii) is not acceptable to the Board, the Board and
Executive shall then
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<PAGE>
negotiate in good faith to agree upon the fair market value of the
Common Stock, based on the valuations under (i) and (ii) above.
iv) If the Board and Executive shall be
unable by the foregoing means to agree upon the fair market value of
the Common Stock within ten business days after the Board has been
advised of Executive's valuation, the issue shall then be submitted to
binding arbitration in Las Vegas, Nevada according to the rules and
procedures of the American Arbitration Association. The Company and
Executive shall each submit to the arbitrator their valuations under
(i) and (ii) above, together with all supporting documentation
regarding the methods, assumptions and other bases used in arriving at
such valuation. The arbitrator shall then be instructed to choose which
of the two valuations more closely reflects the fair market value of
the Common Stock, and shall not have the right to choose a third
valuation as the appropriate fair market value of the Common Stock. The
party whose valuation is not so chosen by the arbitrator shall pay any
and all costs and expenses of the arbitration (but not the initial
valuation of the other party), including without limitation reasonable
attorneys' fees and other fees incurred by the prevailing party in
such arbitration. Judgment may be entered on the arbitrator's
determination and award.
4. DEFERRED COMPENSATION ARRANGEMENT WITH RESPECT TO
RESTRICTED SHARES. Notwithstanding anything herein to the contrary, at any time
prior to the occurrence of a Distribution Event (as defined in the Deferred
Compensation Agreement, of even date herewith, between Executive and the
Company (the "Deferred Compensation Agreement")) that the Transfer Restrictions
and Special Forfeiture Restrictions would otherwise lapse with respect to any
portion of the Restricted Shares and result in the recognition of income by
Executive, such Restricted Shares (the "Deferred Shares") shall be cancelled and
an equivalent number of Deemed Deferred Shares (as defined in the Deferred
Compensation Agreement) shall be added to the Restricted Stock Sub-Account under
the Deferred Compensation Agreement.
5. ADJUSTMENTS. In the event of any merger, reorganization,
consolidation, recapitalization, stock dividend, stock split or similar change
affecting the Common Stock, an equitable substitution or proportionate
adjustment shall be made in the kind and number of Restricted Shares and in the
kind, number and option price of shares of Common Stock subject to the Option,
as may be determined by the Board in good faith.
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<PAGE>
6. NONTRANSFERABILITY OF OPTION AND OPTION SHARES; OPTION
SHARES AND RESTRICTED SHARES SUBJECT TO STOCKHOLDERS AGREEMENT. (a) The Option
and this Agreement shall not be transferable and, during the lifetime of
Executive, the Option may be exercised only by Executive; PROVIDED, HOWEVER,
that the Executive shall be permitted to transfer the Option and this Agreement
to a trust controlled by the Executive during the Executive's lifetime for
estate planning purposes, and PROVIDED, further, that the limited
transferability provisions set forth in the immediately preceding proviso shall
apply to any portion of the Option that constitutes an ISO only to the extent
such provisions are consistent with Section 422(b) of the Code. Without limiting
the generality of the foregoing, except as otherwise provided herein, the Option
may not be assigned, transferred, pledged or hypothecated in any way, shall not
be assignable by operation of law, and shall not be subject to execution,
attachment or similar process. Any attempted assignment, transfer, pledge,
hypothecation or other disposition of the Option contrary to the provisions
hereof, and the levy of any execution, attachment or similar process upon the
Option shall be null and void and without effect.
(b) The Executive, the Restricted Shares and, upon
exercise of the Option, the Option Shares, shall at all times and in all
respects be subject to the Stockholders Agreement, the provisions of which shall
be deemed to be incorporated into this Agreement.
7. EFFECT OF TERMINATION OF EMPLOYMENT; SPECIAL FORFEITURE
PROVISIONS. (a) Upon the termination of Executive's employment with the Company
under any circumstances and for any or no reason (including without limitation
by reason of the death or Disability of the Executive or the sale of such
Subsidiary), the Option shall immediately terminate as to all Option Shares that
shall not have vested as of the effective date (as determined under the
Employment Agreement) of such termination of employment, and the Executive shall
forfeit all Restricted Shares as to which the Transfer Restrictions have not
lapsed as of such date of termination, in each case taking into account any
additional vesting and/or lapse that shall have occurred by reason of the
provisions of Sections 1(c)(iv) and 2(c)(iv). Notwithstanding the foregoing, to
the extent the provisions of Sections 1(c)(iii) and 2(c)(iii) shall apply in
connection with a Change in Control, (i) the Option shall be deemed to have been
vested and exercisable in full as of the effective date of Executive's
termination of employment, (ii) the Transfer Restrictions shall be deemed to
have lapsed in full and the Special Forfeiture Provisions shall be deemed to
have expired as of the effective date of such Change in Control
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<PAGE>
and (iii) the exercise provisions of Section 7(c) shall apply as if Executive's
employment had been terminated as of the date of such Change in Control.
(b) In addition, in the event the Executive's
employment with the Company is terminated prior to the Forfeiture Provision
Expiration Date (as defined below) (i) at any time prior to the fifth
anniversary of the Date of Grant by the Executive other than for Good Reason or
(ii) at any time by the Company for Cause (each as defined above), Executive
shall thereupon forfeit that portion of the Vested Option Shares and Lapsed
Restricted Shares equal to the Applicable Reduction Percentage (as defined
below).
i) The "Applicable Reduction
Percentage" shall mean (A) at all times prior to the occurrence of an
Initial Public Offering, two-thirds and (B) at all times following an
Initial Public Offering but prior to the occurrence of a 50% Colony
Sell-Down, one-third.
ii) The Special Forfeiture Provisions
shall expire in their entirety as of the date of (x) the Company's
Initial Public Offering, if such Initial Public Offering occurs
subsequent to a 50% Colony Sell-Down, (y) a 50% Colony Sell-Down that
occurs at any time subsequent to the Company's Initial Public Offering
or (z) a Change in Control (the "Forfeiture Provision Expiration
Date").
iii) A "50% Colony Sell-Down" shall be
deemed to occur when the Principals and their affiliates (excluding
officers and employees of the Company who are Principals or affiliates
merely by reason of their being such an officer or employee) shall,
directly or indirectly, beneficially own shares of capital stock of the
Company representing less than 50% of the largest total number of such
shares theretofore owned by such persons.
(c) Subject to the Company's call rights set forth in
Section 8, any portion of the Option that, pursuant to Section 1(c)
above, shall be vested and exercisable as of the effective date of
Executive's termination of employment (the "Termination Date") shall be
exercisable in whole or in part for a period of 90 days following the
Termination Date (180 days in the event of termination by reason of
disability, and one year in the event of termination by reason of
death). All Option Shares with respect to which the Option shall be so
vested and exercisable shall be referred to herein as "Vested and
Exercisable Option Shares." Upon
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<PAGE>
expiration of such period, any unexercised portion of the Option shall terminate
in full; PROVIDED, HOWEVER, that if the Company provides notice to the Executive
of its intent to exercise the Call pursuant to Section 8, any portion of the
Option subject to such exercise shall terminate as of the closing of the Call.
8. CALL RIGHTS. In the event of (I) the termination of the
Executive's employment with the Company at any time, under any circumstances and
for any or no reason, (II) a Change in Control or (III) any transfer of any
Option Shares or Restricted Shares by the Executive under any circumstances
(other than to a trust controlled by Executive for estate planning purposes, the
trustee of which agrees in writing to be subject in all events and for all
purposes to the Company's Call as set forth herein), including pursuant to any
arrangement, proceeding, decree, judgement, order or application of law relating
to the division of property for domestic relations purposes, for a period
commencing on the date of such event and expiring upon the Company's Initial
Public Offering (the "Call Exercise Period"), the Company shall have the right
to purchase from the Executive, by giving written notice to the Executive
pursuant hereto and in accordance with the terms and conditions of Section 8(a)
below (the "Call") (x) any or all of such portion of the Option as shall relate
to Vested and Exercisable Option Shares as of the date such written notice is
given (the "Call Exercise Date"), (y) any or all Option Shares owned by the
Executive as of the end of business on the Call Exercise Date and/or (z) any or
all Restricted Shares as of the end of business on the Call Exercise Date as to
which the Transfer Restrictions shall have lapsed pursuant to Section 2(c) and
which shall not theretofore have been forfeited by Executive pursuant to Section
7(b).
(a) The following terms and conditions shall apply to the
exercise of the Call:
i) If exercising its rights under (x)
above, the Company shall pay the Executive an amount in cash equal to
the product of (A) the excess, if any, of the Fair Market Value of a
share of Class A Common Stock or Class B Common Stock, as applicable,
as of the Termina tion Date (the "Call Price") over the Class A Option
Exercise Price or Class B Option Exercise Price, as applicable, and (B)
the number of shares of Class A Common Stock or Class B Common Stock,
as applicable, that the portion of the Option being purchased by the
Company pursuant to the Call would otherwise entitle the Executive to
purchase.
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<PAGE>
ii) If exercising its rights under (y)
or (z) above, the Company shall pay the Executive an amount equal to
the product of (A) the Call Price and (B) the number of Option Shares
or Restricted Shares, as applicable, being purchased pursuant thereto.
(b) The closing with respect to the exercise of
the Call shall take place at the Company's executive offices within 30 days
following the Call Exercise Date (the "Scheduled Closing Date").
(c) Notwithstanding any other provision hereof,
the Company may assign, without the consent of the Executive, its rights under
this Section 8; PROVIDED, that no such assignment shall release the Company from
its obligations hereunder.
(d) The Call shall terminate upon the closing of
the Company's Initial Public Offering.
9. INVESTMENT REPRESENTATION. The Executive hereby represents
and warrants to the Company that the Executive, by reason of the Executive's
business or financial experience (or the business or financial experience of the
Executive's professional advisors who are unaffiliated with and who are not
compensated by the Company or any affiliate or selling agent of the Company,
directly or indirectly), has the capacity to protect the Executive's own
interests in connection with the transactions contemplated under this Agreement.
10. NOTICES. All notices and other communications under this
Agreement shall be in writing and shall be given by first class mail, certified
or registered with return receipt requested, or by a nationally recognized
overnight delivery service to the respective parties named below:
If to Company: Harveys Casino Resorts
Highway 50 and Stateline Avenue
P.O. Box 128
Lake Tahoe, Nevada 89449
Attention: Charles Scharer
Facsimile: 775-586-6852
with a copy to: Colony Capital, Inc.
1999 Avenue of the Stars
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<PAGE>
Los Angeles, California 90067
Attention: Kelvin L. Davis
Facsimile: 310-282-8808
and a copy to: Skadden, Arps, Slate, Meagher & Flom LLP
300 South Grand Avenue
Los Angeles, California 90071
Attention: Jonathan H. Grunzweig
Facsimile: 213-687-5600
If to the Executive: John J. McLaughlin
106 Willow Drive
Zephyr Cove, Nevada 89448
Facsimile: 775-588-0998
with a copy to: Michael Forman
Klehr, Harrison, Harvey, Branzburg & Ellers
LLP
1401 Walnut Street
Philadelphia, Pennsylvania 19102
Facsimile: 215-568-3206
Either party hereto may change such party's address for notices by notice duly
given pursuant hereto.
