<PAGE>
FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 31,1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________________
Commission file number 1-12802
HARVEYS CASINO RESORTS
------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Nevada 88-0066882
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Highway 50 & Stateline Avenue
P.O. Box 128
Lake Tahoe, Nevada 89449
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (775) 588-2411
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
The number of shares outstanding of the registrant's Class A Common Stock, $0.01
par value was 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 July 8, 1999.
<PAGE>
HARVEYS CASINO RESORTS
TABLE OF CONTENTS
PAGE NO.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets,
May 31, 1999 and November 30, 1998 3
Condensed Consolidated Statements of Operations for
the Three Months Ended May 31, 1999 and 1998, the
Period of December 1, 1998 through February 1, 1999,
the Period of February 2, 1999 (the date of
acquisition) through May 31,1999 and the Six Months
Ended May 31, 1998 4
Condensed Consolidated Statements of Cash Flows for
the Period of December 1, 1998 through February 1,
1999, the Period of February 2, 1999 (the date of
acquisition) through May 31, 1999 and the Six Months
Ended May 31, 1998 5
Notes to Condensed Consolidated Financial
Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 12
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK 20
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 22
ITEM 2. CHANGES IN SECURITIES 22
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 22
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 22
ITEM 5. OTHER INFORMATION 22
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 22
SIGNATURES 23
2
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PART I-FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HARVEYS CASINO RESORTS
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
NOVEMBER 30, MAY 31,
1998 1999
------------ -------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 67,299 $ 28,192
Marketable securities 10,657 --
Accounts and notes receivable, net 4,566 5,005
Prepaid expenses 3,677 4,342
Other current assets 4,148 3,702
-------- --------
Total current assets 90,347 41,241
Property and equipment (net of accumulated depreciation of
$146,207 and $7,111) 315,351 408,403
Notes receivable 1,875 52
Cost in excess of net assets acquired, net -- 72,318
Other assets 16,585 16,544
-------- --------
Total assets $424,158 $538,558
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt $ 220 $ --
Accounts and contracts payable 5,032 6,574
Accrued expenses 24,892 25,904
-------- --------
Total current liabilities 30,144 32,478
Long-term debt, net of current portion 150,000 298,666
Deferred income taxes 24,948 53,993
Other liabilities 18,612 21,482
-------- --------
Total liabilities 223,704 406,619
-------- --------
Preferred stock, $.01 par value; 1,000,000 shares authorized, 10 Series A
and 99,990 Series B 13 1/2% senior redeemable convertible cumulative
shares outstanding (liquidation value $55,000) -- 57,496
Stockholders' equity
Common stock, $.01 par value; at November 30, 1998,
30,000,000 shares authorized and 10,079,671 shares issued; at May 31,
1999, 20,000,000 shares authorized and 4,030,910 shares issued; 101 40
Additional paid-in capital and other 43,496 74,960
Retained earnings (accumulated deficit) 157,111 (557)
Treasury stock, at cost; 14,560 shares (254) --
-------- --------
Total stockholders' equity 200,454 74,443
-------- --------
Total liabilities and stockholders' equity $424,158 $538,558
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of these statements.
3
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HARVEYS CASINO RESORTS
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands)
<TABLE>
<CAPTION>
SIX MONTHS FEBRUARY 2, 1999 PREDECESSOR COMPANY THREE MONTHS
ENDED (DATE OF ACQUISITION) DECEMBER 1,1998 TO ENDED MAY 31,
MAY 31, 1998 TO MAY 31, 1999 FEBRUARY 1, 1999 1998 1999
------------ --------------------- ------------------- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues
Casino $115,470 $80,405 $ 41,454 $61,030 $61,725
Lodging 15,685 11,468 5,958 8,083 8,611
Food and beverage 21,752 15,572 8,108 11,058 11,823
Other 3,380 2,583 1,271 1,659 1,929
Less: Casino promotional
allowances (10,978) (8,532) (5,003) (5,293) (6,453)
-------- ------- -------- ------- -------
Total net revenues 145,309 101,496 51,788 76,537 77,635
-------- ------- -------- ------- -------
Costs and expenses
Casino 55,655 38,516 21,146 28,505 29,527
Lodging 6,600 4,305 1,997 3,474 3,329
Food and beverage 14,359 9,868 4,727 7,369 7,629
Other operating 1,422 1,069 592 704 790
Selling, general and administrative 38,053 24,945 13,340 19,239 18,533
Depreciation and amortization 10,364 8,471 3,641 5,055 6,493
Business development costs 81 2,019 130 -- 2,013
Consent fee and merger costs -- -- 19,879 -- --
-------- ------- -------- ------- -------
Total costs and expenses 126,534 89,193 65,452 64,346 68,314
-------- ------- -------- ------- -------
Operating income (loss) 18,775 12,303 (13,664) 12,191 9,321
-------- ------- -------- ------- -------
Other income (expense)
Interest income 904 42 338 455 35
Interest expense (8,913) (9,187) (3,016) (4,449) (6,940)
Other, net (60) 28 77 (42) (25)
-------- ------- -------- ------- -------
Total other income (expense) (8,069) (9,117) (2,601) (4,036) (6,930)
-------- ------- -------- ------- -------
Income (loss) before income taxes
and extraordinary item 10,706 3,186 (16,265) 8,155 2,391
Income tax benefit (provision) (4,283) (1,247) 3,904 (3,263) (936)
-------- ------- -------- ------- -------
Income (loss) before extraordinary
item 6,423 1,939 (12,361) 4,892 1,455
Loss on early retirement of debt,
net of taxes -- -- (869) -- --
-------- ------- -------- ------- -------
Net income (loss) $ 6,423 $ 1,939 $(13,230) $ 4,892 $ 1,455
-------- ------- -------- ------- -------
-------- ------- -------- ------- -------
</TABLE>
The accompanying notes are an integral part of these statements.
4
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HARVEYS CASINO RESORTS
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
SIX MONTHS FEBRUARY 2, 1999 PREDECESSOR COMPANY
ENDED (DATE OF ACQUISITION) DECEMBER 1,1998 TO
MAY 31, 1998 TO MAY 31, 1999 FEBRUARY 1, 1999
------------ --------------------- --------------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income (loss) $ 6,423 $ 1,939 $(13,230)
Adjustments to reconcile net income (loss)to
net cash provided by operating activities
Depreciation and amortization 10,364 8,232 3,553
Amortization of restricted stock grants -- 239 88
Loss on early retirement of debt, net of tax -- -- 869
Change in income taxes payable (2,687) 690 (3,904)
Accrual of consent fee and merger costs -- -- 19,823
Other, net (4,085) (1,022) (2,348)
-------- ---------- --------
Net cash provided by operating
activities 10,015 10,078 4,851
-------- ---------- --------
Cash flows from investing activities
Capital expenditures (7,863) (9,329) (3,830)
Proceeds from sale of marketable securities -- 657 10,000
Proceeds from disposition of assets 44 -- --
Proceeds from notes receivable -- 1,879 --
Other, net (7) 422 (296)
-------- ---------- --------
Net cash provided by (used in) investing
activities (7,826) (6,371) 5,874
-------- ---------- --------
Cash flows from financing activities
Principal payments on long-term debt (523) (226,859) (220)
Dividends paid (1,000) -- --
Debt issuance costs -- (2,934) --
Proceeds from long-term debt -- 196,359 --
Consent fee and merger costs -- (19,823) (56)
Exercise of options to purchase stock 3,382 -- --
Other, net (31) 25 (31)
-------- ---------- --------
Net cash provided by (used in) financing
activities 1,828 (53,232) (307)
-------- ---------- --------
Increase (decrease) in cash and cash equivalents 4,017 (49,525) 10,418
Cash and cash equivalents at beginning of period 55,035 77,717 67,299
-------- ---------- --------
Cash and cash equivalents at end of period $ 59,052 $ 28,192 $ 77,717
-------- ---------- --------
-------- ---------- --------
</TABLE>
The accompanying notes are an integral part of these statements.
5
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HARVEYS CASINO RESORTS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In the following footnotes, the words "Harveys," "we," "our" and "us" refer
to Harveys Casino Resorts, a Nevada corporation, and its wholly-owned
subsidiaries, unless the context requires otherwise.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION AND CONSOLIDATION - On February 2, 1999, Harveys
Acquisition Corporation merged with and into Harveys. Harveys Acquisition
Corporation was formed at the direction of Colony Investors III, L.P., a
Delaware limited partnership, solely for the purpose of acquiring Harveys.
