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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
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/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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FOR THE FISCAL YEAR ENDED NOVEMBER 30, 1999
OR
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/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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FOR THE TRANSITION PERIOD FROM ________________ TO ________________
COMMISSION FILE NUMBER 1-12802
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HARVEYS CASINO RESORTS
(Exact name of registrant as specified in its charter)
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NEVADA 88-0066882
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
HIGHWAY 50 &
STATELINE AVENUE
P.O. BOX 128 LAKE TAHOE, NEVADA
(Address of principal 89449
executive offices) (Zip Code)
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Registrant's telephone number, including area code: (775) 588-2411
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock; par value $0.01 per share
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes _X_ No ____
Indicate by check mark if the disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
As of February 22, 2000 all common equity of the registrant was held by
persons who may be deemed affiliates of the registrant.
The number of shares outstanding of the registrant's Class A Common Stock,
$.01 par value was 39,520 and the number of shares outstanding of the
registrant's Class B Common Stock, $0.01 per value was 3,952,000, each as of
February 22, 2000.
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PART I
ITEM 1. BUSINESS
Harveys Casino Resorts is a Nevada corporation that has been engaged in the
gaming industry for over 55 years. Through wholly-owned subsidiaries, Harveys
Casino Resorts owns and operates gaming establishments in Nevada, Iowa and
Colorado. Harveys Casino Resorts may be referred to in this report as the
"Company," the "Registrant," "Harveys," "we," "us" or "our". Unless the context
requires otherwise, such references include our wholly-owned subsidiaries .
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 our common equity interests. 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 is continuing business operations as conducted prior to the merger.
Through our wholly-owned subsidiaries, we currently own and operate the
following:
Harveys Resort & Casino - Owned and operated by Harveys Tahoe Management
Company, Inc., Harveys Resort is situated near the south shore of scenic Lake
Tahoe on the Nevada/California state line and U.S. Highway 50, the main route
through south Lake Tahoe. Originally founded by Harvey and Llewellyn Gross in
1944 as a one-room saloon, cafe and casino, the Company has developed the
property into the Lake Tahoe area's largest hotel/casino. The main structure is
a 17-story glass-faced tower completed in 1991, connected to a 12-story tower
which was completely rebuilt in 1982. The hotel provides panoramic views of the
lake and the surrounding mountains and is among Lake Tahoe's most modern
facilities. Harveys Resort features 740 rooms, 36 of which are luxury suites,
and an 82,000 square foot casino containing approximately 2,028 slot machines,
96 table games, a 13-table poker area, a race and sports book and a keno lounge.
Harveys Resort also offers a Platinum Players Club featuring VIP amenities
designed to reward and retain our loyal premium gaming customers. Other
amenities include 23,000 square feet of convention space, 2,989 parking spaces,
a substantial portion of which are included in a parking garage, the 280-seat
Cabaret, a wedding chapel, retail shops, a pool, a health club and a video game
arcade. Harveys Resort's eight restaurants offer a wide variety of high quality
food and consist of a newly remodeled coffee shop, a Mexican restaurant, a
seafood and pasta restaurant, a premier steakhouse, a buffet, a snack bar,
Llewellyn's, our upscale award-winning restaurant featuring top quality dining
and a spectacular view of Lake Tahoe, and a Hard Rock Cafe, located on the
casino floor, which is owned and operated by Hard Rock Cafe International (USA),
Inc. In recognition of the outstanding quality of the facility and our excellent
service, Harveys Resort has received the AAA Four Diamond Award every year for
the past 18 years.
Harveys Casino Hotel - Owned and operated by Harveys Iowa Management
Company, Inc., Harveys Casino Hotel's facilities are located next to the
Missouri River directly across from Omaha, in Council Bluffs, Iowa. The
riverboat casino opened in January, 1996 and currently has 28,250 square feet of
casino space on three decks accommodating 2,352 passengers and housing 1,165
slot machines, 45 table games and a seven-table poker area. The land-based
amenities opened in May 1996 and include 251 hotel rooms in a 14-story tower,
Beverlee's, a rooftop fine dining restaurant offering a view of the Missouri
River and the Omaha skyline, a buffet and a casual restaurant, 21,000 square
feet of convention space, a parking garage, completed in October 1999, offering
1,630 parking spaces with climate-controlled access to the adjacent casino and
additional surface parking for 1,300 vehicles. The land-based facilities also
include a Platinum Players Club offering VIP amenities designed to reward and
retain our loyal premium gaming customers. Other attractions include an 18-hole
municipal golf
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course adjacent to our hotel and a nine-hole municipal golf course operated by
the city on land they lease from us at a nominal annual fee.
Bluffs Run Casino - On October 6, 1999, our wholly-owned subsidiary, HBR
Realty Company, Inc., purchased the net assets (except the gaming equipment) of
the greyhound racetrack and land-based casino in Council Bluffs, Iowa. We
purchased these assets from Iowa West Racing Association, Nonprofit Corporation,
an Iowa nonprofit corporation. Immediately after closing of the transaction, we
leased the facilities known as Bluffs Run Casino back to Iowa West Racing
Association for an initial term of 25 years. At the same time, Iowa West Racing
Association retained our wholly-owned subsidiary, Harveys BR Management Company,
Inc., to manage Bluffs Run Casino for all periods during which the lease exists.
Iowa West Racing Association continues to hold the pari-mutuel and gaming
licenses under Iowa law and continues to own the gaming equipment located at
Bluffs Run Casino. We receive management fees and lease income generally equal
to the ongoing cash flow from the operations of Bluffs Run Casino. The
facilities offer patrons enclosed viewing of, and wagering on , the on-site
greyhound racing and simulcast greyhound and horse racing from various outside
racetracks. The casino also provides approximately 1,250 slot machines, live
entertainment events, restaurants and cocktail lounges. Iowa West Racing
Association, as licensee, and Harveys, as manager, recently received regulatory
approval to add 250 more slot machines. Additional amenities include surface
parking for 3,117 cars and a recreational vehicle park accommodating 115
vehicles.
Harveys Wagon Wheel Hotel/Casino - Owned and operated by Harveys C.C.
Management Company, Inc., Harveys Wagon Wheel is located in Central City,
Colorado, a picturesque mountain town approximately 35 miles west of Denver.
Harveys Wagon Wheel opened in December, 1994 as the first major hotel/casino to
serve the greater Denver area. Harveys Wagon Wheel includes 118 hotel rooms, a
40,000 square foot casino housing 1,042 slot machines, 14 table games, a
nine-table poker area and a Platinum Players Club offering VIP amenities
designed to reward and retain our loyal premium gaming customers. Other
amenities include 730 on-site parking spaces, 530 of which are in a self-
parking garage, a Tony Roma's Famous for Ribs restaurant and a Pesto's Pasta
snack bar, an entertainment lounge and a video game arcade.
BUSINESS STRATEGY
Our business strategy is to develop or acquire facilities in markets in
which we believe we can establish and maintain a prominent position or niche.
Each of our properties offers casino gaming and a full range of amenities in a
friendly atmosphere that caters to middle- and upper middle-income customers.
Our strategy emphasizes the following elements:
HIGH-QUALITY FACILITIES AND SUPERIOR CUSTOMER SERVICE
As part of our commitment to providing a quality entertainment experience
for our patrons, we are dedicated to ensuring a high level of customer
satisfaction and loyalty by providing distinctive and modern accommodations and
attentive customer service in a friendly atmosphere. We recognize that
consistent quality and a comfortable atmosphere can differentiate our facilities
from the competition in all of our markets. We strive to meet customer demand by
furnishing each of our properties with a variety of restaurants and non-gaming
amenities. To foster a high level of customer satisfaction through attentive
customer service, our management plays an active role in the training of all of
our employees at all levels. Harveys' goal of becoming a truly customer-focused
organization has been achieved at all of our properties through training
programs, role playing and simulations. We believe that these programs have
evolved to provide the Company's customers with a truly unique experience. We
have implemented attractive employee benefit programs at all of our facilities
to recruit and retain friendly, professional employees.
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STRATEGIC LOCATIONS
Harveys believes that location is the key to attracting customers. South
Lake Tahoe, which draws approximately 2 million visitors per year, is a unique
gaming location because of its natural surroundings and variety of outdoor
attractions and activities. Harveys Resort is strategically placed on a site
adjacent to the California border in proximity to more than 6,450 hotel and
motel rooms in non-gaming facilities. Harveys Casino Hotel and Bluffs Run Casino
are within a short drive of the Omaha/ Council Bluffs metropolitan regional
airport. Harveys Casino Hotel is located directly off of Interstates 29, 80 and
480. Bluffs Run Casino is located at the intersection of Interstates 80 and 29.
It has visibility and exit ramps from each Interstate. Harveys Wagon Wheel is
located on a highly visible site in Central City, Colorado, a picturesque
mountain town approximately 35 miles west of Denver.
TARGETED CUSTOMER BASE
Harveys targets middle- to upper middle-income customers who tend to have
disposable income for gaming and entertainment. We have established extensive
customer databases and use sophisticated player tracking systems to award cash
rebates or promotional allowances, such as complimentary rooms, food, beverage
and entertainment, when gaming play warrants. We attract our targeted market to
Harveys Resort by promoting our quality facilities in the scenic Lake Tahoe
area. We believe we are able to retain customers through development and
cultivation of our customer relationships. Harveys Casino Hotel targets
frequent, middle income players from Omaha, Council Bluffs and the surrounding
areas. We believe that the hotel and convention facilities, opened in May 1996,
attract new players by capturing overnight guests as well as meetings and small
conventions business. The greyhound facilities at Bluffs Run Casino have been in
existence since 1986 creating very high name recognition in the region. The
casino facilities opened one year prior to any other casino in the area. Since
opening, Bluffs Run Casino has maintained one of the highest slot machine
payback percentages in the nation. This has been publicized in industry
magazines and has generated strong customer loyalty. Harveys Wagon Wheel targets
middle- to upper middle-income customers from the greater Denver area who seek a
quality gaming experience, convenient parking and overnight accommodations. We
believe we have successfully built a loyal customer base at Harveys Wagon Wheel
by establishing ourselves as the first full-service casino with overnight
accommodations and full amenities in the Central City/Black Hawk market.
EFFECTIVE MARKETING
We aggressively promote all of our properties through television, radio,
billboard and print advertising. In February 1997, Bill Cosby agreed to become a
spokesperson for the Company. Under a contractual relationship, Mr. Cosby is
actively involved in promoting Harveys through entertainment appearances at our
properties and through advertising messages on television, radio and billboards
and in print media. We believe that this association has been and will continue
to be helpful in enhancing the national visibility of Harveys.
Harveys Resort seeks to attract customers by offering well-appointed rooms
and a party atmosphere for those seeking nightlife and entertainment. In 1999
Harveys Resort introduced a new campaign, "Harveys Lake Tahoe Grand Adventure."
The campaign's successful launch ties Harveys Resort to Lake Tahoe as a
destination. We believe that by continuing to promote Harveys image, we will
increase our share of higher-income customers attracted to the south Lake Tahoe
market. Harveys Casino Hotel is marketed as "Harveys Casino Hotel, You Can Have
It All!" in the Omaha/Council Bluffs market through the extensive use of
television, radio and print advertisement, billboards, on-going promotions and
sweepstakes as well as point-of-sale materials located in local hotels,
restaurants and other visitor attractions. We use a price point positioning to
differentiate Bluffs Run Casino in the Omaha/Council Bluffs market. Its "Bigger
Value. Better Time." philosophy has helped the property consistently maintain
the highest share of annual slot gaming dollars and highest annual attendance in
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the market. We attract customers to Harveys Wagon Wheel by aggressively
promoting the facility's hotel rooms, on-site parking, quality dining facilities
and varied entertainment activities.
EMPHASIS ON SLOT PLAY
Responding to the increased popularity of slot machines over the past
several years, we have shifted our gaming mix toward slot machines. We match the
mix of slot machines to the demand of the customer base at each property.
Harveys Resort, for instance, now includes a greater percentage of $1 and higher
denominated machines to appeal to the higher-income gaming clientele of Harveys
Resort, including $5, $25 and $100 slot machines offered within a premium player
section. Harveys Casino Hotel offers 1,165 slot machines and Bluffs Run Casino
offers 1,250 slot machines, which in the aggregate comprise approximately 62% of
the Omaha/Council Bluffs slot machine availability. Iowa West Racing
Association, as licensee, and Harveys, as manager, recently received approval
from the Iowa gaming authority to add an additional 250 slot machines at Bluffs
Run Casino. Harveys Wagon Wheel offers 1,042 slot machines, the second largest
selection of slot machines currently offered by any gaming facility in the area.
Slot machines are less labor intensive and require less square footage than
table games, and generate higher profit margins compared to table games. We
monitor payout percentages closely and ensure that our slot product and machine
payouts remain competitive.
COMPETITION
The gaming industry is highly competitive. Harveys competes for customers
primarily on the basis of location, variety and pricing of amenities and overall
atmosphere. Several of our competitors have substantially greater name
recognition, financial and marketing resources.
LAKE TAHOE
Harveys Resort competes with a number of other hotel/casinos at Lake Tahoe
and, to a lesser extent, with hotel/casino operations located in Reno, Las Vegas
and Laughlin, Nevada and casinos on Native American lands in California. In
south Lake Tahoe, Harveys Resort competes primarily with three other major
casino operations: Harrah's Lake Tahoe, Caesars Tahoe and the Horizon Casino
Resort.
In 1987, the Tahoe Regional Planning Agency, an entity established under a
bi-state compact between the states of California and Nevada, and ratified by
Congress, placed restrictions on additional commercial, residential and tourist
accommodation construction at Lake Tahoe in an effort to curb development and to
preserve the local environment. Under the Tahoe Regional Planning Compact and
community plan constraints, future tourist accommodation units added to the
market will be required to mitigate environmental impacts. Such measures may
include replacing an imposed multiple of older tourist accommodation units. The
limited number of rooms available at Lake Tahoe, however, allows Lake Tahoe
hotel/casino operators to achieve much higher average room rates than those in
most other gaming jurisdictions. The occupancy rate for the 2,250 upscale rooms
in the four major south Lake Tahoe casinos has historically been between 75% and
80%, while the occupancy rate in the motels is typically between 40% and 50%.
The Tahoe Regional Planning Agency has imposed significant restrictions on
construction and the Tahoe Regional Planning Compact limits the expansion of
gaming facilities in the Lake Tahoe Basin. These restrictions prohibit existing
casinos from expanding cubic volume of structures housing gaming and limit
expansion of the gaming areas within such structures. We believe that because of
such restrictions, it is unlikely that any new hotel/casinos will commence
operations at Lake Tahoe or that any of the smaller existing casinos will expand
to a size that could make them competitive with the four major casinos; however,
we expect that the four major hotel/ casinos will continue to compete intensely.
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In addition, as a result of the approval of state proposition 5, the
California Indian Self-Reliance Initiative, in California in November 1998,
additional competition could result from an increase in the number of casinos on
Native American lands in California, including on lands that are between Harveys
Resort and major population centers, such as the San Francisco Bay area, and
proximate to Highway 50, the primary road route to south Lake Tahoe.
OMAHA/COUNCIL BLUFFS
The target markets for our two operations in Council Bluffs are the
residential population base (approximately 760,000) of the greater Omaha/Council
Bluffs area, and the nearly 3 million residents within a three-hour drive of the
facilities. We compete with Ameristar Casino Inc.'s riverboat casino in Council
Bluffs and to a lesser extent, with other riverboat casinos located in Iowa and
Missouri. We also compete with slot machines installed at a dogtrack and at a
horsetrack in Iowa as well as casinos on Native American land in Iowa.
In Iowa, gaming is subject to approval by county referendum at least every
eight years. While gaming is approved in Pottawattamie County, where Harveys
Casino Hotel and Bluffs Run Casino are located, referendums may be held at any
time upon satisfactory petition, and another referendum is required to be held
in 2002. There can be no assurance that gaming would be approved again in any
referendum in Pottawattamie County. In addition, should casino-style gaming be
permitted in Nebraska, or should gaming facilities be opened in Omaha, Harveys
Casino Hotel and Bluffs Run Casino could be materially adversely affected.
CENTRAL CITY/BLACK HAWK
Harveys Wagon Wheel competes primarily with the four major casinos with the
largest number of gaming devices in Black Hawk as well as the 26 smaller gaming
establishments in operation as of February 11, 2000, in Central City and Black
Hawk. The five largest casinos, including Harveys Wagon Wheel, as of February
11, 2000 had more than 45% of all gaming devices in the Central City/Black Hawk
area. The adjacent cities of Central City and Black Hawk form Colorado's primary
gaming market. In this market the establishments with on-site parking, overnight
accommodations and/or other non-gaming amenities fair better than those without
such amenities. Substantially all recent casino development in the Central
City/Black Hawk area has occurred in Black Hawk, which visitors from the Denver
area must drive through in order to reach Central City. The Lodge Casino,
offering 700 on-site parking spaces (including 300 spaces shared with the
adjacent Gilpin Hotel Casino) and overnight accommodations in 50 hotel rooms,
opened in Black Hawk in June 1998. The Isle of Capri opened in Black Hawk on
December 30, 1998, with 1,100 parking spaces and will most likely open their
hotel with 243 rooms in the summer of 2000. The Riviera opened in Black Hawk on
February 4, 2000 with 520 parking spaces. The Mardi Gras is expected to open in
March 2000 with approximately 700 slots, eight table games and 500 parking
spaces. In addition, from time to time, the towns of Central City and Black Hawk
undertake roadway and other infrastructure improvements. Because the towns are
generally accessible only by a single road, these infrastructure projects may
deter gaming customers from visiting the Central City/Black Hawk area or
traveling through Black Hawk to Central City. There can be no assurances that
the development or concentration of casinos or infrastructure improvements in
Black Hawk will not adversely affect the number of gaming customers visiting
Harveys Wagon Wheel in Central City. In addition, the municipal governments of
Central City and Black Hawk compete to attract gaming patrons and gaming
development to their respective towns, including by improving road access. Black
Hawk's financial resources are currently substantially greater that Central
City's and there can be no assurance that Black Hawk will not make improvements
or provide other inducements that would result in reduction of the number of
gaming patrons visiting Harveys Wagon Wheel in Central City. Any expansion of
gaming, whether it be through approval of video lottery terminals or approval of
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gaming in additional Colorado communities, would likely have a material adverse
impact on our operation in Central City.
EMPLOYEES
As of February 14, 2000 the Company had approximately 5,050 employees. We
believe that employee relations are good. The Company has entered into
collective bargaining agreements that cover approximately 27 employees. These
agreements relate to stage-hand employees who provide support to entertainment
facilities at Harveys Resort and security officers at Bluffs Run Casino. None of
our other employees are represented by labor unions.
REGULATORY MATTERS
NEVADA GAMING LAWS AND REGULATIONS
The ownership and operation of casino gaming facilities in Nevada are
subject to the Nevada Gaming Control Act and the regulations promulgated
thereunder (collectively, the "Nevada Act") and various local regulations. Our
gaming operations in Nevada are subject to the licensing and regulatory control
of the Nevada State Gaming Control Board (the "Nevada Board"), and the Nevada
Gaming Commission (the "Nevada Commission"). In this report, we collectively
refer to the Nevada Board, and the Nevada Commission as the "Nevada Gaming
Authorities".
The laws, regulations and supervisory procedures of the Nevada Gaming
Authorities are based upon declarations of public policy which are concerned
with, among other things: (i) the prevention of unsavory or unsuitable persons
from having a direct or indirect involvement with gaming at any time or in any
capacity; (ii) the establishment and maintenance of responsible accounting
practices and procedures; (iii) the maintenance of effective controls over the
financial practices of licensees, including the establishment of minimum
procedures for internal fiscal affairs and the safeguarding of assets and
revenues, providing reliable record keeping and requiring the filing of periodic
reports with the Nevada Gaming Authorities; (iv) the prevention of cheating and
fraudulent practices; and (v) to provide a source of state and local revenues
through taxation and licensing fees. Change in these laws, regulations and
procedures could have an adverse effect on our gaming operations.
As is any company that operates a Nevada gaming casino we are required to be
licensed by the Nevada Gaming Authorities. The gaming license requires the
periodic payment of fees and taxes and is not transferable. We are also
registered by the Nevada Commission as a publicly traded corporation
("Registered Corporation"). As a Registered Corporation, we are required
periodically to submit detailed financial and operating reports to the Nevada
Commission and furnish any other information which the Nevada Commission may
require. We have obtained from the Nevada Gaming Authorities the various
registrations, approvals, permits and licenses required in order to engage in
gaming activities in Nevada. The Nevada Gaming Authorities may investigate any
individual who has a material relationship to, or material involvement with, the
Company in order to determine whether such individual is suitable or should be
licensed as a business associate of a gaming licensee. Officers, directors and
certain key employees of the Company must file applications with the Nevada
Gaming Authorities and may be required to be licensed or found suitable by the
Nevada Gaming Authorities. The Nevada Gaming Authorities may deny an application
for licensing for any cause which they deem reasonable. A finding of suitability
is comparable to licensing, and both require submission of detailed personal and
financial information followed by a thorough investigation. The applicant for
licensing or a finding of suitability must pay all the costs of the
investigation. Changes in licensed positions must be reported to the Nevada
Gaming Authorities and in addition to their authority to deny an application for
a finding of suitability or licensure, the Nevada Gaming Authorities have
jurisdiction to disapprove a change in a corporate position.
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If the Nevada Gaming Authorities were to find an officer, director or key
employee unsuitable for licensing or unsuitable to continue having a
relationship with the Company, we would have to sever all relationships with
that person. In addition, the Nevada Commission may require us to terminate the
employment of any person who refuses to file appropriate applications.
Determinations of suitability or of questions pertaining to licensing are not
subject to judicial review in Nevada.
We are required to submit detailed financial and operating reports to the
Nevada Commission. Substantially all material loans, leases, sales of securities
and similar financing transactions that we enter into must be reported to, or
approved by, the Nevada Commission.
If it were determined that the Nevada Act was violated by the Company, the
gaming licenses we hold could be limited, conditioned, suspended or revoked,
subject to compliance with certain statutory and regulatory procedures. In
addition, the Company, and the persons involved, could be subject to substantial
fines for each separate violation of the Nevada Act at the discretion of the
Nevada Commission. Further, a supervisor could be appointed by the Nevada
Commission to operate Harveys Resort and, under certain circumstances, earnings
generated during the supervisor's appointment (except for the reasonable rental
value of Harveys Resort) could be forfeited to the State of Nevada. Limitation,
conditioning or suspension of our gaming license or the appointment of a
supervisor could (and revocation of our gaming license would) materially
adversely affect our gaming operations.
Any beneficial holder of the Company's voting securities, regardless of the
number of shares owned, may be required to file an application, be investigated,
and have his or her suitability as a beneficial holder of the Company's voting
securities determined if the Nevada Commission has reason to believe that the
ownership would otherwise be inconsistent with the declared policies of the
State of Nevada. The applicant must pay all costs of investigation incurred by
the Nevada Gaming Authorities in conducting any such investigation.
The Nevada Act requires any person who acquires more than 5% of a Registered
Corporation's voting securities to report the acquisition to the Nevada
Commission. The Nevada Act requires that beneficial owners of more than 10% of a
Registered Corporation's voting securities apply to the Nevada Commission for a
finding of suitability within thirty days after the Chairman of the Nevada Board
mails a written notice requiring the filing. Under certain circumstances, an
"institutional investor," as defined in the Nevada Act, which acquires more than
10%, but not more than 15%, of a Registered Corporation's voting securities may
apply to the Nevada Commission for a waiver of the finding of suitability if the
institutional investor holds the voting securities for investment purposes only.
An institutional investor will not be deemed to hold voting securities for
investment purposes unless the voting securities were acquired and are held in
the ordinary course of business as an institutional investor and not for the
purpose of causing, directly or indirectly, the election of a majority of the
members of the board of directors of the Registered Corporation, any change in
the corporate charter, bylaws, management, policies or operations of the
Registered Corporation, or any of its gaming affiliates, or any other action
which the Nevada Commission finds to be inconsistent with holding the Registered
Corporation's voting securities for investment purposes only. Activities which
are not deemed to be inconsistent with holding voting securities for investment
purposes only include: (i) voting on all matters voted on by stockholders;
(ii) making financial and other inquiries of management of the type normally
made by securities analysts for informational purposes and not to cause a change
in its management, policies or operations; and (iii) such other activities as
the Nevada Commission may determine to be consistent with such investment
intent. If the beneficial holder of voting securities who must be found suitable
is a corporation, partnership or trust, it must submit detailed business and
financial information including a list of beneficial owners. The applicant is
required to pay all costs of investigation.
Any person who fails or refuses to apply for a finding of suitability or a
license within thirty days after being ordered to do so by the Nevada Commission
or the Chairman of the Nevada Board, may be
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found unsuitable. The same restrictions apply to a record owner if the record
owner, after request, fails to identify the beneficial owner. Any stockholder
found unsuitable and who holds, directly or indirectly, any beneficial ownership
of the common stock of a Registered Corporation beyond such period of time as
may be prescribed by the Nevada Commission may be guilty of a criminal offense.
We are subject to disciplinary action if, after we receive notice that a person
is unsuitable to be a stockholder or to have any other relationship with the
Company, we (i) pay that person any dividend or interest on our voting
securities, (ii) allow that person to exercise, directly or indirectly, any
voting right conferred through securities held by that person, (iii) pay
remuneration in any form to that person for services rendered or otherwise, or
(iv) fail to pursue all lawful efforts to require the person to relinquish his
or her voting securities for cash at fair market value.
The Nevada Commission may, in its discretion, require the holder of any debt
security of a Registered Corporation to file applications, be investigated and
be found suitable to own the debt security if it has reason to believe that the
ownership would be inconsistent with the declared policies of the State of
Nevada. If the Nevada Commission determines that a person is unsuitable to own a
debt security, then pursuant to the Nevada Act, the Registered Corporation can
be sanctioned, including the loss of its approvals, if without the prior
approval of the Nevada Commission, it: (i) pays to the unsuitable person any
dividend, interest, or any distribution whatsoever; (ii) recognizes any voting
right by the unsuitable person in connection with those securities; (iii) pays
the unsuitable person remuneration in any form; or (iv) makes any payment to the
unsuitable person by way of principal, redemption, conversion, exchange,
liquidation, or similar transaction.
We are required to maintain a current stock ledger in Nevada which may be
examined by the Nevada Gaming Authorities at any time. If any securities are
held in trust by an agent or by a nominee, the record holder may be required to
disclose the identity of the beneficial owner to the Nevada Gaming Authorities.
A failure to make that disclosure may be grounds for finding the record holder
unsuitable. We are also required to render maximum assistance in determining the
identity of the beneficial owner. The Nevada Commission has the power to require
our stock certificates to bear a legend indicating that the securities are
subject to the Nevada Act. However, to date, the Nevada Commission has not
imposed that requirement on the Company.
We may not make a public offering of our securities without the prior
approval of the Nevada Commission if the securities or the proceeds from their
sale are intended to be used to construct, acquire or finance gaming facilities
in Nevada, or to retire or extend obligations incurred for those purposes. The
approval, if given, does not constitute a finding, recommendation or approval by
the Nevada Commission or the Nevada Board as to the accuracy or adequacy of the
prospectus or the investment merits of the securities. Any representation to the
contrary is unlawful.
Changes in control of the Company through merger, consolidation, stock or
asset acquisitions, management or consulting agreements, or any act or conduct
by a person by which he or she obtains control, may not occur without the prior
approval of the Nevada Gaming Authorities. Entities seeking to acquire control
of a Registered Corporation must satisfy the Nevada Board and Nevada Commission
in a variety of stringent standards prior to assuming control of the Registered
Corporation. The Nevada Commission may also require controlling stockholders,
officers, directors and other persons having a material relationship or
involvement with the entity proposing to acquire control to be investigated and
licensed as part of the approval process relating to the transaction.
The Nevada legislature has declared that some corporate acquisitions opposed
by management, repurchases of voting securities and corporate defense tactics
affecting Nevada corporate gaming licensees, and Registered Corporations that
are affiliated with those operations, may be injurious to stable and productive
corporate gaming. The Nevada Commission has established a regulatory scheme to
ameliorate the potentially adverse effects of these business practices upon
Nevada's gaming industry and to further Nevada's policy to: (i) assure the
financial stability of corporate gaming operators and
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their affiliates; (ii) preserve the beneficial aspects of conducting business in
the corporate form; and (iii) promote a neutral environment for the orderly
governance of corporate affairs. Approvals are, in certain circumstances,
required from the Nevada Commission before the Registered Corporation can make
exceptional repurchases of voting securities above the current market price and
before a corporate acquisition opposed by management can be consummated. The
Nevada Act also requires prior approval of a plan of recapitalization proposed
by the Registered Corporation's Board of Directors in response to a tender offer
made directly to the Registered Corporation's stockholders for the purposes of
acquiring control of the Registered Corporation.
License fees and taxes, computed in various ways depending on the type of
gaming or activity involved, are payable to the State of Nevada and to the
counties and cities in which the Nevada licensee's respective operations are
conducted. Depending upon the particular fee or tax involved, these fees and
taxes are payable either monthly, quarterly or annually and are based upon
either: (i) a percentage of the gross revenues received; (ii) the number of
gaming devices operated; or (iii) the number of table games operated. A casino
entertainment tax is also paid by casino operations where entertainment is
furnished in connection with the selling of food or refreshments or the selling
of merchandise. Nevada licensees that hold a license as an operator of a slot
route, or a manufacturer's or distributor's license, also pay certain fees and
taxes to the State of Nevada.
Any person who is licensed, required to be licensed, registered, required to
be registered, or is under common control with such persons (collectively,
"Licensees"), and who proposes to become involved in a gaming venture outside of
Nevada is required to deposit with the Nevada Board, and thereafter maintain, a
revolving fund in the amount of $ 10,000 to pay the expenses of investigation by
the Nevada Board of their participation in such foreign gaming. The revolving
fund is subject to increase or decrease in the discretion of the Nevada
Commission. Thereafter, Licensees are required to comply with certain reporting
requirements imposed by the Nevada Act. Licensees are also subject to
disciplinary action by the Nevada Commission if they knowingly violate any laws
of the foreign jurisdiction pertaining to the foreign gaming operation, fail to
conduct the foreign gaming operation in accordance with the standards of honesty
and integrity required of Nevada gaming operations, engage in activities that
are harmful to the State of Nevada or its ability to collect gaming taxes and
fees, or employ a person in the foreign operation who has been denied a license
or finding of suitability in Nevada on the ground of personal unsuitability.
IOWA GAMING LAWS AND REGULATIONS
The State of Iowa first authorized excursion gambling boat activities in
1989 and authorized slot machines at racetrack enclosures in 1994. The Iowa
Racing and Gaming Commission (the "Iowa Commission") has the authority to grant
and review licenses to owners and operators of excursion gambling boats and
pari-mutuel racetracks, and has the further authority to adopt and enforce rules
governing a broad range of subjects dealing with excursion gambling boat
facilities and racetrack enclosures and operations thereof. The Iowa Commission
consists of five members who are appointed by the governor and confirmed by the
state senate. Members serve a term not to exceed three years at the pleasure of
the governor.
Under Iowa law relating to excursion gambling boats, a non-profit
organization and a for-profit organization may receive a joint license to
operate an excursion gambling boat. The Company, together with Iowa West Racing
Association, a qualified non-profit organization, have been granted the
necessary licenses to own and operate the current gambling facilities and
activities on the riverboat casino at Harveys Casino Hotel each year since 1995.
Our excursion boat gambling license, which is up for renewal, currently expires
March 31, 2000.
Under Iowa law relating to racetracks, only a non-profit organization, an
operator of fairs or a state agency or political subdivision may hold a track
license and only a licensee which held a license to
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operate a pari-mutuel dog racing operation on January 1, 1994, could obtain a
racetrack slot casino license when they became available in 1994. Iowa West
Racing Association, a qualified non-profit organization, holds the pari-mutuel
license to operate the dog track and the gaming racetrack enclosure license to
operate the slot machine casino all at Bluffs Run Greyhound Racetrack and
Casino. The Bluffs Run pari-mutuel dogtrack license and the Bluffs Run gambling
license for a racetrack enclosure expire December 31, 2000.
All licenses are granted upon the condition that the license holders accept,
observe and enforce all applicable laws, regulations, ordinances, rules and
orders applicable to them, and any violation by a license holder including
employees or agents, may result in disciplinary action, including the suspension
or revocation of any license heretofore granted.
On October 6, 1999, Harveys Iowa Management Company, Inc. and Iowa West
Racing Association entered into an amended and restated excursion gambling boat
sponsorship and operating agreement relating to Harveys operation of its
excursion gambling boat casino. The operating agreement's term continues through
December 31, 2010, and during the agreement, Harveys is to pay Iowa West Racing
Association a fee equal to a percentage of the adjusted gross gaming receipts
generated from the boat operation and further agreed to pay and hold Iowa West
Racing Association harmless from the admissions fee payable to the Iowa
Commission and the local municipality and state wagering tax imposed by Iowa
law. Following the expiration of the term of the operating agreement, such
agreement may be extended for five successive three-year periods.
Also, on October 6, 1999, Harveys BR Management Company and Iowa West Racing
Association entered into a management agreement whereby Harveys BR Management
Company is to manage the pari-mutuel racetrack facility and casino operations
including simulcast of greyhound or horse racing and the slot machines for a
minimum of twenty-five (25) years during which Harveys is to receive management
fee equal to a percentage of the cash flow as that term is defined in the
management agreement. On the same day, October 6, 1999, HBR Realty Company
purchased the Bluffs Run Casino assets, except for the slot machines, from Iowa
West Racing Association and leased the same back to Iowa West Racing Association
for a term ending October 5, 2024, which lease is renewable for additional terms
by the mutual agreement of the parties. Harveys is to receive rent payments
equal to a percentage of cash flow as that term is defined in the lease
agreement, except that Iowa West Racing Association is entitled to $1,350,000 of
cash flow payable every six months in arrears following the acquisition until
the fifth business day following the date that the results of a required
referendum on the continuation of gaming at pari-mutuel racetracks, to be
decided by the voters of Pottawattamie County, Iowa, in 2002 are certified to
the County Auditor of Pottawattamine County. Under the terms of the agreements,
Harvey receives management fees and lease income generally equal to the ongoing
cash flow from the operations of Bluffs Run Casino. All of the agreements
outlined here were approved by the Iowa Commission in September 1999.
Under Iowa law, gambling licenses may only be granted by the Iowa Commission
in those counties that have approved the conduct of gambling games in a
county-wide referendum. Gambling games, both at a racetrack enclosure and on
riverboats, have been approved by the county electorate in Pottawattamie County,
Iowa, the location of both Harveys Casino Hotel and Bluffs Run Casino.
However, a referendum can be requested at any time by a petition of the
voters and must be reapproved for both types of gambling activities via the
general election ballot eight years after the initial approval and each eight
years thereafter. There can be no assurance that either type of gambling
activities will be approved at the next referendum to be held in November 2002,
in subsequent referendums held every eight years thereafter or in the event of a
petition referendum.
If the gambling referendums do not pass in the county where the licenses are
held, the excursion boat licenses may remain valid at the discretion of the Iowa
Commission for a total of nine years from the date of original issue which, in
the case of Harveys, would be nine years from January 27, 1995, or
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January 27, 2004. Racetracks do not have a similar original license concept
allowing them to operate via renewals by the Iowa Commission until the
expiration of nine years from the date they were first licensed. In the event a
negative referendum vote occurred in 2002, Bluffs Run Casino would have to cease
casino gaming operations in a relatively short time following the referendum
defeat, probably pursuant to an Order of the Iowa Commission.
Following the issuance of a gaming license, the Iowa Commission monitors and
supervises the activities of the licensees. Material contracts to be entered
into by the licensee, changes in ownership of the licensee, management
contracts, and acquisition of interest in other gambling activities by the
licensee or its owners must all be reported to, and approved by the Iowa
Commission. Further, the Iowa Commission has the authority to determine the
payouts from the gambling games, the race schedules, to set the payout rate for
all slot machines, to establish minimum charges for admission to excursion
gambling boats, impose an admission fee or a head tax, as well as define the
excursion season and the duration of an excursion, as well as define the race
season and total number of races to be held.
For excursion gambling boats, Iowa law authorizes the imposition of an
admission fee, set by and payable to the Iowa State Treasurer, on each person
embarking on an excursion gambling boat. An additional admission fee may be
imposed by the municipality in which the gambling operation is located. In
practice, the Iowa Commission has not imposed a per-person admission fee, but
rather imposed a fee on each excursion gambling boat based upon the estimated
costs of supervision and enforcement to be incurred by the Iowa Commission for
the ensuing fiscal year. For the fiscal year beginning July 1, 1999, the fee is
$314,080, payable in weekly installments of $6,040. A $0.50 per person admission
fee is also payable to the City of Council Bluffs, Iowa. Further, Iowa law
imposes an annual wagering tax ranging from five percent on the first million of
adjusted gross receipts from gambling games to 20 percent on adjusted gross
receipts in excess of $3 million.
For dog tracks, Iowa law requires the payment of a licensing fee of $250 for
each racing day. In addition, a licensee is required to pay the Iowa Commission
the sum of $.50 for each person entering the racetrack grounds or enclosure
under a ticket of admission. There is also a wagering tax imposed on the gross
sum wagered at the dog track at the following rate: (i) 6% if the gross sum
wagered in the racing season is $55,000,000 or more; (ii) 5% if the gross sum
wagered in the racing season is $30,000,000 or more, but less that $55,000,000;
(iii) 4% if the gross sum wagered in the racing season is less than $30,000,000.
For pari-mutuel slot casinos there is an escalating wagering tax which is
currently 28% of the gross receipts from the slot machine casino which rate goes
up two percent per year every January 1st until it reaches a maximum of 36% on
January 1, 2004.
The Racing Association of Central Iowa which operates the horse track in
Altoona (Des Moines) Iowa, brought an action on June 25, 1998, in the Iowa
District Court, In and For Polk County alleging that the escalating racetrack
casino tax is violative of the United States and Iowa Constitutions. The Dubuque
dog track, Bluffs Run Casino, and the Iowa Greyhound Association have intervened
in the case, but it is still in the preliminary stages so that no outcome is
predictable at the present time.
Excursion gambling boat activities are also subject to safety and inspection
requirements of the State of Iowa and the U.S. Coast Guard. These requirements
set limits on the operation of the vessel; mandate that it must be operated by a
minimum complement of licensed personnel; establish periodic inspections,
includng the physical inspection of the outside hull; and establish other
mechanical and operations rules.
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COLORADO GAMING LAWS AND REGULATIONS
The State of Colorado created the Division of Gaming (the "Division") within
the Department of Revenue to license, implement, regulate and supervise the
conduct of limited gaming under the Colorado Limited Gaming Act. The Director of
the Division, under the supervision of a five-member Colorado Limited Gaming
Control Commission (the "Colorado Commission"), has been granted broad power to
ensure compliance with the Colorado gaming regulations (the "Colorado
Regulations"). The Director may inspect, without notice, impound or remove any
gaming device. The Director may examine and copy any licensee's records, may
investigate the background and conduct of licensees and their employees, and may
bring disciplinary actions against licensees and their employees. The Director
may also conduct detailed background investigations of persons who loan money to
a licensee.
The Colorado Commission is empowered to issue five types of gaming and
gaming-related licenses. The licenses are revocable and non-transferable. Our
failure or inability, or the failure or inability of others associated with our
Colorado gaming operations, to maintain necessary gaming licenses would have a
material adverse effect on our operations. All persons employed by us and
involved, directly or indirectly, in gaming operations in Colorado also are
required to obtain a Colorado gaming license. All licenses must be renewed
annually.