11. SECURITIES LAWS REQUIREMENTS. The Option shall not be
exercisable to any extent, and the Company shall not be obligated to transfer
any Option Shares to the Executive upon exercise of the Option, if such
exercise, in the opinion of counsel for the Company, would violate the
Securities Act (or any other federal or state statutes having similar
requirements as may be in effect at that time). Further, the Company may require
as a condition of transfer of any Option Shares pursuant to any exercise of the
Option that the Executive furnish a written representation that he is purchasing
or acquiring the Option Shares for investment and not with a view to resale or
distribution to the public, and the Executive hereby represents and warrants
that he is acquiring the Restricted Shares for investment and not with a view to
resale or distribution to the public. The Executive hereby represents and
warrants that he understands that the Option Shares and the Re stricted Shares
are "restricted securities," as defined in Rule 144 under the Securi ties Act,
and that any resale of the Option Shares or the Restricted Shares must be in
compliance with the registration requirements of the Securities Act or an exemp-
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tion therefrom. Each certificate representing Option Shares or Restricted Shares
shall bear the legend set forth below:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED,
SOLD, ASSIGNED, HYPOTHECATED OR OTHERWISE DISPOSED OF (A "TRANSFER")
EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF THAT CERTAIN STOCKHOLDERS
AGREEMENT, DATED AS OF FEBRUARY 2, 1999, BY AND AMONG HARVEYS CASINO
RESORTS, A NEVADA CORPORATION, AND CERTAIN OF ITS STOCKHOLDERS AND THAT
CERTAIN STOCK OPTION AND RESTRICTED AWARD AGREEMENT, OF EVEN DATE
HEREWITH, BETWEEN THE COMPANY AND ONE OF ITS SENIOR EXECUTIVES. ANY
TRANSFEREE OF THESE SECURITIES SHALL TAKE SUBJECT TO THE TERMS OF SUCH
AGREEMENTS, COPIES OF WHICH ARE ON FILE WITH THE COMPANY.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 (THE "ACT") OR ANY STATE SECURITIES
LAWS, AND NO TRANSFER OF THESE SECURITIES MAY BE MADE EXCEPT (A) PURSU-
ANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, OR (B)
PURSUANT TO AN EXEMPTION THEREFROM WITH RESPECT TO WHICH THE COMPANY
MAY, UPON REQUEST, REQUIRE A SATISFACTORY OPINION OF COUNSEL FOR THE
HOLDER THAT SUCH TRANSFER IS EXEMPT FROM THE REQUIREMENTS OF THE ACT.
Further, if the Company determines that the listing or qualification of the
Option Shares under any securities or other applicable law is necessary in order
to avoid a violation of any securities laws, the Option shall not be
exercisable, in whole or in part, unless and until such listing or
qualification, or a consent or approval with respect thereto, shall have been
effected or obtained free of any conditions not acceptable to the Company,
PROVIDED, that the Company shall pursue such listing or qualification diligently
and in good faith.
12. NO OBLIGATION TO REGISTER SHARES. Except as provided in
the Stockholders Agreement, the Company shall be under no obligation to register
the Restricted Shares or the Option Shares.
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13. PROTECTIONS AGAINST VIOLATIONS OF AGREEMENT. No purported
sale, assignment, mortgage, hypothecation, transfer, pledge, encumbrance, gift,
transfer in trust (voting or other) or other disposition of, or creation of a
security interest in or lien on, any of the Restricted Shares or Option Shares
by any holder thereof in violation of the provisions of this Agreement, the
Stockholders Agree ment or the Certificate of Incorporation or the Bylaws of the
Company, will be valid, and the Company will not transfer any of said Restricted
Shares or Option Shares on its books nor will any of the Restricted Shares or
Option Shares be entitled to vote, nor will any dividends be paid thereon,
unless and until there has been full compliance with such provisions to the
satisfaction of the Company. The foregoing restrictions are in addition to and
not in lieu of any other remedies, legal or equitable, available to enforce such
provisions.
14. WITHHOLDING REQUIREMENTS. Executive shall, no later than
the date as of which the value of any award hereunder becomes includable in his
gross income (after taking into account the provisions of Section 4 hereof), pay
to the Company, or make arrangements satisfactory to the Company regarding
payment of, any federal, state, or local taxes or other amounts of any kind
required by law to be withheld with respect thereto. The obligations of the
Company hereunder shall be conditional on the making of such payments or
arrangements, and the Company shall, to the extent permitted by law, have the
right to deduct any such taxes from any payment of any kind otherwise due to
Executive.
15. FAILURE TO ENFORCE NOT A WAIVER. The failure to enforce at
any time any provision of this Agreement shall in no way be construed to be a
waiver of such provision or of any other provision hereof.
16. GOVERNING LAW. This Agreement shall be governed by and
construed according to the laws of the State of Nevada without regard to its
principles of conflict of laws.
17. INCORPORATION OF PLAN. The Plan is hereby incorporated by
reference and made a part hereof, and the Option, the Restricted Stock award and
this Agreement shall be subject to all terms and conditions of the Plan;
provided, however, that in the event of a conflict between the terms of this
Agreement and the Plan, the terms of this Agreement shall govern.
18. AMENDMENTS. This Agreement may be amended or modified at
any time only by an instrument in writing signed by each of the parties hereto.
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19. RIGHTS AS A STOCKHOLDER. Neither the Executive nor any of
the Executive's successors in interest shall have any rights as a stockholder of
the Company with respect to any shares of Common Stock subject to the Option
until the date of issuance of a stock certificate for such shares of Common
Stock.
20. AGREEMENT NOT A CONTRACT OF EMPLOYMENT. Neither the Plan,
the granting of the Restricted Stock award and the Option, this Agreement nor
any other action taken pursuant to the Plan shall constitute or be evidence of
any agreement or understanding, express or implied, that the Executive has a
right to continue as an employee of the Company or any Subsidiary or affiliate
of the Company for any period of time or at any specific rate of compensation.
21. AUTHORITY OF THE BOARD. The Board shall have full
authority to interpret and construe the terms of the Plan and this Agreement,
and shall do so in good faith.
22. DISPUTE RESOLUTION. Any dispute arising under this
Agreement shall be resolved in accordance with the arbitration provisions of the
Employment Agreement as in effect as of the date hereof, or as the same may be
amended from time to time, regardless of the expiration of the Employment
Agreement prior to the resolution of such dispute, and such arbitration
provisions shall be deemed to be incorporated herein by this reference.
23. MARKET STAND-OFF. In connection with any underwritten
public offering by the Company of its equity securities pursuant to an effective
registration statement filed under the Securities Act for such period as the
Company or its underwriters may request (such period not to exceed 180 days
following the date of the applicable offering), the Executive shall not,
directly or indirectly, sell, make any short sale of, loan, hypothecate, pledge,
offer, grant or sell any option or other contract for the purchase of, purchase
any option or other contract for the sale of, or otherwise dispose of or
transfer, or agree to engage in any of the foregoing transactions with respect
to, any Restricted Shares or Option Shares acquired under this Agreement without
the prior written consent of the Company or its underwriters, PROVIDED, that
the Executive shall not be required to be subject to "lock-up" restrictions that
are more restrictive than such restrictions to which any other Employee
Stockholder (as defined in the Stockholders Agreement) having commen surate job
duties and responsibilities in the Company is subject, or that would prevent the
Executive from effectuating a sale pursuant to Section 2.5 of the Stockholders
Agreement or Section 3.1 of the Stockholders Agreement.
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IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Agreement on the day and year first above written.
HARVEYS CASINO RESORTS
By:/s/Charles W. Scharer
-------------------------------------
Name: Charles W. Scharer
Title: President and Chief Executive
Officer
The undersigned hereby accepts and agrees to
all the terms and provisions of the fore-
going Agreement and to all the terms and
provisions of the Plan and the Stockholders
Agreement herein incorporated by reference.
/s/ John McLauglin
-------------------------------------
JOHN J. MCLAUGHLIN
Address: 106 Willow Drive Zephyr Cove,
Nevada 89448
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EXHIBIT 10.46
MANAGEMENT STOCK OPTION
AND RESTRICTED STOCK AGREEMENT
This is a STOCK OPTION AND RESTRICTED STOCK AGREEMENT
("Agreement"), dated as of February 2, 1999 (the "Effective Date"), by and
between Harveys Casino Resorts, a Nevada corporation (the "Company"), and
Gary Armentrout (the "Executive"), an employee of the Company or a Subsidiary
of the Company.
Pursuant to the Company's 1999 Omnibus Stock Incentive Plan (the
"Plan"), the Board of Directors of the Company (the "Board"), as the
Administrator of the Plan, has determined that Executive is to be granted (i)
an option (the "Option") to purchase shares of the Company's Class A Common
Stock, par value $.01 per share (the "Class A Common Stock"), and shares of
the Company's Class B Common Stock, par value $.01 per share (the "Class B
Common Stock" and, together with the Class A Common Stock, the "Common
Stock"), and (ii) a Restricted Stock award consisting of additional shares of
Class A Common Stock and Class B Common Stock (the "Restricted Shares"), each
on the terms and conditions set forth herein, and hereby grants such Option
and Restricted Stock award. It is intended that the Option shall constitute
an "incentive stock option" (an "ISO") within the meaning of Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code") to the maximum
extent permitted under the Code. Additional provisions relating to the ISO
status of the Option are set forth in Section 1 below.
Any capitalized terms not defined herein shall have their
respective meanings set forth in the Plan.
1. TERMS OF OPTION GRANT. (a) The Option entitles Executive to
purchase 90 shares of the Company's Class A Common Stock at a price equal to
$20.06 per share (the "Class A Option Exercise Price"), which the parties
acknowledge is not less than the fair market value of one share of the Class A
Common Stock as of the Effective Date. The Option also entitles Executive to
purchase 9,000 shares of the Company's Class B Common Stock at a price equal to
$20.06 per share (the "Class B Option Exercise Price" and, collectively with the
Class A Option Exercise Price, the "Option Exercise Price"), which the parties
acknowledge is not less than the fair market value of one share of the Class B
Common Stock as of the Effective Date. The shares of Class A Common Stock
<PAGE>
and Class B Common Stock subject to the Option are referred to herein as the
"Option Shares."
(b) The term of the Option (the "Option Term") shall commence on
the Effective Date (the "Date of Grant") and, unless the Option is previously
terminated pursuant to this Agreement, shall terminate upon the expiration of
ten (10) years from the Date of Grant. Upon expiration of the Option Term, all
rights of Executive hereunder shall terminate.