Prior to the merger, Harveys was a publicly held company. Following the
merger, the capital stock of Harveys Acquisition Corporation became the
capital stock of Harveys. Consequently, Colony Investors III now owns
approximately 96% of the common equity interests in Harveys. The remaining
common equity interests are owned by Colony HCR Voteco LLC, a Delaware
limited liability company and by certain members of Harveys' management.
Colony HCR Voteco is an affiliate of Colony Investors III. Harveys was the
surviving corporation in the merger and we are continuing our business
operations as conducted prior to the merger. We currently own and operate
Harveys Resort & Casino on the south shore of Lake Tahoe, Nevada, Harveys
Wagon Wheel Hotel/Casino in Central City, Colorado and Harveys Casino Hotel
in Council Bluffs, Iowa.
We accounted for the merger as a purchase. This required us to allocate the
purchase price paid in the merger to the individual assets acquired and
liabilities assumed based on their fair value at the time of the merger. As a
result, our condensed consolidated financial statements for the periods after
the merger are presented on a different basis of accounting from those for
the periods before the merger and, therefore, are not directly comparable.
Our condensed consolidated financial statements include the accounts of
Harveys and its wholly-owned subsidiaries. We eliminated all significant
intercompany accounts and transactions.
We prepared our condensed consolidated balance sheet as of November 30, 1998
from our audited financial statements as of that date. We prepared the
accompanying condensed consolidated financial statements without audit,
according to the rules and regulations of the Securities and Exchange
Commission. Accordingly, we have condensed or omitted certain information and
footnote disclosures that are normally included in financial statements that
are prepared in accordance with generally accepted accounting principles.
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In our opinion, we have included all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of our financial
condition, results of operations and cash flows. You should not consider our
results of operations for interim periods to be indicative of our results for
a full fiscal year. You should read these financial statements in conjunction
with the financial statements and footnotes included in our Annual Report on
Form 10-K for the year ended November 30, 1998.
COST IN EXCESS OF NET ASSETS ACQUIRED - We have recorded the net assets
acquired in the merger at our preliminary evaluation of their fair value at
the time of the merger. We have not finalized our allocation of the purchase
price to the assets acquired and liabilities assumed, however, our
preliminary allocation follows (in thousands of dollars):
<TABLE>
<S> <C>
Merger consideration paid for outstanding common stock $289,252
Merger consideration paid for stock options 9,998
Direct costs of the merger 6,647
--------
Allocated purchase cost 305,897
--------
Fair value of:
Assets acquired 512,949
Liabilities assumed 279,978
--------
Net assets acquired 232,971
--------
Cost in excess of net assets acquired $ 72,926
--------
--------
</TABLE>
We are amortizing the cost in excess of net assets acquired over a 40 year
period. Accumulated amortization through May 31, 1999 amounted to
approximately $608,000.
LONG-LIVED ASSETS - We periodically review the carrying amount and related
amortization periods of long-lived assets, including related intangible
assets such as the cost in excess of net assets acquired. We conduct these
reviews whenever current events or changes in circumstances indicate that an
adjustment to the carrying value or estimated useful life may be necessary.
Our reviews consist of our projection of the undiscounted amount of cash flow
we expect over the remaining useful life of the long-lived asset or related
intangible asset. If our review indicates that the asset is impaired, we
write the carrying amount of the asset down to its estimated fair value.
7
<PAGE>
2. EFFECTS OF THE MERGER FINANCING
Harveys Acquisition Corporation financed the merger and paid related fees and
expenses with the following:
* Proceeds of $75 million from the issuance of its Class A Common
Stock (voting) to Colony HCR Voteco and its Class B Common Stock
(nonvoting) to Colony Investors III.
* Proceeds of $55 million from the issuance of its 13 1/2% Series A
Senior Redeemable Convertible Cumulative Preferred Stock to Colony
HCR Voteco and its 13 1/2% Series B Senior Redeemable Convertible
Cumulative Preferred Stock to Colony Investors III.
* Borrowings of $172 million from a consortium of banks lead by
Wells Fargo Bank, National Association.
* Harveys' available cash.
After the merger, we granted approximately 3% of the outstanding shares of
each class of our common stock to certain of our executive officers.
Currently, Colony Investors III owns 97% of our nonvoting common stock,
which represents approximately 96% of our common equity interest. Colony HCR
Voteco, whose sole members, owners and managers are officers of the indirect
general partner of Colony Investors III, owns 97% of our voting common
stock. As a result, Colony HCR Voteco can govern all matters of Harveys that
are subject to a vote of our shareholders, including the appointment of our
directors and the amendment of our Articles of Incorporation and Bylaws.
Additionally, Colony Investors III owns 99.99% of our outstanding preferred
stock and Colony HCR Voteco owns the remaining .01%.
At the time of the merger, the two directors of Harveys Acquisition
Corporation became directors of Harveys. The chairman of the board,
president and chief executive officer of Harveys before the merger was
appointed as a director, president and chief executive officer of Harveys
after the merger.
3. PREFERRED STOCK
Our Series A Preferred Stock and Series B Preferred Stock each have a
liquidation value of $550 per share. Both series of preferred stock are
entitled to quarterly dividends at an annual rate of 13 1/2 % of the
liquidation value. If we don't pay the dividends in cash when due, they will
cumulate and compound at an annual rate of 13 1/2%. We must redeem all the
outstanding preferred stock on February 1, 2011, for cash, at the
liquidation value plus any accrued and unpaid dividends. We have the right
to redeem our preferred stock, at any time, at the liquidation value plus
any accrued and unpaid dividends. Our Series A Preferred Stock and our
Series B Preferred Stock are convertible into corresponding shares of our
Class A Common Stock and Class B Common Stock. The conversion rate is
28.7309164 shares of common stock per share of preferred stock and is
subject to customary antidilution adjustments. The conversion of our
preferred stock to common stock would require the approval of all applicable
gaming authorities. At the time of conversion, we would have the
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option of satisfying any accrued and unpaid dividends due on the preferred
stock being converted by paying cash or issuing additional shares of the
corresponding Class A Common Stock or Class B Common Stock.
The documents governing our preferred stock contain covenants which limit
our ability to make restricted payments or investments, limit consolidation,
merger and the sale of assets, require us to provide certain financial
reports and limit our business activities. For the periods ended May 31,
1999, we were in compliance with these covenants.
The combined liquidation value of our Series A Preferred Stock and Series B
Preferred Stock at May 31, 1999 was $55 million. Additionally, on that date,
there were approximately $ 2.5 million of accrued and unpaid dividends on
our preferred stock.
4. LONG-TERM DEBT
NOTE PAYABLE TO BANKS - Immediately following the merger, we borrowed an
initial amount of $172 million under a new credit agreement with a
consortium of banks led by Wells Fargo Bank, National Association. We used
the borrowings to repay the $172 million that Harveys Acquisition
Corporation had borrowed to partially finance the merger.
Our bank facility provides us a revolving loan facility, a swingline
facility that allows us to borrow money on same-day notice and a letter of
credit facility. We can borrow up to $5 million under the swingline facility
and can have up to $5 million dollars committed under outstanding letters of
credit. The maximum available to us under the bank facility, including
amounts outstanding under the swingline facility and the letter of credit
facility is $185 million. The permitted principal balance will be reduced
quarterly, beginning August 31, 2000. Amounts outstanding under our bank
facility will mature and be fully due and payable on February 2, 2004. At
May 31, 1999 we had $141.5 million in outstanding borrowings and
approximately $0.8 million in letter of credit exposure under the bank
facility.
We pay interest on our outstanding borrowings at a base rate plus an
applicable margin. The base rate is equal to the higher of the prime rate or
the federal funds rate plus one-half of one percent. We may, at our option
and under certain circumstances, elect to pay interest based on the London
Interbank Offered Rate ("LIBOR") plus an applicable margin. The applicable
margins are based on the ratio of our total funded debt to our earnings
before deductions for interest, taxes, depreciation and amortization
("EBITDA"). The applicable margins are determined quarterly and are subject
to change. At May 31, 1999 the applicable margin relative to the base rate
was 1.0% and the applicable margin relative to the LIBOR was 2.25%.
The amounts the banks lend us under our bank facility are secured by
substantially all of our assets including a pledge of the capital stock of
our subsidiaries.