As a general rule, under the Colorado Regulations, it is a criminal
violation for any person to have a legal, beneficial, voting or equitable
interest, or right to receive profits, in more than three retail gaming licenses
in Colorado. The Colorado Commission has ruled that a person does not have an
interest in a licensee for purposes of the multiple license prohibition if:
(i) that person has less than a five percent (5%) interest in an institutional
investor which has an interest in a publicly traded licensee or publicly traded
company affiliated with a licensee; (ii) a person has a five percent (5%) or
more financial interest in an institutional investor, but the institutional
investor has less than a five percent (5%) interest in a publicly traded
licensee or publicly traded company affiliated with a licensee; (iii) an
institutional investor has less than a five percent (5%) financial interest in a
publicly traded licensee or publicly traded company affiliated with a licensee;
(iv) an institutional investor possesses securities in a fiduciary capacity for
another person, and does not exercise voting control over five percent (5%) or
more of the outstanding voting securities of a publicly traded licensee or of a
publicly traded company affiliated with a licensee; (v) a registered broker or
dealer retains possession of securities of a publicly traded licensee or of a
publicly traded company affiliated with a licensee for its customers in street
name or otherwise, and exercises voting rights for less than five percent (5%)
of the publicly traded licensee's voting securities or of a publicly traded
company affiliated with a licensee; (vi) a registered broker or dealer acts as a
market maker for the stock of a publicly traded licensee or of a publicly traded
company affiliated with a licensee and possesses a voting interest in less than
five percent (5%) of the stock of the publicly traded licensee or of a publicly
traded company affiliated with a licensee; (vii) an underwriter is holding
securities of a publicly traded licensee or of a publicly traded company
affiliated with a licensee as part of an underwriting for no more than 90 days
if it exercises voting rights of less than five percent (5%) of the outstanding
securities of a publicly traded licensee or of a publicly traded company
affiliated with a licensee; (viii) a stock clearinghouse holds voting securities
for third parties, if it exercises voting rights with respect to less than five
percent (5%) of the outstanding securities of a publicly traded licensee or of a
publicly traded company affiliated with a licensee; or (ix) a person owns less
than five percent (5%) of the voting securities of the publicly traded licensee
or publicly traded company affiliated with a licensee. Hence, the Company's and
its stockholders' business opportunities in Colorado are limited to interests
that comply with the statute and the Colorado Commission's rule.
Although attorneys for the Colorado legislature initially expressed concern
that the promulgation of the above-described regulation was beyond the Colorado
Commission's statutory delegated authority, they appear to have retreated from
this position. Therefore, unless the Colorado legislature repeals the
regulation, it is likely that it will continue in effect.
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In addition, pursuant to the Colorado Regulations, no manufacturer or
distributor of slot machines may have an interest in any casino operator, allow
any of its officers to have such an interest, employ any person if that person
is employed by a casino operator, or allow any casino operator or person with a
substantial interest therein to have an interest in a manufacturer's or
distributor's business. The Colorado Commission has ruled that a person does not
have a "substantial interest" if it directly or indirectly has less than five
percent (5%) of the voting securities of a licensee.
Under the Colorado Regulations, any person or entity having any direct or
indirect interest in a gaming licensee or an applicant for a gaming license,
including, but not limited to, the Company and our stockholders, may be required
to supply the Colorado Commission with substantial information, including, but
not limited to, background information, source of funding information, a sworn
statement that the person or entity is not holding his or her interest for any
other party, and fingerprints. Consequently, information, investigation and
licensing as an "associated person" automatically will be required of all
persons (other than certain institutional investors discussed below) which
directly or indirectly own ten percent (10%) or more of a direct or indirect
legal, beneficial or voting interest in Harveys Wagon Wheel, through their
ownership in the Company. Those persons must report their interest and file
appropriate applications within 45 days after acquiring that interest. Persons
directly or indirectly having a five percent (5%) or more interest (but less
than 10%) in Harveys Wagon Wheel, through their ownership in the Company, must
report their interest to the Colorado Commission within ten (10) days after
acquiring that interest and may be required to provide additional information
and to be found suitable. If certain institutional investors provide certain
information to the Colorado Commission, those investors, at the Colorado
Commission's discretion, may be permitted to own up to 14.99% of Harveys Wagon
Wheel, through their ownership in the Company, before being required to be found
suitable. All licensing and investigation fees will have to be paid by the
person in question. The associated person investigation fee currently is $53 per
hour.
The Colorado Commission also has the right to request information from any
person directly or indirectly interested in, or employed by, a licensee, and to
investigate the moral character, honesty, integrity, prior activities, criminal
record, reputation, habits and associations of (i) all persons licensed pursuant
to the Colorado Limited Gaming Act, (ii) all officers, directors and
stockholders of a licensed privately held corporation, (iii) all officers,
directors and stockholders holding either a five percent (5%) or greater
interest or a controlling interest in a licensed publicly traded corporation,
(iv) all general partners and all limited partners of a licensed partnership,
(v) all persons which have a relationship similar to that of an officer,
director or stockholder of a corporation (such as members and managers of a
limited liability company), (vi) all persons supplying financing or loaning
money to any licensee connected with the establishment or operation of limited
gaming, and (vii) all persons having a contract, lease or ongoing financial or
business arrangement with any licensee, where a contract, lease or arrangement
relates to limited gaming operations, equipment, devices or premises.
In addition, under the Colorado Regulations, every person who is a party to
a "gaming contract" with an applicant for a license, or with a licensee, upon
the request of the Colorado Commission or the Director, must promptly provide to
the Colorado Commission or Director all information which may be requested
concerning financial history, financial holdings, real and personal property
ownership, interests in other companies, criminal history, personal history and
associations, character, reputation in the community, and all other information
which might be relevant to a determination whether a person would be suitable to
be licensed by the Colorado Commission. Failure to provide all information
requested constitutes sufficient grounds for the Director or the Colorado
Commission to require a licensee or applicant to terminate its "gaming contract"
(as defined below) with any person who failed to provide the information
requested. In addition, the Director or the Colorado Commission may require
changes in "gaming contracts" before an application is approved or participation
in the contract is allowed. A "gaming contract" is defined as an agreement in
which a person does business with or on the premises of a licensed entity.
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An application for licensure or suitability may be denied for any cause
deemed reasonable by the Colorado Commission or the Director, as appropriate.
Specifically, the Colorado Commission and the Director must deny a license to
any applicant who (i) fails to prove by clear and convincing evidence that the
applicant is qualified; (ii) fails to provide information and documentation
requested; (iii) fails to reveal any fact material to qualification, or supplies
information which is untrue or misleading as to a material fact pertaining to
qualification; (iv) has been, or is any director, officer, general partner,
stockholder, limited partner or other person who has a financial or equity
interest in the applicant who has been, convicted of certain crimes, including
the service of a sentence upon conviction of a felony in a correctional
facility, city or county jail, or community correctional facility or under the
state board of parole or any probation department within ten years prior to the
date of the application, gambling-related offenses, theft by deception or crimes
involving fraud or misrepresentation, is under current prosecution for such
crimes (during the pendency of which license determination may be deferred), is
a career offender or a member or associate of a career offender cartel, or is a
professional gambler; or (v) has refused to cooperate with any state or federal
body investigating organized crime, official corruption or gaming offenses.
If the Colorado Commission determines that a person or entity is unsuitable
to own interests in the Company, then we may be sanctioned, which may include
the loss of our approvals and licenses.
The Colorado Commission does not need to approve in advance a public
offering of securities but rather requires a filing of notice and additional
documents with regard to such public offering prior to such public offering.
Under the regulations, the Colorado Commission may, in its discretion, require
additional information and prior approval of such public offering.
In addition, the Colorado Regulations prohibit a licensee or affiliated
company thereof, such as the Company, from paying dividends, interest or other
remuneration to any unsuitable person, or recognizing the exercise of any voting
rights by any unsuitable person. Further, the Company may repurchase the shares
of anyone found unsuitable at the lesser of the cash equivalent to the original
investment in the Company or the current market price. Further, the regulations
require anyone with a material involvement with a licensee, including a director
or officer of a holding company, such as the Company, to file for a finding of
suitability if required by the Colorado Commission.
In addition to its authority to deny an application for a license or
suitability, the Colorado Commission has jurisdiction to disapprove a change in
corporate position of a licensee and may have such authority with respect to any
entity which is required to be found suitable by the Colorado Commission. The
Colorado Commission has the power to require us to suspend or dismiss managers,
officers, directors and other key employees or sever relationships with other
persons who refuse to file appropriate applications or whom the authorities find
unsuitable to act in such capacities; and may have the power with respect to any
entity which is required to be found suitable.
A person or entity may not sell, lease, purchase, convey or acquire a
controlling interest in the Company without the prior approval of the Colorado
Commission. We may not sell any interest in our Colorado gaming operations
without the prior approval of the Colorado Commission.
Harveys Wagon Wheel must meet certain architectural requirements, fire
safety standards and standards for access for disabled persons. Harveys Wagon
Wheel also must not exceed certain gaming square footage limits as a total of
each floor and the full building. The casino at Harveys Wagon Wheel may operate
only between 8:00 a.m. and 2:00 a.m., and may permit only individuals 21 years
or older to gamble in the casino. It may permit slot machines, blackjack and
poker, with a maximum single bet of $5.00. Harveys Wagon Wheel may not provide
credit to its gaming patrons.
The Colorado Regulations permit gaming only in a limited number of cities
and certain commercial districts.
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The Colorado Constitution permits a gaming tax of up to 40% on adjusted
gross gaming proceeds. The Colorado Commission has set a gaming tax rate of 2%
on adjusted gross gaming proceeds of up to and including $2 million, 4% over $2
million up to and including $4 million, 14% over $4 million up to and including
$5 million, 18% over $5 million up to and including $10 million and 20% on
adjusted gross gaming proceeds in excess of $10 million. The Colorado Commission
also has imposed an annual device fee of $75 per gaming device. The Colorado
Commission may revise the gaming tax rate and device fee from time to time.
Central City has imposed an annual device fee of $1,265 per gaming device and
may revise the same from time to time.
The sale of alcoholic beverages is subject to licensing, control and
regulation by the Colorado Liquor Agencies. All persons who directly or
indirectly own 10% or more of Harveys Wagon Wheel, through their ownership of
the Company, must file applications and possibly be investigated by the Colorado
Liquor Agencies. The Colorado Liquor Agencies also may investigate those persons
who, directly or indirectly, loan money to or have any financial interest in
liquor licensees. All licenses are revocable and not transferable. The Colorado
Liquor Agencies have the full power to limit, condition, suspend or revoke any
liquor license and any disciplinary action could (and revocation would) have a
material adverse effect upon the operations of the Company. Harveys Wagon Wheel
holds a hotel and restaurant liquor license for its casino, hotel and restaurant
operations, rather than a gaming tavern license. Accordingly, no person with an
interest in the Company can have an interest in a liquor licensee which holds
anything other than a hotel and restaurant liquor license, and specifically
cannot have an interest in an entity which holds a gaming tavern license.
ENVIRONMENTAL MATTERS
We are subject to various Federal, state and local laws, ordinances and
regulations which (i) govern activities or operations that may have adverse
environmental effects, such as discharges to air and water, as well as handling
and disposal of solid and hazardous toxic wastes, or (ii) may impose liability
on property owners and operators for the costs of removal or remediation of
certain hazardous substances released on their property. We believe we are in
material compliance with these laws.
Harveys Wagon Wheel is in the vicinity of the Central City/Clear Creek
Superfund Site as designated by the Environmental Protection Agency (the "EPA")
pursuant to the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended ("CERCLA" or "Superfund"). The Central
City/Clear Creek Superfund Site, the overall boundaries of which have not been
explicitly defined, includes numerous specifically identified areas of mine
tailings and other waste piles from former gold mine operations that are the
subject of ongoing investigation and cleanup by the EPA and the State of
Colorado. CERCLA requires cleanup of sites from which there has been a release
or threatened release of hazardous substances and authorizes the EPA to take any
necessary response actions at Superfund sites, including ordering potentially
responsible parties to clean up or contribute to the cleanup of a Superfund
site. Potentially responsible parties are broadly defined under CERCLA, and
include past and present owners and operators of a site. Courts have interpreted
CERCLA to impose strict, joint and several liability upon all persons liable for
response costs.
In the course of developing Harveys Wagon Wheel, investigations at the site
were conducted in accordance with requirements of governmental authorities as a
prerequisite to obtaining necessary development permits. The investigations were
completed and the requisite permits issued. Currently, the EPA has not
identified any mine tailings or other waste piles at Harveys Wagon Wheel.
Nonetheless, there is the potential that the EPA or other governmental
authorities could broaden their investigations and identify additional areas,
including the Harveys Wagon Wheel site, for cleanup as part of the Central
City/Clear Creek Superfund Site. If the Harveys Wagon Wheel site were included
in the EPA's investigation and designated as an additional area within the
Central City/Clear Creek Superfund Site, we may be identified as potentially
responsible party and any liability we may have
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related to the Central City/Clear Creek Superfund Site could have a material
adverse effect on the Company.
ITEM 2. PROPERTIES
Harveys Resort comprises approximately 1,020,000 square feet on
approximately 19.8 acres, of which we own approximately 5.4 acres and lease
approximately 14.4 acres pursuant to several ground leases that expire in 2045.
A 973,000-square foot parking garage and certain other amenities are located on
leased property.
Harveys Casino Hotel is located on approximately 36 acres of land owned by
the Company. The land-based amenities, including a covered "skywalk" to the
riverboat casino, are comprised of a hotel, convention center, and passenger
staging area, totaling nearly 300,000 square feet. Contiguous thereto is a
24-acre leasehold parcel which contains the boat docking facility and the 1,630
space parking structure. This parcel is subject to a long term lease with the
City of Council Bluffs for a nominal annual sum. Additionally, we own an
adjacent 44-acre parcel suitable for expansion or support facilities.
Bluffs Run Casino is located on approximately 72.5 acres of land owned by
the Company. The racetrack grandstand, casino and food and beverage operations
are in a three story building encompassing approximately 109,000 square feet.
There is also a recreation vehicle park capable of accommodating 115 vehicles
and surface parking for 3,117 vehicles on the site. All of the facilities have
been leased back to Iowa West Racing Association.
The Harveys Wagon Wheel hotel and casino facility encompasses approximately
200,000 square feet on approximately 1.1 acres and a 530-space self-parking
garage on a contiguous 8-acre parcel. Additionally, we own approximately 40
acres of undeveloped land adjacent to the Harveys Wagon Wheel facility.
All of the real property described above, as well as the Company's personal
property at these operations, is pledged as security for our reducing, revolving
credit facility with a consortium of banks. See footnote 5 to our consolidated
financial statements appearing elsewhere in this report.
ITEM 3. LEGAL PROCEEDINGS
We are a defendant in various lawsuits relating to routine matters
incidental to our business. We do not believe that the outcome of any
litigation, individually or in the aggregate, will have a material adverse
effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter of fiscal 1999.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Prior to the merger Harveys was a publicly held company and the $0.01 par
value per share common stock of the Company was traded on the New York Stock
Exchange under the symbol "HVY." Following the merger, there is no public market
for our common equity securities.
As of February 22, 2000, there were nine holders of the Company's Class A
Common Stock and nine holders of the Company's Class B Common Stock.
For the fiscal year prior to the merger Harveys paid regular quarterly
dividends of $0.05 per share of common stock. Following the merger, our leverage
and fixed charge obligations were substantially increased. In addition, the
certificate of designation of the Company's 13 1/2% Series A Senior Redeemable
Convertible Cumulative Preferred Stock and 13 1/2% Series B Senior Redeemable
Convertible Cumulative Preferred Stock prohibit us from paying cash dividends on
our common stock unless full cumulative dividends on all outstanding preferred
stock due for past periods have been declared and paid in cash, or a sufficient
sum for the payment thereof irrevocably set apart in trust. Consequently, it is
unlikely that we will pay any cash dividends on our common stock before 2011,
the mandatory redemption date for the preferred stock. See "ITEM 7. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF THE COMPANY'S FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--Liquidity and Capital Resources".
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table presents selected consolidated financial data of the
Company for the years ended November 30, 1995 through 1999. For comparative
purposes, we have presented results for fiscal 1999 on a combined twelve month
basis by aggregating our results for the period December 1, 1998 through
February 1, 1999 with our results for the period from the merger acquisition
date, February 2, 1999, through November 30, 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 the application of purchase method accounting.
However, we believe that comparisons of the financial results for the fiscal
years can still provide a meaningful discussion of our financial performance.
The items of comparability most affected by the merger are depreciation and
amortization, the one-time consent fee and transaction costs incurred in
connection with the merger, interest expense and income taxes. The selected
consolidated financial data is not necessarily indicative of our future results
of operations or financial condition, and should be read in conjunction with
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE COMPANY'S FINANCIAL
CONDITION AND RESULTS OF OPERATIONS and with our consolidated financial
statements, including the footnotes, appearing elsewhere in this report.
18
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
YEARS ENDED NOVEMBER 30,
----------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF INCOME DATA
Revenues
Casino.................................................... $121,369 $186,369 $216,564 $244,784 $270,470
Racing.................................................... -- -- -- -- 932
Lodging................................................... 25,499 28,746 32,175 34,273 36,960
Food and beverage......................................... 33,970 39,852 44,406 47,079 51,097
Other..................................................... 6,287 6,402 7,277 7,111 7,908
Management fees and joint venture......................... 1,669 5,023 4,507 -- --
Less casino promotional allowances........................ (15,594) (18,643) (21,366) (23,738) (27,416)
-------- -------- -------- -------- --------
Total net revenues...................................... 173,200 247,749 283,563 309,509 339,951
-------- -------- -------- -------- --------
Costs and expenses
Casino.................................................... 57,520 86,732 100,500 115,837 127,303
Racing.................................................... -- -- -- -- 1,859
Lodging................................................... 9,458 11,677 13,374 13,710 13,046
Food and beverage......................................... 20,280 24,797 29,886 30,143 31,918
Other operating........................................... 2,838 2,813 2,811 2,885 3,296
Selling, general and administrative....................... 50,270 67,128 73,945 78,987 82,338
Depreciation and amortization............................. 12,333 16,482 19,077 20,796 26,164
Business development costs................................ -- -- 2,690 96 2,182
Pre-opening expenses...................................... 2,147 4,099 -- -- --
Merger-related costs...................................... -- -- -- 1,218 19,879
-------- -------- -------- -------- --------
Total costs and expenses................................ 154,846 213,728 242,283 263,672 307,985
-------- -------- -------- -------- --------
Operating income............................................ 18,354 34,021 41,280 45,837 31,966
Interest expense, net(1).................................... 7,960 14,195 18,892 15,576 26,827
Gain on sale of interests in unconsolidated affiliate....... -- -- 27,422 -- --
Life insurance benefits..................................... 2,246 -- -- -- --
Other income (expense), net................................. 605 (221) (137) (142) (473)
-------- -------- -------- -------- --------
Income before income taxes and extraordinary item........... 13,245 19,605 49,673 30,119 4,666
Income tax provision........................................ (3,900) (7,791) (18,898) (11,417) (4,230)
-------- -------- -------- -------- --------
Income before extraordinary item............................ 9 ,345 11,814 30,775 18,702 436
Loss on early retirement of debt, net of taxes.............. -- 522 -- -- (869)
-------- -------- -------- -------- --------
Net income.................................................. $ 9,345 $ 11,292 $ 30,775 $ 18,702 $ (433)
======== ======== ======== ======== ========
OTHER OPERATING DATA
EBITDA(2)................................................. $ 35,080 $ 54,602 $ 63,047 $ 67,947 $ 81,359
Net cash provided by operating activities................. 19,594 39,768 44,637 38,388 42,063
Net cash provided by (used in) investing activities....... (70,433) (55,502) 24,428 (27,590) (123,440)
Net cash provided by (used in) financing activities....... 53,886 26,363 (35,151) 1,467 46,575
Capital expenditures(3)................................... 74,418 72,395 22,532 17,681 30,556
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 10,493 $ 21,121 $ 55,035 $ 67,299 $ 32,497
Total assets.............................................. 313,244 393,768 403,465 424,158 673,920
Long-term debt, net....................................... 126,676 181,354 150,220 150,000 400,578
Redeemable preferred stock................................ -- -- -- -- 61,442
Stockholders' equity...................................... 132,301 149,763 179,358 200,454 81,355
</TABLE>
- ------------------------------
Notes to Selected Consolidated Financial Data:
(1) Net of amounts capitalized and interest income.
(2) EBITDA (operating income plus depreciation and amortization and adjusted for
certain non-recurring items) should not be construed as an indicator of the
Company's operating performance, or as an alternative to cash flows from
operating activities as a measure of liquidity. 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
19
<PAGE>
presentation of EBITDA herein is not necessarily comparable to similarly
entitled measures of other companies. EBITDA is not intended to represent
and should not be considered more meaningful than, or an alternative to,
measures of operating performance as determined in accordance with generally
accepted accounting principles. For fiscal 1999, EBITDA has been adjusted to
exclude approximately $2.2 million of business development costs and $19.9
million of expended merger related costs. For fiscal 1998, EBITDA has been
adjusted to exclude approximately $1.3 million of expensed merger related
and business development costs; for fiscal 1997, EBITDA has been adjusted to
exclude approximately $2.7 million of business development costs; for fiscal
1996 and fiscal 1995, EBITDA has been adjusted to exclude approximately $4.1
million and $2.1 million of pre-opening expenses, respectively; for fiscal
1995 EBITDA has been adjusted to include approximately $2.2 million of life
insurance benefits.
(3) Of amounts shown, approximately $15.3 million for fiscal 1999, approximately
$8.1 million for fiscal 1998, $11.6 million in fiscal 1997, $7.2 million in
fiscal 1996 and $4.6 million in fiscal 1995 related to recurring capital
expenditures for maintenance of the current facilities.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE COMPANY'S FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
We currently own and operate Harveys Resort, Harveys Wagon Wheel, Harveys
Casino Hotel and Bluffs Run Casino. Until October 24, 1997, through our
wholly-owned subsidiary, Harveys L. V. Management Company, Inc., we owned 40% of
the equity interest in Hard Rock Hotel, Inc. which owns the Hard Rock Hotel and
Casino in Las Vegas, Nevada. We managed the Las Vegas hotel and casino pursuant
to a contract with Hard Rock Hotel, Inc. On October 24, 1997, we sold our 40%
equity interest and our interest in the management contract to Hard Rock Hotel,
Inc..
The following table presents certain operating results for our properties.
The operating results for Harveys Resort, which, since June 1, 1997, has been
owned and operated by Harveys Tahoe Management Company, Inc. are presented, for
all periods, excluding the effects of corporate and future business development
expenses. Those expenses are presented under the caption "Corporate and
Development." The operating results of Harveys L.V. Management Company, Inc.,
include the fees earned for managing the operations of Hard Rock Hotel and
Casino and the 40% equity interest in the income of the Hard Rock Hotel and
Casino through the date of the sale, October 24, 1997.
20
<PAGE>
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Net Revenues
Harveys Resort............................................ $129,970 $133,454 $140,546
Harveys Casino Hotel...................................... 99,641 113,541 124,128
Bluffs Run Casino......................................... -- -- 18,802
Harveys Wagon Wheel....................................... 49,445 62,514 56,475
Harveys Las Vegas Management Co........................... 4,507 -- --
-------- -------- --------
Total Net Revenues.................................... $283,563 $309,509 $339,951
======== ======== ========
Operating Income (Loss)
Harveys Resort............................................ $ 23,674 $ 23,768 $ 26,542
Harveys Casino Hotel...................................... 17,630 21,824 25,663
Bluffs Run Casino......................................... -- -- 3,852
Harveys Wagon Wheel....................................... 9,848 14,107 10,116
Harveys Las Vegas Management Co........................... 4,308 -- --
Corporate and Development................................. (11,490) (12,548) (12,146)
-------- -------- --------
43,970 47,151 54,027
Business Development, Consent Fee and Merger Costs........ (2,690) (1,314) (22,061)
-------- -------- --------
Total Operating Income................................ $ 41,280 $ 45,837 $ 31,966
======== ======== ========
EBITDA (1)
Harveys Resort............................................ $ 32,125 $ 33,160 $ 36,433
Harveys Casino Hotel...................................... 24,285 29,065 33,869
Bluffs Run Casino......................................... -- -- 5,619
Harveys Wagon Wheel....................................... 13,114 17,731 14,113
Harveys Las Vegas Management Co........................... 4,507 -- --
Corporate and Development................................. (10,984) (12,009) (8,675)
-------- -------- --------
Total EBITDA.......................................... $ 63,047 $ 67,947 $ 81,359
======== ======== ========
</TABLE>
- --------------------------
(1) EBITDA (operating income plus depreciation and amortization and adjusted for
certain non-recurring items) should not be construed as an indicator of the
Company's operating performance, or as an alternative to cash flows from
operating activities as a measure of liquidity. 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.
FISCAL YEAR ENDED NOVEMBER 30, 1999 COMPARED TO FISCAL YEAR ENDED NOVEMBER 30,
1998
Meaningful comparisons of our overall financial results for fiscal 1999 and
1998 can be difficult because of the recognition 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 fiscal 1999 results are also affected by our October 6, 1999
acquisition of the net assets of Bluffs Run Casino and our subsequent management
of that facililty.
Our consolidated net revenues for fiscal year 1999 were $340.0 million, a
$30.4 million , or 9.8% improvement over the prior year. Bluffs Run Casino
provided $18.8 million of the net revenue growth. On a same-store comparison,
net revenues improved by $11.6 million, or 3.8%, over net revenues for fiscal
1998. Substantial growth in net revenues from our Lake Tahoe property in the
first quarter of fiscal 1999, along with moderate growth for the balance of the
year 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 $54.0 million for fiscal 1999. Excluding the
contribution from Bluffs Run Casino, operating
21
<PAGE>
income amounted to $50.2 million. This was an improvement of $3.0 million, or
6.4%, over the prior year.
LAKE TAHOE, NEVADA. Our net revenues from Lake Tahoe for the year ended
November 30, 1999 amounted to $140.5 million, an increase of $7.1 million, or
5.3%, over our net revenues recorded for fiscal 1998. All operating areas
experienced revenue improvements, primarily as a result of strong first quarter
wagering volume and hotel occupancy. Our Lake Tahoe operating profit of $26.5
million for fiscal 1999 improved by $2.8 million, or 11.7 %, as a result of our
improved first and fourth quarters.
COUNCIL BLUFFS, IOWA. Our net revenues from Council Bluffs for the year
ended November 30, 1999 amounted to $124.1 million, an increase of $10.6
million, or 9.3%, over our net revenues recorded in fiscal 1998. Revenue
improvements were the result of increased wagering volume, hotel occupancy and
food covers. Our Council Bluffs operating profit of $25.7 million improved by
$3.8 million, or 17.5%, driven primarily by casino revenues and profits.
We have constructed a new parking facility at our Council Bluffs property
that offers 1,630 parking spaces and features climate-controlled access to the
adjacent casino. We opened the new parking facility ahead of schedule in early
October.
BLUFFS RUN CASINO. Our purchase of the net assets of Bluffs Run Casino on
October 6, 1999 and the subsequent management of the operations of that
property, provided net revenues for the 56 days ended November 30, 1999 of $18.8
million and operating profit of $3.9 million.
CENTRAL CITY, COLORADO. Our net revenues from Central City for the year
ended November 30, 1999 amounted to $56.5 million, a decrease of $6.0 million,
or 9.7%, from our net revenues recorded in fiscal 1998. Approximately $5.8
million of revenue decline was in our casino revenues and is principally the
result of the opening of new competition in Black Hawk in mid to late 1998.
Another new casino opened in Black Hawk in early 2000 and still another is
expected to open in the spring. Our Central City operating profit of $10.1
million declined $4.0 million, or 28.3%, principally as a result of the decline
in our casino revenues and profits and an increase in marketing and advertising
expenditures in response to the new competition.
OTHER FACTORS AFFECTING RESULTS OF OPERATIONS-- Our results for the year
ended November 30, 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.
In the second quarter of fiscal 1999, we decided not to pursue our current
business development plans in Las Vegas, Nevada and wrote off approximately $2.0
million of costs we had previously deferred. This write-off and other minor
business development charges amounted to approximately $2.2 million for fiscal
1999.
Depreciation and amortization expense for fiscal 1999 increased
approximately $5.4 million to $26.2 million. Approximately $3.0 million of this
increase was attributable to the write-off of the cost in excess of net assets
acquired as a result of the February merger and the October acquisition of the
net assets of Bluffs Run Casino. The balance of the increase for fiscal 1999 was
primarily the result of the change in the accounting basis for property and
equipment brought on by the merger and the acquisition.
Our corporate expense for fiscal 1999 amounted to approximately $8.7
million, excluding depreciation and amortization, compared to approximately
$12.0 million for the fiscal 1998 period. 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
22
<PAGE>
amount of expense we recognize in relation to our pension and postretirement
benefit plans. These eliminations and reductions were a result of the merger.
As a result of the merger financing and the financing of the Bluffs Run
Casino acquisition, our debt and fixed charge obligations increased. In February
1999, we assumed $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 the borrowings. In October
1999, we financed 100% of the Bluffs Run Casino acquisition and related closing
and transaction costs. Consequently we have experienced a decrease in our
interest income and an increase in our interest expense. For fiscal 1999, our
net interest expense was approximately $26.8 million versus approximately $15.6
million for the prior year.
Our results for fiscal 1999 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.
In connection with the merger, our existing credit agreement was retired.
Upon retirement, we expensed all unamortized loan fees and other financing costs
related to the prior credit agreement. That expense of approximately $869,000,
net of tax of $275,000, was included as an extraordinary item in our results for
fiscal 1999.
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 applied to our loss had the effect of
reducing the tax benefit we expect from the pre-merger period loss by
approximately $2.4 million.
FISCAL YEAR ENDED NOVEMBER 30, 1998 COMPARED TO FISCAL YEAR ENDED NOVEMBER 30,
1997
Our consolidated net revenues for fiscal year 1998 were $309.5 million, an
increase of $25.9 million, or 9.2%, from the $283.6 million recorded in fiscal
1997. The 1997 net revenues included $4.5 million resulting from our equity
interest and management fees related to the Hard Rock Hotel and Casino. We sold
our equity interest in and our rights under the management contract relative to
the Hard Rock Hotel and Casino in October 1997. On a same-store comparison, net
revenues for fiscal 1998 improved by $30.5 million, or 10.9%, over fiscal 1997.
The increase was attributable to growth in net revenues at all our other
operations. Consolidated operating income, excluding business development
write-offs from both fiscal years and merger related costs from fiscal 1998,
improved by $3.2 million.
LAKE TAHOE, NEVADA. Our net revenues from Lake Tahoe for the fiscal year
ended November 30, 1998 amounted to $133.5 million, an increase of $3.5 million,
or 2.7%, over our net revenues recorded for fiscal 1997. All operating areas
experienced revenue improvements due, in part to a decrease in weather-related
road closures or controls in the first quarter of 1998 compared to 1997. Our
Lake Tahoe operating profits of $23.8 million for fiscal 1998 improved by $0.1
million, or 0.4%.
COUNCIL BLUFFS, IOWA. Our net revenues for the year ended November 30, 1998
amounted to $113.5 million, an increase of $13.9 million, or 13.9%, over our net
revenues recorded in fiscal 1997, due in part, to the casino expansion which
opened near the end of the first quarter of fiscal 1998. Our Council Bluffs
operating profit of $21.8 million improved by $4.2 million, or 23.8%, driven by
casino and food revenues and profits.
CENTRAL CITY, COLORADO. Our net revenues for the year ended November 30,
1998 amounted to $62.5 million, an increase of $13.1 million, or 26.4%, over our
net revenues recorded in fiscal 1997, due in part to a full year of availability
of additional on-site parking added by the opening of the 530-space parking
garage in June 1997. Our Central City operating profit of $14.1 million improved
by $4.3 million, or 43.3%, driven by casino revenues and profit.
23
<PAGE>
OTHER FACTORS AFFECTING RESULTS OF OPERATIONS - Our results for the year
ended November 30, 1998 were affected by several other factors, including the
write-off of certain business development costs, increase in depreciation and
amortization, increase in corporate expenses, decrease in interest expense, the
expense of merger-related costs, and the sale of our interest in the Hard Rock
Hotel and Casino.
In the fourth quarter of fiscal 1998, we decided not to pursue our current
business development plans in specific geographic areas where there was a
potential for approval of casino gaming and wrote off approximately $96,000 of
costs we had previously deferred, compared to approximately $2.7 million for
fiscal 1997.
Depreciation and amortization expense for fiscal 1998, increased
approximately $1.7 million to $20.8 million. Approximately $0.4 million of this
increase was attributable to the disposal of Lake Tahoe assets to facilitate the
construction of a Hard Rock Cafe, with the balance of the increase attributable
to the completion of the parking garage in Colorado and other replacements and
improvements.
Our corporate expenses for fiscal 1998 amounted to approximately $12.0
million, excluding depreciation and amortization, compared to approximately
$11.0 million for fiscal 1997.
Our interest expense, net of interest income and interest capitalized,
decreased by approximately $3.3 million to $15.6 million for fiscal 1998. The
decrease was attributable to the use of a portion of the proceeds from the sale
of our interests in the Hard Rock Hotel and Casino to pay the outstanding
balance under our credit facility, thereby reducing interest expenses. The
balance of the proceeds was invested in cash equivalents, resulting in an
increase in interest income. Approximately $0.4 million of interest expense was
capitalized during fiscal 1997 in connection with the construction of the
parking facility in Central City. No interest was capitalized during fiscal
1998.
Our results for fiscal 1998 were also diminished by the effect of the
merger-related costs of approximately $1.2 million incurred prior to the merger.
In the fourth quarter of fiscal 1997, as a result of the sale of our
interests in the Hard Rock Hotel and Casino, the Company received $45.0 million
cash and an additional $1.2 million cash in satisfaction of a note and other
amounts due the Company at the time of the sale. The Company recognized a gain
of approximately $27.4 million on the transaction.
LIQUIDITY AND CAPITAL RESOURCES
As a result of the February 2, 1999 merger and the October 6, 1999
acquisition of Bluffs Run Casino, our leverage and fixed charge obligations
increased substantially.
Harveys Acquisition Corporation financed the February 2, 1999 merger with
the following:
- proceeds of approximately $75 million from the issuance of its Class A
Common Stock to Colony HCR Voteco and its Class B Common Stock to Colony
Investors III;
- proceeds of approximately $55 million from the issuance of its 13 1/2%
Series A Senior Redeemable Convertible Cumulative Preferred Stock to
Colony HCR Voteco and its Series B 13 1/2% Senior Redeemable Convertible
Cumulative Preferred Stock to Colony Investors III;
- borrowings of $172 million; and
- Harveys' available cash.
24
<PAGE>
Immediately following the merger; the capital stock of Harveys Acquisition
Corporation became the capital stock of Harveys. Additionally, we replaced our
existing bank credit facility with an amended and restated credit facility,
under which we assumed the liability for Harveys Acquisition Corporation's
initial borrowing of $172 million.
On October 6, 1999, we completed the purchased of the net assets of Bluffs
Run Casino. We paid Iowa West Racing Association approximately $115 million in
cash and we may pay additional consideration of up to $50 million. The
conditional consideration to be paid depends on the outcome of a required
referendum on the continuation of gaming at pari-mutuel racetracks to be decided
in 2002 by the voters of Pottawattamie County, Iowa.
We financed 100% of the cash purchase price of the net assets of Bluffs Run
Casino. In doing so, we amended our credit facility again to, among other
things, increase the maximum available balance from $185 million to $335
million. We also entered into a letter of credit agreement to support $45
million of the $50 million of contingent consideration. The letter of credit
exposure reduces the amount available to us under the bank credit facility.
Other sources of cash during fiscal 1999 included approximately $42.1
million of cash flow from operations, $10.7 million from the sale of marketable
securities and the collection of approximately $1.8 million in full payment of
notes due to us from a related party. Other uses of cash included the payment of
approximately $19.9 million for a consent fee and for merger related costs,
payment of approximately $5.2 million in debt issuance costs related to the two
amendments to our bank credit facility, payment of approximately $1.6 million of
closing and transaction costs related to the Bluffs Run Casino transaction and
approximately $29 million for capital improvements including approximately $13.2
million paid on the construction of our parking garage in Council Bluffs.
As a result of the above, our cash and cash equivalents decreased by $34.8
million, from $67.3 million at November 30, 1998 to $32.5 million at November
30, 1999. Additionally, our outstanding debt increased from $150 million at the
end of fiscal 1998 to approximately $393.9 million at the end of fiscal 1999,
excluding the unamortized premium on our senior subordinated notes. Our debt at
November 30, 1999 consisted of $150 million of senior subordinated notes and
approximately $243.9 million outstanding under our amended bank credit facility.
In addition to our debt, we were obligated at November 30, 1999 for an
aggregate of approximately $61.4 million on our outstanding Series A Preferred
Stock and Series B Preferred Stock and the unpaid dividends accrued thereon.
Our amended bank credit facility matures and is fully due and payable on
September 30, 2004. The permitted principal balance of the credit facility
reduces on a quarterly basis, beginning August 31, 2000. Given our outstanding
balance at November 30, 1999 and our anticipated sources and uses of cash for
fiscal year 2000, we do not expect to be subject to any mandatory principal
payment requirements in fiscal year 2000. Interest on borrowings outstanding
under the credit facility are payable, at our option, at either the London
Inter-Bank Offering Rate ("LIBOR") or an alternative base rate, in each case
plus an applicable margin. In the future, the applicable margins may be changed,
based on the ratio of our total funded debt to EBITDA. The credit facility
contains a number of covenants that, among other things, subject to applicable
gaming approvals, restrict our ability to dispose of assets, incur additional
indebtedness, prepay any principal amount of our $150 million, 10 5/8% Senior
Subordinated Notes due 2006, pay dividends, create liens on assets, make
investments, loans or advances, engage in mergers or consolidations, change the
nature of our business or engage in certain transactions with affiliates and
otherwise restrict certain corporate activities. In addition, under the credit
facility, 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. The credit
facility contains events of default customary for facilities of this nature.
Specifically, the credit facility prohibits the payment of cash dividends on our
preferred stock, unless
25
<PAGE>
the Leverage Ratio is less than or equal to 3 to 1. "Leverage Ratio" is
calculated as the ratio of our total indebtedness to EBITDA.
Our senior subordinated notes are governed by an indenture and are general
unsecured obligations of the Company, subordinated in right of payment to all
existing and future senior debt of the Company. Early in fiscal 1999, we amended
the indenture with the changes becoming operative at the time of the merger,
February 2, 1999. We sought and received the consent of the holders of our
senior subordinated notes to:
- the one-time waiver of the applicability of the indenture to the merger,
including the waivers of (i) the change of control covenant in the
indenture and (ii) the "Merger, Consolidation or Sale of Assets" provision
in the Indenture that might have restricted the financing of the merger
and related transactions, and
- the amendment of the definition of "Consolidated Cash Flow" in the
indenture to add back certain costs related to the merger.
Interest on the senior subordinated notes is payable semi-annually on June 1
and December 1 of each year. The senior subordinated notes mature on June 1,
2006. The senior subordinated notes are redeemable at our option, in whole or in
part, at any time on or after June 1, 2001 at prices ranging from 105.313% of
the principal amount plus accrued and unpaid interest, to 100% of the principal
amount plus accrued and unpaid interest beginning June 1, 2004 and thereafter.
The indenture contains certain covenants that impose limitations on, among
other things:
- the incurrence of additional indebtedness,
- the payment of dividends,
- the repurchase of capital stock and the making of certain other restricted
payments and restricted investments (as defined in the indenture),
- mergers, consolidations and sales of assets by the Company,
- the creation or incurrence of liens on the assets of the Company, and
- transactions by the Company or any of its subsidiaries with affiliates (as
defined in the indenture).
These limitations are subject to a number of qualifications and exceptions
as described in the Indenture.
Our Series A Preferred and Series B Preferred are entitled to quarterly
dividends at an annual rate of 13 1/2% of the $550 per share liquidation value.