(c) The Option shall vest as to 20% of the Option Shares on each
of the first five anniversaries of the Date of Grant, PROVIDED, that
i) the Option and such vesting shall be subject to the
forfeiture provisions of Section 6(b) below (the "Special Forfeiture
Provisions"), such that any such vested portion of the Option shall be
exercisable from time to time only if and to the extent that such vested
portion shall not be subject to forfeiture pursuant to the Special
Forfeiture Provisions; and
ii) upon the occurrence of a Change in Control (as defined
in Section 3 below) at any time prior to the effective date of Executive's
termination of employment with the Company for any or no reason, the Option
shall immediately vest and become exercisable as to 100% of the Option
Shares and the Special Forfeiture Provisions shall immediately expire.
Those Option Shares which, as of any date, have vested pursuant to the first
clause of this Section 1(c) but remain subject to the Special Forfeiture
Provisions shall be referred to herein as "Vested Option Shares."
(d) Except as otherwise provided herein, the right of Executive
to purchase Option Shares with respect to which the Option has become
exercisable may be exercised in whole or in part at any time or from time to
time prior to expiration of the Option Term, PROVIDED, that any exercise of the
Option shall be deemed to relate in tandem to both the Class A Common Stock and
the Class B Common Stock subject to the Option, such that the ratio of (i) the
number of shares of Class A Common Stock issuable upon such exercise to (ii) the
total number of shares of Class A Common Stock outstanding on the date hereof
shall be the same as the ratio of (iii) the number of shares of Class B Common
Stock
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issuable upon such exercise to (iv) the total number of shares of Class B
Common Stock outstanding on the date hereof.
(e) The Option may be exercised by means of written notice of
exercise to the Company specifying the number of Option Shares to be purchased,
accompanied by payment in full of the aggregate Option Exercise Price and any
applicable withholding amounts (i) in cash or by check, (ii) at any time
following the closing of the Company's Initial Public Offering (as defined in
Section 3 below) by means of a broker cashless exercise procedure, on terms
reasonably acceptable to the Company, providing proceeds sufficient to pay the
exercise price and any applicable withholding amounts, or (iii) by any other
means of exercise authorized from time to time in the Plan and/or by the Board.
In addition, with respect to any exercise of the Option that occurs following
Executive's termination of employment with the Company at any time prior to the
closing of the Company's Initial Public Offering, the Option may, at Executive's
election, be exercised through withholding of shares of Common Stock otherwise
issuable upon exercise of the Option having an aggregate Fair Market Value
equivalent to the aggregate Option Exercise Price plus applicable withholding
amounts.
(f) To the extent the Option is intended to constitute an ISO,
the ratio of (i) the number of shares of Class A Common Stock to which the ISO
portion of the Option relates to (ii) the total number of shares of Class A
Common Stock outstanding on the date hereof shall be the same as the ratio of
(iii) the number of shares of Class B Common Stock to which the ISO portion of
the Option relates to (iv) the total number of shares of Class B Common Stock
outstanding on the date hereof.
2. TERMS OF RESTRICTED STOCK AWARD. (a) The Restricted Stock award
entitles Executive as of the Date of Grant to receive 90 shares of Class A
Common Stock and 9,000 shares of Class B Common Stock, subject to the terms and
conditions of this Agreement.
(b) Subject to the rights and obligations of Executive pursuant
to that certain Stockholders Agreement, of even date herewith, by and among the
Company, Executive and the other parties thereto (the "Stockholders Agreement"),
and except as provided in Section 2(c) below, the Restricted Shares may not be
sold, assigned, transferred, pledged, hypothecated or otherwise disposed of in
any manner or under any circumstances (the "Transfer Restrictions").
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<PAGE>
(c) The Transfer Restrictions shall lapse as to 20% of the
Restricted Shares on each of the first five anniversaries of the Date of Grant,
PROVIDED, that
i) the Restricted Shares and such lapse shall be subject
to the Special Forfeiture Provisions of Section 6(b), such that the
Transfer Restrictions shall continue to apply to the Restricted Shares for
so long and to the extent that the Restricted Shares shall be subject to
forfeiture pursuant to the Special Forfeiture Provisions; and
ii) upon the occurrence of a Change in Control at any time
prior to the effective date of Executive's termination of employment with
the Company for any or no reason, the Transfer Restrictions shall
immediately lapse as to 100% of the Restricted Shares and the Special
Forfeiture Provisions shall immediately expire.
Those Restricted Shares as to which, as of any date, the Transfer Restrictions
have lapsed pursuant to the first clause of this Section 2(c) but which remain
subject to the Special Forfeiture Provisions shall be referred to herein as
"Lapsed Restricted Shares."
(d) From and after the Date of Grant and for so long as the
Restricted Shares are held by or for the benefit of Executive, except as limited
by the Stockholders Agreement, the Transfer Restrictions and the Special
Forfeiture Provisions, Executive shall have all the rights of a stockholder of
the Company with respect to the Restricted Shares, including but not limited to
the right to receive dividends on and the right to vote such shares.
3. CERTAIN DEFINITIONS. (a) For purposes of this Agreement,
"Initial Public Offering" shall mean the closing of a public offering pursuant
to an effective registration statement under the Securities Act of 1933, as
amended (the "Securities Act") covering shares of the Company's Common Stock,
which shares are approved for listing or quotation on the New York Stock
Exchange, American Stock Exchange or Nasdaq National Market.
(b) For purposes of this Agreement, "Change in Control" means the
occurrence of one or more of the following events:
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<PAGE>
i) the sale, lease, transfer, conveyance or other
disposition, in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Subsidiaries, taken
as a whole;
ii) the adoption by the Company's stockholders of a plan of
liquidation or dissolution of the Company;
iii) prior to the time the Company or any Parent Corporation
completes an Initial Public Offering, the Company becomes aware (by way of
a report or any other filing pursuant to Section 13(d) of the Exchange Act,
proxy vote, written notice or otherwise) of the acquisition by any "Person"
or related group (within the meaning of Section 13(d)(3) or Section
14(d)(2) of the Exchange Act, or any successor provision to either of the
foregoing, including any "group" acting for the purpose of acquiring,
holding or disposing of securities within the meaning of Rule 13d-5(b)(1)
under the Exchange Act), other than a group consisting of the Principals
and their Related Parties, in a single transaction or in a related series
of transactions, by way of merger, consolidation or other business
combination or purchase of direct or indirect beneficial ownership (within
the meaning of Rule 13d-3 under the Exchange Act, or any successor
provision) of 50% or more of the total voting power entitled to vote in the
election of the Board of Directors of the Company or such other Person
surviving the transaction;
iv) subsequent to the time the Company or any Parent
Corporation completes an Initial Public Offering, the Principals and their
Related Parties shall directly or indirectly beneficially own shares of
capital stock representing less than 25% of the total voting power entitled
to vote in the election of the Board of Directors of the Company and either
(A) any other Person directly or indirectly beneficially owns shares of
capital stock representing voting power in excess of the voting power
represented by shares of capital stock owned by the Principals and their
Related Parties or (B) individuals who were the voting members of the
Company's Board of Directors at the beginning of any two-year period
commencing subsequent to the Initial Public Offering (together with any new
voting directors whose election or appointment by such board or whose
nomination for election by the shareholders of the Company was approved by
a vote of a majority of the directors then still in office who were either
directors at the beginning of such period or whose election or nomination
for election was previously so
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<PAGE>
approved) cease for any reason to constitute a majority of the Company's
Board of Directors then in office.
(c) For purposes of this Agreement, the following terms shall
have the meanings as set forth below:
i) "Exchange Act" means the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder;
ii) "Principals" means Colony Investors III, L.P., Colony
Capital, Inc. and any of their respective affiliates and any of the
Company's officers and directors; and
iii) "Related Party" with respect to any Principal means (A)
any controlling stockholder, 80% (or more) owned Subsidiary, or spouse or
immediate family member (in the case of an individual) of such Principal or
(B) any trust, corporation, partnership or other entity, the beneficiaries,
stockholders, partners, owners or Persons beneficially holding an 80% or
more controlling interest of which consist of such Principal and/or such
other Persons referred to in the immediately preceding clause (A).
iv) "Cause" shall mean (A) gross negligence or willful
malfeasance in the performance of Executive's duties to the Company; (B)
conviction of any felony or conviction of a crime involving moral
turpitude; (C) dishonesty with respect to the Company (including, without
limitation, fraud); (D); use or imparting of any confidential or
proprietary information of the Company or any subsidiary or affiliate in
violation of the Company's policy regarding confidentiality or any
confidentiality or proprietary agreement to which Executive is a party,
which act or actions have a material adverse affect on the Company, or (E)
engaging in any other activity that is in violation of the rules and
regulations concerning the conduct of the Company's employees, whether such
rules and regulations are those of the Company or any governmental or other
regulatory agency, and whether or not such rules and regulations have been
reduced to writing, which act or actions have a material adverse effect on
the Company.
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<PAGE>
(d) For purposes of this Agreement, "Fair Market Value" (when
capitalized, unless the context clearly indicates otherwise) means, as of any
given date, (A) if the Common Stock is publicly traded, the closing sale price
of the Common Stock on such date (or the nearest preceding date on which the
Common Stock was traded) as reported in the Western Edition of THE WALL STREET
JOURNAL, or (B) if the Common Stock is not publicly traded, the fair market
value of the Common Stock as determined by the Board in good faith.
4. ADJUSTMENTS. In the event of any merger, reorganization,
consolidation, recapitalization, stock dividend, stock split or similar change
affecting the Common Stock, an equitable substitution or proportionate
adjustment shall be made in the kind and number of Restricted Shares and in the
kind, number and option price of shares of Common Stock subject to the Option,
as may be determined by the Board in good faith.
5. NONTRANSFERABILITY OF OPTION AND OPTION SHARES; OPTION SHARES AND
RESTRICTED SHARES SUBJECT TO STOCKHOLDERS AGREEMENT. (a) The Option and this
Agreement shall not be transferable and, during the lifetime of Executive, the
Option may be exercised only by Executive; PROVIDED, HOWEVER, that Executive
shall be permitted to transfer the Option and this Agreement to a trust
controlled by Executive during Executive's lifetime for estate planning
purposes, and PROVIDED, FURTHER, that the limited transferability provisions set
forth in the immediately preceding proviso shall apply to any portion of the
Option that constitutes an ISO only to the extent such provisions are consistent
with Section 422(b) of the Code. Without limiting the generality of the
foregoing, except as otherwise provided herein, the Option may not be assigned,
transferred, pledged or hypothecated in any way, shall not be assignable by
operation of law, and shall not be subject to execution, attachment or similar
process. Any attempted assignment, transfer, pledge, hypothecation or other
disposition of the Option contrary to the provisions hereof, and the levy of any
execution, attachment or similar process upon the Option shall be null and void
and without effect.