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Our bank facility contains a number of covenants that restrict our ability
to dispose of assets, incur additional indebtedness, prepay our 10 5/8%
Senior Subordinated Notes, pay dividends, create liens on assets, make
investments, loans or advances, engage in mergers or consolidations, change
our business, engage in certain transactions with affiliates and engage in
certain corporate activities. We are required to maintain specified
financial ratios and net worth requirements, satisfy specified financial
tests, including interest coverage tests, and maintain certain levels of
annual capital expenditures. We are prohibited from paying cash dividends on
our preferred stock unless our leverage ratio is less than or equal to 3 to
1. Our leverage ratio is calculated by reference to our ratio of total
indebtedness to EBITDA. For the periods ended May 31, 1999 we were in
compliance with these covenants.
Our bank facility replaced a credit agreement we had in place before the
merger. Consequently, at the time of the merger, we expensed all unamortized
loan fees and other financing costs related to the prior credit agreement.
This expense is reflected in our income statement as an extraordinary item,
net of tax. We are amortizing new loan fees and other financing costs over
the term of the bank facility.
SENIOR SUBORDINATED NOTES - Before the merger, we sought and received the
consent of the holders of our 10 5/8% Senior Subordinated Notes, due June 1,
2006, to amend the indenture that governs these notes. The amendments
included:
* A one-time waiver of the applicability of the governing indenture to
the merger, which included waivers of provisions that might have
restricted the financing of the merger and related transactions.
* A change in the definition in the indenture of "Consolidated Cash
Flow" that allows us to add back certain costs related to the merger
when calculating Consolidated Cash Flow.
Immediately after the merger, the fair market value of our senior
subordinated notes was 105% of the principal amount. Accordingly, when we
applied purchase method accounting to the merger, we recorded a premium of
$7.5 million relative to the senior subordinated notes. We are amortizing
the premium as a reduction of interest expense over the remaining term of
the notes.
5. EMPLOYEE BENEFIT PLANS
LONG-TERM INCENTIVE PLAN - At the time of the merger, we terminated our
Long-Term Incentive Plan. We paid participants in the plan a one-time lump
sum of approximately $3.1 million, in the aggregate.
SUPPLEMENTAL RETIREMENT PLANS AND POSTRETIREMENT BENEFITS - At the time of
the merger, we terminated the rights of certain executives to participate in
a supplemental executive retirement plan. We agreed with each of the
executives on the amount due under the plan. The aggregate amount agreed
upon totaled approximately $2.6 million. We paid one-half of
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the amount due each executive in a lump sum. The remaining amounts due were
deemed to be distributed to each executive and invested pursuant to certain
deferred compensation agreements entered into between us and each of the
executives.
OUTSIDE DIRECTORS' RETIREMENT PLAN - At the time of the merger, members of
Harveys' board of directors who were asked to resign were paid a lump sum
payment of the compensation due under our Outside Directors' Retirement
Plan. The aggregate of the lump sum payments was $750,000.
Purchase method accounting for the merger required us to recognize a
liability to the extent the projected benefit obligation of our pension
plans exceeded our plan assets. We eliminated any previously existing
unrecognized net gain or loss, unrecognized prior-service cost and
unrecognized net obligation. Likewise, we recognized a liability for the
accumulated postretirement benefit obligation in excess of the fair value of
the assets of our postretirement medical benefit plans. As a result, we
recorded an increase of approximately $7.2 million in the net liability
attributable to our supplemental retirement plans and postretirement medical
benefit plans.
6. CONSENT FEE AND MERGER RELATED COSTS
At the time of the merger, we recognized approximately $19.9 million of
expense related to:
* A consent fee paid to the consenting holders of our senior
subordinated notes.
* Compensation and pension benefits due to certain members of
management and the board of directors due to the change of control
resulting from the merger.
* Financial advisory services and other costs related to the merger.
7. BUSINESS DEVELOPMENT COSTS
In the second quarter of fiscal 1999, we reviewed our business development
plans as they related to Las Vegas, Nevada. We decided not to continue with
our development plans in Las Vegas at this time and we expensed
approximately $2.0 million of real estate options, legal and other costs
that we previously deferred.
11
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
In the following discussion, the words "Harveys," "company," "we," "our" and
"us" refer to Harveys Casino Resorts, a Nevada corporation and its
wholly-owned subsidiaries, unless the context requires otherwise.
Harveys is an established owner and operator of casino entertainment
facilities. We have been engaged in the gaming industry for over 50 years.
Our business activities following the merger are the same as those prior to
the merger and consist of the ownership and operation of the following:
* Harveys Resort & Casino on the south shore of Lake Tahoe, Nevada
* Harveys Wagon Wheel Hotel/Casino in Central City, Colorado
* Harveys Casino Hotel in Council Bluffs, Iowa
RESULTS OF OPERATIONS
The table on the following page presents certain of our operating results.
For comparative purposes, we have presented results for the first half of
fiscal 1999 on a combined six-month basis by aggregating our results for the
period December 1, 1998 through February 1, 1999 with our results for the
period from the acquisition date, February 2, 1999 through May 31, 1999. Our
results for periods after the merger are presented on a different basis of
accounting from those for periods before the merger, due to purchase method
accounting. However, we believe that comparisons of the financial results for
the three-month and six-month periods can still provide a meaningful
discussion of our financial performance. The items of comparability most
affected by the merger are depreciation and amortization, interest expense
and income taxes.
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Selected Operating Results
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
May 31, 1998 May 31, 1999 May 31, 1998 May 31, 1999
------------ ------------ ------------ ------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Results of Operations
Net Revenues
Harveys Resort & Casino $31,777 $32,374 $ 59,451 $ 63,523
Harveys Wagon Wheel Hotel/Casino 16,257 13,707 30,772 27,906
Harveys Casino Hotel - Iowa 28,503 31,554 55,086 61,855
------- ------- -------- --------
$76,537 $77,635 $145,309 $153,284
------- ------- -------- --------
------- ------- -------- --------
Operating Income (Loss)
Harveys Resort & Casino $ 5,411 $ 5,087 $ 7,456 $ 8,464
Harveys Wagon Wheel Hotel/Casino 4,188 2,520 7,409 4,894
Harveys Casino Hotel - Iowa 5,602 6,792 10,157 13,267
Corporate (3,010) (3,065) (6,166) (5,958)
Business Development - (2,013) (81) (2,149)
Consent Fee and Merger Costs - - - (19,879)
------- ------- -------- --------
$12,191 $ 9,321 $ 18,775 $ (1,361)
------- ------- -------- --------
------- ------- -------- --------
EBITDA (1)
Harveys Resort & Casino $ 7,699 $ 7,510 $ 12,254 $ 13,213
Harveys Wagon Wheel Hotel/Casino 5,096 3,506 9,223 6,829
Harveys Casino Hotel - Iowa 7,345 8,991 13,639 17,409
Corporate (2,894) (2,180) (5,896) (4,672)
------- ------- -------- --------
$17,246 $17,827 $ 29,220 $ 32,779
------- ------- -------- --------
------- ------- -------- --------
Income (Loss) before Income Taxes
and Extraordinary Items
Harveys Resort & Casino $ 5,401 $ 5,087 $ 7,419 $ 8,464
Harveys Wagon Wheel Hotel/Casino 4,188 2,520 7,409 4,894
Harveys Casino Hotel - Iowa 5,591 6,810 10,155 13,309
Corporate (3,030) (3,108) (6,188) (5,894)
Business Development - (2,013) (81) (2,149)
Consent Fee and Merger Costs - - - (19,879)
Interest Expense, net (2) (3,995) (6,905) (8,008) (11,823)
------- ------- -------- --------
$ 8,155 $ 2,391 $ 10,706 $(13,079)
------- ------- -------- --------
------- ------- -------- --------
</TABLE>
Notes to the operating results
(1) EBITDA (operating income plus depreciation and amortization and excluding
non-recurring items) should not be construed as an indicator of our
operating performance, or as an alternative to cash flows from operating
activities as a measure of liquidity. We have presented EBITDA solely as
supplemental disclosure because we believe that it allows for a more
complete analysis of results of operations. Because companies do not
calculate EBITDA identically, the presentation of EBITDA herein is not
necessarily comparable to similarly entitled measures of other companies.
EBITDA is not intended to represent and should not be considered more
meaningful than, or an alternative to, measures of operating performance
as determined in accordance with generally accepted accounting
principles.