To the extent we do not pay the dividends in cash, dividends will cumulate and
compound quarterly at an annual rate of 13 1/2%. The Series A Preferred and
Series B Preferred are subject to mandatory redemption on February 1, 2011 for
cash at the liquidation value plus any accrued and unpaid dividends. We have the
right to redeem the Series A Preferred and the Series B Preferred at any time
for cash at the liquidation value plus any accrued and unpaid dividends. The
certificate of designation for the preferred stock contains covenants which
limit restricted payments or investments; limit consolidation, merger and the
sale of assets; mandate the provision of financial reports; and limit business
activities. Upon the receipt of all applicable gaming approvals the Series A
Preferred and Series B Preferred are convertible at any time on or before
February 1, 2002, at the per share rate of 28.7309164 shares of the Class A
Common and Class B Common, respectively, subject to customary anti-dilution
adjustments. Any accrued and unpaid dividends at the time of a conversion will
be required to be paid in cash or, at our election, may be satisfied with
additional shares of the corresponding common stock having a fair market value
equal to the amount of accrued dividends.
26
<PAGE>
As of November 30, 1999, we were in compliance with the covenants under the
amended and restated credit facility, the indenture and the certificate of
designation.
At the end of fiscal year 1999, we had approximately $45.3 million available
to us under the bank credit facility, net of outstanding letters of credit and
subject to compliance with certain financial covenants. We also had cash and
cash equivalents of approximately $32.5 million.
We have budgeted $18.3 million for maintenance capital expenditures and
property improvements and approximately $2.0 million for final payments on the
construction of the parking garage at our Council Bluffs property in fiscal
2000. We believe that our existing cash and cash equivalents, cash flows from
operations and our borrowing capacity under the credit facility will be
sufficient to meet the cash requirements of our existing operations for at least
the next twelve months, including capital improvements and replacements at the
operating properties and debt service requirements. We currently believe that
our capital expenditures beyond the next twelve months will consist of debt
service requirements and capital improvements and replacements in the ordinary
course, which we expect to be met by then-existing cash, cash flows from
operations and borrowing capacity under the credit facility. We do not currently
anticipate incurring material capital expenditures, balloon or other
extraordinary payments on long-term obligations or any other extraordinary
demands or commitments beyond the next twelve months. We do not expect to pay
cash dividends on the preferred stock prior to 2004 because of, among other
reasons, restrictions in the credit facility and the indenture 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".
In 1997, 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 the Director of Information Services as well as support
staff.
We completed the implementation of our corrective action plan prior to
calendar year-end. To date, we have not experienced any significant system
failures or miscalculations causing disruptions of normal business operations.
We continue to use internal resources to evaluate our effectiveness in achieving
our corrective action plan objectives and are not aware of any potential Year
2000 Problem that may yet occur.
We estimate that our costs to achieve Year 2000 compliance, including those
costs that we capitalized, were approximately $4.4 million. We incurred costs of
approximately $1.0 million in fiscal year 1998, including approximately $0.7
million that we capitalized. We expended approximately $3.4 million in fiscal
1999 of which we capitalized approximately $2.7 million. We believe that our
expenditures in fiscal 2000 will not be material.
ITEM 7A. 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 fiscal 1999
financing of the merger and the purchase of the net assets of Bluffs Run Casino
in part through the bank facility, we now have variable rate debt. The amount
outstanding under the bank facility at November 30, 1999 was $243.9 million,
subject to a weighted-average interest rate of 8.39%. Assuming an identical
outstanding balance for all of fiscal year
27
<PAGE>
2000, a hypothetical immediate 100 basis point increase in interest rates would
increase interest expense for the year by approximately $2,439,000.
Additionally, the fair value of our fixed rate long-term debt, consisting of
the $150 million of senior subordinated notes and the $6.7 million unamortized
premium on the senior subordinated notes at November 30, 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 November 30, 1999 would have decreased the fair value of our fixed rate
long-term debt by approximately $14.0 million. Conversely, a 100 basis point
decrease in interest rates would have increased the fair value of our
outstanding long-term debt at November 30, 1999 by approximately $17.1 million.
A hypothetical immediate 100 basis point increase in interest rates would have
decreased the fair value of our fixed rate preferred stock by approximately $4.0
million at November 30, 1999. Conversely, a 100 basis point decrease in interest
rates would have increased the fair value of the preferred stock by
approximately $4.7 million.
The Company did not enter into any derivative financial contracts in fiscal
1998 or 1999. Effective March 1, 2000, the Company entered into an interest rate
cap agreement with a notional amount of $48 million. The Company may use
additional derivative financial instruments in the future as a risk management
tool. The Company does not use derivative financial instruments for speculative
or trading purposes.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements are as set forth in the "INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS" on page 43.
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
On March 12, 1999, Deloitte & Touche LLP, who had previously been engaged as
the principal accountant to audit the financial statements of Harveys Casino
Resorts was dismissed as the Company's independent accountant.
Deloitte and Touche LLP's reports on the financial statements of the Company
for each of the past two fiscal years preceding the change in accountants did
not contain an adverse opinion or a disclaimer of opinion, nor were the opinions
qualified or modified as to uncertainty, audit scope, or accounting principles.
During the Company's most recent two fiscal years preceding the change in
accountants there were no disagreements with Deloitte & Touche LLP on any matter
of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure, which disagreement, if not resolved to the
satisfaction of Deloitte & Touche LLP would have caused them to make reference
to the subject matter of the disagreement in connection with their report.
During the Company's most recent two fiscal years preceding the change in
accountants there were no "reportable events" as listed in paragraph (a)(1)(v)
of Item 304 of Regulations S-K.
On March 12, 1999, Ernst & Young LLP was selected as the principal
accountant to audit the Company's financial statements.
28
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
The table below sets forth the directors and executive officers of the
Company as of the date hereof:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------- --------
<S> <C> <C>
Thomas J. Barrack, 52
Jr.(1).................. Chairman of the Board of Directors
Charles W. Scharer...... 44 President and Chief Executive Officer; Director
John J. McLaughlin(3)... 44 Senior Vice President, Chief Financial Officer, Secretary and
Treasurer
Gary D. Armentrout...... 52 Senior Vice President - Business Development and Government
Relations
James J. Rafferty....... 44 Senior Vice President - Corporate Marketing
John R. Bellotti........ 42 Senior Vice President of Human Resources
Edward B. Barraco....... 55 Senior Vice President and General Manager - Harveys Wagon Wheel
William R. Stephens..... 51 Senior Vice President and General Manager - Harveys Resort
Verne H. Welch, Jr...... 62 Senior Vice President and General Manager - Harveys Casino
Hotel
Kelvin L. Davis (1)..... 36 Director
</TABLE>
THOMAS J. BARRACK, JR. serves as Chairman of the Board of Directors of the
Company. Mr. Barrack became a director at the effective time of the merger,
February 2, 1999, pursuant to an Agreement and Plan of Merger dated as of
February 1, 1998 and was appointed Chairman of the Board at that time. Mr.
Barrack also holds a minority interest in Colony HCR Voteco. Mr. Barrack has
served as Chairman and Chief Executive Officer of each of Colony Capital, Inc.
and Colony Advisors, Inc. since August 1997. Colony Capital, Inc. and Colony
Advisors, Inc. are international real estate investment and management firms.
Mr. Barrack served as President of Colony Capital, Inc. and Colony Advisors,
Inc. from August 1992 and September 1991, respectively, until August 1997. Mr.
Barrack is a Director of Continental Airlines, Inc., a commercial airline,
Public Storage, Inc., a developer, owner and operator of self-storage
facilities, Kennedy-Wilson, Inc., a worldwide real estate marketing, brokerage
and investment services company and Kerry Properties Limited, a Hong Kong-based
real estate company.
CHARLES W. SCHARER serves as a Director and President and Chief Executive
Officer of the Company. He was appointed President and Chief Executive Officer
of the Company effective December 1, 1995. He has served as a director of the
company since April 1995 and served as Chairman of the Board of Directors from
May 1, 1997 to the date of the merger, February 2, 1999. Prior to becoming
President and Chief Executive Officer of the company, Mr. Scharer served as
Executive Vice President from August 1995. He was appointed Chief Financial
Officer in July 1993 and Treasurer in September 1993.
JOHN J. MCLAUGHLIN serves as Senior Vice President, Chief Financial Officer,
Secretary and Treasurer. He was appointed Senior Vice President, Chief Financial
Officer and Treasurer of the Company in March 1996. Mr. McLaughlin became
Secretary of the Company as of the date of the merger, February 2, 1999. He
joined the Company in September 1995 as Chief Financial Officer. From January
1993 until September 1995, he was Chief Financial Officer of President Riverboat
Casino, Inc. Mr. McLaughlin is a Certified Public Accountant.
GARY D. ARMENTROUT serves as Senior Vice President - Business Development
and Government Relations. He has served as Senior Vice President - Business
Development and Government Relations of the Company since May 1995. In this
position he has been responsible for identifying and pursuing the development of
new projects for the Company. Prior to joining the Company, Mr. Armentrout was
employed by President Riverboat Casinos, Inc. where he served as Vice President
- -Gaming from May 1990 until June 1994 when he was appointed Vice President -
Gaming Development.
29
<PAGE>
JAMES J. RAFFERTY serves as Senior Vice President - Corporate Marketing. He
was appointed Corporate Vice President of Marketing of the Company in December
1995 and was promoted to Senior Vice President of Corporate Marketing in 1997.
Mr. Rafferty served as Vice President, Marketing -Lake Tahoe from 1992 to 1995.
JOHN R. BELLOTTI serves as Senior Vice President of Human Resources. He was
appointed Corporate Vice President of Human Resources of the Company in August
1997 and was promoted to Senior Vice President of Human Resources in December,
1999. Prior to joining the Company in August 1997, Mr. Bellotti was employed by
Hyatt Hotels Corporation, serving most recently as Assistant Vice President of
Human Resources from 1993 to 1997.
EDWARD B. BARRACO serves as Senior Vice President and General Manager -
Harveys Wagon Wheel. He has served as the Company's Senior Vice President and
General Manager - Harveys Wagon Wheel since July 1995. From 1985 to 1995, Mr.
Barraco served as Assistant General Manager - Lake Tahoe, where he was
responsible for overseeing all aspects of the operation on an assigned shift.
WILLIAM R. STEPHENS serves as Senior Vice President and General Manager -
Harveys Resort. He was appointed Senior Vice President and General Manager -
Harveys Resort in May 1999. Prior to assuming his current position, Mr. Stephens
was employed by the Hard Rock Hotel/Casino in Las Vegas where he was the
director of casino operations from the opening in 1995 until 1996 when he was
promoted to the vice president of casino operations.
VERNE H. WELCH, JR. serves as Senior Vice President and General Manager -
Harveys Casino Hotel. He has served as Senior Vice President and General Manager
- -Harveys Casino Hotel since September 1995. Prior to moving to the Council
Bluffs property, Mr. Welch served as Senior Vice President and General Manager -
Lake Tahoe from December 1993 to September 1995. From 1988 to December 1993, he
served as Vice President - Casino Operations.
KELVIN L. DAVIS serves as a Director. Mr. Davis became a director at the
time of the merger, February 2, 1999 pursuant to an Agreement and Plan of Merger
dated as of February 1, 1998. Mr. Davis also holds a majority membership
interest in Colony HCR Voteco. Mr. Davis is a partner with the Texas Pacific
Group, an international private equity investment firm. Prior to joining the
Texas Pacific Group in March, 2000, Mr. Davis served as President and Chief
Operating Officer of each of Colony Capital, Inc. and Colony Advisors, Inc.
since August 1997. He served as Executive Vice President of Colony Capital, Inc.
and Colony Advisors, Inc. from August 1992 and September 1991, respectively, to
August 1997. Mr. Davis is a director of Franchise Finance Corporation of
America, a specialty real estate financing company, and Crestline Capital Corp.,
a hotel and senior living community company.
Mark Hedstrom, Chief Financial Officer of Colony Capital, Inc. serves as a
non-voting observer on the Board of Directors.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES AND EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers and directors and persons who own more than 10% of the
Company's common stock to file reports of ownership on Forms 3, 4 and 5 with the
Securities and Exchange Commission. Executive officers, directors and 10%
stockholders are required by the Securities and Exchange Commission to furnish
the Company with copies of all Forms 3,4 and 5 they file.
Based solely on our review of the copies of the forms we received, we
believe that all our executive officers, directors and greater than 10%
beneficial owners complied with all the filing requirements applicable to them
with respect to transactions during fiscal 1999.
LEGAL PROCEEDINGS INVOLVING DIRECTORS, OFFICERS, AFFILIATES OR BENEFICIAL OWNERS
No director, officer or affiliate of the Company or beneficial owner of more
than 5% of our outstanding shares of common stock, or any associate thereof, is
a party adverse to the Company or any of our subsidiaries in any lawsuit or has
a material adverse interest thereto.
30
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation earned by the Chief
Executive Officer of the Company, the other four most highly compensated
executive officers of the Company and a former executive officer who would have
been one of the other four most highly compensated executive officers had he
continued to be an executive officer through the end of the fiscal year. The
compensation set forth is for services rendered to the Company in all capacities
during the last three fiscal years ended November 30, 1999 (the six individuals
are referred to in this report as the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION AWARDS
------------------- ----------
RESTRICTED SECURITIES
STOCK UNDERLYING LTIP ALL OTHER
YEAR ENDED SALARY BONUS AWARD OPTIONS PAYOUTS COMPENSATION
NAME AND PRINCIPAL POSITION NOVEMBER 30, ($) ($) ($)(1) (#) ($)(2) ($)(3)
- --------------------------- ------------ -------- -------- ---------- ---------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Charles W. Scharer 1999 520,000 520,000 522,032 36,360 1,210,795 20,313
President and Chief Executive 1998 467,500 448,800 -- -- 118,034 17,400
Officer and Director 1997 428,462 360,000 -- 183,500 81,384 11,067
Stephen L. Cavallaro (4) 1999 372,385 73,750 406,026 28,280 617,621 12,456
Chief Operating Officer 1998 351,346 263,630 -- -- 80,964 12,905
1997 333,462 240,000 -- 48,800 61,718 9,115
John J. McLaughlin 1999 294,077 222,358 348,022 24,240 392,744 4,800
Senior Vice President, Chief 1998 250,000 179,250 -- -- -- 4,800
Financial Officer, Treasurer 1997 221,346 165,000 -- 41,000 -- 6,735
and Secretary
Gary D. Armentrout 1999 240,000 129,600 174,011 9,090 354,475 4,800
Senior Vice President - 1998 236,359 128,510 -- -- -- 4,800
Business
Development and Government 1997 234,598 130,000 -- 41,000 -- 5,512
Relations
James J. Rafferty 1999 192,000 117,000 174,011 9,090 274,503 8,016
Senior Vice President - 1998 183,771 105,330 -- -- 4,800
Corporate Marketing 1997 166,635 100,000 -- 14,900 -- 4,750
Verne H. Welch, Jr. 1999 213,077 135,775 174,011 9,090 301,583 29,649
Senior Vice President 1998 201,194 125,931 -- 45,422 25,331
and General Manager - 1997 189,707 116,000 -- 14,700 43,027 17,569
Harveys Casino Hotel
</TABLE>
- ------------------------------
(1) In the case of Mr. Scharer, represents the market value ($19.1431) of 27,270
shares of restricted stock awarded to Mr. Scharer on February 2, 1999. In
the case of Mr. Cavallaro, represents the market value ($19.1431) of 21,210
shares of restricted stock awarded to Mr. Cavallaro on February 2, 1999. Mr.
Cavallaro's shares were forfeited on his termination of employment with the
Company. In the case of Mr. McLaughlin, represents the market value
($19.1431) of 18,180 shares of restricted stock awarded to Mr. McLaughlin on
February 2, 1999. In the case of Mr. Armentrout, Mr. Rafferty and Mr. Welch,
represents the market value ($19.1431) of 9,090 shares of restricted stock
awarded to each of them on February 2, 1999.
(2) In fiscal year 1994, the Company adopted a long-term incentive plan. At the
effective time of the merger, the plan was terminated and the participants,
including the Named Executive Officers, each received a lump sum payment at
maximum value. See "ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS."
(3) Amounts include the Company's 401(k) Plan contributions, payments of term
life insurance premiums and above-market rate interest earned on deferred
compensation. In fiscal 1999, the Company's 401(k) Plan contributions were
$4,800 for each of the Named Executive Officers. In fiscal 1999, the Company
paid a premium of $1,130 on a term life insurance policy insuring the life
of Mr. Scharer. In fiscal 1999, the above-market rate interest earned by Mr.
Scharer, Mr. Cavallaro, Mr. Rafferty and Mr. Welch on deferred compensation
amounted to $14,383, $7,656, $3,216 and $24,849, respectively.
(4) On October 31, 1999, Mr. Cavallaro terminated his employment with the
Company.
31
<PAGE>
OPTION GRANTS
The tables below set forth certain information regarding options granted to
the Named Executive Officers during fiscal year 1999:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------- POTENTIAL REALIZABLE
VALUE AT ASSUMED
PERCENTAGE ANNUAL RATES OF
NUMBER OF OF TOTAL STOCK PRICE
SHARES OPTIONS EXERCISE APPRECIATION FOR
UNDERLYING GRANTED TO PRICE OPTION TERM
OPTIONS EMPLOYEES IN ($/ EXPIRATION --------------------
NAME GRANTED FISCAL YEAR SHARE) DATE 5% ($) 10% ($)
- ---- ---------- ------------ -------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Charles W. Scharer.................... 36,360 19.22 20.06 2/2/2009 404,399 1,075,975
Stephen L. Cavallaro (1).............. 28,280 14.95 20.06 2/2/2009 -- --
John J. McLaughlin.................... 24,240 12.81 20.06 2/2/2009 269,600 717,317
Gary D. Armentrout.................... 9,090 4.80 20.06 2/2/2009 101,100 268,994
James J. Rafferty..................... 9,090 4.80 20.06 2/2/2009 101,100 268,994
Verne H. Welch, Jr.................... 9,090 4.80 20.06 2/2/2009 101,100 268,994
</TABLE>
- --------------------------
(1) Mr. Cavallaro's options were forfeited on his October 31, 1999 termination
of employment with the Company.
OPTION EXERCISES AND HOLDINGS
The table below sets forth information concerning the exercise of options
during the fiscal year ended November 30, 1999 and unexercised options held at
the end of the year by the Named Executive Officers.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUE
<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE OF UNEXERCISED IN-THE-
AGGREGATE UNDERLYING UNEXERCISED MONEY OPTIONS AT FISCAL
VALUE OPTIONS AT FISCAL YEAR END YEAR END ($) (2)
SHARES ACQUIRED ----------- --------------------------- -----------------------------
NAME ON EXERCISE (#) REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- --------------- ----------- ----------- ------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Charles W. Scharer... 215,500 $2,727,960 -- 36,360 -- --
Stephen L.
Cavallaro.......... 78,800 1,042,113 -- -- -- --
John J. McLaughlin... 41,000 504,169 -- 24,240 -- --
Gary D. Armentrout... 41,000 504,169 -- 9,090 -- --
Verne H. Welch,
Jr................. 44,700 622,792 -- 9,090 -- --
James J. Rafferty.... 32,450 441,687 -- 9,090 -- --
</TABLE>
- ------------------------
(1) At the effective time of the merger, February 2, 1999, all outstanding
unvested stock options vested. At that time, all outstanding stock options
were canceled in return for a cash payment equal to the product of (i) the
number of shares of Harveys common stock subject to the option and (ii) the
excess of $28.7343 ( the price paid per share of Harveys common stock in the
merger) over the exercise price per share of Harveys common stock as
provided in the stock options. See "ITEM 13. CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS."
(2) Options are in-the-money if the fair market value of the underlying
securities exceeds the exercise price of the options.
32
<PAGE>
LONG-TERM INCENTIVE PLAN
In fiscal year 1994, the Company adopted a Long-Term Incentive Plan. At the
effective time of the merger, the Long-Term Incentive Plan was terminated, and
all the Named Executive Officers received lump sum payments at maximum in
connection therewith. See "ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS". These payments are included in the Summary Compensation Table.
The table below sets forth awards made to Named Executive Officers in fiscal
year 1998, the last year of awards, under the Company's Long-Term Incentive
Plan.
LONG-TERM INCENTIVE PLANS--AWARDS IN FISCAL YEAR 1998
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS
UNDER
NUMBER OF NON-STOCK PRICE-BASED PLANS
SHARES UNITS PERFORMANCE OR OTHER PERIOD UNTIL -------------------------------
NAME OR OTHER RIGHTS MATURATION OR PAYOUT THRESHOLD TARGET MAXIMUM
- ---- --------------- ------------------------------------ --------- -------- --------
<S> <C> <C> <C> <C> <C>
Charles W. Scharer........ -- Three years ending November 30, 1998 $35,063 $70,125 $105,188
-- Three years ending November 30, 1999 $35,063 $70,125 $105,188
-- Three years ending November 30, 2000 $58,438 $85,708 $120,771
Stephen L. Cavallaro...... -- Three years ending November 30, 1998 $20,505 $41,009 $ 61,514
-- Three years ending November 30, 1999 $20,505 $41,009 $ 61,514
-- Three years ending November 30, 2000 $20,505 $41,009 $ 61,514
John J. McLaughlin........ -- Three years ending November 30, 1998 $12,500 $25,000 $ 37,500
-- Three years ending November 30, 1999 $12,500 $25,000 $ 37,500
-- Three years ending November 30, 2000 $12,500 $25,000 $ 37,500
Gary D. Armentrout........ -- Three years ending November 30, 1998 $11,804 $23,608 $ 35,412
-- Three years ending November 30, 1999 $11,804 $23,608 $ 35,412
-- Three years ending November 30, 2000 $11,804 $23,608 $ 35,412
James J. Rafferty......... -- Three years ending November 30, 1998 $ 8,750 $17,500 $ 26,250
-- Three years ending November 30, 1999 $ 8,750 $17,500 $ 26,250
-- Three years ending November 30, 2000 $ 8,750 $17,500 $ 26,250
Verne H. Welch, Jr........ -- Three years ending November 30, 1998 $ 9,900 $19,800 $ 29,700
-- Three years ending November 30, 1999 $ 9,900 $19,800 $ 29,700
-- Three years ending November 30, 2000 $ 9,900 $19,800 $ 29,700
</TABLE>
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
The tables below set forth total benefits payable to executive employees,
including certain of the Named Executive Officers, who participate in the
Company's Supplemental Executive Retirement Plan. Amounts shown represent the
aggregate amounts to which participating employees are entitled under the
Supplemental Executive Retirement Plan.
33
<PAGE>
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN TABLE
(SEVEN YEAR VESTING)
<TABLE>
<CAPTION>
ESTIMATED ANNUAL BENEFITS AT AGE 65 FOR REPRESENTATIVE
AVERAGE BASE YEARS OF SERVICE ($)
COMPENSATION ---------------------------------------------------------
FOR FINAL FIVE YEARS ($) 3 4 5 6 7
- ------------------------ --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
125,000......................... 12,500 25,000 37,500 50,000 62,500
150,000......................... 15,000 30,000 45,000 60,000 75,000
175,000......................... 17,500 35,000 52,500 70,000 87,500
200,000......................... 20,000 40,000 60,000 80,000 100,000
225,000......................... 22,500 45,000 67,500 90,000 112,500
250,000......................... 25,000 50,000 75,000 100,000 125,000
300,000......................... 30,000 60,000 90,000 120,000 150,000
400,000......................... 40,000 80,000 120,000 160,000 200,000
450,000......................... 45,000 90,000 135,000 180,000 225,000
500,000......................... 50,000 100,000 150,000 200,000 250,000
</TABLE>
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN TABLE
(20 YEAR VESTING)
<TABLE>
<CAPTION>
ESTIMATED ANNUAL BENEFITS AT AGE 65 FOR
AVERAGE BASE REPRESENTATIVE YEARS OF SERVICE ($)
COMPENSATION -----------------------------------------
FOR FINAL FIVE YEARS ($) 5 10 15 20
- ------------------------ -------- -------- -------- --------
<S> <C> <C> <C> <C>
125,000.................................. 15,625 31,250 46,875 62,500
150,000.................................. 18,750 37,500 56,250 75,000
175,000.................................. 21,875 43,750 65,625 87,500
200,000.................................. 25,000 50,000 75,000 100,000
225,000.................................. 28,125 56,250 84,375 112,500
250,000.................................. 31,250 62,500 93,750 125,000
300,000.................................. 37,500 75,000 112,500 150,000
400,000.................................. 50,000 100,000 150,000 200,000
450,000.................................. 56,250 112,500 168,750 225,000
500,000.................................. 62,500 125,000 187,500 250,000
</TABLE>
The seven year vesting plan presently covers approximately 19 current or
former executive employees. The 20 year vesting plan, for those who began
participation after October 1, 1994, covers approximately 8 executive employees.
Plan benefits are based on a percentage of average base compensation earned
during the participant's last five years of service. Base compensation is the
participant's annual salary (but not bonuses or incentive compensation), which
is the same as compensation depicted as salary in the Summary Compensation
Table. Benefits are generally computed as a straight-line annuity, and are not
subject to any deduction for social security benefits. Participants are entitled
to receive benefits upon attaining age 65 and having become vested. Participants
in the seven year vesting plan become 20% vested after having accumulated at
least three years of service with the Company and vesting continues in 20%
increments each year thereafter, with 100% vesting occurring upon completion of
seven years of service. Participants in the 20 year vesting plan become 25%
vested after having accumulated at least five years of service with the Company
and vesting continues in 5% increments each year thereafter, with 100% vesting
occurring upon completion of 20 years service. Amounts shown for seven years or
20 years of service in the respective tables above represent the maximum annual
payments a participant may receive. Benefits under the Supplemental Executive
Retirement Plan are payable for a period of 15 years.
34
<PAGE>
Prior to the merger, Mr. Scharer was fully vested under the terms of the
seven year vesting plan, Mr. Cavallaro had approximately five years of credited
service under the terms of the seven year vesting plan and Mr. McLaughlin had
approximately three years of credited service under the terms of the twenty year
vesting plan. Upon consummation of the Merger, the rights of Mr. Scharer,
Mr. Cavallaro and Mr. McLaughlin to participate in the Supplemental Executive
Retirement Plan were terminated, and they received lump sum payments in
connection therewith. See ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS.
Mr. Rafferty and Mr. Welch are fully vested under the terms of the seven
year plan and Mr. Armentrout has approximately four and one-half years of
credited service under the 20 year vesting plan.
COMPENSATION OF DIRECTORS
For fiscal year 1998 and for that part of fiscal 1999 prior to the merger,
non-employee directors were entitled to an annual retainer of $30,000, paid in
quarterly installments, and an additional $1,000 for each board meeting
attended. During those periods, non-employee committee members received $1,000
for each committee meeting attended, and the non-employee chairs of each of the
Audit Committee and The Compensation Committee received $1,200 for each meeting
attended.
The Company had established an Outside Director's Retirement Plan pursuant
to which each outside director and any employee-director who was not covered
under the Company's Supplemental Executive Retirement Plan or Senior
Supplemental Executive Retirement Plan and who had served five or more years, or
his or her beneficiaries as applicable, was entitled to receive $25,000 per year
for up to ten years upon the director's retirement, death or disability. The
plan also provided for continuing medical insurance coverage under the Company's
executive health plan for a period of up to ten years.
Pursuant to the Change of Control Plan (i) all options granted to directors
under the 1993 Non-Employee Director Stock Option Plan vested when the merger
became effective, and (ii) members of the board of directors who were asked to
resign as a result of the merger were paid their annual compensation for the
balance of the term for which they were elected and were paid a lump sum payment
of the compensation due under the Outside Directors' Retirement Plan.
Directors who are also employees may be eligible to participate in the
Company's employee incentive plans.
EMPLOYMENT CONTRACTS AND CHANGE OF CONTROL AGREEMENTS
Prior to the merger, Charles W. Scharer served as Chairman of the Board,
President and Chief Executive Officer under an employment contract with the
Company. At the effective time of the merger, February 2, 1999, the existing
contract was terminated and Mr. Scharer and the Company entered into a new
employment contract. See "ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS." Mr. Scharer serves as President and Chief Executive Officer under
the new employment contract with the Company. The term of the contract began on
February 2, 1999 and ends on February 2, 2004. The contract provides that
Mr. Scharer's initial salary will be $520,000 per year and will be reviewed at
least annually. The contract also provides that Mr. Scharer is eligible to
participate in the Company's management incentive plan or an equivalent annual
bonus plan providing for payment of an annual bonus with thresholds and
triggering events for payment based on the achievements of the Company's annual
budget and other business plan targets determined by the board of directors.
Under the contract, Mr. Scharer's maximum annual bonus will not be less than
$360,000. Concurrent with the execution of the contract, Mr. Scharer received a
restricted stock award consisting of 270 shares of Class A Common Stock and
27,000 shares of Class B Common Stock and a stock option to purchase 360
additional shares of Class A Common Stock and 36,000 additional shares of Class
B Common Stock, each at a price of $20.06 per share, subject in all respects to
the Company's
35
<PAGE>
1999 Omnibus Incentive Plan, a Stock Option and Restricted Stock Agreement
between Mr. Scharer and the Company dated February 2, 1999 and a Stockholders
Agreement dated as of February 2, 1999 among the Company, Colony HCR Voteco,
Colony Investors III and certain other security holders of the Company. The
employment contract is terminable at any time (upon 30 days prior written
notice) by Mr. Scharer or the Company. If the contract is terminated by the
Company for reason other than cause, Mr. Scharer is entitled to receive a lump
sum payment in an amount equal to the sum of his then base salary and his annual
target bonus increased by a multiplier as well as certain other benefits for a
period following termination. The contract provides that if Mr. Scharer's
employment with the Company is terminated as a result of or in connection with a
change of control of the Company, Mr. Scharer is entitled to a lump sum payout
at a maximum of the bonus otherwise payable to him with respect to the then
current fiscal year under the Company's annual bonus plan, prorated through the
effective date of such termination of employment. Under the contract,
Mr. Scharer is also entitled to a lump sum payout at a maximum of the otherwise
payable bonus should the Company's annual bonus plan be terminated or amended so
as to materially adversely affect him.
Prior to the merger, John J. McLaughlin served as Senior Vice President,
Chief Financial Officer and Treasurer under an employment contract with the
Company. At the effective time of the merger, February 2, 1999, the existing
contract was terminated and Mr. McLaughlin and the Company entered into a new
employment contract. See "ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS." Mr. McLaughlin serves as Senior Vice President, Chief Financial
Officer and Treasurer under the new employment contract with the Company. On
February 2, 1999, Mr. McLaughlin was also appointed Secretary of the Company.
The term of the contract began as of February 2, 1999 and terminates on February
2, 2004. Mr. McLaughlin's annual salary established by the contract is $300,000
per year, subject to annual review. The contract also provides Mr. McLaughlin
eligibility to participate in the Company's management incentive plan or an
equivalent annual bonus plan providing for payment of an annual bonus with
thresholds and triggering events for payment based on the achievement of the
Company's annual budget and other business plan targets determined by the board
of directors. Mr. McLaughlin's maximum annual bonus will not be less than
$165,000. Concurrent with the execution of the contract, Mr. McLaughlin received
a restricted stock award consisting of 180 shares of Class A Common Stock and
18,000 shares of Class B Common Stock and a stock option to purchase 240
additional shares of Class A Common Stock and 24,000 shares of Class B Common
Stock each at a price of $20.06 per share, subject in all respects to the
Company's 1999 Omnibus Incentive Plan , a Stock Option and Restricted Stock
Agreement between Mr. McLaughlin and the Company dated February 2, 1999 and a
Stockholders Agreement dated February 2, 1999 among the Company, Colony HCR
Voteco, Colony Investors III and certain other security holders of the Company.
The contract is terminable at any time (upon 30 days prior written notice) by
Mr. McLaughlin or the Company. If the contract is terminated by the Company for
reason other than cause, Mr. McLaughlin is entitled to receive a lump sum
payment in an amount equal to the sum of his then base salary and his annual
target bonus increased by a multiplier as well as certain other benefits for a
period following termination. The contract provides that if Mr. McLaughlin's
employment with the Company is terminated as a result of or in connection with a
change of control of the Company, Mr. McLaughlin is entitled to a lump sum
payout at a maximum of the bonus otherwise payable to him with respect to the
then current fiscal year under the Company's annual bonus plan, prorated through
the effective date of such termination of employment. Under the contract
Mr. McLaughlin is also entitled to a lump sum payout at a maximum of the
otherwise payable bonus should the Company's annual bonus plan be terminated or
amended so as to materially adversely affect him.
GARY D. ARMENTROUT serves as Senior Vice President, Business Development and
Government Relations under an employment agreement with the Company effective as
of May 9, 1995. The employment agreement was extended for additional one year
periods on August 23, 1996, September 8, 1997 and October 26, 1998. The term of
the agreement, as extended, runs through May 8, 2000. Mr. Armentrout's current
salary under the agreement is $240,000 annually and is subject to annual
36
<PAGE>
review. The agreement is terminable at any time (upon 90 days notice) by
Mr. Armentrout or the Company. If the agreement is terminated by the Company for
reasons other than for cause, Mr. Armentrout is entitled to receive the full
value of his salary and other benefits for the remainder of the agreement term.
The Company has also granted to Mr. Armentrout a restricted stock award
consisting of 90 shares of Class A Common Stock and 9,000 shares of Class B
Common Stock and a stock option to purchase 90 additional shares of Class A
Common Stock and 9,000 additional shares of Class B Common Stock, each at a
price of $20.06 per share, subject in all respects to the Company's 1999 Omnibus
Incentive Plan , a Stock Option and Restricted Stock Agreement between
Mr. Armentrout and the Company dated February 2, 1999 and a Stockholders
Agreement dated February 2, 1999 among the Company, Colony HCR Voteco, Colony
Investors III and certain other security holders of the Company.
JAMES J. RAFFERTY serves as Senior Vice President of Corporate Marketing
under an employment agreement with the Company effective as of June 23, 1997 and
modified on October 19, 1998 to extend the term of the agreement through June
22, 2000. Mr. Rafferty's current salary under the agreement is $225,000 annually
and is subject to annual review. The agreement is terminable at any time (upon
90 days notice) by Mr. Rafferty or the Company. If the agreement is terminated
by the Company for reasons other than cause, Mr. Rafferty is entitled to receive
the full value of his salary and other benefits for the remainder of the
agreement term. The Company also granted to Mr. Rafferty a restricted stock
award consisting of 90 shares of Class A Common Stock and 9,000 shares of Class
B Common Stock and a stock option to purchase 90 additional shares of Class A
Common Stock and 9,000 additional shares of Class B Common Stock, each at a
price of $20.06 per share, subject in all respects to the Company's 1999 Omnibus
Incentive Plan , a Stock Option and Restricted Stock Agreement between
Mr. Rafferty and the Company dated February 2, 1999 and a Stockholders Agreement
dated February 2, 1999 among the Company, Colony HCR Voteco, Colony Investors
III and certain other security holders of the Company.
VERNE H. WELCH, JR. serves as Senior Vice President and General
Manager-Harveys Casino Hotel under an employment agreement with the Company
effective as of August 17, 1999. The term of the agreement runs through June 30,
2001. Mr. Welch's current salary under the agreement is $250,000 annually and is
subject to annual review. The agreement is terminable at any time (upon 90 days
notice) by Mr. Welch or the Company. If the agreement is terminated by the
Company for reasons other than cause, Mr. Welch is entitled to receive the full
value of his salary and other benefits for the remainder of the agreement term.
The Company also granted to Mr. Welch a restricted stock award consisting of 90
shares of Class A Common Stock and 9,000 shares of Class B Common Stock and a
stock option to purchase 90 additional shares of Class A Common Stock and 9,000
additional shares of Class B Common Stock, each at a price of $20.06 per share,
subject in all respects to the Company's 1999 Omnibus Incentive Plan , a Stock
Option and Restricted Stock Agreement between Mr. Welch and the Company dated
February 2, 1999 and a Stockholders Agreement dated February 2, 1999 among the
Company, Colony HCR Voteco, Colony Investors III and certain other security
holders of the Company.
37
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of February 22, 2000, beneficial ownership
of the Company's Class A Common Stock (the only class of voting securities of
the Company) by (i) all persons who are beneficial owners of more than five
percent of the Class A Common Stock, (ii) each director, (iii) the Named
Executive Officers in each case who were serving as an executive officer on
behalf of the Company at the end of the last fiscal year and (iv) all directors
and executive officers, as a group. Except as otherwise indicated, the Company
believes that the beneficial owners of the Class A Common Stock listed below,
based on information furnished by such owners, have sole investment and voting
power with respect to such shares, subject to community property laws where
applicable. Unless otherwise indicated the business address of such persons is
Highway 50 and Stateline Avenue, P. O. Box 128, Lake Tahoe, Nevada 89449. As of
February 22, 2000, 39,520 shares of Class A Common Stock were outstanding.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY PERCENT OF
NAME OF BENEFICIAL OWNER OWNED (1) CLASS
- ------------------------ ------------ ----------
<S> <C> <C>
Colony HCR Voteco, LLC
1999 Avenue of the Stars, Suite 1200
Los Angeles, California 90067................. 38,800 97.0%
Thomas J. Barrack, Jr. (2)...................... 38,800 97.0
Kelvin L. Davis (2)............................. 38,800 97.0
Charles W. Scharer.............................. * *
John J. McLaughlin.............................. * *
Gary D. Armentrout.............................. * *
James J. Rafferty............................... * *
Verne H. Welch, Jr.............................. * *
All directors and executive officers as a group
(10 persons) (2)(3)........................... 39,520 100.0%
</TABLE>
- ------------------------
* Less than one percent
(1) Beneficial ownership is determined in accordance with the rules of the
Security and Exchange Commission and excludes grants of phantom stock and
options that are not exercisable currently or within 60 days.
(2) Messrs. Barrack and Davis are the Managers of Colony HCR Voteco, and thereby
each may be deemed to have beneficial ownership of the Class A Common Stock
owned of record by Colony HCR Voteco. Messrs. Barrack and Davis each
disclaim beneficial ownership of such shares of Class A Common Stock
(3) Includes options, which are currently exercisable, to purchase Class A
Common Stock.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
At the time Harveys Acquisition Corporation and the Company entered into the
Agreement and Plan of Merger, Harveys Acquisition Corporation also entered into
a memorandum of understanding with Messrs. Scharer, Cavallaro and McLaughlin. At
the effective time of the merger, pursuant to the memorandum of understanding,
Messrs. Scharer, Cavallaro and McLaughlin remained in the offices they held in
the Company before the merger. Mr. Scharer continued to serve as a director, and
Mr . Cavallaro was appointed a non-voting observer to the Company's board of
directors. In addition, pursuant to the memorandum of understanding, the Company
entered into the following agreements and other arrangements immediately
following the merger.
38
<PAGE>
- The Company granted to Mr. Scharer, Mr. Cavallaro and Mr. McLaughlin 270,
210 and 180 shares of Class A Common Stock and 27,000, 21,000 and 18,000
shares of Class B Common, Stock respectively. The Company later granted to
each of Mr. Armentrout, Mr. Rafferty, Mr. Bellotti, Mr. Barraco, Mr.
Stephens and Mr. Welch 90 shares of Class A Common Stock and 9,000 shares
of Class B Common Stock.
- The Company reserved 800 shares of Class A Common Stock and 80,000 shares
of Class B Common Stock for grant to the Company's executive officers and
others as are mutually determined by the Chief Executive Officer and the
Company's board of directors, if the Company achieves certain performance
goals in connection with the opening or acquisition of new gaming
facilities before February 2, 2004.
- The Company granted to Mr. Scharer, Mr. Cavallaro and Mr McLaughlin
options to acquire, at a price of $20.06 per share, 360, 280 and 240
shares of Class A Common Stock and 36,000, 28,000 and 24,000 shares of
Class B Common Stock, respectively, and the Company granted to each of Mr.
Armentrout, Mr. Rafferty, Mr. Bellotti, Mr. Barraco, Mr. Stephens and Mr.