(b) Executive, the Restricted Shares and, upon exercise of the
Option, the Option Shares, shall at all times and in all respects be subject to
the Stockholders Agreement, the provisions of which shall be deemed to be
incorporated into this Agreement.
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<PAGE>
6. EFFECT OF TERMINATION OF EMPLOYMENT; SPECIAL FORFEITURE
PROVISIONS. (a) Upon the termination of Executive's employment with the Company
under any circumstances and for any or no reason (including without limitation
by reason of the death or disability of Executive), the Option shall immediately
terminate as to all Option Shares that shall not have vested as of the effective
date of such termination of employment, and Executive shall forfeit all
Restricted Shares as to which the Transfer Restrictions have not lapsed as of
such date of termination.
(b) In addition, in the event Executive's employment with the
Company is terminated prior to the Forfeiture Provision Expiration Date (as
defined below) (i) at any time prior to the fifth anniversary of the Date of
Grant by Executive or (ii) at any time by the Company for Cause, Executive shall
thereupon forfeit that portion of the Vested Option Shares and Lapsed Restricted
Shares equal to the Applicable Reduction Percentage (as defined below).
i) The "Applicable Reduction Percentage" shall mean (A) at
all times prior to the occurrence of an Initial Public Offering, two-thirds
and (B) at all times following an Initial Public Offering but prior to the
occurrence of a 50% Colony Sell-Down, one-third.
ii) The Special Forfeiture Provisions shall expire in their
entirety as of the date of (x) the Company's Initial Public Offering, if
such Initial Public Offering occurs subsequent to a 50% Colony Sell-Down,
(y) a 50% Colony Sell-Down that occurs at any time subsequent to the
Company's Initial Public Offering or (z) a Change in Control (the
"Forfeiture Provision Expiration Date").
iii) A "50% Colony Sell-Down" shall be deemed to occur when
the Principals and their affiliates (excluding officers and employees of
the Company who are Principals or affiliates merely by reason of their
being such an officer or employee) shall, directly or indirectly,
beneficially own shares of capital stock of the Company representing less
than 50% of the largest total number of such shares theretofore owned by
such persons.
(c) Subject to the Company's call rights set forth in Section 7,
any portion of the Option that, pursuant to Section 1(c) above, shall be vested
and exercisable as of the effective date of Executive's termination of
employment (the "Termination Date") shall be exercisable in whole or in part for
a period of 90
8
<PAGE>
days following the Termination Date (180 days in the event of termination by
reason of disability, and one year in the event of termination by reason of
death). All Option Shares with respect to which the Option shall be so
vested and exercisable shall be referred to herein as "Vested and Exercisable
Option Shares." Upon expiration of such period, any unexercised portion of
the Option shall terminate in full; PROVIDED, HOWEVER, that if the Company
provides notice to Executive of its intent to exercise the Call pursuant to
Section 7, any portion of the Option subject to such exercise shall terminate
as of the closing of the Call.
7. CALL RIGHTS. In the event of (I) the termination of Executive's
employment with the Company at any time, under any circumstances and for any or
no reason, (II) a Change in Control or (III) any transfer of any Option Shares
or Restricted Shares by Executive under any circumstances (other than to a trust
controlled by Executive for estate planning purposes, the trustee of which
agrees in writing to be subject in all events and for all purposes to the
Company's Call as set forth herein), including pursuant to any arrangement,
proceeding, decree, judgement, order or application of law relating to the
division of property for domestic relations purposes, for a period commencing on
the date of such event and expiring upon the Company's Initial Public Offering
(the "Call Exercise Period"), the Company shall have the right to purchase from
Executive, by giving written notice to Executive pursuant hereto and in
accordance with the terms and conditions of Section 7(a) below (the "Call") (x)
any or all of such portion of the Option as shall relate to Vested and
Exercisable Option Shares as of the date such written notice is given (the "Call
Exercise Date"), (y) any or all Option Shares owned by Executive as of the end
of business on the Call Exercise Date and/or (z) any or all Restricted Shares as
of the end of business on the Call Exercise Date as to which the Transfer
Restrictions shall have lapsed pursuant to Section 2(c) and which shall not
theretofore have been forfeited by Executive pursuant to Section 6(b).
(a) The following terms and conditions shall apply to the
exercise of the Call:
i) If exercising its rights under (x) above, the Company
shall pay Executive an amount in cash equal to the product of (A) the
excess, if any, of the Fair Market Value of a share of Class A Common Stock
or Class B Common Stock, as applicable, as of the Termination Date (the
"Call Price") over the Class A Option Exercise Price or Class B Option
Exercise Price, as applicable, and (B) the number of shares of Class A
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Common Stock or Class B Common Stock, as applicable, that the portion of
the Option being purchased by the Company pursuant to the Call would
otherwise entitle Executive to purchase.
ii) If exercising its rights under (y) or (z) above, the
Company shall pay Executive an amount equal to the product of (A) the Call
Price and (B) the number of Option Shares or Restricted Shares, as
applicable, being purchased pursuant thereto.
(b) The closing with respect to the exercise of the Call shall
take place at the Company's executive offices within 30 days following the Call
Exercise Date (the "Scheduled Closing Date").
(c) Notwithstanding any other provision hereof, the Company may
assign, without the consent of Executive, its rights under this Section 7;
PROVIDED, that no such assignment shall release the Company from its obligations
hereunder.
(d) The Call shall terminate upon the closing of the Company's
Initial Public Offering.
8. INVESTMENT REPRESENTATION. Executive hereby represents and
warrants to the Company that Executive, by reason of Executive's business or
financial experience (or the business or financial experience of Executive's
professional advisors who are unaffiliated with and who are not compensated by
the Company or any affiliate or selling agent of the Company, directly or
indirectly), has the capacity to protect Executive's own interests in connection
with the transactions contemplated under this Agreement.
9. NOTICES. All notices and other communications under this
Agreement shall be in writing and shall be given by first class mail, certified
or registered with return receipt requested, or by a nationally recognized
overnight delivery service to the respective parties named below:
If to Company: Harveys Casino Resorts
Highway 50 and Stateline Avenue
P.O. Box 128
Lake Tahoe, Nevada 89449
Attention: Chief Executive Officer
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Facsimile: 775-586-6852
with a copy to: Colony Capital, Inc.
1999 Avenue of the Stars
Los Angeles, California 90067
Attention: Kelvin L. Davis
Facsimile: 310-282-8808
and a copy to: Skadden, Arps, Slate, Meagher & Flom LLP
300 South Grand Avenue
Los Angeles, California 90071
Attention: Jonathan H. Grunzweig
Facsimile: 213-687-5600
If to Executive: Gary Armentrout
310 Bryn Wyck Place
St. Louis, Missouri 63141
Either party hereto may change such party's address for notices by notice duly
given pursuant hereto.
10. SECURITIES LAWS REQUIREMENTS. The Option shall not be
exercisable to any extent, and the Company shall not be obligated to transfer
any Option Shares to Executive upon exercise of the Option, if such exercise, in
the opinion of counsel for the Company, would violate the Securities Act (or any
other federal or state statutes having similar requirements as may be in effect
at that time). Further, the Company may require as a condition of transfer of
any Option Shares pursuant to any exercise of the Option that Executive furnish
a written representation that he is purchasing or acquiring the Option Shares
for investment and not with a view to resale or distribution to the public, and
Executive hereby represents and warrants that he is acquiring the Restricted
Shares for investment and not with a view to resale or distribution to the
public. Executive hereby represents and warrants that he understands that the
Option Shares and the Restricted Shares are "restricted securities," as defined
in Rule 144 under the Securities Act, and that any resale of the Option Shares
or the Restricted Shares must be in compliance with the registration
requirements of the Securities Act or an exemption therefrom. Each certificate
representing Option Shares or Restricted Shares shall bear the legend set forth
below:
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THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED,
SOLD, ASSIGNED, HYPOTHECATED OR OTHERWISE DISPOSED OF (A "TRANSFER") EXCEPT
IN ACCORDANCE WITH THE PROVISIONS OF THAT CERTAIN STOCKHOLDERS AGREEMENT,
DATED AS OF FEBRUARY 2, 1999, BY AND AMONG HARVEYS CASINO RESORTS, A NEVADA
CORPORATION, AND CERTAIN OF ITS STOCKHOLDERS AND THAT CERTAIN STOCK OPTION
AND RESTRICTED AWARD AGREEMENT, OF EVEN DATE HEREWITH, BETWEEN THE COMPANY
AND ONE OF ITS EXECUTIVES. ANY TRANSFEREE OF THESE SECURITIES SHALL TAKE
SUBJECT TO THE TERMS OF SUCH AGREEMENTS, COPIES OF WHICH ARE ON FILE WITH
THE COMPANY.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 (THE "ACT") OR ANY STATE SECURITIES LAWS,
AND NO TRANSFER OF THESE SECURITIES MAY BE MADE EXCEPT (A) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, OR (B) PURSUANT TO AN
EXEMPTION THEREFROM WITH RESPECT TO WHICH THE COMPANY MAY, UPON REQUEST,
REQUIRE A SATISFACTORY OPINION OF COUNSEL FOR THE HOLDER THAT SUCH TRANSFER
IS EXEMPT FROM THE REQUIREMENTS OF THE ACT.
Further, if the Company determines that the listing or qualification of the
Option Shares under any securities or other applicable law is necessary in order
to avoid a violation of any securities laws, the Option shall not be
exercisable, in whole or in part, unless and until such listing or
qualification, or a consent or approval with respect thereto, shall have been
effected or obtained free of any conditions not acceptable to the Company,
PROVIDED, that the Company shall pursue such listing or qualification diligently
and in good faith.
11. NO OBLIGATION TO REGISTER SHARES. Except as provided in the
Stockholders Agreement, the Company shall be under no obligation to register the
Restricted Shares or the Option Shares.
12. PROTECTIONS AGAINST VIOLATIONS OF AGREEMENT. No purported sale,
assignment, mortgage, hypothecation, transfer, pledge, encumbrance, gift,
transfer in trust (voting or other) or other disposition of, or creation of a
security
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interest in or lien on, any of the Restricted Shares or Option Shares by any
holder thereof in violation of the provisions of this Agreement, the
Stockholders Agreement or the Certificate of Incorporation or the Bylaws of
the Company, will be valid, and the Company will not transfer any of said
Restricted Shares or Option Shares on its books nor will any of the
Restricted Shares or Option Shares be entitled to vote, nor will any
dividends be paid thereon, unless and until there has been full compliance
with such provisions to the satisfaction of the Company. The foregoing
restrictions are in addition to and not in lieu of any other remedies, legal
or equitable, available to enforce such provisions.
13. WITHHOLDING REQUIREMENTS. Executive shall, no later than the
date as of which the value of any award hereunder becomes includable in his
gross income (after taking into account the provisions of Section 4 hereof), pay
to the Company, or make arrangements satisfactory to the Company regarding
payment of, any federal, state, or local taxes or other amounts of any kind
required by law to be withheld with respect thereto. The obligations of the
Company hereunder shall be conditional on the making of such payments or
arrangements, and the Company shall, to the extent permitted by law, have the
right to deduct any such taxes from any payment of any kind otherwise due to
Executive.