(2) Net of interest income and capitalized interest.
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SUMMARY - Meaningful comparisons of our overall financial results for the
second quarter and first half of fiscal 1999 and 1998 can be difficult
because of the inclusion of business development write offs, the consent fee
and merger-related costs and the extraordinary loss on the early retirement
of debt. The following summary discussion of our consolidated financial
results excludes the effects of those charges from all periods.
Our consolidated net revenues for the second quarter of fiscal 1999 amounted
to $77.6 million, an increase of $1.1 million, or 1.4%, over our net revenues
for the second quarter of fiscal 1998. Strong improvement in net revenues
from our Council Bluffs property mitigated our declining net revenues from
the increasingly competitive Central City/Black Hawk, Colorado market.
Operating income, adjusted to exclude our business development write-offs,
amounted to $11.3 million for the second quarter of fiscal 1999. This was an
$857,000, or 7.0%, decline from the prior year period. Our current year
period includes an increase of approximately $1.4 million in depreciation and
amortization charges, primarily the result of purchase method accounting
applied to the merger. Our income before income taxes and an extraordinary
item was $4.4 million for the second quarter of fiscal 1999, compared to
approximately $8.2 million for our second quarter of fiscal 1998. Our 1999
results include the effects of the $1.4 million increase in depreciation and
amortization and an increase of $2.9 million in our net interest expense as a
result of the merger financing.
Our consolidated net revenues for the first half of fiscal 1999 were $153.3
million, an $8.0 million, or 5.5%, improvement over the prior year period.
Substantial growth in net revenues from our Lake Tahoe property in the first
quarter of fiscal 1999, along with moderate second quarter growth and the
continuing strong revenues from our Council Bluffs operations more than
offset declines from our Central City property. Our operating income,
excluding our business development write-offs, the consent fee and
merger-related costs, was $20.7 million for the first six months of fiscal
1999. This was an improvement of $1.8 million, or 9.6%, over the comparable
period of the prior year and was achieved despite a $1.7 million increase in
depreciation and amortization charges. For the comparable six month periods,
our income before income taxes and an extraordinary item declined $1.8
million, or 17.0%, and amounted to $8.9 million. Our results for the first
half of fiscal 1999 include the effects of the $1.7 million increase in
depreciation and amortization and an increase of $3.8 million in our net
interest expense.
LAKE TAHOE, NEVADA - Our Lake Tahoe property produced net revenues for the
quarter of $32.4 million, an increase of $597,000, or 1.9%, over our net
revenues for the second quarter of fiscal 1998. All operating areas showed
revenue improvements as a result of increased wagering volume and hotel
occupancy improvements. However, our operating profit of $5.1 million
declined by $324,000, or 6%, primarily as a result of additional promotional
costs from response to our direct mail offers and slot promotions.
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Our net revenues from Lake Tahoe for the six months ended May 31, 1999
amounted to $63.5 million, an increase of $4.1 million, or 6.8%, over our net
revenues recorded for the same period of fiscal 1998. All operating areas
experienced revenue improvements as a result of strong first quarter wagering
volume and hotel occupancy. Our Lake Tahoe operating profit of $8.5 million
for the first half of fiscal 1999 improved by $1.0 million, or 13.5%, as a
result of our improved first quarter.
CENTRAL CITY, COLORADO - Net revenues from our Central City property amounted
to $13.7 million for the quarter, a decrease of $2.5 million, or 15.7%, from
our net revenues recorded in the second quarter of fiscal 1998. The decrease
was primarily in casino revenues resulting from additional competition in
nearby Black Hawk, Colorado. Our operating profit of $2.5 million declined by
$1.7 million, or 39.8%, primarily as a result of the decline in our casino
revenues and profits.
Our net revenues from Central City for the six months ended May 31, 1999
amounted to $27.9 million, a decrease of $2.9 million, or 9.3%, from our net
revenues recorded in the same period of fiscal 1998. Approximately $2.7
million of the revenue decline was in our casino revenues and is principally
the result of the opening of new competition in Black Hawk in late December
1998. Construction of another new casino has commenced in Black Hawk with
expected completion in late 1999. Our Central City operating profit of $4.9
million declined $2.5 million, or 33.9%, as a result of the decline in our
casino revenues and profits.
COUNCIL BLUFFS, IOWA - Our Council Bluffs property provided net revenues for
the quarter of $31.6 million, an increase of $3.1 million, or 10.7%, over our
net revenues recorded in the second quarter of fiscal 1998. All operating
areas showed revenue improvements as a result of increased wagering volume,
hotel occupancy and food covers. Our Council Bluffs operating profit of $6.8
million increased by $1.2 million, or 21.2%, as a result of strong casino
revenues and profits. Our improved second quarter results were achieved
despite the recognition of a loss of approximately $218,000 on the
disposition of gaming equipment sold in May, 1999.
Our net revenues from Council Bluffs for the six months ended May 31, 1999
amounted to $61.9 million, an increase of $6.8 million , or 12.3%, over our
net revenues recorded in the same period of fiscal 1998. All operating areas
experienced revenue improvements as a result of increased wagering volume,
hotel occupancy and food covers. Our Council Bluffs operating profit of $13.3
million improved by $3.1 million, or 30.6%, driven primarily by casino
revenues and profits.
We are currently constructing a new parking facility at our Council Bluffs
property that will offer 1,630 parking spaces and feature climate-controlled
access to the adjacent casino. We expect to complete construction prior to
the end of this fiscal year.
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OTHER FACTORS AFFECTING RESULTS OF OPERATIONS - Our results for the second
quarter and first half of fiscal 1999 were affected by several other factors,
including: the write-off of certain business development costs, increases in
depreciation and amortization, decreases in corporate expenses, increases in
interest expense, the expense of a consent fee and merger-related costs, an
extraordinary loss on the early retirement of debt, and changes in our
effective tax rate.
During the second quarter of fiscal 1999, we decided not to pursue our
current business development plans in Las Vegas, Nevada and wrote off
approximately $2.0 million of costs we had previously deferred. This
write-off and other minor business development charges amounted to
approximately $2.1 million in the first six months of fiscal 1999. We had no
comparable charges in the second quarter of the previous year and only
$81,000 of such charges in the first half of fiscal 1998.
Depreciation and amortization expense amounted to approximately $6.5 million
in the second quarter of fiscal 1999 compared to approximately $5.1 million
in the second quarter of the prior year. This increase included approximately
$444,000 of amortization of the cost in excess of net assets acquired in the
merger. For the first half of fiscal 1999, our depreciation and amortization
expense increased approximately $1.7 million to $12.1 million. Approximately
$608,000 of this increase was attributable to the write-off of the cost in
excess of net assets acquired. The balance of the increase for the second
quarter and first half of fiscal 1999 was primarily the result of the change
in the accounting basis for property and equipment brought on by the merger
and the amortization of the fair value of our common stock granted to certain
members of management.
We have recognized some second quarter savings in corporate expense,
comparing fiscal 1999 to fiscal 1998. For the second quarter of fiscal 1999,
corporate expense, excluding depreciation and amortization, amounted to
approximately $2.2 million compared to approximately $2.9 million for the
same period last year. The savings were principally the result of the
elimination of our long-term incentive plan, the elimination of compensation
paid to non-employee members of our board of directors and the reduction in
the amount of expense we recognize in relation to our pension and
postretirement benefit plans. These eliminations and reductions were a result
of the merger. Our corporate expense for the first two quarters of fiscal
1999 amounted to approximately $4.7 million, excluding depreciation and
amortization, compared to approximately $5.9 million for the fiscal 1998
period. The savings for the six month period were also primarily the result
of the eliminations and reductions as a product of the merger.
As a result of the merger financing, our debt and fixed charge obligations
increased. In February 1999, we borrowed $172 million under our bank
facility. We used that initial borrowing to repay the $172 million that
Harveys Acquisition Corporation had borrowed to partially finance the merger.
Subsequently, we used our available short-term cash equivalent investments to
repay a portion of our borrowings. Consequently, we have experienced a
decrease in our interest income and an increase in our interest expense. For
the second quarter of fiscal 1999, our interest
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expense, net of capitalized interest of approximately $86,000 and interest
income, amounted to $6.9 million compared to $4.0 million for the second
quarter of fiscal 1998. For the first half of fiscal 1999, our net interest
expense was approximately $11.8 million versus approximately $8.0 million for
the first half of the prior year.