Welch options to acquire, at a price of $20.06 per share, 90 shares of
Class A Common Stock and 9,000 shares of Class B Common Stock and reserved
for grant to members of senior management of the Company (other than the
Company's executive officers) options to acquire, at a price of $20.06 per
share, 400 shares of Class A Common Stock and 40,000 shares of Class B
Common Stock.
- Each option to purchase the Company's common stock held by those executive
officers prior to the merger was canceled in exchange for payments equal
to the product of (i) the number of shares of common stock subject to such
option and (ii) the excess, if any, of (a) the price per share of the
common stock paid in the merger for a share of the Company's common stock
over (b) the exercise price per share of common stock of such option.
Messrs. Scharer, Cavallaro and McLaughlin received payments of $2,727,960,
$1,042,113 and $504,169, respectively, in consideration for cancellation
of their options.
- The Long-Term Incentive Plan and the rights of Messrs. Scharer, Cavallaro
and McLaughlin to participate therein were terminated in exchange for lump
sum payments of $965,373, $479,270 and $311,195, respectively.
- The rights of Messrs. Scharer, Cavallaro and McLaughlin to participate in
the Supplemental Executive Retirement Plan were terminated, and the
accrued Supplemental Executive Retirement Plan benefits for Messrs.
Scharer, Cavallaro and McLaughlin as of the consummation of the merger
were determined to be $1,399,435, $781,878 and $450,000, respectively.
One-half of the respective amount was paid in a lump sum to Messrs.
Scharer, Cavallaro and McLaughlin, and the remaining amounts were deemed
to be distributed to each of them and invested pursuant to certain
deferred compensation agreements entered into between the Company and each
of Messrs. Scharer, Cavallaro and McLaughlin.
- The Company permitted Messrs. Scharer, Cavallaro and McLaughlin to remain
eligible to participate in the management incentive plan, and in respect
of fiscal year 1999, Messrs Scharer, Cavallaro and McLaughlin received
advances of amounts payable to them pursuant to the management incentive
plan of $130,000, $73,750 and $55,625, respectively.
At the effective time of the merger, the employment contracts in effect
immediately prior to the merger between the Company and each of them were
terminated, and each of them entered into a new employment contract with the
Company. See "ITEM 11 EXECUTIVE COMPENSATION-Employment Contracts and Change of
Control Agreements".
At the effective time of the merger, members of the Company's board of
directors who were asked to resign as a result of the merger were paid their
annual compensation for the balance of the term for
39
<PAGE>
which they were elected and were paid a lump sum payment of the compensation due
under the Outside Directors' Retirement Plan. Payments for annual compensation
were made to Richard Kudrna, Jessica Ledbetter and Franklin Rahbeck in the
amount of $75,000 each. Payments for benefits due under the Outside Directors'
Retirement Plan were made to Jessica Ledbetter, Kirk Ledbetter and Franklin
Rahbeck in the amount of $250,000 each.
At the time the Agreement and Plan of Merger was signed, Harveys Acquisition
Corporation, William Ledbetter, Jessica Ledbetter and Kirk Ledbetter, who
together with a trust affiliated with the Ledbetter Family owned approximately
41% of the Company's equity prior to the merger, entered into a Noncompetition
and Trade Secret Agreement. This agreement provides that for a period of three
years following the merger, none of the Ledbetter's shall compete with the
Company (except for certain permitted activities). The agreement also (i)
provides that William Ledbetter is entitled to participate in the Company's
Senior Supplemental Executive Retirement Plan and to receive the perquisites
provided for in his employment agreement dated November 12, 1993 until he
reaches age 80; (ii) designates Jessica Ledbetter a Director Emeriti of the
Company and entitles her to complimentary services of up to $8,000 per year at
Company facilities; and (iii) provided that Kirk Ledbetter receive a one-time
payment of $195,000, provides for Kirk Ledbetter to have a life insurance policy
maintained by the Company until the tenth anniversary of the closing of the
merger, and entitles him and his immediate family to complimentary services of
up to $8,000 per year at Company facilities.
Jessica Ledbetter, Kirk Ledbetter and Franklin Rahbeck, directors of the
Company prior to the merger, and Wells Fargo Bank, N.A. are the co-trustees of
the William B. Ledbetter and Beverlee A. Ledbetter Irrevocable Trust. The trust
owns survivorship life insurance policies on the lives of William B. Ledbetter
and Beverlee A. Ledbetter, deceased. Prior to fiscal 1995 the Company paid the
premiums on the life insurance policies. The Company has no further obligation
to pay such premiums. On November 15, 1993, the trust issued a note payable to
the Company for the amounts of the premiums previously paid by the Company. On
January 31, 1994, the trust issued a note payable to the Company for the amount
of a premium paid by the Company in 1994. The notes were in the principal
amounts of $1,376,995 and $455,275. On February 3, 1999, the trust retired the
notes by paying the Company the principal amounts plus all accrued and unpaid
interest to the date of payment.
The Agreement and Plan of Merger provides that directors and officers
liability insurance coverage will be provided to those directors and officers of
the Company prior to the merger for a term of six years following the merger.
40
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) Financial Statements.
The consolidated financial statements of the Company are set forth in the
"INDEX TO CONSOLIDATED FINANCIAL STATEMENTS" on page 43.
(2) Financial Statement Schedules.
Schedules have been omitted because they are not applicable, are not
required or because the information is included elsewhere in the Consolidated
Financial Statements or the notes thereto.
(3) Exhibits are set forth in the "EXHIBIT INDEX" on page 78.
(b) Reports on Form 8-K filed during the last quarter of fiscal 1999.
On September 3, 1999, we filed a Current Report on Form 8-K, under Item 5.
Other Events, to report the execution of a Purchase and Sale Agreement and Joint
Escrow Instructions dated August 31, 1999 by and between HRB Realty Company,
Inc, a Nevada corporation and Iowa West Racing Association, Nonprofit
Corporation, an Iowa Nonprofit corporation. Pursuant to the agreement,
HBR Realty Company agreed to purchase the net assets of Bluffs Run Casino from
Iowa West Racing Association.
On October 20, 1999, we filed a Current Report on Form 8-K under Item 2.
Acquisition of Assets, to report the October 6, 1999 purchase of the net assets
of Bluffs Run Casino by HBR Realty Company from Iowa West Racing Association.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
This document includes various "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Sections
21E of the Securities Exchange Act of 1934, as amended, which represent the
Company's expectations or beliefs concerning future events. Statements
containing expressions such as "believes", "anticipates" or "expects" used in
the Company's press releases and periodic reports on Forms 10-K and 10-Q filed
with the Securities and Exchange Commission are intended to identify
forward-looking statements. All forward-looking statements involve risks and
uncertainties. Although the Company believes its expectations are based upon
reasonable assumptions within the bounds of its knowledge of its business and
operations, there can be no assurances that actual results will not materially
differ from expected results. The Company cautions that these and similar
statements included in this report and in previously filed periodic reports,
including reports filed on Forms 10-K and 10-Q, are further qualified by
important factors that could cause actual results to differ materially from
those in the forward-looking statements. Such factors include, without
limitation, the following: increased competition in existing markets or the
opening of new gaming jurisdictions; a decline in the public acceptance of
gaming; the limitation, conditioning or suspension of any of the Company's
gaming licenses; increases in or new taxes imposed on gaming revenues or gaming
devices; a finding of unsuitability by regulatory authorities with respect to
the Company's officers, directors or key employees; loss or retirement of key
executives; significant increases in fuel or transportation prices; adverse
economic conditions in the Company's key markets; severe and unusual weather in
the Company's key markets; adverse results of significant litigation matters.
Readers are cautioned not to place undue reliance on forward-looking statements,
which speak only as of the date thereof. The Company undertakes no obligation to
publicly release any revisions to such forward-looking statements to reflect
events or circumstances after the date hereof.
41
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of
1934, as amended, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized this 25th day of February,
2000.
<TABLE>
<S> <C> <C>
HARVEYS CASINO RESORTS
By: /s/ CHARLES W. SCHARER
-----------------------------------------
Charles W. Scharer
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed by the following persons on behalf of the
registrant in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
/s/ THOMAS J. BARRACK, JR.
--------------------------------- Chairman of the Board and Director February 25, 2000
Thomas J. Barrack, Jr.
/s/ CHARLES W. SCHARER President, Chief Executive Officer
--------------------------------- and Director (Principal Executive February 25, 2000
Charles W. Scharer Officer)
/s/ KELVIN L. DAVIS
--------------------------------- Director February 25, 2000
Kelvin L. Davis
Senior Vice President, Chief
/s/ JOHN J. MCLAUGHLIN Financial Officer, Secretary and
--------------------------------- Treasurer (Principal Financial February 25, 2000
John J. McLaughlin Officer)
/s/ JOHN P. HEWITT
--------------------------------- Corporate Controller (Principal February 25, 2000
John P. Hewitt Accounting Officer)
</TABLE>
42
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
Report of Ernst & Young LLP, Independent Auditors' Report... 44
Report of Deloitte & Touche LLP, Independent Auditors'
Report.................................................... 45
Consolidated Balance Sheets as of November 30, 1998 and
1999...................................................... 46
Consolidated Statements of Operations for the Years Ended
November 30, 1997, 1998 and the Year Ended November 30,
1999, of which the period from December 1, 1998 through
February 1, 1999 represents the predecessor Company....... 47
Consolidated Statements of Stockholders' Equity for the
Years Ended November 30, 1997, 1998 and the Year Ended
November 30, 1999, of which the period from December 1,
1998 through February 1, 1999 represents the predecessor
Company................................................... 48
Consolidated Statements of Cash Flows for the Years Ended
November 30, 1997, 1998 and the Year Ended November 30,
1999, of which the period from December 1, 1998 through
February 1, 1999 represents the predecessor Company....... 49
Notes to Consolidated Financial Statements.................. 51
</TABLE>
43
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Harveys Casino Resorts:
We have audited the accompanying consolidated balance sheet of Harveys
Casino Resorts (the "Company") as of November 30, 1999, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the year then ended, of which the period from December 1, 1998 through February
1, 1999 represents the predecessor company, as discussed in Note 1. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the 1999 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Harveys
Casino Resorts as of November 30, 1999, and the consolidated results of its
operations and its cash flows for the year then ended, of which the period from
December 1, 1998 through February 2, 1999 represents the predecessor company, in
conformity with accounting principles generally accepted in the United States.
ERNST & YOUNG LLP
Reno, Nevada
December 30, 1999
44
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Harveys Casino Resorts:
We have audited the accompanying consolidated balance sheet of Harveys
Casino Resorts and subsidiaries (the "Company") as of November 30, 1998, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the two years in the period ended November 30, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Harveys Casino Resorts as of
November 30, 1998, and the results of its operations and its cash flow for the
two years in the period ended November 30, 1998 in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
Reno, Nevada
January 5, 1999
45
<PAGE>
HARVEYS CASINO RESORTS
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
NOVEMBER 30,
-------------------------------
1998 1999
-------------- --------------
PREDECESSOR
COMPANY
(NOTE 1)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents................................. $ 67,299,230 $ 32,496,319
Marketable securities..................................... 10,657,245 --
Accounts receivable, net of allowances for doubtful
accounts of
$343,042 in 1999 and $127,410 in 1998................... 4,566,169 5,810,264
Inventories............................................... 3,621,568 3,703,915
Prepaid expenses and other current assets................. 2,450,549 2,228,359
Deferred income taxes..................................... 525,416 3,141,457
------------- -------------
Total current assets.................................... 89,120,177 47,380,314
------------- -------------
Property and equipment
Land...................................................... 20,717,873 53,876,000
Buildings and improvements................................ 263,522,463 295,755,884
Leasehold improvements.................................... 21,151,757 24,795,276
Equipment, furniture and fixtures......................... 153,559,283 85,203,521
Construction in progress.................................. 2,607,324 --
------------- -------------
461,558,700 459,630,681
Less: Accumulated depreciation and amortization........... (146,207,321) (18,871,618)
------------- -------------
315,351,379 440,759,063
------------- -------------
Notes receivable-related parties.......................... 1,874,831 50,321
Cost in excess of net assets acquired..................... -- 155,903,555
Other assets.............................................. 17,812,018 29,826,379
------------- -------------
Total assets................................................ $ 424,158,405 $ 673,919,632
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt......................... $ 220,304 $ --
Accounts and contracts payable............................ 5,031,996 7,551,442
Construction payable...................................... -- 2,200,877
Accrued expenses.......................................... 24,892,096 34,466,973
------------- -------------
Total current liabilities............................... 30,144,396 44,219,292
Long-term debt, net of current portion...................... 150,000,000 400,577,205
Deferred income taxes....................................... 24,948,131 58,091,337
Other liabilities........................................... 18,612,243 28,234,008
------------- -------------
Total liabilities....................................... 223,704,770 531,121,842
------------- -------------
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 $55,000,000)........................... -- 61,442,346
------------- -------------
Commitments and contingencies (see note 8)
Stockholders' equity
Common stock, $.01 par value; at November 30, 1999,
20,000,000 shares authorized and 4,018,790 shares
issued; at November 30, 1998, 30,000,000 shares
authorized and 10,079,671 shares issued................. 100,797 40,188
Additional paid-in capital and other...................... 43,495,650 74,959,812
Retained earnings......................................... 157,110,720 6,355,444
Treasury stock, at cost; 14,560 shares.................... (253,532) --
------------- -------------
Total stockholders' equity................................ 200,453,635 81,355,444
------------- -------------
Total liabilities and stockholders' equity.................. $ 424,158,405 $ 673,919,632
============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
46
<PAGE>
HARVEYS CASINO RESORTS
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PREDECESSOR COMPANY (NOTE 1)
---------------------------------------------- FEBRUARY 2, 1999
YEARS ENDED NOVEMBER 30, DECEMBER 1, 1998 (DATE OF ACQUISITION)
--------------------------- THROUGH THROUGH
1997 1998 FEBRUARY 1, 1999 NOVEMBER 30, 1999
------------ ------------ ---------------- ---------------------
<S> <C> <C> <C> <C>
Revenues
Casino......................... $216,564,140 $244,784,494 $ 41,454,266 $229,016,000
Racing......................... -- -- -- 931,790
Lodging........................ 32,175,206 34,272,546 5,958,214 31,002,326
Food and beverage.............. 44,405,880 47,078,908 8,107,313 42,989,594
Other.......................... 7,276,772 7,111,072 1,270,850 6,638,389
Management fees and joint
venture...................... 4,507,159 -- -- --
Less: Casino promotional
allowances................... (21,365,746) (23,738,316) (5,002,943) (22,414,697)
------------ ------------ ------------ ------------
Total net revenues........... 283,563,411 309,508,704 51,787,700 288,163,402
------------ ------------ ------------ ------------
Costs and expenses
Casino......................... 100,500,468 115,836,815 21,146,422 106,156,751
Racing......................... -- -- -- 1,858,542
Lodging........................ 13,373,681 13,710,144 1,996,897 11,048,491
Food and beverage.............. 29,886,093 30,142,182 4,726,052 27,192,624
Other operating................ 2,811,332 2,885,443 592,456 2,703,704
Selling, general and
administrative............... 73,945,020 78,986,651 13,428,090 68,910,009
Depreciation and
amortization................. 19,077,058 20,796,922 3,552,595 22,611,160
Business development costs..... 2,689,875 95,961 129,817 2,052,285
Merger related costs........... -- 1,217,720 19,879,276 --
------------ ------------ ------------ ------------
Total costs and expenses....... 242,283,527 263,671,838 65,451,605 242,533,566
------------ ------------ ------------ ------------
Operating income (loss).......... 41,279,844 45,836,866 (13,663,905) 45,629,836
------------ ------------ ------------ ------------
Other income (expense)
Interest income................ 509,620 2,258,771 337,642 124,152
Interest expense............... (19,401,110) (17,835,647) (3,015,944) (24,272,489)
Gain on sale of interests in
unconsolidated affiliate..... 27,422,228 -- -- --
Other, net..................... (137,448) (141,059) 76,779 (549,886)
------------ ------------ ------------ ------------
Total other income
(expense).................. 8,393,290 (15,717,935) (2,601,523) (24,698,223)
------------ ------------ ------------ ------------
Income (loss) before income taxes
and extraordinary item......... 49,673,174 30,118,931 (16,265,428) 20,931,613
Income tax (provision) benefit... (18,898,553) (11,417,279) 3,904,000 (8,133,823)
------------ ------------ ------------ ------------
Income (loss) before
extraordinary item............. 30,774,621 18,701,652 (12,361,428) 12,797,790
Loss on early retirement of debt,
net of taxes................... -- -- (868,779) --
------------ ------------ ------------ ------------
Net income (loss)................ $ 30,774,621 $ 18,701,652 $(13,230,207) $ 12,797,790
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
47
<PAGE>
HARVEYS CASINO RESORTS
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON
STOCK ADDITIONAL
$.01 PAR PAID-IN DEFERRED TREASURY RETAINED
VALUE CAPITAL COMPENSATION STOCK EARNINGS TOTAL
-------- ----------- ------------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Predecessor Company
(Note 1)
Balance December 1, 1996: 9,808,286
shares outstanding; 10,036 shares
in treasury...................... $98,183 $38,634,439 $(425,187) $(151,276) $111,606,913 $149,763,072
Stock options exercised; 35,166
shares........................... 352 531,920 -- -- -- 532,272
Other.............................. -- 25,031 -- -- -- 25,031
Forfeiture of restricted stock;
2,000 shares..................... -- -- 40,250 (40,250) -- --
Acquisition of treasury stock; 480
shares........................... -- -- -- (8,146) -- (8,146)
Amortization of deferred
compensation..................... -- -- 236,868 -- -- 236,868
Cash dividends declared............ -- -- -- -- (1,966,168) (1,966,168)
Net income......................... -- -- -- -- 30,774,621 30,774,621
-------- ----------- --------- --------- ------------ ------------
Balance November 30, 1997;
9,840,972 shares outstanding;
12,516 shares in treasury........ 98,535 39,191,390 (148,069) (199,672) 140,415,366 179,357,550
Stock options exercised; 226,183
shares........................... 2,262 4,309,985 -- -- -- 4,312,247
Acquisition of treasury stock;
2,044 shares..................... -- -- -- (53,860) -- (53,860)
Amortization of deferred
compensation..................... -- -- 142,344 -- -- 142,344
Cash dividends declared............ -- -- -- -- (2,006,298) (2,006,298)
Net income......................... -- -- -- -- 18,701,652 18,701,652
-------- ----------- --------- --------- ------------ ------------
Balance November 30, 1998;
10,065,111 shares outstanding;
14,560 shares in treasury........ 100,797 43,501,375 (5,725) (253,532) 157,110,720 200,453,635
Acquisition of treasury stock; 164
shares........................... -- -- -- (4,458) -- (4,458)
Amortization of deferred
compensation..................... -- -- 1,138 -- -- 1,138
Net loss........................... -- -- -- -- (13,230,207) (13,230,207)
-------- ----------- --------- --------- ------------ ------------
Balance February 1, 1999;
10,064,947 shares outstanding;
14,742 shares in treasury........ $100,797 $43,501,375 $ (4,587) $(257,990) $143,880,513 $187,220,108
======== =========== ========= ========= ============ ============
</TABLE>
<TABLE>
<CAPTION>
COMMON STOCK
-------------------
CLASS A CLASS B ADDITIONAL
$.01 PAR $.01 PAR PAID-IN RETAINED
VALUE VALUE CAPITAL EARNINGS TOTAL
-------- -------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance February 2, 1999; 38,800
shares of Class A and
3,880,000 shares of
Class B outstanding......................... $388 $38,800 $74,960,812 $ -- $75,000,000
Restricted stock awards, net of forfeitures;
990 shares of Class A and 99,000 shares of
Class B..................................... 10 990 (1,000) -- --
Dividends accrued on
preferred stock............................. -- -- -- (6,442,346) (6,442,346)
Net income.................................... -- -- -- 12,797,790 12,797,790
---- ------- ----------- ----------- -----------
Balance November 30, 1999: 39,790 shares of
Class A and 3,979,000 shares of Class B
Outstanding................................. $398 $39,790 $74,959,812 $ 6,355,444 $81,355,444
==== ======= =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
48
<PAGE>
HARVEYS CASINO RESORTS
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PREDECESSOR COMPANY (NOTE 1)
---------------------------------------------- FEBRUARY 2, 1999
YEARS ENDED NOVEMBER 30, DECEMBER 1, 1998 (DATE OF ACQUISITION)
--------------------------- THROUGH THROUGH
1997 1998 FEBRUARY 1, 1999 NOVEMBER 30, 1999
------------ ------------ ---------------- ---------------------
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net income (loss)....................... $ 30,774,621 $ 18,701,652 $(13,230,207) $ 12,797,790
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization......... 19,077,058 20,796,922 3,552,594 19,648,761
Gain on sale of interests in
unconsolidated affiliate............ (27,422,228) -- -- --
Equity in income of unconsolidated
affiliate........................... (1,665,880) -- -- --
Amortization of deferred
compensation........................ 236,868 142,344 1,137 1,167,233
Amortization of debt issuance costs... 1,042,668 1,078,423 506,428 841,276
Amortization of intangible assets..... -- -- -- 2,962,399
Amortization of premium on long term
debt................................ -- -- -- (846,413)
Retirement of debt costs, net of
tax................................. -- -- 868,779 --
Deferred income taxes................. 6,515,243 2,052,065 135,141 1,347,616
Expensed consent fee and related
costs............................... -- -- 19,879 276 --
Loss on disposition of assets......... -- -- 35,828 466,554
Other................................. 162,369 98,808 -- --
(Increase) decrease in assets
Accounts receivable, net............ 2,984,090 697,668 (1,355,803) 817,289
Inventories......................... (369,346) 37,178 (112,741) (150,864)
Prepaid expenses and other current
assets............................ (235,227) 961,311 (207,747) 1,643,873
Other assets........................ 74,573 (3,874,864) (772,631) 7,452,500
Increase (decrease) in liabilities
Accounts and contracts payable...... 236,936 (1,567,028) 1,084,299 317,225
Accrued expenses.................... 4,433,595 3,970,058 (5,864,717) (961,634)
Income taxes payable................ 7,056,237 (7,056,237) -- (1,850,292)
Other liabilities................... 1,734,973 2,349,282 275,633 (8,385,966)
------------ ------------ ------------ -------------
Net cash provided by operating
activities...................... 44,636,550 38,387,582 4,795,269 37,267,347
------------ ------------ ------------ -------------
Cash flows from investing activities
Proceeds from disposition of assets... 3,716,157 138,463 14,180 239,982
Capital expenditures.................. (22,531,641) (17,680,546) (3,830,177) (26,725,901)
Proceeds from sale of marketable
securities.......................... 498,032 -- 10,000,000 657,245
Purchase of marketable securities..... (27,751) (10,657,245) -- --
Advances to employees................. (173,510) (78,796) (49,409) (7,097)
Proceeds from notes receivable........ 168,910 79,730 1,300 1,879,716
Proceeds from sale of interests in
unconsolidated affiliate............ 46,226,920 -- -- --
Increase (decrease) in construction
payables............................ (3,448,828) 608,660 (261,554) 1,853,771
Investment in Bluffs Run, net of cash
acquired............................ -- -- -- (107,212,243)
------------ ------------ ------------ -------------
Net cash provided by (used in)
investing activities............ 24,428,289 (27,589,734) 5,874,340 (129,314,527)
------------ ------------ ------------ -------------
</TABLE>
The accompanying notes are an integral part of these statements.
49
<PAGE>
HARVEYS CASINO RESORTS
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
PREDECESSOR COMPANY (NOTE 1)
---------------------------------------------- FEBRUARY 2, 1999
YEARS ENDED NOVEMBER 30, DECEMBER 1, 1998 (DATE OF ACQUISITION)
--------------------------- THROUGH THROUGH
1997 1998 FEBRUARY 1, 1999 NOVEMBER 30, 1999
------------ ------------ ---------------- ---------------------
<S> <C> <C> <C> <C>
Cash flows from financing activities
Net borrowings under short-term credit
agreements.......................... (340,335) -- -- --
Proceeds from long-term debt.......... 11,013,876 -- -- 179,789,083
Principal payments on long-term
debt................................ (44,266,675) (633,354) (220,304) (107,865,465)
Dividends paid........................ (1,966,168) (2,006,298) -- --
Debt issuance costs................... (116,178) (152,214) (27,359) (5,217,561)
Stock options exercised............... 532,272 4,312,247 -- --
Consent fee and related costs......... -- -- - (19,879,276)
Acquisition of treasury stock......... (8,146) (53,860) (4,458) --
------------ ------------ ------------ -------------
Net cash provided by (used in)
financing activities............ (35,151,354) 1,466,521 (252,121) 46,826,781
------------ ------------ ------------ -------------
Increase (decrease) in cash and
cash equivalents................ 33,913,485 12,264,369 10,417,488 (45,220,399)
Cash and cash equivalents at beginning
of period............................. 21,121,376 55,034,861 67,299,230 77,716,718
------------ ------------ ------------ -------------
Cash and cash equivalents at end of
period................................ $ 55,034,861 $ 67,299,230 $ 77,716,718 $ 32,496,319
============ ============ ============ =============
Supplemental disclosure of cash flow
information
Cash paid for interest, net of amounts
capitalized......................... $ 18,426,216 $ 16,631,889 $ 98,858 $ 24,746,300
Cash paid for income taxes............ 3,429,087 17,705,000 -- 318,000
Assumption of debt related to
merger.............................. -- -- -- 172,000,000
In connection with the Bluffs Run Casino
acquisition, the Company assumed
liabilities as follows:
Fair value of assets acquired......... -- -- -- $ 130,601,665
Cash paid for the acquisition,
including acquisition costs......... -- -- -- (116,605,508)
-------------
Liabilities assumed and amount payable
to seller........................... -- -- -- $ 13,996,157
=============
</TABLE>
The accompanying notes are an integral part of these statements.
50
<PAGE>
HARVEYS CASINO RESORTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In the following footnotes, the words, "Company," "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
Harveys has been engaged in the casino entertainment industry for over 50
years. On February 2, 1999, Harveys Acquisition Corporation merged with and into
Harveys (see Note 2). Harveys was the surviving corporation in the merger and is
continuing business operations as conducted prior to the merger. Harveys Tahoe
Management Company, Inc., a wholly-owned subsidiary, owns and operates Harveys
Resort & Casino on the south shore of Lake Tahoe, Nevada. Harveys Iowa
Management Company, Inc., a wholly-owned subsidiary, is the owner and operator
of Harveys Casino Hotel, a riverboat casino, hotel and convention center complex
in Council Bluffs, Iowa. On October 6, 1999, HBR Realty Company, Inc., a
wholly-owned subsidiary, purchased the net assets of Bluffs Run Casino, a
greyhound racetrack and land-based casino in Council Bluffs, Iowa (see Note 2).
Harveys C. C. Management Company, Inc., a wholly-owned subsidiary, owns and
operates Harveys Wagon Wheel Hotel/Casino in Central City, Colorado. Until
October 24, 1997, Harveys L. V. Management Company, Inc., a wholly-owned
subsidiary, owned 40% of the equity interest in Hard Rock Hotel, Inc., which
owns the Hard Rock Hotel and Casino in Las Vegas, Nevada. Harveys L. V.
Management had a contract to manage the Las Vegas hotel and casino. On October
24, 1997 we sold our 40% equity interest and our interest in the management
contract to Hard Rock Hotel, Inc. ( see Note 13).
We accounted for the February 2, 1999 merger as a purchase. This required us
to allocate the purchase price to the individual assets acquired and liabilities
assumed based on their fair value at the time of the merger. As a result, our
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. The accompanying consolidated
statements of operations and consolidated statements of cash flows for periods
prior to the merger are captioned as the predecessor company and are shown for
informational purposes.
We accounted for the acquisition of the net assets of Bluffs Run Casino as a
purchase. Consequently, the net assets acquired are included in our consolidated
balance sheet based on their fair value as of the date of acquisition. Our
consolidated statement of operations includes the revenues and expenses of
Bluffs Run Casino from the date of acquisition.
Our consolidated financial statements include the accounts of Harveys and
its wholly-owned subsidiaries. We eliminated all significant intercompany
accounts and transactions.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires us to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Our actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash on hand and in banks, interest
bearing deposits and highly liquid debt instruments purchased with initial
maturities of three months or less. Cash equivalents are carried at cost which
approximates market value. Cash and cash equivalents at
51
<PAGE>
HARVEYS CASINO RESORTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
November 30, 1999 included approximately $878,000 related to pari-mutuel taxes
which were restricted for distribution to the taxing authorities, and
approximately $1.0 million required by the Iowa State Racing and Gaming
Commission to guarantee the payment of wagering taxes.
MARKETABLE SECURITIES
We considered all of our marketable securities held at November 30, 1998 to
be available-for-sale. Securities that are available-for-sale are stated at
market value, which is determined by the closing price of the security as of the
balance sheet date.
INVENTORIES
Inventories consist primarily of operating supplies and food and beverage
stock and are stated at the lower of weighted-average cost or market.
PROPERTY, EQUIPMENT AND DEPRECIATION
Property and equipment are stated at cost. We capitalize interest incurred
during construction and amortize it over the life of the asset. Costs of
improvements are capitalized. Costs of normal repairs and maintenance are
charged to expense as incurred. On the sale or retirement of property and
equipment, we remove the cost and related accumulated depreciation from the
respective accounts, and include the resulting gain or loss, if any, in income.
We provide for depreciation of property and equipment on the straight-line
method over the estimated useful lives of the respective assets. Leasehold
improvements are amortized over the shorter of the asset life or lease term.
Depreciable lives are as follows:
<TABLE>
<CAPTION>
<S> <C>
Buildings and improvements.................................. 15 to 45 years
Riverboat................................................... 20 years
Leasehold improvements...................................... 5 to 30 years
Equipment, furniture and fixtures........................... 5 to 10 years
</TABLE>
UNAMORTIZED LOAN COSTS AND DEBT ISSUANCE COSTS
We amortize loan costs incurred in connection with a reducing revolving
credit agreement to interest expense over the term of the loan on a
straight-line method. We amortize debt issuance costs associated with our senior
subordinated notes to interest expense over the term of the notes on the
interest method.
COSTS IN EXCESS OF NET ASSETS ACQUIRED
Costs in excess of net assets acquired consist primarily of goodwill
acquired in the February merger ($66.9 million) which is being amortized over 40
years and the value assigned to the operating agreement in the Bluffs Run Casino
acquisition ($91.6 million), a substantial portion of which is being amortized
over the 25 year life of the associated management and lease agreement (see Note
2).
52
<PAGE>
HARVEYS CASINO RESORTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASINO REVENUES AND PROMOTIONAL ALLOWANCES
In accordance with industry practice, Harveys recognizes as casino revenues
the net win from gaming activities, which is the difference between gaming wins
and losses. Promotional allowances consist principally of the retail value of
complimentary rooms, food, beverage, and other promotional allowances provided
to customers without charge. We classify the estimated costs of providing those
complimentary services as casino operating expenses through interdepartmental
allocations as follows:
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
--------------------------------------- PERIOD
PERIOD FEBRUARY 2,
DECEMBER 1, 1999(DATE OF
FISCAL YEAR ENDED 1998 ACQUISITION)
NOVEMBER 30, THROUGH THROUGH
------------------------- FEBRUARY 1, NOVEMBER 30,
1997 1998 1999 1999
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Hotel...................................... $ 2,743,124 $ 3,247,715 $ 861,685 $ 2,708,800
Food and beverage.......................... 10,871,776 11,845,611 2,404,409 11,429,460
Other...................................... 63,505 80,594 16,747 142,859
----------- ----------- ---------- -----------
$13,678,405 $15,173,920 $3,282,841 $14,281,119
=========== =========== ========== ===========
</TABLE>
ADVERTISING COSTS
We expense advertising costs as incurred, except costs for direct-response
advertising, which we capitalize and amortize over the period of the related
program. Direct-response advertising costs consist primarily of production and
mailing costs associated with direct mail programs. Capitalized advertising
costs were immaterial at November 30, 1998 and 1999. We expensed approximately
$6.2 million and $6.5 million of advertising costs in fiscal 1997 and 1998,
respectively. We expensed approximately $0.9 million and $6.6 million of
advertising costs for the periods December 1, 1998 through February 1, 1999 and
February 2, 1999 through November 30, 1999, respectively.
INCOME TAXES
Harveys and its subsidiaries file a consolidated federal income tax return.
Deferred tax assets and liabilities are determined based on the differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
temporary differences are expected to be reversed. Additionally, deferred tax
assets and liabilities are separated into current and non-current amounts based
on the classification of the related assets and liabilities for financial
reporting purposes.
FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107--DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS requires
the determination of fair value for certain of the Company's assets, liabilities
and contingent liabilities.
Long-term debt: The fair value of our bank credit facility is estimated
based on the current borrowing rates offered to the Company for debt of the same
remaining maturities. The fair value of our senior subordinated notes is
estimated based on indicative trading prices, when available. We believe the
carrying amount of our long-term debt approximates fair value at November 30,
1999.
53
<PAGE>
HARVEYS CASINO RESORTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
There is no current market for the Company's preferred stock, however, we
believe the carrying amount including accrued dividends approximates fair value
at November 30, 1999.
LONG-LIVED ASSETS
In accordance with the provisions of SFAS No. 121--ACCOUNTING FOR THE
IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, the
Company reviews the carrying amount of long-lived assets and certain
identifiable intangibles whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Such reviews have
not had a material effect on the Company's results of operations or financial
position.
CONCENTRATIONS OF CREDIT RISK
We maintain our cash in bank deposit accounts which, at times, may exceed
federally insured limits. The Company has not experienced any losses in such
accounts. We believe the Company is not exposed to any significant concentration
of credit risk on cash and cash equivalents.
We extend credit to some casino, hotel and convention customers. We maintain
an allowance for doubtful accounts to reduce our receivables to their carrying
amount, which we believe approximates fair value. We believe the Company is not
exposed to any significant concentration of credit risk on accounts receivable.
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
Harveys is a party to financial instruments with off-balance-sheet risk in
the normal course of business. These financial instruments consist of standby
letters of credit.
Our exposure to credit loss in the event of nonperformance by the other
party to the standby letters of credit is represented by the contractual amount
of those instruments. We use the same credit policies in making commitments and
conditional obligations as we do for on-balance-sheet instruments. The Company
does not have collateral or other security to support financial instruments with
off-balance-sheet credit risk.
RECENTLY ISSUED ACCOUNTING STANDARDS
The FASB has issued SFAS No. 133--ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND
HEDGING ACTIVITIES, which establishes accounting and reporting standards for
derivative instruments and hedging activities. SFAS No. 133 will be effective
for the Company's fiscal year beginning December 1, 2000. We believe that the
adoption of this statement will not have a material impact on the Company's
financial condition or results of operation.
The Accounting Standards Executive Committee of the American Institute of
Certified Public Accountants has issued Statement of Position ("SOP")
98-5--REPORTING ON THE COSTS OF START-UP ACTIVITIES. SOP 98-5 requires costs of
start-up activities (commonly referred to as pre-opening costs in the gaming
industry) to be expensed as incurred. We are required to adopt SOP 98-5
beginning December 1, 1999. On adoption, restatement of previously issued
financial statements will not be permitted. The initial effect of adopting SOP
98-5 will be reported as the cumulative effect of a change in accounting
principle. We anticipate incurring an initial charge of approximately $3.1
million, net of tax, on adoption of SOP 98-5, including the effects of expensing
previously deferred organization and licensing costs of $3.7 million as well as
business development costs of $910,000.
54
<PAGE>
HARVEYS CASINO RESORTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Prior to the adoption of SOP 98-5 the Company capitalized costs associated
with new gaming projects until (i) the project was no longer considered viable
and the costs were expensed, or (ii) the likelihood of the project was
relatively certain and the costs were reclassified to pre-opening and expensed
when operations commenced. Capitalized future development costs, including land
costs, relating to potential new gaming projects, of approximately $3.1 million
and $2.7 million as of November 30, 1998 and 1999, respectively, are included on
the accompanying consolidated balance sheets as other assets. For fiscal 1998
and 1999, the Company expensed approximately $96,000 and $2.2 million,
respectively, of future business development costs.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior years' consolidated
financial statements to conform to the current year presentation. These
reclassifications have no effect on net income.
2. MERGER AND ACQUISITION
MERGER
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. 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 percent. 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.
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 Redeemable Convertible Cumulative Preferred Stock to
Colony Investors III.
- Borrowings of $172 million from a consortium of banks.
- Harveys' available cash.
55
<PAGE>
HARVEYS CASINO RESORTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. MERGER AND ACQUISITION (CONTINUED)
We have recorded the net assets acquired in the merger at their fair value
at the time of the merger. Our allocation of the purchase price to the assets
acquired and liabilities assumed 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
--------
Purchase price to be allocated.............................. $305,897
========
Fair value of:
Assets acquired............................................. $518,420
Cost in excess of net assets acquired (goodwill)............ 66,854
Liabilities assumed......................................... (279,377)
--------
$305,897
========
</TABLE>
ACQUISITION
On October 6, 1999, HBR Realty Company purchased the net assets (excluding
the gaming equipment) of Bluffs Run Casino, the greyhound racetrack and casino
in Council Bluffs, Iowa. We purchased the facilities pursuant to a Purchase and
Sale Agreement and Joint Escrow Instructions dated as of August 31, 1999 by and
between HBR Realty Company and Iowa West Racing Association. At the closing, we
paid approximately $115 million in cash to Iowa West Racing Association and
approximately $1.6 million in closing costs and transaction costs. Iowa West
Racing Association also received the first $5.0 million of cash flow from the
operations of Bluffs Run Casino following the acquisition. Additionally, Iowa
West Racing Association is entitled to approximately $8.4 million of Bluffs Run
Casino's cash flow, payable in installments of $1.35 million every six months in
arrears following the acquisition. Those semi-annual payments will continue
until the fifth business day following the date that the results of a required
referendum on the continuation of gaming at pari-mutuel racetracks, to be
decided by the voters of Pottawattamie County, Iowa, in 2002 are certified to
the County Auditor of Pottawattamie County. We may be required to pay additional
consideration up to $50 million pending the results of the referendum, which
amount will not be accrued until those results are known.
Immediately after closing of the transaction, we leased the Bluffs Run
Casino facilities back to Iowa West Racing Association for an initial term of
25 years. At the same time, Iowa West Racing Association retained Harveys BR
Management Company, Inc., our wholly-owned subsidiary, to manage the operations
of Bluffs Run Casino. Iowa West Racing Association continues to hold the
pari-mutuel and gaming licenses under Iowa law. Harveys, through its
wholly-owned subsidiaries, receives management fees and lease income generally
equal to the ongoing cash flow from the operations of Bluffs Run Casino.
56
<PAGE>
HARVEYS CASINO RESORTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. MERGER AND ACQUISITION (CONTINUED)
We accounted for the acquisition using purchase method accounting. Our
allocation of the purchase price to the assets acquired and liabilities assumed
follows (in thousands of dollars):
<TABLE>
<S> <C>
Acquired assets:
Cash acquired, including restricted cash of $1,761...... $ 9,393
Other current assets.................................... 1,203
Property and equipment.................................. 28,443
Intangible assets....................................... 91,562
Assumed liabilities
Accounts payable........................................ (1,707)
Accrued expenses........................................ (7,288)
--------
Allocated purchase price.................................... $121,606
========
</TABLE>
We are amortizing the cost of the intangible assets acquired (primarily the
right to operate Bluffs Run Casino under the gaming license held by Iowa West
Racing Association and the right to use the gaming equipment owned by Iowa West
Racing Association and located at Bluffs Run Casino) over periods of two to
25 years.