14. FAILURE TO ENFORCE NOT A WAIVER. The failure to enforce at any
time any provision of this Agreement shall in no way be construed to be a waiver
of such provision or of any other provision hereof.
15. GOVERNING LAW. This Agreement shall be governed by and construed
according to the laws of the State of Nevada without regard to its principles of
conflict of laws.
16. INCORPORATION OF PLAN. The Plan is hereby incorporated by
reference and made a part hereof, and the Option, the Restricted Stock award and
this Agreement shall be subject to all terms and conditions of the Plan;
provided, however, that in the event of a conflict between the terms of this
Agreement and the Plan, the terms of this Agreement shall govern.
17. AMENDMENTS. This Agreement may be amended or modified at any
time only by an instrument in writing signed by each of the parties hereto.
18. RIGHTS AS A STOCKHOLDER. Neither Executive nor any of
Executive's successors in interest shall have any rights as a stockholder of the
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Company with respect to any shares of Common Stock subject to the Option until
the date of issuance of a stock certificate for such shares of Common Stock.
19. AGREEMENT NOT A CONTRACT OF EMPLOYMENT. Neither the Plan, the
granting of the Restricted Stock award and the Option, this Agreement nor any
other action taken pursuant to the Plan shall constitute or be evidence of any
agreement or understanding, express or implied, that Executive has a right to
continue as an employee of the Company or any Subsidiary or affiliate of the
Company for any period of time or at any specific rate of compensation.
20. AUTHORITY OF THE BOARD. The Board shall have full authority to
interpret and construe the terms of the Plan and this Agreement, and shall do so
in good faith.
21. DISPUTE RESOLUTION. Any dispute arising under this Agreement
shall be resolved in accordance with the arbitration provisions set forth in
Annex A, which is attached hereto, and such arbitration provisions shall be
deemed to be incorporated herein by this reference.
22. MARKET STAND-OFF. In connection with any underwritten public
offering by the Company of its equity securities pursuant to an effective
registration statement filed under the Securities Act for such period as the
Company or its underwriters may request (such period not to exceed 180 days
following the date of the applicable offering), Executive shall not, directly or
indirectly, sell, make any short sale of, loan, hypothecate, pledge, offer,
grant or sell any option or other contract for the purchase of, purchase any
option or other contract for the sale of, or otherwise dispose of or transfer,
or agree to engage in any of the foregoing transactions with respect to, any
Restricted Shares or Option Shares acquired under this Agreement without the
prior written consent of the Company or its underwriters, PROVIDED, that
Executive shall not be required to be subject to "lock-up" restrictions that are
more restrictive than such restrictions to which any other Employee Stockholder
(as defined in the Stockholders Agreement) having commensurate job duties and
responsibilities in the Company is subject, or that would prevent Executive from
effectuating a sale pursuant to Section 2.5 of the Stockholders Agreement or
Section 3.1 of the Stockholders Agreement.
23. COORDINATION WITH EMPLOYMENT CONTRACT. This Agreement supersedes
any and all other agreements, either oral or in writing, between the parties
hereto with respect to the employment of Executive by the Company and the
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compensation payable therefor; PROVIDED, that that certain employment agreement
between Executive and the Company dated as of May 9, 1995, as extended (the
"Employment Agreement"), shall be superseded only with respect to those matters
that are addressed herein, including but not limited to (i) the right of
Executive to receive grants of options, restricted stock or other equity based
compensation with respect to his employment with the Company, (ii) the
definition of "Cause" and the circumstances under which Executive may be
terminated therefor and (iii) the method by which disputes regarding Executive's
employment with the Company may be resolved. In the event of any other
conflicts between the terms of the Employment Agreement and this Agreement, the
terms of this Agreement shall prevail. In all other respects, the Employment
Agreement shall remain in effect in accordance with its terms as in effect on
the date hereof.
24. DEFERRED COMPENSATION ARRANGEMENT WITH RESPECT TO RESTRICTED
SHARES. Notwithstanding anything herein to the contrary, at any time prior to
the occurrence of a Distribution Event (as defined in the Deferred Compensation
Agreement, of even date herewith, between Executive and the Company (the
"Deferred Compensation Agreement")) that the Transfer Restrictions and Special
Forfeiture Restrictions would otherwise lapse with respect to any portion of the
Restricted Shares and result in the recognition of income by Executive, such
Restricted Shares (the "Deferred Shares") shall be cancelled and an equivalent
number of Deemed Deferred Shares (as defined in the Deferred Compensation
Agreement) shall be added to the Account under the Deferred Compensation
Agreement.
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement on the day and year first above written.
HARVEYS CASINO RESORTS
By /s/ John J. McLaughlin
-------------------------------
Name: John J. McLaughlin
-----------------------------
Title: Chief Financial Officer
----------------------------
The undersigned hereby accepts and agrees to all the terms and provisions of the
fore-
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going Agreement and to all the terms
and provisions of the Plan and the
Stockholders Agreement herein
incorporated by reference.
/s/ Gary Armentrout
--------------------------------------
Executive
Address: 310 Bryn Wyck Place
St. Louis, Missouri 63141
SCHEDULE
Pursuant to the Instructions to Item 601 of Regulation S-K, the registrant is
filing only the foregoing copy of the foregoing document, which is
substantially identical in all material respects except as to the parties
thereto and the address for notices as certain other documents required to be
filed as an exhibit to this Form 10-K. The registrant has omitted to file
five other agreements which differ from the foregoing document only in that
each of Edward B. Barraco, John R. Bellotti, James J. Rafferty, Kevin O.
Servatius and Verne H. Welch, Jr. are parties thereto instead of Gary
Armentrout, and in that such parties' respective notice addresses are
different. The registrant undertakes to file copies of such documents at the
request of the Commission.
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ANNEX A
ARBITRATION
Except as necessary for the Company and its subsidiaries, affiliates,
successors or assigns or Executive 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 relating to this Agreement, or any dispute that relates in any
way, in whole or in part, to Executive's employment with the Company 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 Las Vegas, 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 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 any other state or
federal law.
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EXHIBIT 10.47
DEFERRED COMPENSATION AGREEMENT
DEFERRED COMPENSATION AGREEMENT (this "Agreement"), dated as of
February 2, 1999 (the "Effective Date"), by and between Harveys Casino Resorts,
a Nevada corporation (the "Company"), and Gary Armentrout (the "Executive"), an
employee of the Company or a Subsidiary of the Company.
Executive and the Company have entered into that certain Stock Option
and Restricted Stock Award Agreement (the "Award Agreement"), of even date
herewith, which provides, among other things, for the automatic deferral
pursuant to this Agreement of restricted shares of Class A Common Stock and
restricted shares of Class B Common Stock of the Company (the "Deferred
Shares"), at such time as the value of such restricted shares would otherwise be
includable in Executive's gross income (the "Deferral Date"). Executive and the
Company may also enter into additional agreements ("Additional Award
Agreements") regarding shares of restricted stock (also referred to as "Deferred
Shares") providing for an identical deferral mechanism to that set forth in the
Award Agreement.
1. AMOUNT DEFERRED; DEFERRAL PERIOD.
(a) The number of Deferred Shares to be deferred under this
Agreement shall be as determined under the Award Agreement or the relevant
Additional Award Agreement, as applicable.
(b) The deferral period shall commence on the Deferral Date and
shall continue until the occurrence of a Distribution Event as set forth in
Section 5 hereof.
2. DEEMED INVESTMENT IN SHARES OF COMPANY COMMON STOCK.
(a) As of the Deferral Date, the Deferred Shares shall be deemed
to be invested in an identical number of shares of the same class of Company
capital stock as the Deferred Shares themselves (the "Deemed Deferred Shares" or
the "Deemed Shares").
(b) The Company shall establish an unfunded bookkeeping
account (the "Account") to track the number of Deemed Shares held on
Executive's behalf. The Account shall at all times prior to the occurrence of
a Distribution Event be unfunded and Executive's rights under the Account
shall be subject to claims of
<PAGE>
the general creditors of the Company. The Executive shall have no voting
rights and no rights to receive a distribution of dividends with respect to the
Deemed Shares, except as provided in Section 2(d) below.
(c) The value of the Account on any date shall be as determined
by applying the Fair Market Value Formula to the Deemed Deferred Shares;
PROVIDED, that from and after the effective date of Executive's termination of
employment by the Company without Cause (as defined in the Award Agreement), the
value of the Account shall be determined as the LESSER of (x) the value of the
Deemed Deferred Shares as determined under the Fair Market Value Formula as of
such valuation date and (y) the value of the Deemed Deferred Shares as of the
effective date of such termination as determined under the Fair Market Formula,
as increased at the rate of 12% per year, compounded annually, from such
effective date through such valuation date; and PROVIDED, further, that from and
after the effective date of Executive's termination of employment for any reason
other than by the Company without Cause, including without limitation by reason
of Executive's death or disability, the value of the Account shall be determined
as the LESSER of (x) the value of the Deemed Deferred Shares as determined under
the Fair Market Value Formula as of such valuation date and (y) the value of the
Deemed Deferred Shares as of the effective date of such termination as
determined under the Fair Market Value Formula, as increased at the rate of 8%
per year, compounded annually, from such effective date through such valuation
date.
(d) On any date prior to a Distribution Event that dividends
are distributed by the Company to its stockholders in respect of the Class A
Common Stock or Class B Common Stock, each Deemed Share credited to the
Account shall, as applicable, be credited with a dividend equivalent, which
shall be a dollar amount equal to the dividends, if any, payable by the
Company on such date, either in cash or property, in respect of a share of
such class of Common Stock. In the case of dividends payable in property, the
amount of the dividend equivalent shall be based on the fair market value of
such property at the time of distribution of the dividend, as determined in
good faith by the Board of Directors of the Company (the "Board"). The
dividend equivalents so credited to the Account shall be automatically
converted as of the dividend distribution date into Deemed Shares (or
fractions thereof) based upon the Fair Market Value of such Deemed Shares as
of such date.
3. ADJUSTMENTS. In the event of any merger, reorganization,
consolidation, recapitalization, stock dividend, stock split or similar
change affecting the Class A or Class B Common Stock, or any other class of
shares of Company
2
<PAGE>
capital stock to which the Deemed Shares may from time to
time relate, an equitable substitution or proportionate adjustment shall be
made in the kind and number of Deemed Shares held under the Account as may be
determined in good faith by the Board.
4. FAIR MARKET VALUE. For purposes of this Agreement, "Fair
Market Value" (when capitalized, unless the context clearly indicates
otherwise) means, as of any given date, (A) if the Common Stock is publicly
traded, the closing sale price of the Common Stock on such date (or the
nearest preceding date on which the Common Stock was traded) as reported in
the Western Edition of THE WALL STREET JOURNAL, or (B) if the Common Stock is
not publicly traded, the fair market value of the Common Stock as determined
by the Board in good faith.