In connection with our entering into the bank facility, our existing credit
agreement was retired. Upon retirement, we expensed all unamortized loan fees
and other financing costs related to the prior credit agreement. That expense
of approximately $869,000, net of tax, was included as an extraordinary item
in our results for the first six months of fiscal 1999.
Our results for the first six months were also diminished by the effects of
the consent fee and merger-related costs of approximately $19.9 million
incurred at the time of the merger.
We believe some portion of the merger-related expenses are not tax
deductible. This reduced the effective tax rate applied to our loss for the
period prior to the merger (December 1, 1998 through February 1, 1999) to
approximately 24%. The reduced tax rate, compared to our more typical
effective rate of approximately 39%, had the effect of reducing the tax
benefit we expect from the pre-merger period loss by approximately $2.4
million. We anticipate an effective tax rate of approximately 39.1% for the
post-merger period of fiscal 1999. For the three months and six months ended
May 31, 1998, we experienced an effective tax rate of approximately 40%.
LIQUIDITY AND CAPITAL RESOURCES
During the first six months of this fiscal year, cash flow from operations
amounted to approximately $14.9 million. Additionally, we received
approximately $10.7 million from the sale of marketable securities and we
collected approximately $1.8 million in full payment of notes due to us from
a related party trust. At the time of the merger, we borrowed $172 million
under our bank facility. We used these sources of cash and our existing cash
to:
* Repay the $172 million Harveys Acquisition Corporation borrowed to
partially finance the merger.
* Pay approximately $19.9 million of consent fee and merger-related costs.
* Pay approximately $2.9 million of debt issuance costs relative to the
bank facility.
* Pay approximately $13.2 million for capital improvements and
replacements, including approximately $3.9 million paid on the
construction of our parking garage in Council Bluffs, Iowa.
* Reduce, by approximately $30.5 million, our outstanding indebtedness
under the bank facility.
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The above sources and uses of cash reduced our cash and cash equivalents by
$39.1 million, from $67.3 million at November 30, 1998 to $28.2 million at
May 31, 1999. Additionally, our outstanding debt increased from $150 million
at fiscal year-end to $291.5 million at May 31, 1999, excluding the
unamortized premium on our senior subordinated notes. Our debt at May 31,
1999 consisted of $150 million of senior subordinated notes and $141.5
million outstanding under the bank facility.
In addition to our debt, we were obligated at May 31, 1999 for an aggregate
of approximately $57.5 million on our outstanding Series A Preferred Stock
and Series B Preferred Stock and accrued and unpaid dividends thereon.
At May 31, 1999, we had approximately $42.7 million available under the bank
facility, net of an outstanding letter of credit and subject to compliance
with certain financial covenants. We believe that our borrowing capacity
under the bank facility and cash flows from operations will be sufficient to
meet our cash requirements at existing operations for the next twelve months,
at least, including capital improvements and debt service requirements. We
also believe that our cash needs beyond the next twelve months will consist
of debt service requirements and ordinary capital improvements and
replacements at our existing properties, which we expect to meet with our
then-existing cash, cash flows from operations and our borrowing capacity
under the bank facility. We do not currently anticipate incurring balloon or
other extraordinary payments on long-term obligations or any other
extraordinary cash demands or commitments beyond the next twelve months. We
do not expect to pay cash dividends on our preferred stock prior to 2004
because of, among other reasons, restrictions in our various debt agreements
on the payment of cash dividends.
YEAR 2000 UPDATE
Many technological systems (including those that employ embedded technology
such as microcontrollers) rely on hardware, software and components that were
originally designed to recognize a date by using the last two digits of a
four digit year. Tasks performed by technological systems using these
truncated fields may not work properly for dates from 2000 and beyond. This
could result in system failures or miscalculations causing disruptions of, or
the inability to engage in, normal business operations. This is generally
known as the "Year 2000 Problem".
We established a task force to coordinate our response to the Year 2000
Problem. This task force includes our Chief Executive Officer, Chief
Financial Officer, and Director of Information Services as well as support
staff. Our Year 2000 corrective action plan includes the following phases:
Phase 1. Compilation of an inventory of systems and equipment that may
cause a Year 2000 Problem ("Critical Systems and Equipment").
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Phase 2. Identification and prioritization of the Critical Systems and
Equipment from the inventory compiled and inquiries of third
parties with whom we do significant business (i.e., vendors and
suppliers) as to the state of their Year 2000 readiness.
Phase 3. Analysis of the identified Critical Systems and Equipment to
determine which systems and equipment are not Year 2000 compliant
and evaluation of the costs to repair or replace those systems.
Phase 4. Repair or replacement and testing of non-compliant Critical
Systems and Equipment and the testing of Critical Systems and
Equipment for which representation as to Year 2000 compliance has
not been received or for which representation has been received
but has not been confirmed.
We are nearly complete in the implementation of our corrective action plan.
We have completed Phases 1 through 3 and have substantially completed Phase
4. We completed nearly all required modifications, upgrades and replacements
of mission-critical technological systems by the end of the second quarter of
our fiscal year. One environmental system is scheduled to be replaced by the
end of our third quarter. We continue to use internal resources to evaluate
our effectiveness in achieving our corrective action plan objectives.
Additional testing and revisions of systems, if necessary, will be completed
before 2000.
Steps included in our corrective action plan as it relates to our business
associates, including material vendors, suppliers, financial institutions and
utility and communications providers, was generally limited to inquiries of
such business associates. Based on the responses we have received to our
inquiries, we are not aware of any Year 2000 Problem impact on a material
business associate that would have a material adverse affect on our business
operations. However, we can make no assurances that all of our material
business associates will be Year 2000 compliant in a timely manner.
We rely on technological systems in many areas of our business operations
including casino operations, retail outlets, hotel operations, accounting and
finance, facilities and environmental, communications and administration.
While we have not developed a comprehensive contingency plan, we do have
manual procedures that we have used in the past when a technological system
has been temporarily unavailable. We will continue to assess the need for a
comprehensive contingency plan.
We believe that our corrective action plan, including the timelines, is and
has been adequate and realistic. Nevertheless, if one or more of our
technological systems has been overlooked or if the implementation of our
corrective action plan fails to achieve Year 2000 compliance for one or more
of our technological systems, there could be a material adverse impact on our
business operations or financial performance. Additionally, if a material
business associate fails to provide necessary products or services due to
Year 2000 Problem business disruptions, there could be a material adverse
impact on our business operations or financial performance. With respect to
our technological systems, the most reasonable likely worst case scenario if
a Year 2000 Problem occurred would be the necessity for us to perform
manually those procedures
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customarily performed by a non-compliant technological system. This could
result in a slowdown of our normal business operations and would likely be
more costly. We would have to continue performing the manual procedures until
we could make the technological system Year 2000 compliant or until we could
find and install a suitable alternative system. With respect to a material
business associate, the most reasonable likely worst case scenario if a Year
2000 Problem occurred would be the failure to deliver essential utilities,
which could result in the inability of one or more of our hotel/casinos to
operate and require us to close the affected property or properties until
such utilities could be restored.
We estimate that our cost to achieve Year 2000 compliance, including those
costs that we capitalize, will be approximately $4.4 million and will be
expended through 2000. We incurred costs of approximately $1.0 million in
fiscal year 1998, including approximately $0.7 million that we capitalized.
We expended approximately $2.9 million in the first half of fiscal 1999 of
which we capitalized approximately $2.5 million. We believe that our
expenditures in fiscal 2000 will not be material. Our estimates are based on
our evaluation and experience to date and are subject to modification as we
conclude implementation of our corrective action plan. We can make no
assurances that our estimated costs are adequate or achievable or that our
actual costs will not materially differ from our estimate.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk from changes in interest rates. We had no
variable rate debt at November 30, 1998, however, as a result of the
financing of the merger in part through the bank facility, we now have
variable rate debt. The amount outstanding under the bank facility at May 31,
1999 was $141.5 million, subject to a weighted-average interest rate of
7.22%. Assuming an identical outstanding balance for the remainder of the
fiscal year, a hypothetical immediate 100 basis point increase in interest
rates would increase interest expense for the remainder of the year by
approximately $708,000.
Additionally, the fair value of our fixed rate long-term debt, consisting of
the $150 million of senior subordinated notes and the $7.2 million
unamortized premium on the senior subordinated notes at May 31, 1999, and the
fair value of our fixed rate preferred stock issued as part of the merger
financing, are sensitive to differences between market interest rates and
rates at the time of issuance. A hypothetical immediate 100 basis point
increase in interest rates at May 31, 1999 would have decreased the fair
value of our fixed rate long-term debt by approximately $14.1 million.