The following unaudited pro forma information gives effect to the
February 2, 1999 merger and the October 6, 1999 acquisition of the net assets of
Bluffs Run Casino as though each of those events had occurred at the beginning
of each of the periods presented (in thousands of dollars):
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
------------------------------
PREDECESSOR COMPANY
1998 1999
------------------- --------
<S> <C> <C>
Net revenues.................................... $432,524 $446,480
======== ========
Income before extraordinary item................ $ 16,749 $ 19,546
======== ========
Net income...................................... $ 16,749 $ 18,677
======== ========
</TABLE>
57
<PAGE>
HARVEYS CASINO RESORTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. REPORTABLE OPERATING SEGMENTS
At November 30, 1999, Harveys had three reportable segments; Harveys Resort
& Casino (Lake Tahoe, Nevada), Harveys Casino Hotel (Council Bluffs, Iowa) and
Harveys Wagon Wheel (Central City, Colorado). All of the operating units offer
casino gaming and the attendant amenities of lodging, food and beverage, and
various entertainment events. Each of the reportable segments is managed
separately.
Harveys evaluates performance and allocates resources based on EBITDA,
adjusted for unusual items, produced by the reportable segments. The accounting
policies of the reportable segments are the same as those described in our
summary of significant accounting policies.
The following presents certain financial information relative to our
reportable segments (in thousands). There are no significant intersegment sales.
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30, 1997 HARVEYS RESORT HARVEYS CASINO HARVEYS WAGON
PREDECESSOR COMPANY & CASINO HOTEL WHEEL ALL OTHER TOTALS
- ------------------- -------------- -------------- -------------- --------- --------
<S> <C> <C> <C> <C> <C>
Net revenues from external customers....... $129,970 $ 99,641 $49,446 $ 4,507 $283,564
Operating income........................... 23,674 17,630 9,848 (9,872) 41,280
Depreciation and amortization.............. 8,451 6,655 3,267 705 19,078
Other significant item:
Writedown of business development
costs.................................. -- -- -- 2,690 2,690
EBITDA..................................... 32,124 24,285 13,114 (6,477) 63,046
YEAR ENDED NOVEMBER 30, 1998 PREDECESSOR
COMPANY
Net revenues from external customers....... $133,454 $113,540 $62,514 $ -- $309,508
Operating income........................... 23,768 21,824 14,107 (13,862) 45,837
Depreciation and amortization.............. 9,392 7,241 3,624 539 20,796
Other significant item:
Writedown of business development
costs.................................. -- -- -- 96 96
Merger related costs..................... -- -- -- 1,218 1,218
EBITDA..................................... 33,160 29,065 17,731 (12,009) 67,947
Assets..................................... 176,777 115,740 81,368 221,502 595,387
PERIOD FROM DECEMBER 1, 1998 THROUGH
FEBRUARY 1, 1999 PREDECESSOR COMPANY
Net revenues from external customers....... $ 21,413 $ 20,662 $ 9,713 $ -- $ 51,788
Operating income........................... 2,374 4,382 1,554 (21,973) (13,663)
Depreciation and amortization.............. 1,548 1,287 629 88 3,552
Other significant item:
Writedown of business development
costs.................................. -- -- -- 130 130
Consent fee and merger related costs..... -- -- -- 19,879 19,879
EBITDA..................................... 3,922 5,669 2,183 (1,876) 9,898
PERIOD FROM FEBRUARY 2, 1999 (DATE OF
ACQUISITION) THROUGH NOVEMBER 30, 1999
Net revenues from external customers....... $119,133 $103,466 $46,762 $ 18,802 $288,163
Operating income........................... 24,168 21,281 8,561 (8,381) 45,629
Depreciation and amortization.............. 8,343 6,919 3,368 3,981 22,611
Other significant item:
Writedown of business development
costs.................................. -- -- -- 2,052 2,052
EBITDA..................................... 32,511 28,200 11,929 (1,179) 71,461
Assets..................................... 246,068 147,033 89,972 476,934 960,007
</TABLE>
All other revenue for the period from February 2, 1999 through November 30,
1999, consists of revenue from Bluffs Run Casino from October 6, 1999, the date
of acquisition.
58
<PAGE>
HARVEYS CASINO RESORTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. REPORTABLE OPERATING SEGMENTS (CONTINUED)
The following reconciles reportable segment assets to our consolidated
totals.
<TABLE>
<CAPTION>
NOVEMBER 30
----------------------
PREDECESSOR
COMPANY
1998 1999
----------- --------
<S> <C> <C>
Assets
Total assets for reportable segments........................ $373,885 $483,073
All other assets............................................ 221,502 476,934
-------- --------
595,387 960,007
Elimination of intercompany notes and accounts receivable... (171,229) (286,087)
-------- --------
Total consolidated assets................................. $424,158 $673,920
======== ========
</TABLE>
At November 30, 1999, all other assets include the cost in excess of net
assets acquired in the February 1999 merger ($65.3 million) and in the October
1999 acquisition ($90.6 million)
4. ACCRUED EXPENSES
Accrued expenses consist of the following as of:
<TABLE>
<CAPTION>
NOVEMBER 30,
---------------------------------
PREDECESSOR COMPANY
1998 1999
------------------- -----------
<S> <C> <C>
Provision for progressive jackpot payouts.... $ 1,676,510 $ 1,020,741
Accrued interest............................. 167,202 1,819,370
Accrued salaries, wages and other employee
benefits................................... 10,204,932 8,699,623
Accrued taxes other than income taxes........ 4,947,385 5,660,245
Self-funded workers' compensation and medical
claims accrual............................. 2,395,703 2,548,347
Outstanding gaming chips and tokens.......... 807,936 2,676,401
Race and sports book futures and unclaimed
winners.................................... 1,087,665 1,235,189
Accrued gaming promotional expense........... -- 2,979,716
Amounts due Iowa West Racing Association..... -- 4,050,000
Other accrued liabilities.................... 3,604,763 3,777,341
----------- -----------
$24,892,096 $34,466,973
=========== ===========
</TABLE>
59
<PAGE>
HARVEYS CASINO RESORTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. LONG-TERM DEBT
Long-term debt consists of the following as of:
<TABLE>
<CAPTION>
NOVEMBER 30,
---------------------------
PREDECESSOR
COMPANY
1998 1999
------------ ------------
<S> <C> <C>
10 5/8% senior subordinated notes, due 2006
(including unamortized premium of $6,653,587 in
1999).......................................... $150,000,000 $156,653,587
Note payable to banks............................ -- 243,923,618
Other............................................ 220,304 --
------------ ------------
150,220,304 400,577,205
Less current portion............................. 220,304 --
------------ ------------
$150,000,000 $400,577,205
============ ============
</TABLE>
Aggregate annual maturities of long-term debt, based on amounts borrowed as
of November 30, 1999 are as follows:
<TABLE>
<CAPTION>
YEARS ENDING NOVEMBER 30,
- -------------------------
<S> <C>
2000........................................................ $ --
2001........................................................ --
2002........................................................ --
2003........................................................ --
2004........................................................ 243,923,618
2005 and thereafter......................................... 150,000,000
------------
$393,923,618
============
</TABLE>
10 5/8% SENIOR SUBORDINATED NOTES, DUE 2006
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.
60
<PAGE>
HARVEYS CASINO RESORTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. LONG-TERM DEBT (CONTINUED)
The senior subordinated notes are governed by an indenture and are general
unsecured obligations of the Company, subordinated in right of payment to all
existing and future senior debt of the Company. The senior subordinated notes
are guaranteed by each of the restricted subsidiaries of the Company (as defined
in the indenture). Each guarantee is a general unsecured obligation of the
guaranteeing restricted subsidiary, subordinated in right of payment to all
existing and future senior debt of each guaranteeing restricted subsidiary. The
guaranteeing restricted subsidiaries are Harveys C.C. Management Company, Inc.,
Harveys Iowa Management Company, Inc., Harveys LV Management Company, Inc., and
Harveys Tahoe Management Company, Inc. Separate financial statements of the
guaranteeing restricted subsidiaries have not been included because management
has determined that they are not material to investors.
Interest on the senior subordinated notes is payable semi-annually on
June 1 and December 1 of each year. The senior subordinated notes will mature on
June 1, 2006. The senior subordinated notes are redeemable at the option of the
Company, in whole or in part, at any time on or after June 1, 2001 at prices
ranging from 105.313% of the principal amount plus accrued and unpaid interest
to 100% of the principal amount plus accrued and unpaid interest beginning
June 1, 2004 and thereafter. Upon a change of control (as defined in the
indenture) each holder of the senior subordinated notes will have the right to
require the Company to repurchase such holder's senior subordinated notes at
101% of the principal amount plus accrued and unpaid interest to the repurchase
date.
The indenture contains certain covenants that impose limitations on, among
other things: (i) the incurrence of additional indebtedness by the Company,
(ii) the payment of dividends, (iii) the repurchase of capital stock and the
making of certain other restricted payments and restricted investments (each as
defined in the indenture), (iv) mergers, consolidations and sales of assets,
(v) the creation or incurrence of liens on the assets of the Company, and
(vi) transactions by the Company or any of its subsidiaries with affiliates (as
defined in the indenture). These limitations are subject to a number of
qualifications and exceptions as described in the indenture. The Company was in
compliance with these covenants at November 30, 1999.
NOTE PAYABLE TO BANKS
At the time of the merger, we replaced our existing bank credit facility
with an amended and restated credit facility, under which we assumed the
liability for Harveys Acquisition Corporation's initial borrowing of
$172 million. In financing the acquisition of the net assets of Bluffs Run
Casino, we again amended and restated our bank credit facility.
This second amended and restated credit facility, dated as of October 5,
1999, provides us with 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 $10 million dollars under the swingline facility. The maximum
available to us under the credit facility, including amounts outstanding under
the swingline facility and the letter of credit is $335 million. The maximum
permitted principal balance is reduced quarterly, beginning August 31, 2000.
Amounts outstanding under our credit facility will mature and be
61
<PAGE>
HARVEYS CASINO RESORTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. LONG-TERM DEBT (CONTINUED)
fully due and payable on September 30, 2004. Until then, the annual year-end
maximum principal balances are as follows:
<TABLE>
<CAPTION>
NOVEMBER 30,
- ------------
<S> <C>
2000........................................................ $328,330,000
2001........................................................ 314,990,000
2002........................................................ 294,890,000
2003........................................................ 271,440,000
</TABLE>
At November 30, 1999, we had approximately $243.9 million in outstanding
borrowings and approximately $45.8 million in letter of credit exposure.
We pay interest on 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 November 30, 1999 the
applicable margin relative to the base rate was 1.50% and the applicable margin
relative to the LIBOR was 2.50%.
The amounts the banks lend us under our bank facility are secured by
substantially all of our assets including a pledge of the capital stock of our
subsidiaries.
Our bank facility contains a number of covenants that restrict our ability
to (i) dispose of assets, (ii) incur additional indebtedness, (iii) prepay our
10 5/8% senior subordinated notes, (iv) pay dividends, (v) create liens on
assets, (vi) make investments, loans or advances, (vii) engage in mergers or
consolidations, change our business, engage in certain transactions with
affiliates, and (viii) 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. At November 30, 1999 we were in compliance with
these covenants.
Our credit 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 consolidated statement of operations as an
extraordinary item, net of tax. We are amortizing new loan fees and other
financing costs over the term of the new credit facility.
6. REDEEMABLE PREFERRED STOCKS
As of the effective date of the merger, and at November 30, 1999, we had
outstanding 10 shares of our 13 1/2% Series A Senior Redeemable Convertible
Cumulative Preferred Stock and 99,990 shares of our 13 1/2% Series B Senior
Redeemable Convertible Cumulative Preferred Stock. Our Series A Preferred Stock
and Series B Preferred Stock each have a liquidation value of $550 per share.
Both
62
<PAGE>
HARVEYS CASINO RESORTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. REDEEMABLE PREFERRED STOCKS (CONTINUED)
series of preferred stock are entitled to quarterly dividends at an annual rate
of 13 1/2% of the liquidation value. If we do not pay the dividends in cash when
due, they 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, at any time on or prior to February 1, 2002,
into corresponding shares of our Class A Common Stock and Class B Common Stock.
The conversion rate is 28.7309164 shares of common stock per share of preferred
stock and is subject to customary antidilution adjustments. The conversion of
our preferred stock to common stock would require the approval of all applicable
gaming authorities. At the time of conversion, we would have the option of
satisfying any accrued and unpaid dividends due on the preferred stock being
converted by paying cash or issuing additional shares of the corresponding Class
A Common Stock or Class B Common Stock having a market value equal to the amount
of accrued dividends.
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. At November 30, 1999, we were in compliance
with these covenants.
The combined liquidation value of our Series A Preferred Stock and Series B
Preferred Stock at November 30, 1999 was $55 million. Additionally, on that
date, there were approximately $6.4 million of accrued and unpaid dividends on
our preferred stock.
7. OPERATING LEASE COMMITMENTS
The Company's future minimum lease commitments under noncancellable
operating leases (principally for land) as of November 30, 1999 are as follows:
<TABLE>
<CAPTION>
YEARS ENDING NOVEMBER 30,
- -------------------------
<S> <C>
2000........................................................ $ 3,589,300
2001........................................................ 3,397,361
2002........................................................ 3,363,919
2003........................................................ 3,331,596
2004........................................................ 3,415,009
2005 and thereafter......................................... 187,497,911
</TABLE>
Certain leases included above have provisions which require periodic
increases in the rental payments based upon the consumer price index as of
certain dates. In addition, annual lease payments under an obligation on a land
lease are based upon an escalating percentage of gross gaming revenues or all
net revenues, whichever calculation is greater, of Harveys Resort & Casino. The
percentages applicable to gross gaming revenues and all net revenues in fiscal
2000 and years thereafter will be 3.5% and 2.35%, respectively. The actual rent
paid is the greater of the rent calculated as a percentage or a minimum rent, as
adjusted for the consumer price index. In 1997, the land lease was extended to
the year 2045. For 1997, 1998 and 1999, the Company recognized rental expense in
connection with the land lease of approximately $3.0 million, $3.5 million and
$3.6 million, respectively, which includes approximately $0.8 million,
$0.9 million and $1.2 million, respectively, above the minimum rental
63
<PAGE>
HARVEYS CASINO RESORTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. OPERATING LEASE COMMITMENTS (CONTINUED)
amounts. Total rental expense recognized for 1997, 1998 and 1999 amounted to
approximately $3.7 million, $3.9 million and $4.2 million, respectively.
The Company is also a lessor on several noncancellable lease agreements. Of
the rental income recognized for the years ended November 30, 1997, 1998 and
1999, approximately $118,000, $380,000 and $634,000, respectively, represents
rents received as a percentage of gross receipts. The remaining amounts are
attributable to specified minimum rent. Future minimum payments due to the
Company under these noncancellable lease agreements are as follows:
<TABLE>
<CAPTION>
YEARS ENDING NOVEMBER 30,
- -------------------------
<S> <C>
2000........................................................ $1,119,100
2001........................................................ 609,200
2002........................................................ 169,000
2003........................................................ 6,100
2004........................................................ --
</TABLE>
8. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
--------------------------------------------
PERIOD PERIOD
FISCAL YEAR ENDED DECEMBER 1, FEBRUARY 2, 1999
NOVEMBER 30, 1998 (DATE OF ACQUISITION)
------------------------- THROUGH THROUGH
1997 1998 FEBRUARY 1, 1999 NOVEMBER 30, 1999
----------- ----------- ---------------- ---------------------
<S> <C> <C> <C> <C>
Current............................. $12,383,310 $ 9,365,214 $(4,039,141) $ 6,786,207
Deferred............................ 6,515,243 2,052,065 135,141 1,347,616
----------- ----------- ----------- -----------
Income tax provision before
extraordinary item................ 18,898,553 11,417,279 (3,904,000) 8,133,823
Income tax benefit of extraordinary
item.............................. -- -- (275,000) --
----------- ----------- ----------- -----------
Income tax provision................ $18,898,553 $11,417,279 $(4,179,000) $ 8,133,823
=========== =========== =========== ===========
</TABLE>
The difference between the Company's provision for income taxes as presented
in the accompanying consolidated statements of operations, and the provision for
income taxes computed at
64
<PAGE>
HARVEYS CASINO RESORTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. INCOME TAXES (CONTINUED)
the statutory rate is comprised of the items shown in the following table as a
percent of pre-tax earnings.
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
---------------------------------------------
FISCAL YEAR
ENDED PERIOD PERIOD
NOVEMBER 30, FEBRUARY 2, 1999 FEBRUARY 2, 1999
------------------------- THROUGH THROUGH
1997 1998 NOVEMBER 30, 1999 NOVEMBER 30, 1999
-------- -------- ----------------- -----------------
<S> <C> <C> <C> <C>
Federal income tax provision (benefit) at the
statutory rate................................ 35.0% 35.0% (34.0)% 34%
Non-deductible expenses......................... 1.2 2.3 5.9 3.4
Tax credits..................................... (0.5) (0.3) (0.2) (0.7)
Tax exempt income............................... -- (0.5) (0.1) (0.5)
State income tax, net of federal benefit........ 1.7 1.9 -- 6.4
Other, net...................................... 0.6 (0.5) 4.4 (3.7)
---- ---- ----- ----
38.0% 37.9% (24.0)% 38.9
==== ==== ===== ====
</TABLE>
The components of the deferred income tax assets and liabilities as
presented in the consolidated balance sheets, are as follows at November 30:
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
-------------------
1998 1999
------------------- ------------
<S> <C> <C>
DEFERRED TAX ASSET
Accrued compensation........................................ $ 6,166,766 $ 7,673,063
Other accrued expenses...................................... 2,259,119 7,772,388
------------ ------------
8,425,885 15,945,451
------------ ------------
DEFERRED TAX LIABILITY
Prepaid expenses............................................ (1,587,996) (1,259,605)
Property and equipment...................................... (31,260,604) (69,135,726)
------------ ------------
(32,848,600) (70,395,331)
------------ ------------
Net deferred tax liability.................................. $(24,422,715) $(54,949,880)
============ ============
Current deferred asset...................................... $ 525,416 $ 3,141,457
Noncurrent deferred liability............................... (24,948,131) (58,091,337)
------------ ------------
Net deferred tax liability.................................. $(24,422,715) $(54,949,880)
============ ============
</TABLE>
The Internal Revenue Service has completed an examination of the limited
liability company, through which we previously owned Harveys Wagon Wheel, for
the years ended November 30, 1995 and 1996 and the six month period ended May
31, 1997. We have made adequate provision for any adjustments resulting from
those tax examinations.
65
<PAGE>
HARVEYS CASINO RESORTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. STOCK-BASED COMPENSATION
OMNIBUS INCENTIVE PLANS
In November 1993, the Company adopted the 1993 Omnibus Incentive Plan and in
March 1996, the Company adopted the 1996 Omnibus Incentive Plan. Under each of
the two plans, shares of the Company's common stock could be granted to
employees or prospective employees of the Company and/or its subsidiaries who
were responsible for the management, growth and protection of the business of
the Company. Issuance of shares of common stock under the plans could consist of
stock options, stock appreciation rights, restricted stock grants, performance
units and dividend equivalents. The plans were administered by a committee of
the board of directors of Harveys whose members determined who would be awarded
stock options, stock appreciation rights, restricted stock grants, performance
units and dividend equivalents.
Under the 1993 plan, 915,219 shares of the Company's common stock were
reserved for potential awards and under the 1996 plan, an additional 500,000
shares of the Company's common stock were reserved.
The exercise price of stock options granted under the plans was established
by the committee. The exercise price of any stock options granted was not less
than the market price of the Company's common stock on the date the option was
granted. The term of each stock option was fixed by the committee. The term of
any stock option granted did not exceed ten years. Stock options granted under
the plans generally vested ratably over a three year period from the date of
grant.
Restricted stock grants were awards of shares of common stock granted
subject to such restrictions, terms and conditions as the committee deemed
appropriate. The committee determined the number of restricted shares to be
granted and imposed different terms and conditions on any particular restricted
stock grant made to any employee. We granted a total of 228,500 shares of
restricted common stock through November 30, 1998. Of the restricted shares
granted, in each case, 25% of the shares vested immediately as of the date of
the grant and vested an additional 25% on each of the next three anniversaries
of the grant. As of February 1, 1999, grantees of the restricted shares had
forfeited 8,375 shares pursuant to terms of the plans. We recognized
approximately $237,000, $142,000 and $1,000 as compensation expense in fiscal
1997, 1998, and the period from December 1, 1998 through February 1, 1999,
respectively.
On February 2, 1999, the Company adopted the 1999 Omnibus Incentive Plan.
Under the plan, shares of the Company's common stock may be granted to officers,
directors or employees of the Company or to consultants or advisors to the
Company. Grants under the plan may consist of stock options, stock appreciation
rights or limited stock appreciation rights, restricted stock, performance
shares, deferred stock or any combination of the foregoing. The plan is
administered by the Company's board of directors who have the power to select
participants to receive grants, determine what grants are to be awarded and
determine the terms and conditions, not inconsistent with the terms of the plan,
which apply to any award granted under the plan.
The total number of shares of Class A Common Stock reserved under the plan
is 4,000 and the total number of shares of Class B Common Stock reserved under
the plan is 400,000.
Stock options granted under the plan may be of two types: (i) incentive
stock options within the meaning of Section 422 of the Internal Revenue Code, as
amended from time to time and (ii) non-qualified stock options. During 1999, the
Company granted to certain officers and employees incentive
66
<PAGE>
HARVEYS CASINO RESORTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. STOCK-BASED COMPENSATION (CONTINUED)
stock options and non-qualified stock options to acquire shares of the Company's
Class A Common Stock and Class B Common Stock. The option price per share of
stock subject to stock options granted was equal to or greater than the fair
market value of the underlying stock on the date of grant. The stock options
granted vest 20% on each of the first five anniversaries of the date of grant.
The term of the stock options granted is ten years.
During 1999, the Company granted certain key executives restricted shares of
the Company's Class A Common Stock and Class B Common Stock, the restrictions of
which lapse 20% per year. Under certain conditions, the restricted shares may be
canceled and an equivalent number of deemed shares created under a deferred
compensation arrangement, under which the Company may be obligated to the
executives for the fair market value of the deemed shares. The Company accrued
compensation expense of $464,000 relating to the vesting of the restricted
shares and recorded the associated amount as part of other liabilities on the
accompanying consolidated balance sheet at November 30, 1999.
As a result of the merger, the rights of certain key executives to
participate in the supplemental executive retirement plan were terminated, with
50% of the accrued benefits paid out in cash and the remainder transferred to a
deemed share account in a deferred compensation arrangement under which the
Company will be obligated to the executives for the fair market value of the
deemed shares. The Company accrued compensation expense of $703,000 relating to
the increase in the estimated value of the deemed shares and the total
obligation of $2,019,000 is included as part of other liabilities on the
accompanying consolidated balance sheet at November 30, 1999.
1993 NON-EMPLOYEE DIRECTORS' STOCK OPTION PROGRAM
In November 1993, the Company adopted the 1993 Non-Employee Directors' Stock
Option Program whereby each currently serving non-employee director was granted
an option to purchase 4,500 shares of the Company's common stock, and was
granted an option to purchase 1,500 shares of common stock immediately following
each annual meeting. Each new non-employee director received a grant of an
option to purchase 4,500 shares of the Company's common stock immediately after
the first annual meeting of shareholders after that director was elected or
appointed to the board of directors and received an option to purchase 1,500
shares of common stock immediately following each subsequent annual meeting. Of
the options granted, in each case, 33 1/3% vested immediately on the date of
grant and vest an additional 33 1/3% on each of the next two anniversaries of
grant. The exercise price was the fair market value of the common stock on the
date of grant. A total of 60,000 shares was reserved for issuance under the
program.
STOCK OPTIONS PURSUANT TO EMPLOYMENT CONTRACTS
Two of the Company's directors, who were also employees, were granted
options, outside of the Omnibus Incentive Plans or the Non-Employee Director's
Stock Option Program, to purchase 15,000 and 12,500 shares of the Company's
common stock, respectively. The stock options were granted in November 1993
pursuant to employment contracts and in anticipation of the Company's initial
public offering in February 1994. The stock options had an exercise price of
$14.00 per share.
At the effective time of the merger, February 2, 1999, all outstanding
unvested stock options and restricted stock grants vested. At that time, all
outstanding stock options were canceled in return for a cash payment equal to
the product of (i) the number of shares of Harveys common stock subject to the
option and (ii) the excess of $28.7343 (the price paid per share of Harveys
common stock in the merger) over the exercise price per share of Harveys common
stock as provided in the stock option. As a result of the merger, each
outstanding share of Harveys common stock, including the restricted stock
grants, was converted into the right to receive $28.7343.
67
<PAGE>
HARVEYS CASINO RESORTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. STOCK-BASED COMPENSATION (CONTINUED)
Following the merger, the 1993 Omnibus Incentive Plan, the 1996 Omnibus
Incentive Plan and the 1993 Non-Employee Director's Stock Option Program were
terminated.
The following table summarizes information relative to stock options
granted, exercised, canceled, outstanding and exercisable under the various
plans discussed above:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
OPTIONS EXERCISE PRICE
--------- ----------------
<S> <C> <C>
Options outstanding at December 1, 1996..................... 879,513 16.96
Options granted............................................. 684,193 16.48
Options canceled............................................ (513,080) 19.04
Options exercised........................................... (35,166) 13.77
---------
Options outstanding at November 30, 1997.................... 1,015,460 15.69
Options granted............................................. 17,500 27.16
Options canceled............................................ (19,515) 17.19
Options exercised........................................... (226,183) 14.95
---------
Options outstanding at November 30, 1998.................... 787,262 16.02
Options exercised........................................... (1,139) 16.96
Options cashed out at the effective time of the merger...... (786,123) 16.02
---------
Options outstanding February 2, 1999........................ -- --
=========
Options granted............................................. 189,210 20.06
Options canceled............................................ (37,370) 20.06
---------
Options outstanding November 30, 1999....................... 151,840 20.06
=========
Options exercisable at November 30, 1997.................... 377,583 14.35
Options exercisable at November 30, 1998.................... 347,992 15.25
Options exercisable at November 30, 1999.................... -- 20.06
</TABLE>
The following table provides additional information relative to stock
options outstanding at November 30, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------ OPTIONS EXERCISABLE
WEIGHTED-AVERAGE ---------------------------------------------------
REMAINING WEIGHTED-
NUMBER CONTRACTUAL WEIGHTED-AVERAGE NUMBER AVERAGE
EXERCISE PRICE OUTSTANDING LIFE IN YEARS EXERCISABLE PRICE EXERCISABLE EXERCISABLE PRICE
- -------------- ----------- ---------------- ----------------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
$20.06.................... 151,840 9.31 $20.06 -- $20.06
</TABLE>
The FASB has issued SFAS No. 123--ACCOUNTING FOR STOCK-BASED COMPENSATION.
SFAS No. 123 provides, among other things, that companies may elect to either
record expense based on the fair value of stock-based compensation upon issuance
or continue to apply the methods prescribed by Accounting Principles Board
Opinion No. 25 ("APB No. 25") whereby no compensation cost is
68
<PAGE>
HARVEYS CASINO RESORTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. STOCK-BASED COMPENSATION (CONTINUED)
recognized upon grant if certain requirements are met. We elected to continue to
account for stock-based compensation in accordance with APB No. 25.
Had we recorded stock-based compensation cost consistent with the provisions
of SFAS No. 123, our net income for fiscal years 1997 and 1998 would have been
reduced to the pro forma amounts included in the table below. The table also
discloses the weighted-average assumptions used in estimating the fair value of
stock options using the Black-Scholes option pricing model and the
weighted-average fair value of the stock options granted. The Black-Scholes
option valuation model was developed for use in estimating the fair value of
traded options, which have no vesting restrictions and are fully transferable.
Additionally, option valuation models require the input of highly subjective
assumptions including the expected stock price volatility. Because the Company's
stock-based compensation has characteristics significantly different from those
of traded options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in our opinion, the existing models
do not necessarily provide a reliable single measure of the fair value of the
Company's stock-based compensation.
<TABLE>
<CAPTION>
YEARS ENDED
NOVEMBER 30,
-------------------------
PREDECESSOR COMPANY
1997 1998
-------- --------
DOLLARS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS
<S> <C> <C>
Income before extraordinary item
As reported............................................... $30,775 $18,702
Pro forma................................................. 30,406 17,938
Net income
As reported............................................... $30,775 $18,702
Pro forma................................................. 30,406 17,938
Weighted-average assumptions
Expected stock price volatility........................... 31.70% 31.24%
Risk-free interest rate................................... 5.20% 5.07%
Expected option lives (years)............................. 2.84 3.44
Expected dividend yield................................... 1.00% 0.80%
Estimated fair value of options granted................... $ 4.05 $ 6.53
</TABLE>
The stock-based compensation cost calculated pursuant to the provisions of
SFAS No. 123 would have an immaterial effect on net income for the period ended
November 30, 1999.
10. EMPLOYEE BENEFIT PLANS
401(K) PLAN
The Company maintains a defined contribution retirement savings plan for all
full-time employees who have at least one year of continuous employment and
1,000 hours of service. The Company contributes amounts equal to 50% of each
eligible employee's voluntary contributions. For purposes of determining the
Company's required contribution to the plan, the employee's voluntary
contributions cannot exceed 6% of the employee's qualified compensation. The
Company's contribution to the plan
69
<PAGE>
HARVEYS CASINO RESORTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. EMPLOYEE BENEFIT PLANS (CONTINUED)
for the years ended November 30, 1997 and 1998 amounted to approximately $1.6
million and $1.4 million, respectively. The Company's contribution to the plan
for the period of December 1, 1998 through February 1, 1999 and the period
February 2, 1999 through November 30, 1999 amounted to approximately $418,000
and $1.1 million, respectively.
LONG-TERM INCENTIVE PLAN
In 1994, the Company adopted a long-term incentive plan for key employees.
Under the plan, incentives were accrued based upon annual operating results;
however, ultimate payment of these incentives was contingent upon the Company
attaining certain financial objectives over consecutive and concurrent
three-year periods. As of November 30, 1998, the amount due to plan participants
was approximately $1.6 million. At the effective time of the merger, we
terminated the long-term incentive plan and made final lump sum payments, at the
maximum payout value, to the participants in the aggregate amount of
approximately $3.1 million.
DEFERRED COMPENSATION PLAN
In 1990, the Company established a non-qualified deferred compensation plan
for designated executives and outside directors. Individuals electing to
participate in this plan may voluntarily defer receipt of up to twenty-five
percent (25%) of their annual compensation. We credit deferred compensation to
each participant's account, and add interest on such amounts to the
participant's account each quarter. The interest rate paid on amounts deferred
prior to calendar year 1995 is the prime rate at the beginning of each quarter
plus five percent (13.25% at November 30,1999). The interest rate paid on
amounts deferred subsequent to December 31, 1994 is the prime rate plus two and
one-half percent (10.75% at November 30, 1999). We are under no obligation to
fund amounts under this plan, and such amounts are unsecured and treated as
general obligations of the Company. As of November 30, 1998 and 1999, the amount
due participants in this plan was approximately $2.9 million and $3.4 million,
respectively.
POSTRETIREMENT BENEFITS
The Company provides postretirement medical benefits for certain key
executives and members of the Company's board of directors. The Company had
elected to amortize, over a period of 20 years the accumulated postretirement
benefit obligation (transition obligation) related to prior service costs. At
the effective time of the merger, the application of purchase method accounting
required us to recognize as a liability the unamortized accumulated
postretirement benefit obligation, unrecognized prior service cost and any
unrecognized net loss. As a result, we recognized an additional increase in the
net liability attributable to the post retirement benefit plan of approximately
$422,000.
70
<PAGE>
HARVEYS CASINO RESORTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. EMPLOYEE BENEFIT PLANS (CONTINUED)
The following table reconciles the unfunded status of our plan with the
accrued postretirement benefit liability recognized in our consolidated balance
sheets.
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
------------------------------- PERIOD FROM
FISCAL YEAR PERIOD FROM FEBRUARY 2, 1999
ENDED DECEMBER 1, 1998 (DATE OF ACQUISITION)
NOVEMBER 30, THROUGH THROUGH
1998 FEBRUARY 1, 1999 NOVEMBER 30, 1999
------------ ---------------- ---------------------
<S> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION:
Beginning of period........................... $ 915,072 $ 1,143,780 $ 1,262,493
Service cost.................................. 78,782 13,679 43,077
Interest Cost................................. 67,884 13,492 69,771
Change in discount rate....................... 69,633 -- (55,800)
Experience loss............................... 17,374 91,542 40,217
Benefits paid................................. (4,965) -- (131,461)
----------- ----------- -----------
End of period................................. $ 1,143,780 $ 1,262,493 $ 1,228,297
----------- ----------- -----------
CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning of
period...................................... -- -- --
Actual return on plan assets.................. -- -- --
Employer contribution......................... 4,965 -- 131,461
Benefits paid................................. (4,965) -- (131,461)
----------- ----------- -----------
Fair value of plan assets at end of period.... -- -- --
Funded status................................. (810,435) (1,262,493) (1,228,297)
Unrecognized actuarial loss................... (73,418) -- (15,583)
Unrecognized prior service cost............... (89,181) -- --
Unrecognized net initial asset(obligation).... (170,746) -- --
----------- ----------- -----------
Accrued benefit liability..................... $(1,143,780) $(1,262,493) $(1,243,880)
=========== =========== ===========
</TABLE>
For the period ending November 30, 1999 we used a discount rate of 7.75% to
arrive at year-end obligations. For fiscal year ending November 30, 1998 we used
a discount rate of 6.75%. We assumed future medical costs will increase 6% per
year.
71
<PAGE>
HARVEYS CASINO RESORTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. EMPLOYEE BENEFIT PLANS (CONTINUED)
The Company's current policy is to fund the plan as covered benefits are
paid. The following table sets forth the components of our net periodic
postretirement benefit costs.
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
---------------------------------------------- PERIOD FROM
FISCAL YEAR FISCAL YEAR PERIOD FROM FEBRUARY 2, 1999
ENDED ENDED DECEMBER 1, 1999 (DATE OF ACQUISITION)
NOVEMBER 30, NOVEMBER 30, THROUGH THROUGH
1997 1998 FEBRUARY 1, 1999 NOVEMBER 30, 1999
------------ ------------ ---------------- ---------------------
<S> <C> <C> <C> <C>
COMPONENTS OF NET PERIODIC POSTRETIREMENT
BENEFIT COSTS
Service cost........................... $ 75,219 $ 78,782 $13,679 $ 43,077
Interest cost.......................... 56,907 67,884 13,492 69,771
Expected return on plan assets......... -- -- -- --
Amortization of unrecognized transition
obligation........................... 12,197 12,197 2,033 --
Amortization of prior service cost..... 6,683 6,683 1,114 --
Recognized net actuarial loss.......... -- -- 115 --
-------- -------- ------- --------
Net periodic postretirement benefit
cost................................. $151,006 $165,546 $30,433 $112,848
======== ======== ======= ========
</TABLE>
Increasing the assumed health care cost trend rates by one percentage point
in each future year would increase the postretirement benefit obligation by
approximately $166,000 at November 30, 1998; $133,000 at February 1, 1999; and
$145,000 at November 30, 1999. A one percent increase in the assumed health care
cost trend in each future year would increase the service and interest costs
components of the net periodic benefit cost by approximately $23,000 each for
fiscal years 1997 and 1998; $4,000 for the period of December 1, 1998 through
February 1, 1999; and $16,000 for the period from February 2, 1999 through
November 30, 1999. Likewise a one percent decrease in the assumed health care
cost trend for each future year would have decreased the postretirement benefit
obligation by approximately $100,000 at February 1, 1999 and by approximately
$110,000 at November 30, 1999. A one percent decrease would have decreased the
service and interest costs components by approximately $4,000 for the period
December 1, 1998 through February 1, 1999 and by approximately $12,000 for the
period February 2, 1999 through November 30, 1999.
SUPPLEMENTAL RETIREMENT PLANS
The Company provides noncontributory supplemental executive retirement plans
for certain key executives. Normal retirement under the supplemental executive
retirement plans is age 65, and participants receive benefits based on years of
service and compensation. The Company also provided a noncontributory plan for
members of the Company's board of directors. At the effective time of the
merger, the application of purchase method accounting required us to recognize
as a liability the unamortized accumulated benefit obligation, unrecognized
prior service cost and any unrecognized net loss. As a result, we recognized an
additional increase in the liability attributable to the supplemental executive
retirement plans of approximately $4.1 million and the elimination of a related
intangible asset of approximately $2.6 million. Additionally, at the time of the
merger, those members of the Company's board of directors who had a vested
benefit in their plan received a lump sum payment and that plan was terminated.
72
<PAGE>
HARVEYS CASINO RESORTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. EMPLOYEE BENEFIT PLANS (CONTINUED)
The following table reconciles the unfunded status of our plan with the
accrued postretirement benefit liability recognized in our consolidated balance
sheets.
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
------------------------------- PERIOD FROM
FISCAL YEAR PERIOD FROM FEBRUARY 2, 1999
ENDED DECEMBER 1, 1998 (DATE OF ACQUISITION)
NOVEMBER 30, THROUGH THROUGH
1998 FEBRUARY 1, 1999 NOVEMBER 30, 1999
------------ ---------------- ---------------------
<S> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Beginning of period............................ $ 15,135,038 $ 17,841,348 $ 14,722,986
Service cost................................... 649,139 139,118 407,543
Interest Cost.................................. 1,096,557 199,414 803,447
Change in discount rate........................ 834,570 -- (1,481,732)
Experience (gain) or loss...................... 411,618 (2,302,642) --
Benefits paid.................................. (283,574) (1,154,252) (684,168)
------------ ------------ ------------
End of period.................................. $ 17,841,348 $ 14,722,986 $ 13,768,076
============ ============ ============
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of
period....................................... -- -- --
Actual return on plan assets................... -- -- --
Employer contribution.......................... 283,574 1,154,252 684,168
Benefits paid.................................. (283,574) (1,154,252) (684,168)
------------ ------------ ------------
Fair value of plan assets at end of period..... -- -- --
Funded status.................................. (17,841,348) (14,722,986) (13,768,076)
Unrecognized actuarial (gain) loss............. 3,763,138 -- (1,481,732)
Unrecognized prior service cost................ 1,436,155 -- --
Unrecognized net initial asset(obligation)..... 1,542,423 -- --
------------ ------------ ------------
Accrued pension cost........................... $(11,099,652) $(14,722,986) $(15,249,808)
============ ============ ============
</TABLE>
For the period ending November 30, 1999 we used a discount rate of 7.75% to
arrive at year-end obligations. For fiscal year ending November 30, 1998 we used
a discount rate of 6.75 percent. We assumed future salary increases of 5% per
year.
73
<PAGE>
10. EMPLOYEE BENEFIT PLANS (CONTINUED)
The following table sets forth the components of our net periodic pension
costs.
<TABLE>
<CAPTION>
PREDECESSOR COMPANY PERIOD FROM
-------------------------------------------------------- FEBRUARY 2, 1999
PERIOD FROM (DATE OF
DECEMBER 1, 1999 ACQUISITION)
FISCAL YEAR ENDED FISCAL YEAR ENDED THROUGH THROUGH
NOVEMBER 30, 1997 NOVEMBER 30, 1998 FEBRUARY 1, 1999 NOVEMBER 30, 1999
----------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
COMPONENTS OF NET PERIODIC
PENSION COSTS
Service cost................. $ 502,946 $ 649,139 $ 139,118 $ 407,543
Interest cost................ 987,746 1,096,557 199,414 803,447
Expected return on plan
assets..................... -- -- -- --
Amortization of unrecognized
transition obligation...... 171,699 171,699 28,617 --
Amortization of prior service
cost....................... 212,997 212,997 35,500 --
Recognized net actuarial
loss....................... 111,477 123,043 28,036 --
---------- ---------- --------- ----------
Net periodic pension cost.... $1,986,865 $2,253,435 $ 430,685 $1,210,990
========== ========== ========= ==========
</TABLE>
SELF INSURED PLANS
The Company is self insured for employee medical coverage and workers'
compensation for the benefit of its employees. Estimated accrued obligations for
claims under these self-insured plans as of November 30, 1998 and 1999 were
approximately $2.4 million and $2.5 million, respectively. The Company's maximum
liability under both plans is limited by stop-loss agreements with insurance
companies.