5. DISTRIBUTION EVENTS. (a) Upon the occurrence of a Mandatory
Distribution Event (as defined in Section 5(b)), the value of the Account as
of the date of such Mandatory Distribution Event shall be paid in whole to
Executive at the election of the Company (i) in cash, (ii) in shares of
Company capital stock, or (iii) a combination of cash or shares of Company
capital stock, in each case having a Fair Market Value equal to the value of
the Account as of the date of such Mandatory Distribution Event. Upon the
occurrence of a Special Distribution Event, the Executive shall be
distributed shares of Company capital stock having a Fair Market Value equal
to the lesser of the Applicable Value (as defined in Section 5(c)) and the
value of the Account as of the date of such Special Distribution Event. In
addition, at any time on or following the effective date of Executive's
termination of employment, the Company shall have the right, in its sole and
absolute discretion, to distribute the value of the Account, in whole or in
part (a "Permissive Distribution Event" and, together with a Mandatory
Distribution Event and a Special Distribution Event, a "Distribution Event"),
at the election of the Company (i) in cash, (ii) in shares of Company capital
stock, or (iii) a combination of cash or shares of Company capital stock, in
each case having a Fair Market Value equal to the value of the Account (or
portion thereof being distributed) as of the date of such Permissive
Distribution Event, PROVIDED, that after giving effect to the distribution
and the election, the Tax Liability Condition (as defined in Section 5(c))
for the Permissive Distribution Event would be satisfied with respect
thereto. Except as necessary to satisfy the Tax Liability Condition, the
shares distributed in connection with a Mandatory Distribution Event or a
Permissive Distribution Event need not be Marketable Securities (as defined
in Section 5(d)).
3
<PAGE>
(b) The first to occur of the following events shall constitute
a Mandatory Distribution Event:
(i) The earliest date following the closing of an Initial
Public Offering (as such term is defined in Section 6(e)) upon which all
underwriter lock-up arrangements applicable to Executive, if any, shall
have expired; PROVIDED, that after giving effect to the distribution and
the election referred to in Section 5(a), the Tax Liability Condition (as
defined below) for the Mandatory Distribution Event would be satisfied with
respect thereto;
(ii) The occurrence of a Change in Control (as defined under
the Award Agreement); PROVIDED, that after giving effect to the
distribution and the election referred to in Section 5(a) (assuming the
Deemed Shares represented Common Stock for the purposes of this
calculation), the Tax Liability Condition (as defined below) for the
Mandatory Distribution Event would be satisfied with respect thereto; and
(iii) The last day of the Company's fifteenth fiscal
year commencing after the Effective Date (the "Maximum Deferral
Distribution Event").
A Special Distribution Event shall occur each time that Executive
has the opportunity to sell Restricted Securities (as defined in the
Stockholders Agreement, of even date herewith, among the Company and certain
stockholders (the "Stockholders Agreement"), pursuant to Section 2.5 or 3.1
(under an effective registration statement) of the Stockholders Agreement.
(c) For purposes of this Section 5, (i) the Tax Liability
Condition shall be satisfied if, in respect of any Distribution Event, the sum
of any cash and Marketable Securities represented by the Deemed Shares would
equal or exceed Executive's Tax Liability in respect of such Distribution Event;
and (ii) the Applicable Value shall be the dollar amount obtained by dividing
the maximum income tax rate (federal, state and local) for Executive in the
state and locality of his residence for income tax purposes as determined
pursuant to Section 5(e), including without limitation impositions in respect of
Medicare, into the dollar value of the total consideration which is comprised of
cash and Marketable Securities to which Executive would be entitled to receive
pursuant to the Stockholders Agreement as a result of the Special Distribution
Event.
4
<PAGE>
(d) For purposes of this Section 5, Marketable Securities shall
mean shares of capital stock of or other equity interests in any entity that,
upon distribution to Executive, are freely tradeable by Executive under the
Securities Act of 1933, as amended (the "Securities Act"), and are not subject
to any contractual restrictions or limitations imposed by the Company on the
rights of Executive to sell such shares.
(e) For purposes of this Section 5, Executive's Tax Liability in
respect of any Distribution Event shall mean the product of (i) the maximum
income tax rate (federal, state and local) for Executive in the state and
locality of his residence for income tax purposes, including without limitation
impositions in respect of Medicare and (ii) the amount of income to be
recognized by Executive upon such Distribution Event, in each case as determined
by the Company's independent auditors, a copy of which determination shall be
provided to Executive. For purposes of the immediately preceding sentence, if
Executive shall be subject to income taxation in more than one state, the
maximum rate of taxation for each such state shall be taken into account
proportionately based on the extent to which the income so recognized would be
treated under applicable law as having been earned in or otherwise having a
relevant nexus with such state for income tax purposes.
(f) The value of the Account shall be distributed to Executive
within five business days following the occurrence of the Distribution Event or,
if later, within five business days after the final determination of the Fair
Market Value of the Account pursuant to Section 4.
(g) Executive hereby agrees that commencing upon and for the
180-day period following a Mandatory Distribution Event pursuant to clause
(b)(i) above (which Mandatory Distribution Event does not also constitute a
Special Distribution Event), Executive shall not, directly or indirectly, sell,
make any short sale of, loan, hypothecate, pledge, offer, grant or sell any
option or other contract for the purchase of, purchase any option or other
contract for the sale of, or otherwise dispose of or transfer, or agree to
engage in any of the foregoing transactions with respect to, any shares of
Common Stock to be distributed to Executive pursuant to such Distribution Event
other than (a) shares having a Fair Market Value no greater than Executive's Tax
Liability in respect of such Distribution Event and (b) such number of shares as
may be sold by Executive, subject to the volume limitations of Rule 144(e) under
the Securities Act as if Rule 144 applied to such sale and as if Executive were
an affiliate of the Company for such purposes.
5
<PAGE>
6. CALL RIGHTS. (a) In the event all or any portion of the
value of the Account is distributed to the Executive pursuant to Section 5
prior to the Company's Initial Public Offering in shares of capital stock or
other equity interests of any entity that are not Marketable Securities (the
"Illiquid Distributed Shares"), the Company shall have the right (the
"Call"), exercisable at any time prior to the Company's Initial Public
Offering (the "Call Exercise Period") by giving written notice to the
Executive pursuant hereto, to purchase any or all of the Illiquid Distributed
Shares in exchange for an amount in cash equal to the Fair Market Value of
such Illiquid Distributed Shares as of the date on which such notice is
provided (the "Call Price"); PROVIDED, that if Executive is exercising
"tag-along" rights pursuant to Section 2.5 of the Stockholders Agreement,
then until completion of such tag-along offer, the Call Price shall not be
less than the price per share attainable by Executive under such tag-along
offer.
(b) The closing with respect to the exercise of the Call shall
take place at the Company's executive offices within 30 days following the date
the Company provides Executive written notice of its intention to exercise the
Call or, if later, within five business days after the final determination of
the Fair Market Value of the Illiquid Distributed Shares pursuant to Section 4.
(c) Notwithstanding any other provision hereof, the Company may
assign, without the consent of the Executive, its rights under this Section 6;
PROVIDED, that no such assignment shall release the Company from its obligations
hereunder.
(d) Notwithstanding anything herein or in the Stockholders
Agreement to the contrary, during the Call Exercise Period the Call shall
continue to apply to the Illiquid Distributed Shares following any transfer
thereof by the Executive under any circumstances, including pursuant to any
arrangement, proceeding, decree, judgment, order or application of law relating
to the division of property for domestic relations purposes.
(e) The Call shall terminate upon the closing of the Company's
Initial Public Offering. For purposes of this Agreement, "Initial Public
Offering" shall mean the closing of a public offering pursuant to an effective
registration statement under the Securities Act covering shares of the Company's
Common Stock, which shares are approved for listing or quotation on the New York
Stock Exchange, American Stock Exchange or Nasdaq National Market.
6
<PAGE>
7. STOCKHOLDERS AGREEMENT. Executive is a party to the
Stockholders Agreement and Executive and the Company agree that any shares of
Company capital stock issuable to Executive under this Agreement shall be
subject in all respects to the Stockholders Agreement, the provisions of
which shall be deemed to be incorporated herein by reference.
8. NOTICES. All notices and other communications under this
Agreement shall be in writing and shall be given by first class mail,
certified or registered with return receipt requested, or by a nationally
recognized overnight delivery service to the respective parties named below:
If to Company: Harveys Casino Resorts
Highway 50 and Stateline Avenue
P.O. Box 128
Lake Tahoe, Nevada 89449
Attention: Corporate Secretary
Facsimile: 775-586-6811
with a copy to: Colony Capital, Inc.
1999 Avenue of the Stars
Los Angeles, California 90067
Attention: Kelvin L. Davis
Facsimile: 310-282-8808
and a copy to: Skadden, Arps, Slate, Meagher & Flom LLP
300 South Grand Avenue
Los Angeles, California 90071
Attention: Jonathan H. Grunzweig
Facsimile: 213-687-5600
If to the Executive: Gary Armentrout
310 Bryn Wyck Place
St. Louis, Missouri 63141
Either party hereto may change such party's address for notices by notice
duly given pursuant hereto.
9. WITHHOLDING REQUIREMENTS. Executive shall, no later than the
date amounts become payable hereunder pursuant to a Distribution Event, pay
to the
7
<PAGE>
Company, or make arrangements satisfactory to the Company, including, as
applicable, by means of any cash distributable pursuant to Section 5,
regarding payment of any federal, state, or local taxes or other amounts of
any kind required by law to be withheld with respect to such Distribution
Event. The obligations of the Company hereunder shall be conditional on the
making of such payments or arrangements, and the Company shall, to the extent
permitted by law, have the right to deduct any such taxes from any payment of
any kind otherwise due to Executive.
10. FAILURE TO ENFORCE NOT A WAIVER. The failure to enforce at
any time any provision of this Agreement shall in no way be construed to be a
waiver of such provision or of any other provision hereof.
11. GOVERNING LAW. This Agreement shall be governed by and
construed according to the laws of the State of Nevada without regard to its
principles of conflict of laws.
12. AMENDMENTS. This Agreement may be amended or modified at any
time only by an instrument in writing signed by each of the parties hereto.
13. AGREEMENT NOT A CONTRACT OF EMPLOYMENT. This Agreement shall
not constitute or be evidence of any agreement or understanding, express or
implied, that the Executive has a right to continue as an employee of the
Company or any Subsidiary or affiliate of the Company for any period of time
or at any specific rate of compensation.
14. DISPUTE RESOLUTION. Any dispute arising under this Agreement
shall be resolved in accordance with the arbitration provisions of the Award
Agreement and such arbitration provisions shall be deemed to be incorporated
herein by this reference.