Conversely, a 100 basis point decrease in interest rates would have increased
the fair value of the our outstanding long-term debt at May 31, 1999 by
approximately $17.2 million. A hypothetical immediate 100 basis point
increase in interest rates would have decreased the fair value of our fixed
rate preferred stock by approximately $3.8 million at May 31, 1999.
Conversely, a 100 basis point decrease in interest rates would have increased
the fair value of the preferred stock by approximately $4.4 million.
We did not enter into any derivative financial contracts in fiscal 1998 or
the first half of fiscal 1999. We may use derivative financial instruments in
the future as a risk management tool. We do not use derivative financial
instruments for speculative or trading purposes.
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CAUTIONARY STATEMENT FOR PURPOSES OF THE 'SAFE HARBOR' PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.
This document includes various 'forward-looking statements' within the
meaning of Section 27A of the Securities Act of 1933, as amended, and
Sections 21E of the Securities Exchange Act of 1934, as amended, which
represent our expectations or beliefs concerning future events. Statements
containing expressions such as 'believes,' 'anticipates,' or 'expects' used
in our press releases and periodic reports on Forms 10-K and 10-Q filed with
the Securities and Exchange Commission are intended to identify
forward-looking statements. All forward-looking statements involve risks and
uncertainties. Although we believe our expectations are based upon reasonable
assumptions within the bounds of our knowledge of our business and
operations, there can be no assurances that actual results will not
materially differ from expected results. We caution you that these and
similar statements included in this report and in previously filed periodic
reports, including reports filed on Forms 10-K and 10-Q, are further
qualified by important factors that could cause actual results to differ
materially from those in the forward- looking statements. Such factors
include, without limitation, the following: increased competition in existing
markets or the opening of new gaming jurisdictions; a decline in the public
acceptance of gaming; the limitation, conditioning or suspension of any of
our gaming licenses; increases in or new taxes imposed on gaming revenues or
gaming devices; a finding of unsuitability by regulatory authorities with
respect to our officers, directors or key employees; loss or retirement of
key executives; significant increases in fuel or transportation prices;
adverse economic conditions in our key markets; severe and unusual weather in
our key markets; adverse results of significant litigation matters. Readers
are cautioned not to place undue reliance on forward-looking statements,
which speak only as of the date thereof. We undertake no obligation to
publicly release any revision to such forward-looking statements to reflect
events or circumstances after the date thereof.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not Applicable
ITEM 2. CHANGES IN SECURITIES
Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
Not Applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
See attached Exhibit Index
(b) Reports on Form 8-K
On March 18, 1999, we filed a Current Report on Form 8-K,
under Item 4, Changes in Registrant's Certifying Accountant.
On March 12, 1999 Deloitte & Touche LLP was dismissed as our
certifying accountant and Ernst & Young LLP was selected as
the principal accountant to audit our financial statements.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HARVEYS CASINO RESORTS
----------------------
Registrant
Date: July 14, 1999 /s/ John J. McLaughlin
-----------------------------------
John J. McLaughlin,
Senior Vice President,
Chief Financial Officer and Treasurer
(Authorized Officer and Principal Financial
Officer)
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EXHIBIT INDEX
Exhibit
Number Description
3.1 Amendments to Articles of Incorporation of Harveys Casino Resorts as
Surviving Constituent Entity (filed as Exhibit A to Articles of Merger of
Harveys Acquisition Corporation into Harveys Casino Resorts). (4) (Articles
of Incorporation are incorporated herein by reference to Harveys
Acquisition Corporations's Registration Statement on Form 10 (File No.
0-25093), filed November 20,1998).
3.2 Certificate of Designation of the 13-1/2% Series A Senior Redeemable
Convertible Cumulative Preferred Stock ($0.01 par value per share) and the
13-1/2% Series B Senior Redeemable Convertible Cumulative Preferred Stock
($0.01 par value per share) of Harveys Casino Resorts. (4)
3.3 Eighth Amended and Restated Bylaws of the Registrant. (5)
4.1 Form of Stock Certificate of the Registrant. (5)
4.2 Indenture, dated as of May 15, 1996 ( the "Original Indenture"), by and
among the Registrant, Harveys Wagon Wheel Casino Limited Liability Company,
Harveys C. C. Management Company, Inc., Harveys Iowa Management Company,
Inc. and Harveys L. V. Management Company, Inc. ( the 'Guarantors') and IBJ
Schroder Bank & Trust Company as Trustee ( including form of Note). (1)
4.3 First Supplemental Indenture, dated as of June 5, 1996, supplementing the
Original Indenture. (2)
4.4 Second Supplemental Indenture, dated as of May 22, 1997, supplementing the
Original Indenture. (3)
4.5 Third Supplemental Indenture, dated as of December 24, 1998, among the
Registrant, Harveys Tahoe Management Company, Inc., Harveys C. C.
Management Company, Inc., Harveys Iowa Management Company, Inc., Harveys L.
V. Management Company, Inc. and IBJ Schroder Bank and Trust Company,
supplementing the Original Indenture. (5)
4.6 Fourth Supplemental Indenture, dated as of December 24, 1998, among the
Registrant, Harveys Tahoe Management Company, Inc., Harveys C. C.
Management Company, Inc., Harveys Iowa Management Company, Inc., Harveys L.
V. Management Company, Inc. and IBJ Schroder Bank and Trust Company,
supplementing the Original Indenture. (5)
10.1 Employment Agreement made and entered into June 14, 1999 between Harveys
Casino Resorts and William Stephens. (6)
10.2 Stock Option and Restricted Stock Agreement dated as of May 7, 1999 by and
between Harveys Casino Resorts and William Stephens. (6)
10.3 Deferred Compensation Agreement dated as of May 7, 1999 by and between
Harveys Casino Resorts and William Stephens. (6)
27 Financial Data Schedule. (6)
-----------------------------------------------
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(1) Incorporated herein by reference to Registration Statement No. 333-3576.
(2) Incorporated herein by reference to Registrant's Current Report on Form 8-K
filed June 14, 1996.
(3) Incorporated herein by reference to Registrant's Quarterly Report on Form
10-Q for the period ended August 31, 1997.
(4) Incorporated herein by reference to Registrant's Current Report on Form 8-K
filed February 16, 1999.
(5) Incorporated herein by reference to the Registrant's Annual Report on Form
10-K for the period ended November 30, 1998.
(6) Filed herewith.
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EXHIBIT 10.1
EMPLOYMENT AGREEMENT
THIS AGREEMENT (the "Agreement") is made and entered into on this
14 day of June, 1999, by and between HARVEYS CASINO RESORTS, a
Nevada corporation, hereinafter referred to as "HARVEYS" and/or "EMPLOYER", and
WILLIAM STEPHENS, hereinafter referred to as "EMPLOYEE":
W I T N E S S E T H:
WHEREAS, HARVEYS desires to secure the benefits of EMPLOYEE'S
background, knowledge, experience, ability, expertise and industry to promote
and maintain HARVEYS stability, growth, viability and profitability; and
WHEREAS, HARVEYS desires to engage the services of EMPLOYEE who is
desirous of being employed by HARVEYS under the terms and conditions as herein
set out; and
NOW, THEREFORE, in consideration of the mutual promises, covenants and
agreements herein contained, together with other good and valuable consideration
the receipt of which is hereby acknowledged, the parties hereto do hereby agree
as follows:
I
DEFINITIONS
1.01 EMPLOYEE shall at all times mean WILLIAM STEPHENS.
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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 Successors-in-Interest together with its subsidiaries.
1.04 Successor in Interest shall mean any entity which is the
successor or assign of HARVEYS, at law or at equity, and shall include
without limitation, any entity into which HARVEYS is merged or consolidated,
and any entity to which all or substantially all of the assets or businesses
of HARVEYS is transferred.
II
NATURE OF EMPLOYMENT AND DUTIES OF EMPLOYEE
2.01 Effective upon the Commencement Date of this Agreement, EMPLOYEE
shall become Senior Vice-President and General Manager of Harveys Lake Tahoe
property, or assume such other position as determined by the President/Chief
Executive Officer of HARVEYS. EMPLOYEE shall do and perform all services,
acts, or things necessary or advisable to assist in the management and
conduct of the business of EMPLOYER, subject always to the policies as set
forth by the Board of Directors.