11. COMMITMENTS AND CONTINGENCIES
LETTERS OF CREDIT
In connection with the acquisition of the net assets of Bluffs Run Casino,
we were obligated to enter into an irrevocable standby letter of credit to
support $45.0 million of contingent consideration we may be obligated to pay. In
connection with regulatory requirements, we were required to issue an
irrevocable standby letter of credit to guarantee our payment of workers'
compensation benefits. Outstanding standby letters of credit as of November 30,
1999 were as follows:
<TABLE>
<CAPTION>
AMOUNT EXPIRATION DATE
----------- ---------------
<S> <C> <C>
Contingent purchase price consideration........ $45,000,000 October 5, 2000
St. Paul Fire and Marine (workers'
compensation)................................ 812,500 April 15, 2000
-----------
$45,812,500
===========
</TABLE>
EMPLOYMENT CONTRACTS
The Company has entered into employment agreements, each of which expires
prior to February 3, 2004, with certain key executives. The employment
agreements provide for, among other things, annual base compensation,
participation in bonus plans, certain stock grants and stock option provisions.
74
<PAGE>
11. COMMITMENTS AND CONTINGENCIES (CONTINUED)
CLAIMS AND LEGAL ACTIONS
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, all pending matters
are either adequately covered by insurance or if not covered by insurance, will
not have a material adverse effect on the Company's financial statements taken
as a whole.
12. RELATED PARTY TRANSACTIONS
NOTES RECEIVABLE FROM RELATED PARTY TRUST
Jessica L. Ledbetter, Kirk B. Ledbetter and Franklin K. Rahbeck, all
directors of the Company prior to the merger, and Wells Fargo Bank, National
Association are the co-trustees of the William B. Ledbetter and Beverlee A.
Ledbetter Irrevocable Trust ('the Trust'). The Trust owns survivorship life
insurance policies on the lives of William B. Ledbetter and Beverlee A.
Ledbetter, deceased. Until November 1998, William B. Ledbetter was an officer
and director of the Company and until her death on September 12, 1995, Beverlee
A. Ledbetter was the largest shareholder of the Company. Prior to fiscal 1995,
the Company had paid premiums on the life insurance policies owned by the Trust.
The Company has no further obligation to pay such premiums. The Trust has issued
two notes payable to the Company for the amounts of the premiums previously paid
by the Company. The notes were in the principal amounts of $1,376,995 and
$455,272. On February 3, 1999, the Trust retired the notes by paying the Company
the principal amounts plus all accrued and unpaid interest to the date of
payment.
13. SALE OF INTERESTS IN UNCONSOLIDATED AFFILIATE
Until October 24, 1997, Harveys owned a 40% equity interest in Hard Rock
Hotel, Inc. We accounted for this investment on the equity method. Pursuant to a
management agreement between Hard Rock Hotel, Inc. and Harveys LV Management
Company, Inc., relating to the management and operations of the Hard Rock Hotel
and Casino owned by Hard Rock Hotel, Inc., Harveys earned a base management fee
of 4% of adjusted gross revenue, and up to an additional 2% of adjusted gross
revenue if certain financial targets were met.
On October 24, 1997, we sold all of the capital stock of Hard Rock Hotel,
Inc. held by Harveys, representing 40% of the then outstanding capital stock of
Hard Rock Hotel, Inc., and all our rights under the management agreement. The
capital stock and the rights under the management agreement were sold to Hard
Rock Hotel, Inc.. The sale closed pursuant to the terms of a Stock Purchase and
Management Buyout Agreement entered into on July 1, 1997.
Harveys received $45.0 million cash for the capital stock and its rights
under the management agreement. Harveys received, in addition, approximately
$1.2 million cash in satisfaction of a note and other amounts due to Harveys
from Hard Rock Hotel, Inc. as of October 24, 1997.
Summarized statement of income information for Hard Rock Hotel, Inc. for the
period from December 1, 1996 through October 24, 1997 follows:
<TABLE>
<CAPTION>
PERIOD ENDED
OCTOBER 24,
1997
------------
<S> <C>
Summarized Statement of Income Information (in thousands)
Revenues.................................................... $68,699
Operating income............................................ 11,323
Net income.................................................. 4,295
</TABLE>
75
<PAGE>
14. SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following table sets forth unaudited selected quarterly financial
information for each quarter of fiscal 1998 and 1999. This information, in the
opinion of management, includes only normal recurring adjustments necessary for
a fair representation of the information set forth therein. The operating
results for any quarter are not indicative of results for any future period.
Quarterly results may not be comparative due to the seasonal nature of
operations.
<TABLE>
<CAPTION>
(IN THOUSANDS) FIRST SECOND THIRD FOURTH
- -------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Fiscal 1998
Revenue (a).......................................... $ 68,772 $76,552 $87,632 $76,553
Operating income..................................... 6,583 12,191 17,169 9,893
Income before income taxes........................... 2,551 8,155 13,220 6,193
Net income........................................... 1,531 4,892 7,932 4,347
Fiscal 1999
Revenue.............................................. $ 75,649 $77,635 $88,370 $98,295
Operating income (b)................................. (10,646) 9,342 18,528 14,742
Income (loss) before income taxes and extraordinary
items.............................................. (15,470) 2,391 11,859 5,886
Extraordinary item, net of tax....................... (869) -- -- --
Net income (loss).................................... (12,746) 1,455 7,218 3,642
</TABLE>
- ------------------------
(a) Revenues for the second and third quarters of fiscal 1998 differ from the
amount originally reported in the Company's Quarterly Reports on Form 10-Q
for the quarters ended May 31, 1998 and August 31, 1998 due to the
reclassification of telephone commission income at Harveys Casino Hotel.
(b) Operating income for the second and third quarters of Fiscal 1999 differs
from the amount originally reported in the Company's Quarterly Reports on
Form 10-Q for the quarters ended May 31, 1999 and August 31, 1999 due to the
reclassification of gain (loss) on disposition of assets at Harveys Lake
Tahoe.
76
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
--------------------- -----------
<C> <S>
2.1 Stock Purchase Agreement, dated July 2, 1997 (9)
3.1 Amendments to Articles of Incorporation of Harveys Casino
Resorts as Surviving Constituent Entity (filed as Exhibit
A to Articles of Merger of Harveys Acquisition Corporation
into Harveys Casino Resorts). (13) (Articles of
Incorporation are incorporated herein by reference to
Harveys Acquisition Corporations's Registration Statement
of Form 10 (File No. 0-25093), filed November 20, 1998).
3.2 Certificate of Designation of the 13-1/2% Series A Senior
Redeemable Convertible Cumulative Preferred Stock, ($0.01
per value per share) and the 13-1/2% Series B Redeemable
Convertible Cumulative Preferred Stock ($0.01 par value
per share) of Harveys Casino Resorts (13)
3.3 Eighth Amended and Restated Bylaws of the Registrant (17)
4.1 Form of Stock Certificate of the Registrant (17)
4.2 Indenture, dated as of May 15, 1996 ( the "Original
Indenture") by and among the Registrant, Harveys Wagon
Wheel Casino Limited Liability Company, Harveys C. C.
Management Company, Inc., Harveys Iowa Management Company,
Inc. and Harveys L. V. Management Company, Inc. ( the
"Guarantors") and IBJ Schroder Bank & Trust Company as
Trustee ( including form of Note) (6)
4.3 First Supplemental Indenture, dated as of June 5, 1996,
supplementing the Original Indenture (7)
4.4 Second Supplemental Indenture, dated as of May 22, 1997,
supplementing the Original Indenture (11)
4.5 Third Supplemental Indenture, dated as of December 24, 1998,
among the Registrant, Harveys Tahoe Management Company,
Inc., Harveys C. C. Management Company, Inc., Harveys Iowa
Management Company, Inc., Harveys L. V. Management
Company, Inc. and IBJ Schroder Bank and Trust Company,
supplementing the Original Indenture (17)
4.6 Fourth Supplemental Indenture, dated as of December 24,
1998, among the Registrant, Harveys Tahoe Management
Company, Inc., Harveys C. C. Management Company, Inc.,
Harveys Iowa Management Company, Inc., Harveys L. V.
Management Company, Inc. and IBJ Schroder Bank and Trust
Company, supplementing the Original Indenture (17)
10.1 Net Lease Agreement, dated February 28, 1985, between Park
Cattle Co. and the
Registrant (1)
10.2 Lease, dated July 9, 1973, between Park Cattle Co. and the
Registrant (1)
10.3 Supplemental Executive Retirement Plan (1)
10.4 Senior Supplemental Executive Retirement Plan (1)
10.5 Honorary Director Resolution--Vera Gross (1)
10.6 1998 Deferred Compensation Plan Participants (14)
10.7 Form of Indemnification Agreement for Directors and Officers
and Schedule of
Indemnities (17)
</TABLE>
77
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
--------------------- -----------
<C> <S>
10.8 Excursion Boat Sponsorship and Operations Agreement, dated
August 22, 1994, by and between Iowa West Racing
Association and Harveys Iowa Management Company, Inc. (2)
10.9 Employment Agreement dated May 9, 1995 by and between the
Registrant and Gary Armentrout (3)
10.10 Employment Agreement dated August 14, 1995, by and between
the Registrant and Kevin Servatius (4)
10.11 Employment Agreement dated August 24, 1995, by and between
the Registrant and Edward B. Barraco (4)
10.12 Harveys Casino Resorts Management Incentive Plan, approved
August 8, 1995. (5)
10.13 1997 Deferred Compensation Participants and Form of
Agreement (8)
10.14 Extension to Employment Agreement, dated January 30, 1997
between Edward B. Barraco and the Registrant (10)
10.15 Employment Agreement, dated June 23, 1997 between James J.
Rafferty and the
Registrant (11)
10.16 Employment Agreement, dated July 1, 1997 between Verne Welch
and the Registrant (11)
10.17 Employment Agreement, dated July 21, 1997 between John R.
Bellotti and
the Registrant (11)
10.18 Assignment of Leases, effective June 1, 1997, by and between
Harveys Casino Resorts, formerly known as Harvey's Wagon
Wheel, Inc., a Nevada corporation, Harveys Tahoe
Management Company, Inc., a Nevada corporation, and Park
Cattle Co., a Nevada corporation (11)
10.19 Third Amendment to Lease Agreement, dated June 1, 1997, by
and between Park Cattle Co., a Nevada corporation and
Harveys Casino Resorts, formerly known as Harvey's Wagon
Wheel, Inc., a Nevada corporation (11)
10.20 First Amendment to Lease Agreement, dated June 1, 1997,
between Park Cattle Co., a Nevada corporation and Harveys
Casino Resorts, formerly known as Harveys Wagon Wheel,
Inc., a Nevada corporation (Douglas County, Nevada
property) (11)
10.21 First Amendment to Lease Agreement, dated June 1, 1997,
between Park Cattle Co., a Nevada corporation and Harveys
Casino Resorts, formerly known as Harveys Wagon Wheel,
Inc., a Nevada corporation (El Dorado County, California
property) (11)
10.22 Asset Transfer Agreement between Harveys Casino Resorts and
Harveys Tahoe Management Company, Inc., effective June 1,
1997 (11)
10.23 Harveys Casino Resorts Change of Control Plan, effective
June 1, 1997 (16)
10.24 Supplemental Executive Retirement Plan, effective as of
November 20, 1997 (16)
10.25 Extension of Employment Agreement dated September 8, 1997
between Gary Armentrout and the Registrant (16)
</TABLE>
78
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
--------------------- -----------
<C> <S>
10.26 Amended and Restated Credit Facility dated as of December 9,
1998 among Harveys Casino Resorts, Harveys C. C.
Management Company, Inc., Harveys Iowa Management Company,
Inc., Harveys Tahoe Management Company, Inc., HCR Services
Company, Inc., as borrowers, and Wells Fargo Bank, The
First National Bank of Chicago, First Security Bank, N.
A., U.S. Bank National Association, Credit Lyonnais Los
Angeles Branch, Societe Generale, Imperial Bank, Hibernia
Bank, Bank of the West and First Hawaiian Bank, as
lenders, and Wells Fargo Bank, as swingline lender, L/C
issuer and agent bank. (17)
10.27 Employment Agreement made and entered into February 2, 1999
by and between Harveys Casino Resorts and Charles W.
Scharer. (17)
10.28 Employment Agreement made and entered into February 2, 1999
by and between Harveys Casino Resorts and Stephen L.
Cavallaro.(17)
10.29 Employment Agreement made and entered into February 2, 1999
by and between Harveys Casino Resorts and John J.
McLaughlin. (17)
10.30 Deferred Compensation Agreement dated as of February 2, 1999
by and between Harveys Casino Resorts and Charles W.
Scharer. (17)
10.31 Deferred Compensation Agreement dated as of February 2, 1999
by and between Harveys Casino Resorts and Stephen L.
Cavallaro. (17)
10.32 Deferred Compensation Agreement dated as of February 2, 1999
by and between Harveys Casino Resorts and John J.
McLaughlin. (17)
10.33 1999 Omnibus Stock Incentive Plan. (17)
10.34 Stockholders Agreement entered into as of February 2, 1999
by and among Harveys Casino Resorts (the "Company"),
Colony HCR Voteco LLC, Colony Investors III, L. P. And the
securityholders of the Company as identified from time to
time on Schedule A thereto. (17)
10.35 Real Estate Option Agreement dated January 8, 1998 by and
between the Registrant and Grand Plaza Limited
Partnership. (14)
10.36 Amendment, dated as of September 15, 1998, to Option
Agreement dated as of January 8, 1998 by and between the
Registrant and Grand Plaza Limited Partnership. (17)
10.37 Extension of Employment Agreement dated as of October 19,
1998, by and between the Registrant and James J. Rafferty.
(17)
10.38 Extension of Employment Agreement dated as of October 26,
1998, by and between the Registrant and Gary Armentrout.
(17)
10.39 1999 Deferred Compensation Plan Participants. (17)
10.42 Noncompetition and Trade Secret Agreement dated as of
February 1, 1998 by and among Harveys Acquisition
Corporation and the individuals signatory thereto. (15)
10.43 Stock Option and Restricted Stock Agreement dated as of
February 2, 1999 by and between Harveys Casino Resorts and
Gary Armentrout. (17)
10.44 Deferred Compensation Agreement dated as of February 2, 1999
by and between Harveys Casino Resorts and Gary Armentrout.
(17)
10.45 Employment Agreement made and entered into June 14, 1999
between Harveys Casino Resorts and William Stephens. (18)
</TABLE>
79
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
--------------------- -----------
<C> <S>
10.46 Stock Option and Restricted Stock Agreement dated as of
May 7, 1999 by and between Harveys Casino Resorts and
William Stephens. (18)
10.47 Deferred Compensation Agreement dated as of May 7, 1999 by
and between Harveys Casino Resorts and William Stephens.
(18)
10.48 Employment Agreement made and entered into on August 17,
1999 by and between Harveys Casino Resorts and Verne
Welch. (19)
10.49 Agreement and Covenant not to Compete or Use or Disclose
Trade Secrets made and entered into on August 17, 1999 by
and between Verne Welch and Harveys Casino Resorts. (19)
10.50 Purchase and Sale Agreement and Joint Escrow Instructions
dated August 31, 1999 by and between HBR Realty Company,
Inc., a Nevada corporation and Iowa West Racing
Association, Nonprofit Corporation, an Iowa nonprofit
corporation. (22)
10.51 Lease by and between HBR Realty Company, Inc., a Nevada
corporation, as Landlord and Iowa West Racing Association,
Nonprofit Corporation, an Iowa nonprofit corporation as
Tenant, dated October 5, 1999. (22)
10.52 First Amendment to Purchase and Sale Agreement and Joint
Escrow Instructions by and between HBR Realty Company,
Inc., and Iowa West Racing Association, Nonprofit
Corporation, dated October 6, 1999. (22)
10.53 Amended and Restated Excursion Boat Sponsorship and
Operations Agreement by and between Iowa West Racing
Association, and Harveys Iowa Management Company, Inc.,
dated October 6, 1999. (22)
10.54 Management Agreement by and between Harveys BR Management
Company, Inc., and Iowa West Racing Association dated
October 6, 1999. (22)
16.1 Deloitte & Touche LLP's letter regarding change in
certifying accountant. (21)
21.1 List of Subsidiaries of the Registrant. (22)
27 Financial Data Schedule. (22)
</TABLE>
- ------------------------
(1) Incorporated herein by reference to Registration Statement No. 33-70670
(2) Incorporated herein by reference to Registrant's Annual Report on Form 10-K
for the period ended November 30, 1994
(3) Incorporated herein by reference to Registrant's Quarterly Report on Form
10-Q for the period ended May 31, 1995
(4) Incorporated herein by reference to Registrant's Quarterly Report on Form
10-Q for the period ended August 31, 1995
(5) Incorporated herein by reference to Registrant's Annual Report on Form 10-K
for the period ended November 30, 1995
(6) Incorporated herein by reference to Registration Statement No. 333-3576
(7) Incorporated herein by reference to Registrant's Current Report on Form 8-K
filed June 14, 1996
(8) Incorporated herein by reference to Registrant's Quarterly Report on Form
10-Q for the period ended February 28, 1997
(9) Incorporated herein by reference to Registrant's Current Report on Form 8-K
filed July 2, 1997
80
<PAGE>
(10) Incorporated herein by reference to Registrant's Quarterly Report on Form
10-Q for the period ended May 31, 1997
(11) Incorporated herein by reference to Registrant's Quarterly Report on Form
10-Q for the period ended August 31, 1997
(12) Incorporated herein by reference to Registrant's Quarterly Report on Form
8-K filed February 3, 1998
(13) Incorporated herein by reference to Registrant's Current Report on Form 8-K
filed February 12, 1999
(14) Incorporated herein by reference to Registrant's Quarterly Report on Form
10-Q for the period ended February 28, 1998
(15) Incorporated herein by reference to Registration Statement on Form 10 of
Harveys Acquisition Corporation, File No. 0-25093, filed November 20, 1998
(16) Incorporated herein by reference to the Registrant's Annual Report on Form
10-K for the period ended November 30, 1997
(17) Incorporated herein by reference to the Registrant's Annual Report on
Form 10-K for the period ended November 30, 1998
(18) Incorporated herein by reference to the Registrant's Quarterly Report of
Form 10-Q for the period ended May 31, 1999.
(19) Incorporated herein by reference to the Registrant's Quarterly Report on
Form 10-Q for the period ended August 31, 1999.
(20) Incorporated herein by reference to the Registrant's Current Report on Form
8-K filed on September 3, 1999.
(21) Incorporated herein by reference to the Registrant's Current Report on
Form 8-K filed March 18, 1999.
(22) Filed herewith
81
<PAGE>
Exhibit 10.50
PURCHASE AND SALE AGREEMENT
AND JOINT ESCROW INSTRUCTIONS
DATED
AUGUST 31, 1999,
BY AND BETWEEN
HBR REALTY COMPANY, INC.,
A NEVADA CORPORATION,
AND
IOWA WEST RACING ASSOCIATION, NONPROFIT CORPORATION,
AN IOWA NONPROFIT CORPORATION
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
PAGE
1. AGREEMENT TO PURCHASE AND SELL.............................................................2
2. CONSIDERATION..............................................................................2
2.1 Consideration.........................................................................2
2.2 Holdback..............................................................................2
2.3 Letter of Credit......................................................................5
2.4 Allocation of the Consideration.......................................................6
3. OPENING OF ESCROW..........................................................................7
4. ACTIONS PENDING CLOSING....................................................................7
4.1 Due Diligence.........................................................................7
4.2 Title Matters.........................................................................9
4.3 Conduct of Business Pending the Closing..............................................11
4.4 Transferred and Non-Transferred Employees............................................13
4.5 Notice of Change in Circumstances; Litigation........................................14
4.6 No Defaults..........................................................................15
4.7 Exclusive Negotiation................................................................15
4.8 Intentionally Deleted................................................................16
4.9 Hart-Scott-Rodino Act................................................................16
4.10 Formation of Subsidiary.............................................................16
4.11 Reasonable Efforts..................................................................17
5. DESCRIPTION OF PROPERTY...................................................................18
5.1 The Improvements.....................................................................18
5.2 The Real Property....................................................................18
5.3 The Personal Property................................................................18
5.4 The Intangible Property..............................................................19
5.5 Net Working Capital..................................................................20
6. CONDITIONS TO CLOSING.....................................................................20
6.1 HBR's Closing Conditions.............................................................20
6.2 Failure of HBR's Closing Conditions..................................................24
6.3 IWRA's Closing Conditions............................................................24
6.4 Failure of IWRA's Closing Conditions.................................................26
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
7. TERMINATION...............................................................................26
7.1 Termination Events...................................................................26
7.2 Effect of Termination................................................................28
7.3 Payment of Costs Upon Termination....................................................29
8. CLOSING...................................................................................29
8.1 Closing Date.........................................................................29
8.2 Deliveries by IWRA...................................................................29
8.3 Deliveries by HBR....................................................................31
8.4 Actions by Escrow Agent..............................................................32
8.5 Working Capital Adjustments to the Consideration.....................................33
8.6 Post Closing Adjustments.............................................................33
8.7 Closing Costs........................................................................34
8.8 Deliveries Outside of Escrow.........................................................35
9. IWRA'S REPRESENTATIONS AND WARRANTIES.....................................................36
9.1 Existing Contracts...................................................................36
9.2 Insurance............................................................................36
9.3 Litigation...........................................................................36
9.4 Compliance with Laws.................................................................37
9.5 Condemnation; Special Assessments....................................................37
9.6 Toxic or Hazardous Materials.........................................................38
9.7 Disclosure...........................................................................39
9.8 No Conflicts.........................................................................39
9.9 Due Organization; Consents...........................................................40
9.10 IWRA's Authority; Validity of Agreements............................................40
9.11 Foreign Investment In Real Property Tax Act.........................................40
9.12 Leases..............................................................................40
9.13 Gaming Laws.........................................................................40
9.14 Year 2000 Compliance................................................................41
9.15 Financial Statements................................................................42
9.16 Taxes...............................................................................43
9.17 Nonprofit Status....................................................................43
9.18 Liens Against the Gaming License....................................................44
9.19 Liens Against the Gaming Equipment..................................................44
9.20 Books and Records...................................................................44
9.21 No Undisclosed Liabilities..........................................................44
9.22 Accounts Receivable.................................................................44
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
9.23 Disputed Accounts Payable...........................................................44
9.24 Intellectual Property...............................................................45
9.25 Labor Matters.......................................................................46
9.26 Compliance with the WARN Act........................................................48
9.27 Utilities Access....................................................................48
9.28 Complimentaries.....................................................................48
9.29 Customer Database...................................................................48
9.30 Material Misstatements or Omissions.................................................49
9.31 Ad Valorem Taxes....................................................................49
9.32 Mechanic's Liens....................................................................49
9.33 Liens on Personal Property and Intangible Property..................................49
9.34 Condition of Property...............................................................49
9.35 Stipulated Agreement................................................................49
10. HBR'S REPRESENTATIONS AND WARRANTIES......................................................50
10.1 No Conflicts........................................................................50
10.2 Due Organization; Consents..........................................................50
10.3 HBR's Authority; Validity of Agreements.............................................51
10.4 Litigation..........................................................................51
10.5 Current Assets......................................................................51
11. ADDITIONAL COVENANTS OF IWRA..............................................................51
11.1 Gaming License and Status...........................................................51
11.2 IWRA's Nonprofit Status.............................................................52
11.3 Promotion of Gaming.................................................................52
11.4 Litigation..........................................................................53
11.5 Governmental Authorities............................................................53
11.6 Account for Indemnity Claims........................................................53
12. ADDITIONAL COVENANTS OF HBR.
12.1 Calculation of the Cap Payment......................................................53
12.2 Delivery of the Cap Payment.........................................................53
12.3 Certain Rights Assignable...........................................................55
12.4 Equitable Adjustment................................................................56
12.5 Governmental Authorities............................................................56
12.6 Financing...........................................................................56
13. RISK OF LOSS..............................................................................56
13.1 Condemnation........................................................................56
13.2 Casualty............................................................................57
14. REMEDIES..................................................................................57
14.1 Default by HBR......................................................................57
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
14.2 Default by IWRA.....................................................................58
15. BROKERS...................................................................................58
15.1 IWRA's Broker.......................................................................58
15.2 HBR's Broker........................................................................58
16. INDEMNIFICATION...........................................................................58
16.1 HBR's Indemnification...............................................................58
16.2 IWRA's Indemnification..............................................................59
16.3 Further Assurances..................................................................59
17. CONFIDENTIALITY AND PUBLIC ANNOUNCEMENTS..................................................59
17.1 Confidentiality.....................................................................59
17.2 Public Announcements................................................................59
18. MISCELLANEOUS PROVISIONS..................................................................60
18.1 Governing Law.......................................................................60
18.2 Entire Agreement....................................................................60
18.3 Modification; Waiver................................................................60
18.4 Notices.............................................................................60
18.5 Expenses............................................................................63
18.6 Assignment..........................................................................63
18.7 Severability........................................................................63
18.8 Survival............................................................................64
18.9 Arbitration.........................................................................64
18.10 Successors and Assigns; Third Parties..............................................65
18.11 Counterparts.......................................................................65
18.12 Headings...........................................................................65
18.13 Time of Essence....................................................................65
18.14 Further Assurances.................................................................65
18.15 Number and Gender..................................................................66
18.16 Construction.......................................................................66
18.17 Post Closing Access to Records.....................................................66
18.18 Exhibits and Schedules.............................................................66
18.19 Attorneys' Fees....................................................................66
18.20 Business Days......................................................................66
18.21 Amendment or Supplement............................................................66
</TABLE>
iv
<PAGE>
PURCHASE AND SALE AGREEMENT
AND JOINT ESCROW INSTRUCTIONS
THIS PURCHASE AND SALE AGREEMENT AND JOINT ESCROW
INSTRUCTIONS (this "AGREEMENT") is made and entered into as of August 31,
1999 (the "EXECUTION DATE"), by and between HBR REALTY COMPANY, INC., a
Nevada corporation ("HBR"), and IOWA WEST RACING ASSOCIATION, NONPROFIT
CORPORATION, an Iowa nonprofit corporation ("IWRA"), for the purpose of
setting forth the agreement of the parties and of instructing FIDELITY
NATIONAL TITLE INSURANCE COMPANY ("ESCROW AGENT") with respect to the
transactions contemplated by this Agreement.
R E C I T A L S
A. IWRA is the owner of (i) an undivided fee simple
interest in that certain parcel of real property located in the City of
Council Bluffs, County of Pottawattamie, State of Iowa, as more particularly
described on EXHIBIT "A" attached hereto (the "LAND PARCEL"), together with
the "Improvements" (as hereinafter defined) located thereon, comprised of a
casino and a dog racing track commonly known as "Bluffs Run Casino" (the
"GAMING FACILITY"), and (ii) a leasehold interest in certain parcels of real
property located in the City of Council Bluffs, County of Pottawattamie,
State of Iowa, and in the City of Omaha, County of Douglas, State of
Nebraska, each as more particularly described on EXHIBIT "B" attached hereto
(collectively, the "LEASED PROPERTIES").
B. The Land Parcel, together with the Leased Properties,
the Improvements, the balance of the "Real Property," the "Personal
Property," the "Intangible Property," and the "Net Working Capital" (each as
hereinafter defined), are sometimes collectively referred to herein as the
"PROPERTY."
C. Subject to the receipt of any and all permits, consents
and approvals necessary from any "Governmental Authority" (as hereinafter
defined), including, without limitation, the Iowa Racing and Gaming
Commission (the "GAMING COMMISSION"), the Administrator of the Gaming
Commission, the U.S. Federal Trade Commission and the Antitrust Division of
the U.S. Department of Justice and as further set forth in Section 7.1.4
hereof, IWRA desires to sell and HBR desires to purchase the Property upon
and subject to the terms and conditions set forth in this Agreement.
1
<PAGE>
A G R E E M E N T
NOW, THEREFORE, in consideration of the mutual covenants
contained in this Agreement and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, HBR and IWRA
hereby agree, and instruct Escrow Agent, as follows:
1. AGREEMENT TO PURCHASE AND SELL.
Subject to all of the terms and conditions of this Agreement,
IWRA agrees to sell, transfer and convey to HBR, and HBR agrees to acquire and
purchase from IWRA, the Property, upon and subject to the terms and conditions
set forth herein.
2. CONSIDERATION.
2.1 CONSIDERATION. The consideration for the Property (the
"CONSIDERATION") shall be (i) One Hundred Thirty Nine Million Six Hundred
Thousand and No/100 Dollars ($139,600,000.00) plus (ii) an amount equal to the
present value of certain projected tax savings (the "INITIAL TAX SAVINGS
PAYMENT") to be realized by HBR calculated as of the "Closing Date" (as
hereinafter defined) in accordance with SCHEDULE 2.1 attached hereto.
2.2 HOLDBACK. At "Closing" (as hereinafter defined), Forty
Five Million and No/100 Dollars ($45,000,000.00), without interest (the
"HOLDBACK"), of the Consideration shall not be paid by HBR but shall become
payable only in accordance with the terms and conditions set forth below:
2.2.1 REFERENDUM APPROVAL. On or before the
"Referendum Payment Date" (as hereinafter defined), HBR shall pay to IWRA, by
wire transfer of immediately available funds (x) the Holdback, plus (y) Five
Million and No/100 Dollars ($5,000,000.00), without interest (the "BONUS"),
unless either (i) the proposition to approve gambling games at pari-mutuel
racetrack enclosures, submitted to the county electorate at the 2002 general
election pursuant to the requirements of Iowa Code Section 99F.7, subsection
10, subparagraph "d" as in effect on the date hereof (the "REFERENDUM"),
shall not have been approved, or (ii) as of the Referendum Payment Date, a
slots casino cannot continue to be operated at the Gaming Facility under
then-applicable law, PROVIDED, that if a "Referendum Challenge" (as
hereinafter defined) shall have been brought prior to the Referendum Payment
Date, then,
2
<PAGE>
subject to any payment obligation under Sections 2.2.2 and 2.2.3, HBR shall not
be obligated to pay the Holdback or the Bonus. Passage of the Referendum is
hereinafter referred to as "REFERENDUM APPROVAL," the date the results of the
Referendum are certified to the County Auditor of Pottawattamie County, Iowa is
hereinafter referred to as the "REFERENDUM DATE," and the fifth (5th) "Business
Day" (as hereinafter defined) after the Referendum Date is hereinafter referred
to as the "REFERENDUM PAYMENT DATE."
2.2.2 FAILURE OF REFERENDUM APPROVAL WITHOUT
BUSINESS INTERRUPTION. If Referendum Approval is not obtained or if HBR is
not required to pay the Holdback and the Bonus due to the existence of a
Referendum Challenge, but the operation of a slots casino at the Gaming
Facility can continue through December 31, 2003 without being interrupted as
a result of the Referendum or any Referendum Challenge (other than one or
more interruptions totaling an aggregate of no more than four weeks during
such period), then HBR shall have no obligation to pay the Holdback or the
Bonus. In such circumstance, HBR shall be obligated to pay to IWRA, by wire
transfer in immediately available funds, an amount equal to Ten Million and
No/100 Dollars ($10,000,000.00), without interest (the "ANNIVERSARY
PAYMENT"), on December 31, 2003. If the Anniversary Payment has been earned,
then on the last day of each complete calendar quarter after December 31,
2003 during which HBR can continue to operate a slots casino at the Gaming
Facility, HBR shall be obligated to pay to IWRA by wire transfer of
immediately available funds, a payment of Two Million Five Hundred Thousand
and No/100 Dollars ($2,500,000.00), without interest (the "QUARTERLY
PAYMENTS"), PROVIDED, that HBR's obligations to make Quarterly Payments shall
terminate if such operations are interrupted after December 31, 2003 as a
result of the Referendum or a Referendum Challenge, such termination to be
effective for the quarter in which the interruption occurred and all
subsequent quarters. The maximum number of Quarterly Payments shall be as
follows: (a) if the Referendum Approval shall not have been obtained, eight
(8); or (b) if the Referendum Approval was obtained, but HBR is not required
to pay the Holdback and the Bonus because of the existence of a Referendum
Challenge, sixteen (16), each of (a) and (b) shall be reduced as necessary to
reflect any payments made pursuant to Section 2.2.3 hereof.
2.2.3 REFERENDUM CHALLENGES. If any judicial,
administrative or other legal proceeding which seeks to void, delay,
challenge or otherwise contest the results of a Referendum Approval (each, a
"REFERENDUM CHALLENGE") is brought following Referendum Approval, but prior
to the Referendum Payment Date, then, subject to the provisions of Section
2.2.2, HBR shall not be obligated to pay the
3
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Holdback or the Bonus unless and until (i) all such Referendum Challenges
have been dismissed or otherwise denied to the reasonable satisfaction of
HBR, or (ii) not earlier than the 180th day following the Referendum Date,
IWRA shall have provided HBR with an opinion of counsel, reasonably
acceptable to HBR, that such Referendum Challenge is substantially without
merit and likely to fail. Subject to the provisions of this section, if
condition (i) or (ii) above is satisfied, HBR shall pay to IWRA, by wire
transfer of immediately available funds, the Holdback and the Bonus (minus
any amounts paid pursuant to Section 2.2.2 hereof, and plus interest at the
rate of 6% per annum from the Referendum Date to the date such amounts were
actually paid), not later than five (5) Business Days following the
satisfaction of such condition (the "CHALLENGE PAYMENT DATE"). If, prior to
December 31, 2005, HBR makes any payment pursuant to Sections 2.2.1, 2.2.2 or
2.2.3(ii), and as a result of any Referendum Challenge brought prior to, or
within 180 days after, the Referendum Date, HBR cannot continue to operate a
slots casino at the Gaming Facility, IWRA shall reimburse HBR for all amounts
paid pursuant to Sections 2.2.1, 2.2.2 or 2.2.3 hereof, less any amounts that
would have been paid pursuant to Section 2.2.2 if the Referendum Approval had
not been obtained. Any reimbursement shall include interest at the rate of 6%
per annum, from the date HBR made such reimbursable payment to IWRA to the
date IWRA makes such reimbursement to HBR. Prior to the Challenge Payment
Date, either party may initiate arbitration proceedings under Section 18.9
hereunder to challenge the other party's determination that condition (i) or
(ii) is or is not satisfied. The prevailing party in such arbitration shall
be entitled to payment of reasonable costs and attorney's fees incurred in
connection with such arbitration, and all payment obligations of HBR shall be
suspended during the pendency of any such arbitration. If the arbitrators
determine that any suspended payment was due to IWRA, HBR shall pay such
amount, plus interest at the rate of 8% per annum, from the date such payment
was determined to have been due until the date such amount is paid.
2.2.4 RIGHT OF OFFSET. If, on any date that
payment is due to IWRA under this Section 2.2, IWRA owes HBR monies pursuant
to the terms of this Agreement (other than Section 2.2.1), the Lease by and
between HBR and IWRA, attached hereto as EXHIBIT "C" (the "LEASE"), or the
Management Agreement by and between IWRA and Harveys BR Management Company,
Inc., a Nevada corporation ("MANAGER"), attached hereto as EXHIBIT "D" (the
"MANAGEMENT AGREEMENT"), then HBR shall be entitled to offset such amounts
against payments due to IWRA as follows: (i) if such amounts are owed to HBR
pursuant to Section 12.2 hereof, then HBR may offset such amounts from any
payment owed to IWRA, and (ii) if such amounts are owed to HBR pursuant to
any other section of this Agreement, the Lease
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or the Management Agreement such amount shall have been reduced to a final
judgment, not subject to appeal, at which time HBR may offset such amounts
from any payment owed to IWRA. In the event that HBR intends to offset any
amounts, it shall notify IWRA at least five (5) Business Days prior to such
offset, PROVIDED, that the failure to make such notice shall not adversely
affect HBR's right to make such offset. If IWRA disputes any offset, it may
initiate arbitration proceedings under Section 18.9 hereunder to challenge
any such offset within thirty (30) Business Days of the date IWRA receives
notice of such offset from HBR. The prevailing party in such arbitration
shall be entitled to payment of reasonable costs and attorney's fees incurred
in connection with such arbitration. If the arbitrators determine that any
amounts offset by HBR should have been paid to IWRA, HBR shall pay such
amounts, plus interest at the rate of 6% per annum, from the date such
payments were determined to have been due until the date such amounts are
paid.
2.2.5 CERTAIN RIGHTS ASSIGNABLE. Notwithstanding
the provisions of Section 18.6.1 of this Agreement, IWRA may assign its
rights to payment of any amounts payable pursuant to this Section 2.2 to Iowa
West Foundation, an Iowa nonprofit corporation (the "FOUNDATION"), PROVIDED,
that the Foundation shall have executed an agreement to bound by the terms of
this Section 2.2. Upon receipt of notice from IWRA that such assignment has
occurred, HBR shall make such payments directly to the Foundation in
accordance with this Section 2.2.
2.3 LETTER OF CREDIT. HBR's obligations pursuant to Section
2.2.1 and payments due in the event of an unsuccessful Referendum Challenge
under Section 2.2.3 hereof shall be supported by an irrevocable letter of
credit on the terms set forth on Schedule 2.3 attached hereto (the "LETTER OF
CREDIT"), which Letter of Credit shall be delivered on the Closing Date
pursuant to Section 8.3.4 hereof. On the Closing Date, Escrow Agent shall
deliver the Letter of Credit to First National Bank of Omaha ("L/C ESCROW
AGENT") to be held pursuant to the terms and conditions below. The reasonable
fees and expenses of the L/C Escrow Agent shall be paid by HBR.
2.3.1 DRAWS ON THE LETTER OF CREDIT. If HBR is
obligated to pay the Holdback and the Bonus to IWRA in full pursuant to
Sections 2.2.1 or 2.2.3, but HBR fails to make such payment when due, then
IWRA shall send HBR a notice of such failure. If HBR does not pay the
Holdback to IWRA within two (2) Business Days of HBR's receipt of IWRA's
notice, then, subject to Section 2.3.3 below, IWRA and HBR shall each deliver
a notice executed by such party which instructs L/C Escrow Agent to draw on
the amount of the Letter of Credit to the extent of any shortfall in the
payment of the Holdback. Notwithstanding anything to the contrary
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herein, subject to the terms of Section 2.3.2 below, L/C Escrow Agent shall
draw on the entire stated amount of the Letter of Credit on the third (3rd)
Business Day prior to the expiry date thereof, unless on or before such date,
HBR delivers to L/C Escrow Agent (i) an extension of such expiring Letter of
Credit, (ii) a replacement letter of credit substantially on the same terms
as the Letter of Credit, or (iii) an amount of cash equal to the stated
amount of the expiring Letter of Credit.
2.3.2 CANCELLATION OF THE LETTER OF CREDIT.
Within three (3) Business Days of the occurrence of either (i) the Referendum
Date, if Referendum Approval is not obtained; or (ii) the later of HBR's
payment of the Holdback and the Bonus as set forth in Sections 2.2.1 or
2.2.3, if the Referendum Approval is obtained; IWRA and HBR shall deliver a
notice executed by each party which instructs L/C Escrow Agent to cancel the
Letter of Credit. If a Referendum Challenge is pending and HBR makes any
payment to IWRA under Section 2.2.2 hereof, IWRA and HBR shall deliver a
notice executed by each party which instructs L/C Escrow Agent to reduce the
amount of the Letter of Credit accordingly.