15. MARKET STAND-OFF. In connection with any underwritten public
offering by the Company of its equity securities pursuant to an effective
registration statement filed under the Securities Act for such period as the
Company or its underwriters may request (such period not to exceed 180 days
following the date of the applicable offering), the Executive shall not,
directly or indirectly, sell, make any short sale of, loan, hypothecate,
pledge, offer, grant or sell any option or other contract for the purchase
of, purchase any option or other contract for the sale of, or otherwise
dispose of or transfer, or agree to engage in any of the foregoing
transactions with respect to, any shares of Company capital stock acquired
under this
8
<PAGE>
Agreement without the prior written consent of the Company or its
underwriters, PROVIDED, that the Executive shall not be required to be
subject to "lock-up" restrictions that are more restrictive than such
restrictions to which any other Employee Stockholder (as defined in the
Stockholders Agreement) having commensurate job duties and responsibilities
in the Company is subject, or that would prevent the Executive from
effectuating a sale pursuant to Section 2.5 of the Stockholders Agreement or
Section 3.1 of the Stockholders Agreement.
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement on the day and year first above written.
HARVEYS CASINO RESORTS
By /s/ John J. McLaughlin
---------------------------------
Name: John J. McLaughlin
Title: Chief Financial Officer
/s/ Gary Armentrout
-----------------------------------
GARY ARMENTROUT
Address: 310 Bryn Wyck Place
St. Louis, Missouri 63141
SCHEDULE
Pursuant to the Instructions to Item 601 of Regulation S-K, the registrant is
filing only the foregoing copy of the foregoing document, which is
substantially identical in all material respects except as to the parties
thereto and the address for notices as certain other documents required to be
filed as an exhibit to this Form 10-K. The registrant has omitted to file five
other agreements which differ from the foregoing document only in that each of
Edward B. Barraco, John R. Bellotti, James J. Rafferty, Kevin O. Servatius
and Verne H. Welch, Jr. are parties thereto instead of Gary Armentrout, and in
that such parties' respective notice addresses are different. The registrant
undertakes to file copies of such documents at the request of the Commission.
<PAGE>
Exhibit 10.48
INDEMNIFICATION AGREEMENT
This Indemnification Agreement (this "Agreement") is made as of this 29th
day of January, 1999, by and between Harveys Acquisition Corporation, a Nevada
corporation (the "Company"), and Kelvin L. Davis ("Indemnitee").
WHEREAS, the Company and Indemnitee recognize the difficulty in obtaining
directors' and officers' liability insurance, the substantial cost of such
insurance and the limitations in the coverage of such insurance;
WHEREAS, the Company and Indemnitee further recognize the substantial level
of corporate litigation in general, subjecting officers, directors and key
employees to expensive litigation risks while the availability and coverage of
liability insurance is severely limited;
WHEREAS, the Company desires to attract and retain the services of highly
qualified individuals, such as Indemnitee, to serve as officers, directors and
key employees of the Company and to indemnify its officers, directors and key
employees so as to provide them with the maximum protection permitted by law.
NOW, THEREFORE, for good and valuable consideration, the receipt of which
is hereby acknowledged, the Company and Indemnitee hereby agree as follows:
Section 1. INDEMNIFICATION.
(a) THIRD PARTY PROCEEDINGS. The Company shall indemnify Indemnitee to
the fullest extent permitted by law if Indemnitee was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative, or investigative
(other than an action by or in the right of the Company), by reason of the fact
that Indemnitee, or a person of whom Indemnitee is the legal representative, is
or was a director, officer, employee or agent of the Company or any subsidiary
of the Company, or is or was serving at the request of the Company as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses, including attorneys' fees,
judgments, fines and amounts paid in settlement actually and reasonably incurred
by Indemnitee in connection with the action, suit or proceeding if Indemnitee
acted in good faith and in a manner which Indemnitee reasonably believed to be
in or not opposed to the best interests of the Company,
<PAGE>
and, with respect to any criminal action or proceeding, had no reasonable cause
to believe that Indemnitee's conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction or upon a
plea of nolo contendere or its equivalent, does not, of itself, create a
presumption that Indemnitee did not act in good faith and in a manner which
Indemnitee reasonably believed to be in or not opposed to the best interests of
the Company, and that, with respect to any criminal action or proceeding,
Indemnitee had reasonable cause to believe that Indemnitee's conduct was
unlawful.
(b) PROCEEDINGS BY OR IN THE RIGHT OF THE COMPANY. The Company shall
indemnify Indemnitee to the fullest extent permitted by law if Indemnitee was or
is a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the Company to procure a judgment
in its favor by reason of the fact that Indemnitee, or a person of whom
Indemnitee is the legal representative, is or was a director, officer, employee
or agent of the Company, or is or was serving at the request of the Company as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses, including amounts paid in
settlement and attorneys' fees actually and reasonably incurred by Indemnitee in
connection with the defense or settlement of the action or suit if Indemnitee
acted in good faith and in a manner in which Indemnitee reasonably believed to
be in or not opposed to the best interests of the Company. Indemnification may
not be made for any claim, issue or matter as to which Indemnitee has been
adjudged by a court of competent jurisdiction, after exhaustion of all appeals
therefrom, to be liable to the Company or for amounts paid in settlement to the
Company, unless and only to the extent that the court in which the action or
suit was brought or other court of competent jurisdiction determines upon
application that in view of all the circumstances of the case, Indemnitee is
fairly and reasonably entitled to indemnity for such expenses as the court deems
proper.
Section 2. EXPENSES; INDEMNIFICATION PROCEDURE.
(a) ADVANCEMENT OF EXPENSES. The Company shall advance all expenses
incurred by Indemnitee in connection with the investigation, defense, settlement
or appeal of any civil or criminal action or proceeding referenced in Section
1(a) or (b) hereof (but not amounts actually paid in settlement of any such
action or proceeding) and to the extent consistent with the Restated Articles of
Incorporation and Bylaws of the Company. Indemnitee hereby undertakes to repay
such amounts advanced if, and to the extent that, it shall ultimately be
determined by a court of competent jurisdiction that Indemnitee is not entitled
to be indemnified by
2
<PAGE>
the Company as authorized hereby. The advances to be made hereunder shall be
paid by the Company to Indemnitee within twenty (20) days following delivery of
a written request therefor by Indemnitee to the Company.
(b) Notice/Cooperation by Indemnitee. Indemnitee shall, as a condition
precedent to Indemnitee's right to be indemnified under this Agreement, give the
Company notice in writing as soon as practicable of any claim made against
Indemnitee for which indemnification will or could be sought under this
Agreement. Notice to the Company shall be directed to the President or Chief
Executive Officer of the Company, with a copy to the Company's general counsel,
at the addresses shown on the signature page of this Agreement (or such other
address as the Company shall designate in writing to Indemnitee). Notice shall
be deemed received three business days after the date postmarked if sent by
domestic, certified or registered mail, properly addressed; otherwise notice
shall be deemed received when such notice shall actually be received by said
parties. In addition, Indemnitee shall give the Company such information and
cooperation as it may reasonably require as shall be within Indemnitee's power.
(c) PROCEDURE. Any indemnification provided for in Section 1 shall be
made no later than forty-five (45) days after receipt of the written request of
Indemnitee. If a claim under this Agreement, under any statute or under any
provision of the Company's Restated Articles of Incorporation or Bylaws
providing for indemnification is not paid in full by the Company within
forty-five (45) days after a written request for payment therefor has first been
received by the Company, then Indemnitee may, but need not, at any time
thereafter bring an action against the Company to recover the unpaid amount of
the claim and, subject to Section 14 of this Agreement, Indemnitee shall also be
entitled to be paid for the expenses (including attorneys' fees) of bringing
such action. It shall be a defense to any such action (other than an action
brought to enforce a claim for expenses incurred in connection with any action
or proceeding in advance of its final disposition) that Indemnitee has not met
the standards of conduct which make it permissible under applicable law or this
Agreement for the Company to indemnify Indemnitee for the amount claimed, but
the burden of proving such defense shall be on the Company, and Indemnitee shall
be entitled to receive interim payments of expenses pursuant to Subsection 3(a)
unless and until such defense may be finally adjudicated by court order or
judgment from which no further right of appeal exists. It is the parties
intention that if the Company contests Indemnitee's right to indemnification,
neither the failure of the Company (including its Board of Directors, any
committee or subgroup of its Board of Directors, its independent legal counsel
or its shareholders) to have made a
3
<PAGE>
determination that indemnification of Indemnitee is proper in the circumstances
because Indemnitee has met the applicable standard of conduct required by the
applicable law or this Agreement, nor an actual determination by the Company
(its Board of Directors, any committee or subgroup, its Board of Directors, its
independent legal counsel or its shareholders) that Indemnitee has not met such
applicable standard of conduct, shall create a presumption that Indemnitee has
or has not met the applicable standard of conduct.
(d) NOTICE TO INSURERS. If, at the time of the receipt of a notice of
a claim pursuant to section 3(b) hereof, the Company has director and officer
liability insurance in effect, then the Company shall give prompt notice of the
commencement of such proceeding to the insurers in accordance with the
procedures set forth in the respective policies. The Company shall thereafter
take all necessary or appropriate action to cause such insurers to pay, on
behalf of Indemnitee, all amounts payable as a result of such proceeding in
accordance with the terms of such policies.
(e) SELECTION OF COUNSEL. If the Company shall be obligated under
Section 3(a) hereof to pay the expenses of any proceeding against Indemnitee,
then the Company, if appropriate, shall be entitled to assume the defense of
such proceeding, with counsel approved by Indemnitee, which approval shall not
be unreasonably withheld, upon the delivery to Indemnitee of written notice of
its election so to do. After delivery of such notice, approval of such counsel
by Indemnitee and the retention of such counsel by the Company, the Company will
not be liable to Indemnitee under this Agreement for any fees of counsel
subsequently incurred by Indemnitee with respect to the same proceeding,
provided, that (i) Indemnitee shall have the right to employ Indemnitee's
counsel in any such proceeding at Indemnitee's expense; and (ii) if (A) the
employment of counsel by Indemnitee has been previously authorized by the
Company, (B) Indemnitee shall have reasonably concluded that there may be a
conflict of interest between the Company and Indemnitee in the conduct of any
such defense or (C) the Company shall not have employed counsel to assume the
defense of such proceeding, then the fees and expenses of Indemnitee's counsel
shall be at the expense of the Company.
Section 3. ADDITIONAL INDEMNIFICATION OF RIGHTS; NONEXCLUSIVITY.