2.02 EMPLOYEE shall be responsible for the overall direction and
operations of the Lake Tahoe facility and shall direct all departments for
successful implementation of business policies and plans for the property. He
shall provide support in the
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conceptual, strategic and policy formation functions of the business and
shall direct and coordinate property activities to obtain optimum
effectiveness, efficiency, and economy of operations so as to maximize
profits, and such other responsibilities or duties that HARVEYS may assign
from time to time.
2.03 EMPLOYEE has reviewed and concurs with his responsibilities and
duties as set forth in Section 2.02 above.
2.04 EMPLOYEE shall devote his entire productive time, ability and
attention to the business of EMPLOYER during the term of this Agreement.
EMPLOYEE shall not directly or indirectly render any service of a business,
commercial or professional nature, to any other person or organization,
whether for compensation or otherwise, without the prior written consent of
the President/Chief Executive Officer of HARVEYS except that EMPLOYEE shall
not be precluded from involvement in charitable or civic activities or his
personal financial investments provided the same do not interfere with
EMPLOYEE's time or attention to the business of EMPLOYER.
2.05 EMPLOYEE agrees, to the best of his ability and experience, to at
all times conscientiously perform all of the duties and obligations expressly
required of EMPLOYEE.
III
TERM OF EMPLOYMENT
3.01 EMPLOYER hereby employs EMPLOYEE, and EMPLOYEE hereby agrees to be
employed by EMPLOYER for a period of at least two (2)
3
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years, commencing on the 7th day of May, 1999 (the "Commencement Date"), and
terminating on the 6th day of May, 2001. This Agreement may be terminated
earlier as hereinafter provided, or may be extended or modified only by
written document signed by both parties hereto specifically referencing this
instrument.
IV
TERMINATION OF EMPLOYMENT WITHOUT CAUSE
4.01 EMPLOYEE may be terminated at any time, without cause, or as
referenced in paragraph 5 herein, by EMPLOYER on thirty (30) days' prior
written notice to EMPLOYEE. In the event of such termination without cause,
EMPLOYEE shall continue to be paid EMPLOYEE's annual salary as set forth in
Paragraph 6.01, as such salary may be modified from time to time, and
continue to receive medical, vision and dental benefits as set forth in
Paragraph 7.06 for the balance of the contract term, or twelve (12) months,
whichever is lesser.
4.02 EMPLOYEE may, at EMPLOYEE'S option and right, terminate this
Agreement at any time by giving HARVEYS thirty (30) days' prior written
notice. Upon any such termination of this Agreement by EMPLOYEE, EMPLOYER
shall be under no obligation to EMPLOYEE except to pay EMPLOYEE's salary and
perquisites for services performed up to the effective date of termination.
4.03 If during the term hereof EMPLOYEE shall die or become disabled,
EMPLOYEE shall be entitled to such death and/or disability benefits that may
be due EMPLOYEE under any benefit
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plans of EMPLOYER in effect from time to time in which EMPLOYEE is eligible
to participate.
V
TERMINATION OF EMPLOYMENT FOR CAUSE
5.01 EMPLOYER may at any time, at its election, by providing written
notice to EMPLOYEE stating with specificity the reason for the termination,
immediately terminate this Agreement and the employment term should EMPLOYEE:
(a) be negligent or willfully malfeasant in the performance of
EMPLOYEE's duties to EMPLOYER set forth in Article II hereof;
(b) be convicted of any felony or a crime involving
moral turpitude;
(c) be dishonest with respect to EMPLOYER (including
without limitation, fraud);
(d) use or impart any confidential or proprietary information of
EMPLOYER or any of its subsidiaries or affiliates in violation of EMPLOYER's
policy regarding confidentiality or any confidentiality or proprietary
agreement to which EMPLOYER is a party, which act or actions have a material
adverse affect on EMPLOYER; or
(e) fail to obtain or retain any permits, licenses, or approvals
which may be required by any state or local authorities in order to permit
EMPLOYEE to continue employment as contemplated by this Agreement.
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Upon the occurrence of any of the above, at EMPLOYER'S sole option,
EMPLOYEE'S employment shall immediately terminate and EMPLOYER shall be under
no further obligation to EMPLOYEE except to pay EMPLOYEE his annual salary
for such services as may have been performed up to the date of such
termination.
VI
COMPENSATION OF EMPLOYEE
6.01 ANNUAL SALARY - EMPLOYEE shall receive an annual salary of TWO
HUNDRED THOUSAND DOLLARS ($200,000.00), payable in at least monthly
installments, less all applicable Federal, State and Local Taxes, Social
Security and any other government mandated deductions. EMPLOYEE'S annual
salary shall be subject to a six (6) month review, twelve (12) month review
and annual reviews thereafter, as determined by EMPLOYEE'S direct supervisor,
and the President/Chief Executive Officer of HARVEYS within the perameters
set forth by Harveys Board of Directors.
VII
OTHER PERQUISITES
7.01 HARVEYS 401(K) PLAN - During the employment term, EMPLOYEE shall
be allowed to participate in HARVEYS 401(k) Plan as such plan may be in
effect and amended from time to time.
7.02 VACATION - EMPLOYEE shall be entitled to vacation and holiday pay
in accordance with EMPLOYER's policy for EMPLOYEE's
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position as may be in place from time to time. Notwithstanding current
policy, EMPLOYEE shall be entitled to two (2) weeks vacation after one (1)
year; three (3) weeks vacation after three (3) years; and four (4) weeks
vacation after five (5) years.
7.03 COMPLIMENTARY PRIVILEGES - EMPLOYEE shall be entitled to Level I
complimentary privileges as are afforded all other corporate employees of
equal job code.
7.05 MANAGEMENT INCENTIVE PLAN - EMPLOYEE shall be eligible to
participate in EMPLOYER'S Management Incentive Plan ("MIP") as such plan may
be in effect or amended from time to time.
7.06 MEDICAL, VISION AND DENTAL INSURANCE - EMPLOYER shall provide
medical, vision and dental benefits to EMPLOYEE and EMPLOYEE's spouse and
dependents in accordance with EMPLOYER'S Class I coverage under EMPLOYER's
Executive Medical Plan, as such plan may be in effect or amended from time to
time.
7.07 DEFERRED COMPENSATION PROGRAM - EMPLOYEE shall be allowed to
participate in EMPLOYER's Deferred Compensation Program as said program may
be in effect or amended from time to time.
7.08 GROUP LIFE INSURANCE - During the term of this Agreement, EMPLOYER
shall furnish EMPLOYEE with Group Term Life Insurance and Accidental
Death/Dismemberment Insurance with the maximum benefit being equal to two (2)
times EMPLOYEE'S annual salary, up to a maximum of $500,000.00.
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7.09 GROUP LONG TERM DISABILITY - During the term of this Agreement,
EMPLOYER shall furnish EMPLOYEE with Group Term Disability insurance in
accordance with EMPLOYER's then existing policy. The maximum insurance benefit
to be paid EMPLOYEE shall be sixty percent (60%) of EMPLOYEE's annual salary to
be paid for the duration of EMPLOYEE's permanent disability.
7.10 STOCK OPTIONS AND STOCK GRANTS - EMPLOYEE'S rights to stock
options and/or stock grants, are those set forth in the Management Stock Option
and Restricted Stock Agreement, executed
simultaneously herewith.
VIII
ARBITRATION
8.01 Except as necessary for EMPLOYER and its subsidiaries, affiliates,
successors or assigns or EMPLOYEE to specifically enforce or enjoin a breach
of this Agreement (to the extent such remedies are otherwise available), the
parties agree that any and all disputes that may arise in connection with,
arising out of or relating to this Agreement, or any dispute that relates in
any way, in whole or in part, to EMPLOYEE's employment with EMPLOYER or any
subsidiary, the termination of that employment or any other dispute by and
between the parties or their subsidiaries, affiliates, successors or assigns,
shall be submitted to binding arbitration in Douglas County, Nevada according
to the National Employment Dispute Resolution Rules and procedures of the
American Arbitration Association. The parties agree that the prevailing party
in any
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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 other state or federal law.
///
///
///
///
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IX
MISCELLANEOUS
9.01 This Agreement shall be construed and governed by the laws of the
State of Nevada.