2.3.3 DISPUTES. In the event that HBR and IWRA
have any dispute regarding any matter governed by this Section 2.3, then they
shall submit their dispute to binding arbitration in accordance with Section
18.9 hereof. Notwithstanding anything to the contrary herein, in the event
that there is a dispute between the parties as to any amount to be disbursed
from L/C Escrow Agent to IWRA, then (i) with respect to the amounts in
dispute, L/C Escrow Agent shall hold such amount or the Letter of Credit
supporting such amount in escrow and shall not disburse any disputed amounts
until the dispute is resolved pursuant to a written agreement between HBR and
IWRA or a written determination of the arbitrator pursuant to Section 18.9
hereof and (ii) with respect to amounts not in dispute, HBR and IWRA shall
instruct L/C Escrow Agent to disburse the undisputed amounts to IWRA in
accordance with the terms of this Agreement. Upon the parties receipt of an
exe cuted decision of an arbitrator with respect to any amount held by L/C
Escrow Agent, HBR and IWRA shall deliver instructions to L/C Escrow Agent to
disburse such amounts in accordance with such arbitrator's decision.
2.4 ALLOCATION OF THE CONSIDERATION. The Consideration
(less any payments required under Section 2.2 hereof) shall be allocated
among the Property in accordance with section 1060 of the Internal Revenue
Code of 1986, as amended (the "CODE"), and the Treasury regulations
promulgated thereunder, and such allocations shall be reflected on EXHIBIT
"E" attached hereto. HBR and IWRA agree to file their respective United
States federal and state income "Tax Returns" (as defined below),
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including Internal Revenue Service Form 8594, in a manner consistent with
EXHIBIT "E" as such exhibit may be adjusted, from time to time. Prior to the
Closing, EXHIBIT "E" shall be prepared by HBR and be reasonably acceptable to
IWRA. Any additional Consideration paid pursuant to Section 2.2 hereof shall be
allocated pursuant to section 1060 of the Code and in a manner consistent with
the allocations as set forth on EXHIBIT "E".
30 OPENING OF ESCROW.
On or before the third (3rd) Business Day after the
Execution Date, HBR and IWRA shall cause an escrow ("ESCROW") to be opened
with Escrow Agent by delivery to Escrow Agent of a fully executed copy of
this Agreement. This Agreement shall constitute escrow instructions to Escrow
Agent as well as the agreement of the parties. Escrow Agent is hereby
appointed and designated to act as Escrow Agent and instructed to deliver,
pursuant to the terms of this Agreement, the documents and funds to be
deposited into Escrow as herein provided. The parties hereto shall execute
such additional escrow instructions (not inconsistent with this Agreement as
determined by counsel for HBR and IWRA) as Escrow Agent shall deem reasonably
necessary for its protection, including Escrow Agent's general provisions (as
may be modified by HBR, IWRA and Escrow Agent). In the event of any
inconsistency between the provisions of this Agreement and such additional
escrow instructions, the provisions of this Agreement shall govern.
40 ACTIONS PENDING CLOSING.
4.1 DUE DILIGENCE.
4.1.1 PROPERTY DOCUMENTS. Prior to the Execution
Date, at IWRA's sole cost and expense, IWRA has delivered to HBR, for its
review and copying, true, correct and complete copies of all contracts,
organizational and corporate documents, collective bargaining agreements,
employment documents and records, correspondence, books, ledgers, files and
any and all other materials relating to the Property (other than business
plans, marketing plans, and other proprietary documents which shall be
delivered to HBR at Closing), including, without limitation, all tax filings
(including, without limitation, those related to IWRA's charitable or
nonprofit status), audited and unaudited financial statements for the past
three (3) years, incorporation documents, corporate by-laws and minutes,
standard operating procedure manuals or guidelines, business plans,
documentation regarding human resource programs or policies, personnel
records, marketing plans, as-built plans and
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specifications, income and expense records, leases, engineering tests, soil
tests, hazardous materials reports, termite reports, environmental reports
and assessments, "Service Contracts" (as hereinafter defined), structural and
mechanical reports, maps (including, without limitation, topographical maps),
plans, agreements, governmental permits and approvals, licenses, appraisals,
abstracts of title, title opinion letters, title policies, surveys,
construction warranties, land studies, a description of existing and known
proposed local improvements affecting the Property (including, without
limitation, assessment levels), a certificate from the appropriate
governmental authorities confirming the zoning, building and platting status
of the Property, all correspondence with all Federal, state or local
government or any court, administrative, or regulatory agency or commission
or other governmental entity or agency or quasi-governmental entity or agency
of any nature, domestic or foreign, including, without limitation, the Gaming
Commission, the Administrator of the Gaming Commission, the U.S. Federal
Trade Commission and the Antitrust Division of the U.S. Department of Justice
(collectively, the "GOVERNMENTAL AUTHORITIES" and each, a "GOVERNMENTAL
AUTHORITY") regarding the Property, all property tax statements and assessed
value notices, and all insurance policies (collectively, the "PROPERTY
DOCUMENTS"), to the extent that the same were in its possession and IWRA has
used its best efforts to cause its agents, auditors or independent
contractors to deliver the same to HBR after a diligent review and
examination of their respective files and records.
4.1.2 HBR'S DILIGENCE TESTS. At all reasonable
times during the period commencing on the Execution Date and ending on the
Closing Date or the earlier termination of this Agreement, HBR, its agents
and representatives shall be entitled to: (a) enter onto the Property at all
reasonable times so long as reasonable advance notice has been given to IWRA,
to perform any inspections, investigations, studies and tests of the
Property, including, without limitation, physical, structural, mechanical,
architectural, engineering, soils, geotechnical and environmental tests, that
HBR deems reasonable; (b) cause an environmental assessment of the Property
to be performed, upon reasonable notice to IWRA; (c) review all Property
Documents and examine and copy any and all books and records maintained by
IWRA or its agents (including, without limitation, all documents relating to
utilities, zoning and the access, subdivision and appraisal of, and all legal
requirements affecting, the Property); and (d) investigate such other matters
as HBR may reasonably desire. The parties shall use commercially reasonable
efforts to obtain an environmental report and assessment reasonably
acceptable to HBR (the "PHASE I REPORT") as soon as reasonably practicable.
HBR shall indemnify, protect, defend and hold harmless IWRA from all claims,
liens and encumbrances (including, without limitation, any
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claim for a mechanic's lien or materialman's lien), causes of action, costs,
losses, damages and reasonable attorneys' fees incurred by IWRA in connection
with or arising out of any inspections or tests carried on, by or on behalf
of HBR pursuant to this Section 4.1.2; PROVIDED, HOWEVER, that HBR shall not
indemnify IWRA for any claim, loss or cause of action caused by IWRA's
negligence or willful misconduct or any physical condition existing on the
Property prior to HBR's or its agent's entry thereon. HBR's indemnity
obligation pursuant to the immediately preceding sentence shall survive the
Closing or earlier termination of this Agreement.
4.2 TITLE MATTERS.
4.2.1 ABSTRACT OF TITLE. IWRA has caused a
continuation of the abstract of title for the Real Property (the "ABSTRACT OF
TITLE") to be completed and delivered to the Law Offices of Curtis J.
Heithoff, Attorney at Law, HBR's Iowa local counsel ("HBR'S LOCAL COUNSEL").
HBR's Local Counsel has examined and prepared an attorney's title opinion
(the "TITLE OPINION") addressed to Fidelity National Title Insurance Company
(in such capacity, "TITLE COMPANY"). The Abstract of Title shall become the
property of HBR on the Closing Date, and shall show marketable title, subject
to "Permitted Exceptions" (as defined below) in conformity with this
Agreement, the land title law of the State of Iowa, and the Iowa Title
Standards of the Iowa State Bar Association.
4.2.2 DELIVERIES BY IWRA. IWRA has caused: (a)
Title Company to issue and deliver to HBR a current preliminary report for an
American Land Title Association (ALTA) extended coverage owner's policy of
title insurance for the Property (the "PTR"); (b) Title Company to deliver to
HBR legible copies of all documents referenced as exceptions in the PTR
(collectively, the "UNDERLYING DOCUMENTS"); (c) a search for filings (at the
State and County in which the Property is located and at the State of
formation of IWRA) pursuant to the Uniform Commercial Code with regard to
the Personal Property (the "UCC SEARCH") to be performed and delivered to
HBR; and (d) a surveyor licensed in the State of Iowa to prepare and deliver
to HBR and Title Company a current as-built survey for the Property (the
"SURVEY"), in a form reasonably satisfactory to HBR and Title Company, made
in accordance with ALTA / ACSM minimum technical standards and the laws of
the State of Iowa, certified to HBR (and its nominees), Title Company, IWRA
and, at the request and expense of HBR, to any other person, limited
partnership, limited liability company, corporation, joint venture, or any
other entity (collectively, "PERSON") as HBR may reasonably request, showing
the entire Real Property, all adjoining streets and roads (including, without
limitation, the points of ingress and
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regress thereto), the exact location by metes and bounds and the exact
dimensions of the Land Parcel and any buildings and structures located
thereon, a legal description of the Land Parcel, the flood zone designation
of the Real Property, the exact location of any Improvements, set back lines,
protrusions, encroachments, parking spaces and easements on and upon the Real
Property, together with all rights-of-way and other matters relating to the
Real Property. The PTR, the Underlying Documents, the UCC Search and the
Survey shall be collectively referred to herein as the "TITLE DOCUMENTS."
Notwithstanding the foregoing, the parties hereby acknowledge that, as of the
Execution Date, a final Survey has not yet been delivered by IWRA to HBR for
approval.
4.2.3 HBR'S REVIEW OF TITLE. HBR shall have
until the fifteenth (15th) day following the receipt of all Title Documents
and the Phase I Report (the "DUE DILIGENCE TERMINATION DATE") to notify IWRA
in writing of any objection that HBR may have to any matters reported or
shown in the Title Documents (provided, however, that if any updates to the
Title Documents are received by HBR, HBR shall have an additional five (5)
Business Days, regardless of the passage of the Due Diligence Termination
Date, following HBR's receipt of such update and legible copies of all
documents referenced therein, to notify IWRA of objections to items shown on
any such update that were not disclosed on the previously delivered Title
Documents). Matters reported in or shown by the Title Documents (or any
updates thereof) and not timely objected to by HBR as provided above shall be
deemed to be "PERMITTED EXCEPTIONS." As a condition to Closing, IWRA shall
take all reasonable action necessary to remove from title to the Property any
exceptions and matters so objected to by HBR, or, in the alternative, IWRA
shall obtain for HBR title insurance from Title Company insuring over such
exceptions or matters, such insurance to be in form and substance
satisfactory to HBR. If, prior to the Closing, IWRA is unable despite such
reasonable actions to remove or satisfactorily insure over any exceptions or
matters objected to by HBR, then HBR may, as its sole and exclusive remedy
therefor, either: (a) terminate this Agreement (in which case the parties
shall equally share the cancellation charges, if any, of Escrow Agent and
Title Company, and neither party shall thereafter have any rights or
obligations to the others hereunder, other than pursuant to Sections 4.1.2
and 8.7 and Article 15 hereof, which provisions shall survive the termination
of this Agreement); or (b) proceed to a timely Closing whereupon such
objected to exceptions or matters shall be deemed to be Permitted Exceptions.
Notwithstanding anything to the contrary contained herein, IWRA shall
discharge and remove any and all liens affecting the Property that secure an
obligation to pay money (other than installments of real estate taxes not
delinquent
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as of the Closing) (collectively, the "LIENS") and, even though HBR does not
expressly disapprove such Liens, such Liens shall not be Permitted Exceptions.
4.2.4 CONDITION OF TITLE AT CLOSING. Upon the
Closing, IWRA shall transfer, contribute and convey to HBR fee simple title
to the Real Property by a duly executed and acknowledged general warranty
deed in the form of EXHIBIT "G" attached hereto (the "DEED"), subject only to
the Permitted Exceptions. Prior to the Closing, IWRA shall not take any
action or commit or suffer any acts that would give rise to a variance from
the current legal description of the Real Property, or cause the creation of
any exception or encumbrance against or respecting the Real Property without
the prior written consent of HBR, which consent may be withheld in HBR's sole
and absolute discretion. IWRA shall not directly or indirectly sell,
contribute, assign or create any right, title or interest whatsoever in or to
the Property, the Gaming License, or the Gaming Equipment, or create or
permit to exist thereon any lien, charge or encumbrance other than the
applicable Permitted Exceptions, or enter into any agreement to do any of
the foregoing, without the prior written consent of HBR (which consent may be
granted or withheld in HBR's sole and absolute discretion). Nothing in this
Section 4.2.4 shall preclude HBR from disapproving title matters in
accordance with the provisions of Section 4.2.3 hereof.
4.3 CONDUCT OF BUSINESS PENDING THE CLOSING. From the
Execution Date through the Closing Date, IWRA shall conduct its operations
and business with respect to the Property in the ordinary and usual course of
business, consistent with all laws, rules, regulations, ordinances, or court
or administrative orders or decisions of all applicable "Governmental
Authorities" (collectively, "LAWS") and past practice. In furtherance of the
immediately preceding sentence, IWRA shall use its best efforts to cause AIM,
Inc., an Iowa corporation ("CURRENT MANAGER"), its current property manager,
and all of IWRA's and/or Current Manager's employees to operate the Property
in the ordinary course of business, consistent with all Laws and past
practice. Current Manager shall be deemed to have reviewed this Agreement.
4.3.1 Without limiting the generality of the
foregoing, and except as otherwise expressly permitted by this Agreement,
prior to the Closing Date, without the prior written consent of HBR, IWRA
shall not:
(i) mortgage or otherwise encumber or subject
to any lien any of the Property;
(ii) sell, transfer or assign any of the
Property;
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(iii) enter into any contract with respect to
the Property which (a) is not terminable within ninety (90) days, or (b)
requires the approval of the Gaming Commission, unless with respect to (a)
and (b), a proposed copy of the contract, including, without limitation, any
agreements relating to greyhound purses, has been delivered to HBR and HBR
has not disapproved such contract within five (5) Business Days of its
receipt;
(iv) take any actions with respect to the
development of the Property, including, without limitation, applying for,
pursuing, accepting or obtaining any permits, approvals or other development
entitlements from any Governmental Authority or finalizing or entering into
any agreements relating thereto without the prior written consent of HBR
(which consent may be granted or withheld in HBR's sole and absolute
discretion);
(v) except as may be required by a change in
Law or in generally accepting accounting principles, change any of the
accounting practices, principles, or procedures employed as of the Execution
Date;
(vi) unless required by a change in Law,
close, terminate or otherwise eliminate any activity historically conducted
on the Property;
(vii) unless required by a change in Law, make
any material change to any practice or procedure relating to the employees of
IWRA, including, without limitation, any human resources procedures,
compensation and benefit programs, and salary or hourly wage amounts, except
ordinary merit pool increases or increases due to tenure in accordance with
past practice provided that, with respect to any employee, such increase
shall not exceed five percent (5%) of such employee's salary or hourly rate
prior to such increase without the prior written consent of HBR (which
consent may be granted or withheld in HBR's sole and absolute discretion);
(viii) take or agree to take in writing or
otherwise, any actions prohibited in subsections (i) through (vii) above.
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4.4 TRANSFERRED AND NON-TRANSFERRED EMPLOYEES.
4.4.1 HBR will extend offers of continued
employment to all the employees of IWRA working at the Property as of or
immediately prior to the Closing Date for employment beginning immediately
after the Closing Date (other than the general manager (the "GENERAL
MANAGER") of the Property). Employees who accept such employment with HBR are
herein collectively referred to as the "TRANSFERRED EMPLOYEES." For the
purposes of compensation, leave and benefit programs only, including tenure
provisions and vesting rights, each Transferred Employee shall retain as his
or her hire date, the most recent date he or she was hired by IWRA. The terms
and conditions of employment of such Transferred Employees, including
benefits, shall be at least equal to those provided to existing employees of
the entity affiliated with HBR that owns and operates the riverboat casino
located in Council Bluffs, Iowa, commonly known as Harvey's Casino Hotel.
Each of the parties agrees to cooperate with each other in order to
accomplish an orderly transfer of the Transferred Employees. IWRA hereby
agrees to employ the General Manager upon such terms as HBR and the General
Manager shall agree to assist in such transition (the "TRANSITION EMPLOYMENT
PERIOD"). HBR shall be responsible for the General Manager's compensation and
benefits (as in effect on the Execution Date) during the Transition
Employment Period. IWRA shall use its best efforts to cause the General
Manager of the Property to cooperate with and aid in the orderly transfer of
the Property to HBR. Upon request by HBR prior to the end of the Transition
Employment Period, IWRA shall terminate the employment of the General
Manager following the Transition Employment Period. IWRA shall pay ninety
(90) days' severance pay to General Manager.
4.4.2 On or prior to the Closing Date, IWRA shall
terminate the employment of all Transferred Employees.
4.4.3 All obligations, debts, and liabilities
relating to any Transferred Employee, which (a) due and payable on or prior
to the Closing Date, (b) attributable to the period on or prior to the
Closing, (c) have accrued but are not due or payable on or prior to the
Closing (excluding, however, any obligations, debts or liabilities included
in the working capital adjustment set forth in Section 8.5 hereof which shall
be HBR's obligations), are the responsibility of IWRA and (d) any accrued
bonuses are the responsibility of IWRA and are to be paid to the Transferred
Employees by IWRA prior to or on the Closing Date.
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4.4.4 All known obligations, debts, liabilities
and "Proceedings" (as hereinafter defined) relating to any and all employees
of IWRA that are not Transferred Employees (such employees being hereinafter
referred to as "NON-TRANSFERRED EMPLOYEES") for periods prior to and
including the Closing Date, including, without limitation, all salaries,
accrued vacations, bonuses and liabilities under severance or employment
agreements for the Non-Transferred Employees, are the responsibility of IWRA.
IWRA shall have the right (in its sole and absolute discretion) to terminate
or not to terminate any or all of the Non-Transferred Employees. For any
Non-Transferred Employees that remain employees of IWRA from and after the
Closing Date, IWRA shall continue to assume any and all liabilities under any
health, welfare, insurance, disability, retirement or similar plans, policies
or arrangements and other liabilities or obligations concerning or relating
to Non-Transferred Employees and shall indemnify, defend and hold HBR
harmless from and against any and all Proceedings arising out of or relating
in any way to the employment, employment practices, terms and conditions of
employment or termination of employment by IWRA of any Non-Transferred
Employee, including, without limitation, any current or future Proceedings
regarding the violation of applicable Federal, state and local laws, rules
and regulations relating to immigration, discrimination, harassment, terms
and conditions of employment, work hours, wages, plant closings or mass
layoffs, child labor, occupational health and safety, and the payment and
withholding of taxes and other sums required by Governmental Authorities.
4.4.5 HBR and IWRA acknowledge and agree that,
(a) except as provided in Section 4.4.1 no representations or commitments
concerning the terms or conditions of employment by IWRA or HBR following the
Closing have been or will be given to any employees of IWRA, except as agreed
to in writing as a joint or individual communication to any employees of IWRA
and as may be required for any "effects bargaining" with the Union; (b)
except as HBR may otherwise agree in writing or as may be required by Law,
the employment of any Transferred Employee by HBR following the Closing shall
be on an at-will basis, and HBR (or any such Transferred Employee) may
terminate the employment relationship at any time, for any reason, with or
without cause or notice; and (c) the terms and conditions of the Transferred
Employees' employment with HBR follow ing the Closing are subject to change
at any time with or without notice.
4.5 NOTICE OF CHANGE IN CIRCUMSTANCES; LITIGATION. IWRA
shall promptly notify HBR of any change (collectively, the "CHANGES") in any
condition with respect to the Property or any portion thereof or of any event
or circumstance of which IWRA obtains knowledge subsequent to the Execution
Date that (a) materially
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affects the Property or any portion thereof, or the use or operation of the
Property or any portion thereof, (b) makes any representation or warranty of
IWRA to HBR under Article 9 of this Agreement untrue or misleading in any
material respect or (c) makes any covenant or agreement of IWRA under this
Agreement incapable or substantially less likely of being performed, it being
expressly understood that IWRA's obligation to provide information to HBR
under this Section 4.5 shall in no way relieve IWRA of any liability for a
breach by IWRA of any of its representations, warranties, covenants or
agreements under this Agreement. In addition to the foregoing, on or before
the Closing Date, IWRA shall deliver to HBR written notice of any Changes of
which IWRA has knowledge that have occurred since or subsequent to the
Execution Date. In the event that any "Proceeding" of the character described
in Section 9.3 hereof is initiated prior to the Closing, IWRA shall promptly
advise HBR in writing. Notwithstanding anything to the contrary contained
herein, if IWRA becomes aware after the Execution Date of any Changes that
(i) make any representation or warranty set forth in this Agreement (which
was true, correct and complete as of the Execution Date) untrue, incorrect or
incomplete or (ii) make any covenant or agreement of IWRA under this
Agreement (which was, as of the Execution Date, capable of being performed)
incapable or substantially less likely of being performed, to the extent that
such Changes are not a result of IWRA's breach of this Agreement, such
Changes shall not constitute a default by IWRA hereunder and shall have no
liability to HBR with respect thereto, but IWRA shall promptly notify HBR of
such Changes.
4.6 NO DEFAULTS. IWRA shall not default with respect to the
performance of any obligation relating to the Property, including, without
limitation, the payment of all amounts due and the performance of all
obligations with respect to any existing indebtedness or existing leases or
contracts affecting the Property.
4.7 EXCLUSIVE NEGOTIATION. Until the earlier to occur of
the Closing Date or the termination of this Agreement, IWRA shall (i) remove
the Property from the market, (ii) not authorize or permit any affiliate,
agent, partner, officer, director or employee of, or any investment banker,
attorney or other advisor or representative of IWRA (collectively, the "IWRA
PARTIES") to, directly or indirectly, (A) solicit or initiate, or encourage
any inquiries regarding a transfer of the of the Property to any Person,
other than HBR, or (B) participate in any discussions or negotiations
regarding, or furnish to any Person any information with respect to, or take
any other action to facilitate the making of any proposal or offer that
constitutes, or may reasonably be expected to impede, interfere with,
frustrate, prevent, nullify or materially delay the transactions contemplated
hereby or which would reasonably be
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expected to materially dilute the benefits to HBR of the transactions
contemplated hereby, and (iii) immediately advise HBR of any proposal, offer,
or request for information it receives (together with the details of such
proposal, offer or request for information) from any Person with respect to
the transfer of the Property. IWRA shall cease and shall immediately instruct
IWRA Parties to immediately cease and cause to be terminated any such
existing activities, discussions and negotiations with any Persons conducted
prior to the Execution Date.
4.8 INTENTIONALLY DELETED.
4.9 HART-SCOTT-RODINO ACT. As soon as practicable, IWRA
and HBR shall make any and all filings practicable under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR ACT"). IWRA
will furnish to HBR, and HBR will furnish to IWRA, such necessary information
and reasonable assistance as either party may request in connection with its
preparation of necessary filings or submissions to any Governmental Authority
in connection with the transactions contem plated by this Agreement, the
Lease and/or the Management Agreement, including, without limitation, any
filings necessary under the provisions of the HSR Act. IWRA will supply HBR,
and HBR will supply IWRA, with copies of all correspondence, filings, or
communications (or memoranda setting forth the substance thereof) between
IWRA and its representatives or HBR and its representatives, on the one hand,
and the U.S. Federal Trade Commission, the Antitrust Division of the U.S.
Department of Justice, or any other Governmental Authority or members of its
staff, on the other hand with respect to the Agreement or the transactions
contemplated hereby.
4.10 FORMATION OF SUBSIDIARY. IWRA shall use its reasonable
best efforts (i) to form either (A) a single purpose subsidiary in which to
conduct any and all activities of IWRA other than as specified in Section
4.10(i)(B), or (B) a single purpose subsidiary to receive any and all fees and
payments contemplated by the Lease and the Management Agreement, and (ii) to
obtain all consents and approvals necessary from any Governmental Authority with
respect to the formation of such subsidiary. If IWRA elects to, and is otherwise
able to, form a subsidiary under clause (i)(B) of this Section 4.10, IWRA shall
assign the Lease and Management Agreement to such subsidiary (HBR's consent to
such assignment being hereby acknowledged).
4.11 REASONABLE EFFORTS. Upon the terms and subject to the
conditions set forth in this Agreement, each of the parties agrees to use
all commercially
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reasonable efforts to take, or cause to be taken (including through its
officers and directors and other appropriate personnel), all actions, and to
do, or cause to be done, and to assist and cooperate with the other parties
in doing, all things necessary, proper or advisable to consummate and make
effective, in the most expeditious manner practicable, the transactions
contemplated by this Agreement, the Lease and the Management Agreement,
including, without limitation, (i) obtaining all necessary actions or
nonactions, waivers, consents and approvals from the Governmental Authorities
and the making of all necessary registrations and filings (including filings
with the Governmental Authorities, if any) and taking all reasonable steps as
may be necessary to obtain "Licenses" (as hereinafter defined) or waivers
from, or to avoid an action or proceeding by, any Governmental Authority
(including in respect of any pari-mutuel or gaming laws), (ii) obtaining all
necessary consents, approvals or waivers from third parties, (iii) defending
any Proceeding, whether judicial or administrative, challenging this
Agreement or the consummation of any of the transactions contemplated by this
Agreement, including seeking to have any stay or temporary restraining order
entered by any court or other Governmental Authority vacated or reversed,
(iv) IWRA's introduction and facilitation of discussions between HBR and any
third parties reasonably requested by HBR, including, without limitation,
the Iowa Greyhound Association and all other Persons involved in the dog
racing activities conducted at the Property, and (v) the execution and
delivery of any additional instruments necessary to consummate the
transactions contemplated by, and to fully carry out the purposes of, this
Agreement. Notwithstanding the foregoing, the parties acknowledge that HBR
and its "Affiliates" (as defined below) are not obligated by any provision of
this Agreement to obtain any consent, approval, license, waiver, order,
decree, determination of suitability or other authorization with respect to
any limited partner of any Affiliate of HBR. Nothing herein shall be deemed
to require HBR or IWRA or any of their respective Affiliates to take any
steps (including without limitation the expenditure of funds) or provide any
information to obtain any consent, approval, license, waiver, order, decree,
determination of suitability or other authorization, other than is customary
in the State of Iowa for such matters or are reasonably required to carry out
the intent of this Agreement. As used in this section, an "AFFILIATE" of any
Person means another Person that, directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is under common control with,
such first Person.
50 DESCRIPTION OF PROPERTY.
5.1 THE IMPROVEMENTS. As used herein, the term
"IMPROVEMENTS" shall mean all buildings, improvements, structures and
fixtures now or hereafter
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located on or in the Land Parcel, including, without exception, the Gaming
Facility, but excluding the "Gaming Equipment" (as hereinafter defined).
5.2 THE REAL PROPERTY. As used herein, the term "REAL
PROPERTY" shall include (a) the Improvements, (b) all apparatus, equipment
and appliances affixed to and used in connection with the operation or
occupancy of the Land Parcel and/or any of the Improvements (including,
without limitation, heating, air conditioning or mechanical systems and
facilities used to provide any utility services, refrigeration, ventilation,
waste disposal or other services) and now or hereafter located on or in the
Land Parcel or any of the Improvements, and (c) all of IWRA's rights,
privileges and easements appurtenant to or used in connection with the Land
Parcel and/or any of the Improvements, including, without limitation, all
minerals, oil, gas and other hydrocarbon substances, all development rights,
air rights, water, water rights and water stock relating to the Land Parcel,
all strips and gores, all of IWRA's rights, title and interest in and to any
streets, alleys, easements, rights-of-way, public ways, or other rights of
IWRA appurtenant, adjacent or connected to the Land Parcel.
5.3 THE PERSONAL PROPERTY. As used herein, the term
"PERSONAL PROPERTY" shall mean all of that certain tangible personal
property, equipment and supplies owned by IWRA and situated at the Real
Property and used by IWRA in connection with the use, operation, maintenance
or repair of all or any portion of the Real Property, including without
limitation, computer equipment, service equipment, kitchen equipment,
decorations, china, glassware, linens, silverware, kitchen and bar small
goods, paper goods, printing, stationery, uniforms, furniture, fixtures,
appliances, fittings, furnishings, vehicles and inventories (including,
without limitation, all food and beverages, maintenance and housekeeping
supplies, and other supplies of all kinds, whether in use or held in reserve
storage for future use in connection with the operation of the Property);
PROVIDED, HOWEVER, the gaming equipment described on SCHEDULE 5.3 attached
hereto, together with such other gaming equipment, if any, which may only be
owned by the holder of the Gaming Licenses pursuant to applicable Law
(collectively "GAMING EQUIPMENT"), shall be retained by IWRA and not
transferred to HBR.
5.4 THE INTANGIBLE PROPERTY. As used herein, the term
"INTANGIBLE PROPERTY" shall mean all of that certain intangible property
owned by IWRA and used by IWRA in connection with all or any portion of the
Real Property and/or the Personal Property, including, without limitation,
all of IWRA's right, title and interest in, to and under: (a) all contract
rights (including, without limitation, the
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Service Contracts), current accounts receivable (as determined in accordance
with generally accepted accounting principles), books, records, reports,
operating and training manuals, test results, environmental assessments, if
any, as-built plans, specifications and other similar documents and materials
relating to the use, operation, maintenance, repair, construction or
fabrication of all or any portion of the Real Property and/or the Personal
Property; (b) all rights, if any, in and to the trademarks, tradenames,
patents, and trade secrets; (c) all computer software used in the operation
and maintenance of all activities conducted on the Property (collectively,
the "SOFTWARE"); (d) all transferable business licenses, architectural, site,
landscaping or other permits, applications, approvals, authorizations and
other entitlements affecting any portion of the Real Property; (e) all
transferable guarantees, warranties and utility contracts relating to all or
any portion of the Real Property; (f) all human resources files and records
and all other records relating to any Transferred Employees; and (g)
goodwill, all customer lists and player lists, mailing lists, casino files,
copies of accounting records and copies of financial statements.
Notwithstanding the foregoing, all originals of books, accounting records and
other business records of IWRA may be retained by IWRA if HBR receives copies
of such documents to the extent pertaining to the Property or the Gaming
Facility, IWRA maintains such original documents to the extent pertaining to
the Property or the Gaming Facility in good condition after the Closing Date
and HBR is afforded such reasonable access to the original documents to the
extent pertaining to the Property or the Gaming Facility as it may request.
As used herein, "Intangible Property" shall not include the following
(collectively, the "EXCLUDED INTANGIBLE PROPERTY"): (i) U.S. patent number
5,908,354, dated June 1, 1999, which is owned by the General Manager, (ii)
the patent pending relating to activity boards used in the Gaming Equipment,
which patent has been filed by the General Manager, (iii) all federal
trademark registrations and/or pending applications for the following
trademarks and servicemarks currently being used in the Gaming Facility, each
of which is owned by the General Manager: "Lucky Dog" (Registration No.
2,134,991); "Wild Dog" (Registration No. 2,168,578), and "Wowzer"
(registration pending); and (iv) subject to Section 11.4 hereof, any claim
for tax refunds which relates to any period prior to the Closing Date.
5.5 NET WORKING CAPITAL. As used herein, "NET WORKING
CAPITAL" shall mean "current assets," as determined in accordance with
generally accepted accounting principles applied consistently with Seller's
past practice (including without limitation, the "Cash Amount" (as
hereinafter defined)), less "current liabilities," as determined in
accordance with generally accepted accounting princi-
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ples consistent with Seller's past practice. The term "CASH AMOUNT" shall
mean cash in the amount of Six Million and No/100 Dollars ($6,000,000.00).
60 CONDITIONS TO CLOSING.
6.1 HBR'S CLOSING CONDITIONS. The obligation of HBR to
complete the transactions contemplated by this Agreement is subject to the
following conditions precedent (and conditions concurrent, with respect to
deliveries to be made by the parties at Closing) (collectively, "HBR'S
CLOSING CONDITIONS"), which conditions may be waived, or the time for
satisfaction thereof extended, by HBR only in a writing executed by HBR
(provided, however, that any such waiver shall not affect HBR's ability to
pursue any remedy it may have with respect to any breach hereunder by IWRA):
6.1.1 TITLE. Title Company shall be prepared and
irrevoca bly committed to issue to HBR (with an effective date not earlier
than the Closing Date), an American Land Title Association extended coverage
owner's policy of title insurance in favor of HBR for the Real Property (the
"OWNER'S TITLE POLICY"), (a) showing fee title to the Real Property vested in
HBR or its nominee, (b) including those endorsements reasonably requested by
HBR (provided that such endorsements are available to HBR), (c) containing no
exceptions other than the applicable Permitted Exceptions, and (d) stating
liability coverage in such amounts as shall be determined by HBR (provided
that the aggregate amount of liability coverage shall not exceed the amount
of the Consideration less the value of the Personal Property (as set forth on
EXHIBIT "E"), the Intangible Property (as set forth on EXHIBIT "E"), and the
Net Working Capital).
6.1.2 IWRA'S DUE PERFORMANCE. All of IWRA's
representations and warranties set forth in this Agreement that are
qualified as to materiality shall be true, subject to such qualification, and
those not so qualified shall be true, correct and complete in all material
respects, in each case at and as of the Closing Date with the same force and
effect as though made at and as of the Closing Date (except to the extent a
representation or warranty speaks specifically as of an earlier date in which
case such representation and warranty shall be true, correct and complete as
of such date), and HBR shall have received a certificate signed on behalf of
IWRA by its President and its Chief Financial Officer (or other officer
serving similar functions) to such effect. On or prior to the Closing Date,
IWRA shall have complied with and/or performed all of the obligations,
covenants and agreements required on the part of IWRA to be complied with or
performed pursuant to the terms
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of this Agreement, and HBR shall have received a certificate signed on behalf
of IWRA by its President to such effect.
6.1.3 PHYSICAL CONDITION OF PROPERTY. Subject to
the provisions of Article 13 hereof, the physical condition of the Property
shall be substantially the same on the Closing Date as on the Execution Date,
except for reasonable wear and tear.
6.1.4 FINANCING. HBR shall have received
financing on substantially the terms set forth in the "Commitment Letter" (as
hereinafter defined) or the "Best Efforts Letter" (as hereinafter defined).
6.1.5 BANKRUPTCY. No action or proceeding shall
have been commenced by or against IWRA under the federal bankruptcy code or
any state law for the relief of debtors or for the enforcement of the rights
of creditors and no attachment, execution, lien or levy shall have attached
to or been issued with respect to IWRA's interest in the Property or any
portion thereof.
6.1.6 DEED. On or before the first Business Day
immedi ately prior to the Closing, IWRA shall execute, acknowledge and
deliver the Deed to Escrow Agent.
6.1.7 BILL OF SALE. On or before the first
Business Day immediately prior to the Closing, IWRA shall transfer to HBR all
of the Personal Property, the Intangible Property and the Cash Amount in each
case free of all liens and encumbrances (other than the applicable Permitted
Exceptions), pursuant to a bill of sale and assignment in the form of EXHIBIT
"H" attached hereto (the "BILL OF SALE").
6.1.8 NON-FOREIGN AFFIDAVIT. On or before the
first Business Day immediately prior to the Closing, IWRA shall deliver to
HBR a non-foreign affidavit in the form of EXHIBIT "I" attached hereto,
executed by IWRA (the "NON-FOREIGN AFFIDAVIT").
6.1.9 TERMINATION OF AGREEMENTS. On or before
the first Business Day immediately prior to the Closing, other than the
agreements listed on SCHEDULE 6.1.9 attached hereto and incorporated herein
(the "ASSUMED AGREEMENTS"), IWRA shall terminate any and all agreements,
contracts and instruments with respect to the Property and shall, at their
own expense, pay any and all fees associated with
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such termination. IWRA shall use its best efforts to cause the Current
Manager and the General Manager to take all reasonable steps necessary to
ensure an orderly transition.
6.1.10 REQUIRED CONSENTS. HBR shall have received
evidence of receipt, in form and substance reasonably acceptable to HBR, of
all consents, approvals and authorizations (collectively, the "CONSENTS")
necessary to (i) complete the purchase of the Property by HBR and the
completion of the other transactions contemplated by this Agreement, (ii)
execute and deliver the Lease, (iii) execute and deliver the Management
Agreement and (iv) execute and deliver a sponsorship agreement between IWRA
and Harvey's Iowa Management Company, Inc., a Nevada corporation ("HARVEY'S
IOWA"), relating to the riverboat casino located in Council Bluffs, Iowa,
commonly known as Harvey's Casino Hotel, in the form of EXHIBIT "J" attached
hereto (the "SPONSORSHIP AGREEMENT"), which Consents shall include, without
limitation, (1) consents to HBR's assumption of the Assumed Agreements, (2)
any and all consents necessary from any Governmental Authority, including,
without limitation, the Gaming Commission, and (3) the consent of Harveys
Casino Resorts Compliance Committee. Notwithstanding the provisions of the
preceding sentence, if any Assumed Agreement designated on SCHEDULE 6.1.10
attached hereto and incorporated herein (collectively, the "DESIGNATED
AGREEMENTS") cannot be assigned to HBR without the consent of the other party
to such Designated Agreement and such consent cannot be obtained by IWRA
notwithstanding its exercise of reasonable efforts to obtain such consent,
including, without limitation, the payment of reasonable fees for such
assignment if required, then IWRA shall not be obligated to assign such
Designated Agreement, provided that such non-assignment does not: (y)
constitute or cause a default under such Designated Agreement or (z) have a
material adverse affect on HBR's ability to operate the Property following
the Closing. The parties hereby agree that all costs incurred in connection
with or arising out of obtaining consents or approvals for assigning or
assuming the Assumed Agreements shall be borne by IWRA.
6.1.11 LEASE. On or before the first Business Day
immediately prior to the Closing, IWRA shall have executed and delivered to
Escrow Agent the Lease.
6.1.12 MANAGEMENT AGREEMENT. On or before the
first Business Day immediately prior to the Closing, IWRA shall have executed
and delivered to Escrow Agent the Management Agreement.
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6.1.13 LICENSES. HBR shall have received all
licenses, permits, variances, exemptions, orders, and approvals
(collectively, the "LICENSES"), including, without limitation, all racing,
gaming, liquor and food service licenses, necessary to permit HBR to operate
the Gaming Facility after the Closing in substantially the same manner in
which it is being operated on the Execution Date and as contemplated to be
operated pursuant to the terms and provisions of this Agreement, the Lease
and the Management Agreement. All Licenses to be retained by IWRA, including,
without limitation, the racing and gaming license from the Gaming Commission
(the "GAMING LICENSE") to operate a casino and dog racing track at the Gaming
Facility shall be in good standing and in full force and effect. All Licenses
to be transferred to HBR from IWRA that are used in the operation of the
Property shall be in good standing and in full force and effect. IWRA shall
not be required to transfer the licenses set forth on SCHEDULE 6.1.13
attached hereto, which licenses are not transferable under their terms or
under applicable Law.
6.1.14 HART-SCOTT-RODINO ACT. All
authorizations, consents and permits required to perform this Agreement and
the transactions contemplated hereby and thereby under this Agreement or
under applicable law shall have been obtained and the required statutory
waiting period under the HSR Act, if applicable, shall have expired or been
terminated.
6.1.15 RENEWAL OF SPONSORSHIP AGREEMENT. On or
before the first Business Day immediately prior to the Closing, IWRA shall
have executed and delivered to Escrow Agent the Sponsorship Agreement.
6.1.16 NO MORATORIA. No moratorium, statute,
regulation, ordinance, legislation, order, judgment, ruling or decree of any
Governmental Authority shall have been enacted, adopted, issued, entered or
pending which is directed specifically at the Property and which would
reasonably be likely to have a material adverse effect on the current or
prospective value of the Property or impose any material limitation on the
ability of HBR to exercise full rights of ownership with respect to the
Property.
6.2 FAILURE OF HBR'S CLOSING CONDITIONS. Subject to HBR's
rights under Section 14.2 hereof with respect to any default by IWRA (including,
without limitation, any default in the performance of any covenant of IWRA set
forth in this Article 6), if (i) despite HBR's good faith efforts, any of HBR's
Closing Conditions have not been satisfied prior to the Closing or (ii) at any
time prior to the Closing, HBR determines, in its reasonable discretion, that,
despite HBR's good faith efforts,
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any HBR's Closing Condition is not capable of being satisfied prior to the
Closing, then HBR may:
6.2.1 waive HBR's Closing Condition and close
Escrow in accordance with this Agreement; or
6.2.2 terminate this Agreement by written notice
to IWRA and Escrow Agent, in which event all documents, instruments and funds
delivered into Escrow shall be returned to the party that delivered the same
into Escrow, and IWRA shall pay for all of the cancellation charges, if any,
of Escrow Agent and Title Company, in which case the parties shall be
relieved from all liability hereunder, except for liabilities arising under
Sections 4.1.2 and 8.7 and Article 15 hereof, which provisions shall survive
such termination.