(a) SCOPE. Notwithstanding any other provision of this Agreement, the
Company hereby agrees to indemnify Indemnitee to the fullest extent permitted by
law, notwithstanding that such indemnification is not specifically authorized by
the other provisions of this Agreement, the Company's Restated
4
<PAGE>
Articles of Incorporation or the Company's Bylaws. In the event of any change,
after the date of this Agreement, in any applicable law, statute or rule which
expands the right of a Nevada corporation to indemnify a member of its board of
directors or an officer, such changes shall be, ipso facto, within the purview
of Indemnitee's rights and Company's obligations, under this Agreement. In the
event of any change in any applicable law, statute or rule which limits or
narrows the indemnification rights or the rights to advancement of expenses
which a Nevada corporation may provide to the members of its board of directors
or officers, the rights to indemnification and to the advancement of expenses
provided in the Company's Restated Articles of Incorporation, the Company's
Bylaws and this Agreement shall continue as theretofore to the extent permitted
by law.
(b) NONEXCLUSIVITY. The indemnification provided by this Agreement
shall not be deemed exclusive of any rights to which Indemnitee may be entitled
under the Company's Restated Articles of Incorporation, its Bylaws, any
agreement, any vote of shareholders or disinterested directors, Nevada Revised
Statutes Chapter 78 (hereinafter the "Private Corporation Law of Nevada") or
otherwise, both as to action in Indemnitee's official capacity and as to action
in another capacity while holding such office. The indemnification provided
under this Agreement shall continue as to the Indemnitee for any action taken or
not taken while serving in an indemnified capacity even though Indemnitee may
have ceased to serve in such capacity at the time of any action or other covered
proceeding.
Section 4. PARTIAL INDEMNIFICATION.
If Indemnitee is entitled under any provision of this Agreement to
indemnification by the Company for some or a portion of the expenses,
judgments, fines, penalties actually or reasonably incurred by Indemnitee on
investigation, defense, appeal or settlement of any civil or criminal action or
proceeding, but not, however, for the total amount thereof, the Company shall
nevertheless indemnify Indemnitee for the portion of such expenses, judgments,
fines or penalties to which Indemnitee is entitled.
Section 5. MUTUAL ACKNOWLEDGMENT.
Both the Company and Indemnitee acknowledge that in certain instances,
federal law or applicable public policy may prohibit the Company from
indemnifying its directors and officers under this Agreement or otherwise.
Indemnitee understands and acknowledges that the Company has undertaken or
may be required in the
5
<PAGE>
future to undertake with the Securities and Exchange Commission to submit the
question of indemnification to a court in certain circumstances for a
determination of the Company's right under public policy to indemnify
Indemnitee.
Section 6. DIRECTORS' AND OFFICERS' LIABILITY INSURANCE.
The Company shall, from time to time, make the good faith determination
whether or not it is practicable for the Company to obtain and maintain a policy
or policies of insurance with reputable insurance companies providing the
officers and directors of the Company with coverage for losses from wrongful
acts, or to ensure the Company's performance of its indemnification obligations
under this Agreement. Among other considerations, the Company will weigh the
costs of obtaining such insurance coverage against the protection afforded by
such coverage. Notwithstanding the foregoing, the Company shall have no
obligation to obtain or maintain such insurance if the Company determines in
good faith that such insurance is not reasonably available, if the premium costs
for such insurance are disproportionate to the amount of coverage provided, if
the coverage provided by such insurance is limited by exclusions so as to
provide an insufficient benefit or if Indemnitee is covered by similar insurance
maintained by a subsidiary or parent of the Company.
Section 7. SEVERABILITY.
Nothing in this Agreement is intended to require or shall be construed as
requiring the Company to do or fail to do any act in violation of applicable
law. The Company's inability, pursuant to court order, to perform its
obligations under this Agreement shall not constitute a breach of this
Agreement. The provisions of this Agreement shall be severable as provided in
this Section 8. If this Agreement or any portion hereof shall be invalidated on
any ground by any court of competent jurisdiction, then the Company shall
nevertheless indemnify Indemnitee to the full extent permitted by any applicable
portion of this Agreement that shall not have been invalidated, and the balance
of this Agreement shall not have been so invalidated and the balance of this
Agreement not so invalidated shall be enforceable in accordance with its terms.
Section 8. EXCEPTIONS.
Any other provision herein to the contrary notwithstanding, the Company
shall not be obligated pursuant to the terms of this Agreement:
6
<PAGE>
(a) EXCLUDED ACTS. To indemnify Indemnitee for any acts or omissions
or transactions from which a director or officer may not be relieved of
liability under the Private Corporation Law of Nevada;
(b) CLAIMS INITIATED BY INDEMNITEE. To indemnify or advance expenses
to Indemnitee with respect to proceedings or claims initiated or brought
voluntarily by Indemnitee and not by way of defense, except with respect to
proceedings brought to establish or enforce a right to indemnification under
this Agreement or any other statute or law or otherwise as required under
Section 78.751 of the Private Corporation Law of Nevada or the Restated Articles
of Incorporation or Bylaws of the Company, but such indemnification or
advancement of expenses may be provided by the Company in specific cases if the
Board of Directors has approved the initiation or bringing of such suit;
(c) LACK OF GOOD FAITH. To indemnify Indemnitee for any expenses
incurred by Indemnitee with respect to any proceedings instituted by Indemnitee
to enforce or interpret this Agreement, if a court of competent jurisdiction
determines that each of the material assertions made by Indemnitee in such
proceeding was not made in good faith or was frivolous;
(d) INSURED CLAIMS. To indemnify Indemnitee for expenses or
liabilities of any type whatsoever (including judgments, fines, ERISA excise
taxes or penalties and amounts paid in settlement) which have been paid directly
to Indemnitee by an insurance carrier under a policy of director and officer
liability insurance maintained by the Company; or
(e) CLAIMS UNDER SECTION 16(b). To indemnify Indemnitee for expenses
and the payment of profits arising from the purchase and sale by Indemnitee of
securities in violation of Section 16(b) of the Securities Exchange Act of 1934,
as amended, or any similar successor statute.
Section 9. EFFECTIVENESS OF AGREEMENT.
This Agreement shall be effective as of the date set forth on the first
page and may apply to acts or omissions of Indemnitee which occurred prior to
such date if Indemnitee was an officer, director, employee or other agent of the
Company, or was serving at the request of the Company as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise at the time such act or omission occurred.
7
<PAGE>
Section 10. CONSTRUCTION OF CERTAIN PHRASES.
(a) For purposes of this Agreement, references to "Company" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, employees or agents, so that if
Indemnitee is or was a director, officer, employee, or agent of such constituent
corporation or is or was serving at the request of such constituent corporation
as a director, officer, employee, or agent of another corporation, partnership,
joint venture, trust or other enterprise, then Indemnitee shall stand in the
same position under the provisions of this Agreement with respect to the
resulting or surviving corporation as Indemnitee would have with respect to such
constituent corporation if its separate existence had continued.
(b) For purposes of this Agreement, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on Indemnitee with respect to an employee benefit plan;
and references to "serving at the request of the Company" shall include any
service as a director, officer, employee or agent of the Company which imposes
duties on, or involves services by, such director, officer, employee or agent
with respect to an employee benefit plan, its participants or its beneficiaries.
Section 11. COUNTERPARTS.
This Agreement may be executed in two or more counterparts, each of which
shall constitute an original, and all of which shall constitute one and the same
agreement.
Section 12. SUCCESSORS AND ASSIGNS.
This Agreement shall be binding upon and inure to the benefit of and be
enforceable by the parties hereto and their respective successors, assigns,
including any direct or indirect successor by purchase, merger, consolidation or
otherwise to all or substantially all of the business and/or assets of the
Company, spouses, heirs, and personal and legal representatives. The Company
shall require and cause any successor (whether direct or indirect by purchase,
merger, consolidation or otherwise) to all, substantially all, or a substantial
part of the business or assets of the Company, by written agreement in the form
and substance satisfactory to
8
<PAGE>
Indemnitee, expressly to assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform if
no such succession had taken place. This Agreement shall continue in effect
regardless of whether Indemnitee continues to serve as a director, officer, or
agent of the Company or of any other enterprise at the Company's request.
Section 13. ATTORNEYS' FEES.
In the event that any action is instituted by the Indemnitee under this
Agreement to enforce or interpret any of the terms hereof, Indemnitee shall be
entitled to be paid all court costs and expenses, including reasonable
attorneys' fees, incurred by Indemnitee with respect to such action, unless as a
part of such action, the court determines that each of the material assertions
made by Indemnitee as a basis for such action were not made in good faith or
were frivolous. In the event of an action instituted by or in the name of the
Company under this Agreement or to enforce or interpret any of the terms of this
Agreement, Indemnitee shall be entitled to be paid all court costs and expenses,
including attorneys' fees, incurred by Indemnitee in defense of such action
(including with respect to Indemnitee's counterclaims and cross-claims made in
such action), unless as a part of such action the court determines that each of
Indemnitee's material defenses to such action were not made in good faith or
were frivolous. In the event of an action instituted by or in the name of the
Company under this Agreement or to enforce or interpret any of the terms of this
Agreement, Indemnitee shall be entitled to be paid all court costs and expenses,
including attorneys' fees, incurred by Indemnitee in defense of such action
(including with respect to Indemnitee's counterclaims and cross-claims made in
such action), unless as a part of such action, the court determines that each of
Indemnitee's material defenses to such action were not made in good faith or
were frivolous.
Section 14. NOTICE.
All notices, requests, demands and other communications under this
Agreement shall be in writing and shall be deemed duly given (i) if delivered
by hand and receipted for by the party addressee on the date of such receipt,
or (ii) if mailed by domestic certified or registered mail with postage
prepaid on the third business day after the date postmarked. Addresses for
notice to either party are as shown on the signature page of this Agreement,
or as subsequently modified by written notice.
9
<PAGE>
Section 15. CONSENT TO JURISDICTION.
The Company and Indemnitee each hereby irrevocably consent to the
jurisdiction and venue of the courts of the County of Douglas, State of Nevada
for all purposes in connection with any action or proceeding which arises out of
or relates to this Agreement.
Section 16. CHOICE OF LAW.
This Agreement shall be governed by and its provisions construed in
accordance with the laws of the State of Nevada.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above-written.
HARVEYS ACQUISITION CORPORATION
1999 Avenue of the Stars, Suite 1200
Los Angeles, California 90067
By: /s/ Kelvin L. Davis
--------------------------------
Kelvin L. Davis
President and Secretary
INDEMNITEE:
/s/ Kelvin L. Davis
-------------------------------------
KELVIN L. DAVIS
c/o Colony Capital, Inc.
1999 Avenue of the Stars, Suite 1200
Los Angeles, CA 90067
SCHEDULE
Pursuant to the Instructions to Item 601 of Regulation S-K, the registrant is
filing only the foregoing copy of the foregoing document, which is
substantially identical in all material respects except as to the party
thereto and the address for notices as another document required to be filed
as an exhibit to this Form 10-K. The registrant has omitted to file an
agreement which differs from the foregoing document only in that Thomas J.
Barrack, Jr. is a party thereto instead of Kelvin L. Davis. The registrant
undertakes to file a copy of such document at the request of the Commission.
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<PAGE>
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<PP&E> 461,559
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0
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