9.02 This Agreement, shall bind and inure to the benefit of the
EMPLOYER, its successors and assigns and EMPLOYEE, his heirs, executors and
administrators. No transfer or assignment of this Agreement shall release
EMPLOYER from any obligation to EMPLOYEE hereunder.
9.03 Notices to or for the respective parties shall be given in writing
and delivered in person or mailed by certified or registered mail, addressed
to the respective party at the address as set out below, or at such other
address as either party may elect to provide in advance in writing, to the
other party:
EMPLOYEE:
WILLIAM STEPHENS
2504 Hacker Drive
Henderson NV 89014
EMPLOYER:
HARVEYS CASINO RESORTS
Attn: CHARLES W. SCHARER, President/Chief
Executive Officer
Highway 50 and Stateline Avenue
Post Office Box 128
Stateline, NV 89449
WITH A COPY TO:
Ronald D. Alling, Esq.
SCARPELLO & ALLING, LTD.
276 Kingsbury Grade, Suite 2000
Post Office Box 3390
Stateline, NV 89449
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9.04 Should any provision of this Agreement be held to be invalid,
illegal, or unenforceable by reason of any rule of law or public policy, all
other provisions of this Agreement shall remain in effect. No provision of
this Agreement shall be deemed dependent on any other provision unless so
expressed herein.
9.05 Nothing contained in this Agreement shall be construed to require
the commencement of any act contrary to law. Should any conflict between any
provision of this Agreement and any statute, law, ordinance, or regulation,
contrary to which the parties have no legal right to contract arise or exist,
then the latter shall prevail; but in such event, the provisions of this
Agreement so affected shall be curtailed and limited only to the extent
necessary to bring it within the legal requirements.
9.06 The several rights and remedies provided for in this Agreement
shall be construed as being cumulative, and no one of them shall be deemed to
be exclusive of the others or of any right or remedy allowed by law. No
waiver by EMPLOYER or EMPLOYEE of any failure by EMPLOYEE or EMPLOYER,
respectively, to keep or perform any provision of this Agreement shall be
deemed to be a waiver of any preceding or succeeding breach of the same or
other provision.
9.07 This Agreement supersedes any and all other agreements, either
oral or in writing, between the parties hereto with respect to the employment
of EMPLOYEE by EMPLOYER, along with the other instruments executed
concurrently herewith, contain all of the covenants, conditions and
agreements between the parties with
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respect to such employment. Each party to this Agreement acknowledges that no
representations, inducements, promises or other agreements excepting those
specifically set forth herein, oral or otherwise, have been made by any
party, or anyone acting on behalf of any party, which are not embodied
herein, and that no other agreement, statement or promise not contained in
this Agreement shall be valid or binding. Any addendum to or modification of
this Agreement shall be effective only if it is in writing and signed by the
parties to be charged.
EMPLOYEE:
/s/ WILLIAM R. STEPHENS
-----------------------------------
WILLIAM STEPHENS
EMPLOYER:
HARVEYS CASINO RESORTS, a Nevada
corporation
By: /s/ CHARLES W. SCHARER
--------------------------------
CHARLES W. SCHARER
President/Chief Executive Officer
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EXHIBIT 10.2
MANAGEMENT STOCK OPTION
AND RESTRICTED STOCK AGREEMENT
This is a STOCK OPTION AND RESTRICTED STOCK AGREEMENT
("Agreement"), dated as of the 7th day of May, 1999 (the "Effective Date"),
by and between Harveys Casino Resorts, a Nevada corporation (the "Company"),
and William Stephens (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 $.Ol per share (the "Class A Common Stock"), and shares of
the Company's Class B Common Stock, par value $.Ol per share (the "Class B
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 I below.
Any capitalized terms not defined herein shall have their
respective meanings set forth in the Plan.
I. TERMS OF OPTION GRANT. (a) The Option entities 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 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
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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 I(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 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
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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 the Consent and Joinder of even date to that certain Stockholders
Agreement attached hereto and incorporated herein by reference, 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
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
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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 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.
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(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 effect 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.
(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
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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 PROVIDE , 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.
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
0 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
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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, anyportion of the Option that, pursuant to Section I(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). AU 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 (1) the termination of Executive's
employment with the Company at any time, under any circumstances and for any
or no reason, (11) a Change in Control or (111) 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:
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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 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
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 LP
300 South Grand Avenue
Los Angeles, California 90071
Attention: Nicolas P. Saggase, Esq.
Facsimile: 213-687-5600
If to Executive: William Stephens
2504 Hacker Drive
Henderson NV 89014
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:
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
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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 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 includible 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
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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 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
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<PAGE>
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 Stock-
holder (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. COORDINATING WITH EMPLOYMENT CONTRACT. In the event of any
conflicts between the terms of the Employment Agreement and other documents
executed simultaneously herewith and this Agreement, the terms of this Agreement
shall prevail..
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 canceled 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 MCLAUGHLIN
----------------------------------
Name JOHN McLAUGHLIN
Title Chief Financial Officer
/s/ WILLIAM STEPHENS
----------------------------------
WILLIAM STEPHENS
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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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<PAGE>
EXHIBIT 10.3
DEFERRED COMPENSATION AGREEMENT
DEFERRED COMPENSATION AGREEMENT (this "Agreement"), dated as of the
7th day of May, 1999 (the "Effective Date"), by and between Harveys Casino
Resorts, a Nevada corporation (the "Company"), and William Stephens (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 includible 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 continence 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 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
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after the effective date of Executive's termination of employment with the
Company without Cause (as defined in the Award Agreement), the value of the
Amount 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 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.
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<PAGE>
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)).
(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").
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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 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-
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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 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
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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
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: Nicolas P. Sagasse, Esq.
Facsimile: 213-687-5600
If to Executive: William Stephens
2504 Hacker Drive
Henderson NV 89014
Either party hereto may change such party's address for notices by notice duly
given pursuant hereto.
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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.
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 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
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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/ WILLIAM STEPHENS
-------------------------------
WILLIAM STEPHENS
2504 Hacker Drive
Henderson NV 89014
8
<PAGE>
STOCKHOLDERS AGREEMENT JOINDER
As of the date set forth below, the undersigned is being issued 90 shares of
Class A Common Stock and 9,000 shares of Class B Common Stock and being granted
options to acquire 90 shares of Class A Common Stock and 9000 shares of Class B
Common Stock, all of Harvey Casino Resorts (the "Company"). By execution of this
Stockholders Agreement Joinder, the undersigned 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 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.
/s/ WILLIAM STEPHENS
- ---------------------------------------
WILLIAM STEPHENS
ADDRESS: 2504 Hacker Drive
Henderson NV 89014
Dated: 6/14/99
--------------------------------
9
<PAGE>
CONSENT AND JOINDER
The undersigned hereby accepts and agrees, as an Employee Stockholder, to all
of the term of the Stockholders Agreement dated February 2, 1999, as if set
forth herein verbatim.
DATED: June 14, 1999 /s/ WILLIAM R. STEPHENS
------------- -----------------------
WILLIAM STEPHENS
2504 Hacker Drive
Henderson NV 89014
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> NOV-30-1999
<PERIOD-START> FEB-02-1999<F1>
<PERIOD-END> MAY-31-1999
<CASH> 28,192
<SECURITIES> 0
<RECEIVABLES> 5,140
<ALLOWANCES> 135
<INVENTORY> 3,176
<CURRENT-ASSETS> 41,241
<PP&E> 415,514
<DEPRECIATION> 7,111
<TOTAL-ASSETS> 538,558
<CURRENT-LIABILITIES> 32,478
<BONDS> 298,666
57,496
0
<COMMON> 40
<OTHER-SE> 74,403
<TOTAL-LIABILITY-AND-EQUITY> 538,558
<SALES> 18,155
<TOTAL-REVENUES> 101,496
<CGS> 6,707
<TOTAL-COSTS> 53,758
<OTHER-EXPENSES> 40,435
<LOSS-PROVISION> 215
<INTEREST-EXPENSE> 9,187
<INCOME-PRETAX> 3,186
<INCOME-TAX> 1,247
<INCOME-CONTINUING> 1,939
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,939
<EPS-BASIC> 0
<EPS-DILUTED> 0
<FN>
<F1>THE STATEMENTS OF OPERATIONS VALUES ARE FOR THE PERIOD FEBRUARY 2, 1999, THE
DATE OF ACQUISITION, THROUGH MAY 31, 1999.
</FN>
</TABLE>