6.3 IWRA'S CLOSING CONDITIONS. The obligation of IWRA to
complete the transactions contemplated by this Agreement is subject to the
following conditions precedent (and conditions concurrent, with respect to
deliveries to be made by the parties at Closing) (the "IWRA'S CLOSING
CONDITIONS"), which conditions may be waived, or the time for satisfaction
thereof extended, by IWRA only in a writing executed by IWRA (provided,
however, that any such waiver shall not affect IWRA's abilities to pursue any
remedy it may have with respect to any breach hereunder by HBR):
6.3.1 HBR'S DUE PERFORMANCE. All of the
representations and warranties of HBR set forth in this Agreement shall be
true, correct and complete in all material respects as of the Closing Date,
and HBR, on or prior to the Closing Date, shall have complied with and/or
performed all of the obligations, covenants and agreements required on the
part of HBR to be complied with or performed pursuant to the terms of this
Agreement, and IWRA shall have received a certificate signed on behalf of HBR
by its President and its Chief Financial Officer (or other officer serving
similar functions) to such effect. On or prior to the Closing Date, HBR shall
have complied with and/or performed all of the obligations, covenants and
agreements required on the part of HBR to be complied with or performed
pursuant to the terms of this Agreement, and IWRA shall have received a
certificate signed on behalf of HBR by its President to such effect.
6.3.2 CONSENTS. IWRA shall have received all the
Consents.
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6.3.3 Hart-Scott-Rodino Act. All authorizations,
consents and permits required to perform this Agreement and the transactions
contemplated hereby and thereby under this Agreement or under applicable Law
shall have been obtained and the required statutory waiting period under the
HSR Act, if applicable, shall have expired or been terminated.
6.3.4 BANKRUPTCY. No action or proceeding shall
have been commenced by or against HBR under the federal bankruptcy code or
any state law for the relief of debtors or for the enforcement of the rights
of creditors and no attachment, execution, lien or levy shall have attached
to or been issued with respect to HBR's interest in the Property or any
portion thereof.
6.3.5 LEASE. On or before the first Business Day
immedi ately prior to the Closing, HBR shall have executed and delivered to
Escrow Agent the Lease.
6.3.6 MANAGEMENT AGREEMENT. On or before the
first Business Day immediately prior to the Closing, Manager shall have
executed and delivered to Escrow Agent the Management Agreement.
6.3.7 LETTER OF CREDIT. On or before the first
Business Day immediately prior to the Closing, HBR shall have delivered to
Escrow Agent the Letter of Credit with instruction to Escrow Agent to deliver
the Letter of Credit to L/C Escrow Agent immediately after the Closing.
6.3.8 RENEWAL OF SPONSORSHIP AGREEMENT. On or
before the first (1st) Business Day immediately prior to the Closing,
Harvey's Iowa shall have executed and delivered to Escrow Agent the
Sponsorship Agreement.
6.3.9 DELIVERIES. On or before the first
Business Day immediately prior to the Closing, HBR shall have delivered to
Escrow Agent or IWRA, as the case may be, such other documents and
instruments as are required to be delivered by HBR pursuant to the terms of
this Agreement.
6.3.10 CLOSING CONSIDERATION. On or before 11:00
a.m. (Iowa time) on the date on which the Closing is schedule to occur (the
"PAYMENT TIME"), cash, by wire transfer in immediately available funds, in an
amount (the "CLOSING CONSIDERATION") equal to the sum of the Consideration
and any amounts required by this Agreement for closing and title costs MINUS
the sum of the differ ence, if any,
25
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between the Cash Amount and the cash located at the Property at the
"Effective Time" (as hereinafter defined) and the Holdback; PROVIDED,
HOWEVER, if the Closing Consideration is not delivered by HBR to Escrow Agent
on or before the Payment Time, HBR shall, at its election, either (a)
reschedule the Closing to the immediately following Business Day, or (b)
proceed with the Closing, in which case the Closing Consideration shall
accrue interest at six percent (6%) per annum, commencing on the date Escrow
Agent received the Closing Consideration from HBR and terminating on the day
Escrow Agent delivers the Closing Consideration to IWRA.
6.4 FAILURE OF IWRA'S CLOSING CONDITIONS. Subject to IWRA's
rights under Section 14.1 hereof with respect to any default by HBR
(including, without limitation, any default in the performance of any
covenant by HBR set forth in this Article 6), if, despite IWRA's good faith
efforts, any of IWRA's Closing Conditions have not been fulfilled within the
applicable time periods, IWRA may:
6.4.1 waive IWRA's Closing Condition and close
Escrow in accordance with this Agreement, without adjustment or abatement of
the Consideration; or
6.4.2 terminate this Agreement by written notice
to HBR and Escrow Agent, in which event all documents, instruments and funds
delivered into Escrow shall be returned to the party that delivered the same
into Escrow, and HBR shall pay for all of the cancellation charges, if any,
of Escrow Agent and Title Company, in which case the parties shall be
relieved from all liability hereunder, except for liabilities arising under
Sections 4.1.2 and 8.7 and Article 15 hereof, which provisions shall survive
such termination.
7. TERMINATION.
7.1 TERMINATION EVENTS. This Agreement may be terminated
and abandoned at any time prior to the Closing:
7.1.1 by the mutual written consent of HBR and
IWRA;
7.1.2 by HBR at any time on or before the Due
Diligence Termination Date if HBR determines in its reasonable discretion
that, as a result of items disclosed in the final Phase I Report which were
not previously disclosed to HBR in the draft Phase I Environmental Site
Assessment, dated August 25, 1999, prepared by Terracon and in that certain
update letter thereto, dated August 26, 1999,
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each delivered to HBR on August 26, 1999, all or any portion of the Property
is not acceptable to HBR, in which case (a) IWRA shall pay the cancellation
charges, if any, of Escrow Agent and Title Company and (b) IWRA shall
reimburse HBR for its reasonable out-of pocket costs and expenses (including,
without limitation, reasonable attorneys' fees, charges and disbursements)
incurred in connection with the negotiation of the transaction contemplated
by this Agreement and HBR's due diligence efforts; PROVIDED that the amount
of such reimbursement shall not exceed $150,000;
7.1.3 by HBR or IWRA if (i) any Governmental
Authority, the consent of which is a condition to the obligations of HBR and
IWRA to consummate any of the transactions contemplated by this Agreement,
the Lease, the Management Agreement or the Sponsorship Agreement, shall have
determined not to grant its consent and all appeals of such determination
shall have been taken and have been unsuccessful, or (ii) any court of
competent jurisdiction shall have issued an order, judgment or decree (other
than a temporary restraining order) restraining, enjoining or otherwise
prohibiting all of the transactions contemplated by this Agreement, the Lease
or the Management Agreement, and such order, judgment or decree shall have
become final and nonappealable;
7.1.4 by HBR or IWRA if a Governmental Authority
has required a change to be made to this Agreement, the Lease, the Management
Agreement and/or the transactions contemplated by such documents, and either
party, after prompt and diligent negotiations held in good faith with the
other party shall have determined that any required changes will cause such
party to suffer economic detriment of more than $50,000 and such party's
business objectives and economic position as contemplated herein and in the
Lease and the Management Agreement cannot be preserved;
7.1.5 by HBR if, on the advice of its counsel, it
determines that there is a reasonable likelihood that approval of the
transactions contemplated in this Agreement, the Lease and the Management
Agreement will not be granted by the applicable Governmental Authorities
within sixty (60) days of HBR's first submission of filings under the HSR Act;
7.1.6 by HBR if there has been a material breach
by IWRA of any representation, warranty, covenant or agreement set forth in
this Agreement, which breach has not been cured within ten (10) Business Days
following receipt by
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the breaching party of notice of such breach, in which case IWRA shall pay
the cancellation charges, if any, of Escrow Agent and Title Company;
7.1.7 by IWRA if there has been a material breach
by HBR of any representation, warranty, covenant or agreement set forth in
this Agreement, which breach has not been cured within ten (10) Business Days
following receipt by the breaching party of notice of such breach, in which
case HBR shall pay the cancellation charges, if any, of Escrow Agent and
Title Company;
7.1.8 by HBR pursuant to the terms of Section
4.2.3, Section 6.2, or Article 13;
7.1.9 by IWRA pursuant to the terms of Section
6.4; and
7.1.10 by HBR or IWRA if the Closing has not
occurred by March 31, 2000; provided, however, that (i) HBR shall not be
entitled to terminate this Agreement pursuant to this Section 7.1.10 if a
knowing or willful breach of this Agreement by HBR has prevented the Closing
from occurring by such date, and (ii) IWRA shall not be entitled to terminate
this Agreement pursuant to this Section 7.1.10 if a knowing or willful breach
of this Agreement by IWRA has prevented the Closing from occurring by such
date.
7.2 EFFECT OF TERMINATION. In the event of termination of
this Agreement by HBR or IWRA as provided in Section 7.1 hereof, this
Agreement shall forthwith become void and there shall be no liability or
obligation on the part of HBR, IWRA or their respective officers or
directors, except as specified in Section 7.1; provided, that if this
Agreement is so terminated by a party because one or more of the conditions
to such party's obligations hereunder is not satisfied as a result of the
other party's willful failure to comply with its obligations under this
Agreement, the terminating party's right to pursue all legal remedies for
breach of contract or otherwise, including, without limitation, damages
relating thereto, shall survive such termination unimpaired.
7.3 PAYMENT OF COSTS UPON TERMINATION. In connection with
any termination of this Agreement for any reason permitted hereunder (other
than termination pursuant to Sections 7.1.2, 7.1.6 or 7.1.7), the parties
shall share all "Closing Costs" (as hereinafter defined) and other costs as
provided in Section 8.7 hereof, including cancellation charges, if any, of
Escrow Agent and Title Company.
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8. CLOSING.
8.1 CLOSING DATE. The Closing shall take place on the first
Business Day after the day on which all of HBR's Closing Conditions and
IWRA's Closing Conditions have been fully satisfied or waived in writing, or
such other date as the parties hereto may agree (in which case the parties
shall prorate all closing adjustments as of the last day of the accounting
period in which the mutually agreed upon closing date falls); provided,
however, that the Closing shall not be later than March 31, 2000 (the
"OUTSIDE CLOSING DATE"), unless at such time (i) the transactions
contemplated by this Agreement, the Lease and the Management Agreement are
subject to review by any Governmental Authority pursuant to the HSR Act or
(ii) HBR's Closing Condition specified in Section 6.1.14 hereof has not been
satisfied, then in either such case, the Outside Closing Date shall
automatically be extended to June 30, 2000. As used herein, the following
terms shall have the following meanings: (a) the "CLOSING" shall mean the
closing of the transactions contemplated by this Agreement, including,
without limitation, the recordation of the Deed in the Official Records of
Pottawattamie County, Iowa, (the "OFFICIAL RECORDS"); and (b) the "CLOSING
DATE" shall mean the date upon which the Closing actually occurs.
Notwithstanding the actual time of day at which the Closing occurs, the
Closing will be deemed to have occurred at 12:01 a.m. on the Closing Date
(the "EFFECTIVE TIME").
8.2 DELIVERIES BY IWRA. On or before the first Business Day
immediately prior to the Closing, IWRA, at its sole cost and expense, shall
deliver or cause to be delivered into Escrow the following documents and
instruments, as applicable, each dated as of the Closing Date, in addition to
all other items and payments required by this Agreement to be delivered by
IWRA at the Closing:
8.2.1 DEED. An original executed and
acknowledged Deed from IWRA, conveying all its interest in the Real Property
to HBR;
8.2.2 NON-FOREIGN AFFIDAVIT. An original
executed Non-Foreign Affidavit from IWRA;
8.2.3 BILL OF SALE. Four (4) original executed
counterparts of the Bill of Sale, executed by IWRA;
8.2.4 GROUND WATER HAZARD STATEMENT. Four (4)
original executed counterparts of the Ground Water Hazard Statement, executed
by IWRA;
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8.2.5 DECLARATION OF VALUE. Four (4) original
executed counterparts of the Declaration of Value, executed by IWRA;
8.2.6 LEASE. Four (4) original executed
counterparts of the Lease, executed by IWRA;
8.2.7 MANAGEMENT AGREEMENT. Four (4) original
and executed counterparts of the Management Agreement, executed by IWRA;
8.2.8 OFFICER'S CERTIFICATE. An original
executed Officer's Certificate, in the form attached hereto as EXHIBIT "K"
executed by IWRA;
8.2.9 EVIDENCE OF TERMINATION. Evidence of the
termina tion of any management agreements affecting the Property, including
without limitation, the management agreement with Current Manager (other than
the Man agement Agreement);
8.2.10 PROOF OF AUTHORITY. Such proof of IWRA's
authority and authorization to enter into this Agreement and the transactions
contemplated hereby, and such proof of the power and authority of the
individual(s) executing or delivering any instruments, documents or
certificates on behalf of IWRA to act for and bind IWRA as may be reasonably
required by Title Company, HBR, or both; and
8.2.11 OTHER. Such other documents and
instruments (including, without limitation, affidavits reasonably required by
Title Company to facilitate the issuance of the Owner's Title Policy at the
Closing prior to the recordation of the Deed), signed and properly
acknowledged by IWRA, if appropriate, as may be reasonably required by HBR,
Title Company, Escrow Agent, or otherwise in order to effectuate the
provisions of this Agreement and the Closing of the transactions contemplated
herein.
8.3 DELIVERIES BY HBR. On or before the first Business Day
immediately prior to the Closing Date (except as to the Closing Consideration
which shall be delivered on or before the Payment Time), HBR, at its sole cost
and expense, shall deliver or cause to be delivered into Escrow the following
funds, documents and instruments, each dated as of the Closing Date, in addition
to the other items and payments required by this Agreement to be delivered by
HBR at the Closing:
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8.3.1 CASH. Cash in an amount equal to the
Closing Consideration in accordance with Section 6.3.10 hereof;
8.3.2 LEASE. Four (4) original executed
counterparts of the Lease, executed by HBR;
8.3.3 MANAGEMENT AGREEMENT. Four (4) original and
executed counterparts of the Management Agreement, executed by Manager;
8.3.4 LETTER OF CREDIT. The Letter of Credit.
8.3.5 RENEWAL OF SPONSORSHIP AGREEMENT. Four (4)
original and executed counterparts of the Sponsorship Agreement, executed by
Harvey's Iowa.
8.3.6 PROOF OF AUTHORITY. Such proof of HBR's
authority and authorization to enter into this Agreement and the transactions
contemplated hereby, and Manager's authority and authorization to enter into
the Management Agreement and carry out the transactions contemplated thereby,
and such proof of the power and authority of the individual(s) executing or
delivering any instruments, documents or certificates on behalf of HBR or
Manager, respectively, to act for and bind HBR or Manager, respectively, as
may be reasonably required by Title Company, IWRA, or both; and
8.3.7 OTHER. Such other documents and
instruments, signed and properly acknowledged by HBR, if appropriate, as may
be reasonably required by IWRA, Title Company, Escrow Agent, or otherwise in
order to effectuate the provisions of this Agreement and the Closing of the
transactions contemplated herein.
8.4 ACTIONS BY ESCROW AGENT. Provided that Escrow Agent
shall not have received written notice from HBR or IWRA of the failure of any
condition to the Closing or of the termination of the Escrow and this
Agreement, when HBR and IWRA have deposited into Escrow the documents and
funds required by this Agreement and Title Company is irrevocably and
unconditionally committed to issue the Owner's Title Policy effective as of
the Closing Date, Escrow Agent shall, in the order and manner herein below
indicated, take the following actions:
8.4.1 FUNDS. Disburse all funds as follows:
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8.4.1.1 pursuant to the closing statement to be
prepared by Escrow Agent and approved in writing by both HBR and IWRA (the
"CLOSING STATEMENT"), retain for Escrow Agent's own account all escrow fees
and costs, disburse to Title Company the fees and expenses incurred in
connection with the issuance of the Owner's Title Policy, and disburse to any
other Persons entitled thereto, as expressly stated on the Closing Statement,
the amount of any other Closing Costs;
8.4.1.2 disburse funds necessary to discharge and
release any and all Liens against the Property (other than the Permitted
Exceptions);
8.4.1.3 deliver to IWRA, by wire transfer of
immediately available funds, in accordance with and subject to the
provisions of Section 6.3.10, the Closing Consideration (subject to
prorations and adjustments as provided herein);
8.4.1.4 disburse to HBR or IWRA, as the case may
be, any remaining funds in the possession of Escrow Agent after payments
pursuant to Sections 8.4.1.1, 8.4.1.2 and 8.4.1.3 hereof have been completed;
and
8.4.2 RECORDING. Cause the Deed and any other documents
that the parties hereto may mutually direct to be recorded in the Official
Records and obtain conformed copies thereof for distribution to HBR and IWRA.
IWRA hereby agrees that if Title Company cannot insure the "gap period" as
provided in Section 8.4.1 hereof, the funds shall not be disbursed as
provided in Section 8.4.1 unless and until Escrow Agent and HBR have received
confirmation that the Deed has been recorded in the Official Records.
8.4.3 DELIVERY OF DOCUMENTS. Deliver: (a) to IWRA, (i)
two originals of all documents deposited into Escrow (other than the Deed and
the Non-Foreign Affidavit) and (ii) one conformed copy of each document
recorded pursuant to the terms hereof; and (b) to HBR, (i) two originals of
all documents deposited into Escrow (other than the Deed, the Officer's
Certificate, and the Non-Foreign Affidavit), (ii) the original Non-Foreign
Affidavit, and (iii) one conformed copy of each document recorded pursuant to
the terms hereof.
8.4.4 OWNER'S TITLE POLICY. Cause the Title Company to
issue and deliver the Owner's Title Policy to HBR.
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8.4.5 RECORDED DEED. Cause the original recorded
Deed to be delivered to HBR.
8.5 WORKING CAPITAL ADJUSTMENTS TO THE CONSIDERATION. The
Consideration shall be increased by the amount, if any, that Net Working
Capital as of the Closing Date is greater than $1,600,000 and shall be
decreased by the amount, if any, that Net Working Capital as of the Closing
Date is less than $1,600,000.
8.6 POST CLOSING ADJUSTMENTS.
8.6.1 PREPARATION OF AUDITED BALANCE SHEET. As
soon as possible after the Closing, but not later than sixty (60) days after
the Closing, IWRA shall permit HBR's accountants ("HBR'S ACCOUNTANT") to
access its books and records of the Property for the purpose of preparing a
balance sheet (the "AUDITED BALANCE SHEET") of the Bluffs Run component of
IWRA's books and records as of the Closing Date (without giving effect to the
transactions contemplated by this Agreement). HBR's Accountant shall prepare
the Audited Balance Sheet in accordance with generally accepted accounting
principles consistently applied with IWRA's past practice. HBR's Accountant
shall deliver the Audited Balance Sheet to IWRA, and IWRA and its accountants
("IWRA'S ACCOUNTANT") shall have twenty (20) Business Days to review the
Audited Balance Sheet and the work papers of HBR's Accountant and to deliver
written notice (the "DISPUTE NOTICE") of any disagreements specifying in
reasonable detail the nature and extent of such disagreement. If IWRA's
Accountant and HBR's Accountant cannot resolve such disagreement within ten
(10) days of HBR's Accountant receipt of the Dispute Notice, the items of
disagreement shall be referred for final determination to an independent
accounting firm (the "INDEPENDENT ACCOUNTANT") as HBR's Accountant and IWRA's
Accountant shall mutually determine. The Audited Balance Sheet shall be
deemed to be binding on the parties upon (i) IWRA's failure to deliver to HBR
the Dispute Notice within twenty (20) Business Days of IWRA's receipt of the
Audited Balance Sheet, (ii) resolution of any disagreement by mutual
agreement of HBR's Accountant and IWRA's Accountant after IWRA's timely
delivery of the Dispute Notice, or (iii) notification by the Independent
Accountant of its final determination of the items of disagreement submitted
to it.
8.6.2 FINAL ADJUSTMENTS. If the Audited Balance
Sheet shows that HBR is entitled to additional funds in connection with any
obligations or assets of IWRA, then such funds shall be paid to HBR by IWRA
on or before the fifth (5th) day after the date the Audited Balance Sheet is
deemed final and binding on the
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parties. If the Audited Balance Sheet shows that IWRA is entitled to
additional funds in connection with any obligations or assets of IWRA, then
such funds shall be paid to IWRA by HBR on or before the fifth (5th) day
after the date the Audited Balance Sheet is deemed final and binding on the
parties.
8.7 CLOSING COSTS. Each party shall pay its own costs and
expenses arising in connection with the Closing (including, without
limitation, its own attorneys' and advisors' fees, charges and
disbursements), except the following costs (the "CLOSING COSTS"), which shall
be allocated between the parties as follows:
8.7.1 JOINT COSTS AND EXPENSES. The following
costs and expenses shall be paid one-half (1/2) by IWRA and one-half (1/2) by
HBR: (i) Escrow Agent's escrow fees and costs, (ii) the cost of the
environmental assessment, the engineering and structural report, and the
Survey; (iii) any filing fees payable in connection with any applications or
notifications under the HSR Act; (iv) the cost of the Abstract of Title, the
Title Opinion and the Owner's Title Policy; (v) recording fees incurred for
the recordation of the memorandum of lease required pursuant to the Lease and
(vi) the cost of the Independent Accountant, if any.
8.7.2 IWRA'S COSTS AND EXPENSES. The following
costs and expenses shall be paid by IWRA: (i) all documentary transfer,
stamp, sales and other taxes related to the transfer of the Property, (ii)
any and all amounts or penalties due and payable in connection with the
discharge and satisfaction of any Liens (other than Permitted Exceptions) in
accordance with the terms hereof; (iii) except as provided in Section 8.7.3
below, all recording fees incurred for the recordation of documents and
instruments to cure defects in title.
8.7.3 HBR'S COSTS AND EXPENSES. The following
costs and expenses shall be paid by HBR: (i) all recording fees incurred in
connection with the recordation of the Deed; (ii) the cost of the Title
Opinion; PROVIDED, HOWEVER, at the Closing, HBR shall be credited with
one-half (1/2) the cost of the Title Opinion and (iii) costs incurred by HBR
in its application for a liquor license for the Property.
8.8 DELIVERIES OUTSIDE OF ESCROW. IWRA shall deliver
possession of the Property, subject only to the Permitted Exceptions, to HBR
upon the Closing. Further, IWRA hereby covenants and agrees to deliver to
HBR, on or prior to the Closing, the following items:
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8.8.1 POSSESSION OF THE PROPERTY. IWRA shall
give, assign and transfer to HBR complete possession of the Property at the
actual time of Closing, provided that such transfer of possession shall be
deemed to have occurred at the Effective Time.
8.8.2 TRANSFER OF GAMING OPERATIONS. At the
Effective Time, the cash or tokens in the hoppers, buckets (or slot drops)
and the bill acceptors in all slot machines shall be counted (by emptying and
counting the cash in the loads of all machines) by IWRA and verified by HBR.
8.8.3 CASH AMOUNT. At the actual time of
Closing, the Cash Amount shall be transferred to HBR from IWRA.
8.8.4 INTANGIBLE PROPERTY. The Intangible
Property, including, without limitation, the original Property Documents.
8.8.5 PERSONAL PROPERTY. The Personal Property,
including, without limitation, any and all keys, pass cards, remote
controls, security codes, computer software and other devices relating to
access to the Improvements.
8.8.6 NOTICES. A letter to the vendors of the
Assumed Agreements in form and substance reasonably acceptable to HBR, duly
executed by IWRA, dated as of the Closing Date and addressed to such vendors,
informing such vendors of the assignment of the Assumed Agreements to HBR.
9. IWRA'S REPRESENTATIONS AND WARRANTIES.
IWRA represents and warrants to and agrees with HBR, as of
the Execution Date and as of the Closing Date, as follows:
9.1 EXISTING CONTRACTS. The schedule attached hereto as
SCHEDULE 9.1 (the "CONTRACTS SCHEDULE") is true, correct and complete with
respect to all service, maintenance, repair, management, supply and other
contracts (including, without limitation, service contracts for the Property
(the "SERVICE CONTRACTS")) to which IWRA is a party and for which Gaming
Commission approval and/or consent was necessary. IWRA has delivered to HBR
true, correct and complete copies of all service, maintenance, repair,
management, supply and other contracts (including, without limitation, all
Service Contracts) to which IWRA or its agent is a party and to the extent
that the same were in IWRA's possession and IWRA has used its best
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efforts to cause its agents, auditors or independent contractors to deliver
the same to HBR after a diligent review and examination of their respective
files and records.
9.2 INSURANCE. There are currently in effect such insurance
policies for the Property as are customarily maintained with respect to
similar properties. True, correct and complete copies of all insurance
policies maintained by IWRA with respect to the Property shall be made
available to HBR as part of the Property Documents. All premiums due on such
insurance policies have been paid by IWRA (or its agents) and IWRA will
maintain such insurance policies from the Execution Date through the Closing
Date or earlier termination of this Agreement. IWRA has not received and has
no knowledge of any notice or request from any insurance company requesting
the performance of any work or alteration with respect to the Property. IWRA
has not received any notice from any insurance company concerning, and IWRA
is not aware of, any defects or inadequacies in the Property, which, if not
corrected, would result in the termination of insurance coverage or increase
its cost.
9.3 LITIGATION. Other than as shown on SCHEDULE 9.3
attached hereto and incorporated herein, there are no "Proceedings" (as
hereinafter defined) before any judicial or quasi-judicial body, by any
Governmental Authority or other third party, pending, or to IWRA's knowledge,
threatened, against or affecting all or any portion of the Property and, to
IWRA's knowledge, there is no basis for any such Proceeding. There are no
Proceedings pending, contemplated or threatened by IWRA in connection with
all or any portion of the Property or IWRA's ownership, rights, use,
development or maintenance thereof, including, without limitation, tax
reduction proceedings; and, except as provided in Section 11.4 hereof, from
and after the date hereof, IWRA shall not commence or allow to be commenced
on its behalf or join in any Proceeding with respect to all or any portion of
the Property without the prior written consent of HBR, which consent may be
withheld in HBR's sole and absolute discretion, including, without
limitation, any Proceeding regarding the current tax rates applicable to
income generated from riverboat casinos and land-based casinos. No
attachments, execution proceedings, assignments for the benefit of creditors,
insolvency, bankruptcy, reorganization or other Proceedings are pending, or,
to IWRA's knowledge, threatened, against IWRA. As used herein, "PROCEEDING"
means any action, arbitration, audit, hearing, investigation, litigation, or
suit (whether civil, criminal, administrative, investigative, or informal)
com menced, brought, conducted, or heard by or before, or otherwise
involving, any Governmental Authority or arbitrator, and any appeal of the
foregoing.
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9.4 COMPLIANCE WITH LAWS. To IWRA's knowledge, the Property
is, in all material respects, in compliance with all Laws, including, without
limitation, (a) the Americans with Disabilities Act, 42 U.S.C. ss. 12102, et
seq., together with all rules, regulations and official interpretations
promulgated pursuant thereto, (b) all Laws with respect to zoning, building,
fire, life safety, health codes and sanitation, and (c) all laws with respect
to dog racing, pari-mutuel gaming, and the operation of a casino including
without limitation, gaming licenses, liquor licenses, and licenses to operate
food establishments. IWRA has not received any notice of, and IWRA has no
knowledge of, any condition currently or previously existing on the Property
or any portion thereof which may give rise to any violation of any existing
Law applicable to the Property if it were disclosed to the authorities having
jurisdiction over the Property.
9.5 CONDEMNATION; SPECIAL ASSESSMENTS. IWRA has no knowledge
of any pending or contemplated condemnation, eminent domain or similar
proceeding or special assessment which would affect the Property or any part
thereof in any way whatsoever. To IWRA's knowledge, there are no presently
planned public improvements that would or could result in the creation of a
special assessment or similar lien on the Property.
9.6 TOXIC OR HAZARDOUS MATERIALS.
9.6.1 DEFINITIONS.
(a) "ENVIRONMENTAL CLAIM" means any claim,
action, cause of action, investigation or notice (written or oral) by any
Person alleging potential liability (including, without limitation, potential
liability for investigatory costs, cleanup costs, governmental response
costs, natural resources damages, property damages, personal injuries, or
penalties) arising out of, based on or resulting from (i) the manufacture,
treatment, processing, distribution, use, transport, handling, deposit,
storage, disposal, leaking or other presence, or release into the environment
of any "Material of Environmental Concern" (as hereinafter defined) in, at,
on, under, from or about any location, whether or not owned or operated by
IWRA, or (ii) circumstances forming the basis of any violation or alleged
violation of any "Environmental Law" (as hereinafter defined).
(b) "ENVIRONMENTAL LAWS" means all federal,
state, local and foreign laws and regulations relating to pollution or
protection of human health or the environment, including, without limitation,
laws and regulations relating to
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emissions, discharges, releases or threatened releases of Materials of
Environmental Concern, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Materials of Environmental Concern.
(c) "MATERIAL OF ENVIRONMENTAL CONCERN" means
chemicals, pollutants, contaminants, wastes, toxic or hazardous substances,
petroleum and petroleum products, asbestos or asbestos-containing materials,
polychlorinated biphenyls, lead or lead-based paints or materials, and radon.
9.6.2 REPRESENTATIONS AND WARRANTIES. To IWRA's
and Current Manager's knowledge, IWRA is in full compliance with all
applicable Environmental Laws relating to the Property, which compliance
includes, but is not limited to, the possession and compliance therewith by
IWRA of all permits and other governmental authorizations required under
applicable Environmental Laws. IWRA has not received any notice, whether from
a Governmental Authority, citizens group, employee or other Person, that
alleges that IWRA is not in full compliance with Environmental Laws and, to
IWRA's knowledge, there are no circumstances that may prevent or interfere
with such full compliance in the future. Neither IWRA nor the Current Manager
has any knowledge of any Environmental Claim pending or threatened with
regard to the Property. To IWRA's and Current Manager's knowledge, there are
no past or present actions, activities, circumstances, conditions, events or
incidents relating to the Property, including, without limitation, the
manufacture, generation, treatment, processing, distribution, use, transport,
handling, deposit, storage, disposal, leaking, or other presence or release
of any Material of Environmental Concern, that could form the basis of any
Environmental Claim against IWRA or against any Person, including, without
limitation, Persons whose liability for such Environmental Claim IWRA may
have retained or assumed either contractually or by operation of law. Without
in any way limiting the generality of the foregoing, to IWRA's knowledge, (a)
IWRA has not stored, disposed of or arranged for the disposal of any Material
of Environmental Concern on the Property (except for cleaning and maintenance
supplies maintained in the ordinary course of business by IWRA), (b) there
are no underground storage tanks located on the Property, (c) there is no
asbestos contained in or forming part of any Improvement, including, without
limitation, the Gaming Facility, any building component, structure or office
space on the Property, (d) no polychlorinated biphenyls (PCBs) are used or
stored at the Property, (e) there are no Environmental Claims or
circumstances in the vicinity of the Property relating to environmental
contamination or clean-up affecting or compromising the value of the
Property, (f) IWRA has provided to HBR all
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assessments, reports, data, results of investigations or audits, or other
information that is in the possession of or reasonably available to IWRA
relating to the environ mental matters at or the environmental condition of
the Property, and (g) there are no "wells," "solid waste disposal sites" or
"private burial sites," each as defined in the Iowa Code (1999), as may be
amended, supplemented or modified (the "IOWA CODE") or regulations
promulgated pursuant thereto, located on the Property.
9.7 DISCLOSURE. To IWRA's knowledge without investigation,
IWRA has disclosed to HBR all information relating to the Property that would
reasonably be expected to have a material adverse effect on the Property.
9.8 NO CONFLICTS. The execution and delivery of this
Agreement by IWRA, the consummation of the transactions herein contemplated
to be per formed by IWRA, and compliance with the terms of this Agreement by
IWRA will not conflict with, or, with or without notice or the passage of
time or both, result in a breach of any of the terms or provisions of, or
constitute a default under, any indenture, deed of trust, mortgage, loan
agreement, or other document, instrument or agreement, oral or written, to
which IWRA is a party or by which IWRA or its assets are bound, or any
regulation, judgment, order or decree of any Governmental Authority having
jurisdiction over IWRA or all or any portion of the Property.
9.9 DUE ORGANIZATION; CONSENTS. IWRA is a nonprofit
corporation duly organized, validly existing and in good standing under the
laws of the State of Iowa, with its principal place of business in the State
of Iowa and IWRA has never existed or operated under any other name. All
requisite action has been taken by IWRA in connection with entering into this
Agreement, and will be taken prior to the Closing in connection with, the
execution and delivery of the instruments referenced herein and the
consummation of the transactions contemplated hereby. Other than the consents
listed on SCHEDULE 9.9 attached hereto and incorporated herein, no consent of
any partner, shareholder, beneficiary, creditor, investor, judicial or
administrative body, Governmental Authority or other party is required in
connection with the execution by IWRA of this Agreement and/or the
performance by IWRA of its obligations hereunder.
9.10 IWRA'S AUTHORITY; VALIDITY OF AGREEMENTS. IWRA has
full right, power and authority to transfer, contribute and convey the
Property to HBR as provided in this Agreement, to carry out its obligations
hereunder and to execute, deliver and perform, and enter into and consummate,
all of the documents and transactions contemplated by this Agreement. The
individual(s) executing this Agreement and the instruments referenced herein
on behalf of IWRA have the legal
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power, right and actual authority to bind IWRA to the terms hereof and
thereof. This Agreement is, and all instruments, documents and agreements to
be executed by IWRA in connection herewith shall be, duly authorized,
executed and delivered by IWRA and shall be valid, binding and enforceable
obligations of IWRA, subject to any limitation by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting
creditors' rights generally.
9.11 FOREIGN INVESTMENT IN REAL PROPERTY TAX ACT. IWRA is
not a foreign person within the meaning of Section 1445(f)(3) of the Internal
Revenue Code of 1986, as amended (the "CODE").
9.12 LEASES. Other than the leases listed on SCHEDULE 9.12
attached hereto and incorporated herein, IWRA has not entered into any
leases, licenses, tenancies or other occupancy agreements (whether written or
oral) now in effect at the Property. There are no parties in possession of
any portion of the Property other than IWRA and the Current Manager.
9.13 GAMING LAWS. IWRA and its directors, officers, and
other persons performing management functions on behalf of IWRA hold all
permits, registrations, findings of suitability and licenses necessary under
"Gaming Laws" (as defined below) to operate a land-based casino, a dog track
and all functions incident thereto on the Property, as currently conducted,
and each such permit, registration, finding of suitability and license is in
full force and effect, and IWRA has not received any notice of revocation in
respect thereof. "GAMING LAWS" means any federal, state, local or foreign
statute, ordinance, rule, regulation, permit, consent, registrations,
findings of suitability, approval, license, judgement, order, decree,
injunction, or other authorization, including any condition or limitation
placed thereon, governing or relating to the pari-mutuel, casino and gaming
activities and operations on the Property, including any applicable state
gaming law and any federal or state laws relating to currency transactions.
9.14 YEAR 2000 COMPLIANCE. The "Bluffs Run Casino Y2K
Status Sheet" attached hereto as EXHIBIT "L" (the "STATUS REPORT")
represents, as of the Execution Date, the year 2000 readiness status of
certain selected items. In particular, the column entitled "Status" on such
Status Report contains the following categories: "Awaiting Vendor Response,"
"Letter on File," "Testing Complete," and "Y2K Compliant." "AWAITING VENDOR
RESPONSE" shall mean that a letter has been forwarded to the applicable
vendor but no response has been received. "LETTER ON FILE" shall mean that a
letter from the vendor indicating the status of year 2000
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readiness of the applicable item is on file and no further action has been
taken by IWRA. "TESTING COMPLETE" shall mean that the testing for Y2K
Compliance has been completed. "Y2K COMPLIANT" shall mean that the applicable
Software, system, item or device is designed to be used prior to, during and
after December 31, 1999, and such Software, system, item or device will
operate during each such time period without error relating to the year 2000,
specifically including any error relating to, or the product of, date data
that represents or references different centuries or more than one century
and that it will accept, calculate, sort, extract, and otherwise process date
inputs and date values and return and display date values, in a consistent
manner regardless of the dates used, whether before, on or after January 1,
2000. To the best of IWRA's and Current Manager's knowledge and belief, the
Status Report accurately reflects year 2000 readiness of the items reflected
thereon. IWRA has relied on information from vendors and other third parties
in identifying, assessing, remediating and testing the Software, systems,
items and devices set forth on the Status Report. Therefore, IWRA makes no
"Year 2000 Compliant" representation or warranty regarding ultimate year 2000
readiness of any Software, system, item or device. However, to the extent
such representations or warranties are provided by the manufacturer and/or
supplier of any Software, system, item or device and are transferable, IWRA
agrees to transfer to HBR at Closing, the benefits of any such representation
or warranty provided by the manufacturer and/or supplier of such Software,
system, item or device . Notwithstanding the foregoing, IWRA hereby agrees
that prior to the Closing, the time and attendance software and, if
available, the keno system software shall be upgraded to be Y2K Compliant.
9.15 FINANCIAL STATEMENTS.
9.15.1 IWRA has provided true and complete copies
of all "Financial Statements" (as defined below), together with the related
auditors reports. "FINANCIAL STATEMENTS" shall mean (a) the consolidated
balance sheets of IWRA as of December 31 in each of the years 1996 through
1998 together with consolidated statements of income and cash flows for each
of the years then ended, all certified by Arthur Andersen LLP, independent
certified public accountants for IWRA, whose reports thereon are included
therein, and (b) an unaudited consolidated balance sheet of IWRA as of the
most recently ended period and unaudited consolidated statements of income
and cash flows for the period then ended. IWRA further represents and
warrants that all Financial Statements have been prepared from, are in
accordance with, and accurately reflect, the books and records of IWRA,
comply in all material respects with applicable accounting requirements, have
been prepared in accordance with GAAP applied on a consistent basis during
the periods involved (except as may
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be stated in the notes thereto) and fairly present the consolidated financial
position and the consolidated results of operations and cash flows (and
changes in financial position, if any) of IWRA as of the times and for the
periods referred to therein (subject, in the case of unaudited statements, to
normally recurring year-end audit adjustments which are not material either
individually or in the aggregate).
9.15.2 Since the date of IWRA's balance sheets
dated as of December 31, 1998, none of the following has occurred or arisen
in the operation of the Property: (a) any change, event or condition that has
had or reasonably may be expected to have, in any one case or in the
aggregate, a material adverse effect on IWRA or the Property, (b) any
material casualty, loss, damage or destruction of IWRA's assets, (c) sale,
assignment or transfer of any of the properties or assets of IWRA, other than
in the ordinary course of business, (d) any new encumbrance or lien on all of
the Property, (e) amendment, cancellation, or early termination of any
material contract or agreement, permit or license, or other instrument
relating to the use or operation of the Property, and (f) incurrence of any
liability or other obligation not in the ordinary course of business or
involving payments in excess of $50,000 in the aggregate.
9.16 TAXES.
9.16.1 TAX FILINGS. IWRA has timely filed or
caused to be timely filed, or will timely file or cause to be timely filed on
or prior to the Closing Date, all United States federal, state, local and
foreign tax returns, declarations, statements, reports, schedules, forms, and
information returns and any amendments thereto (the "TAX RETURNS") that are
or were required to be filed by either of them on or prior to the Closing
Date, either separately or as a member of a group of corporations. All such
Tax Returns and amendments thereto are or will be true, complete and correct
in all material respects on the Closing Date.
9.16.2 PAYMENT OF TAXES. IWRA has paid all material
United States federal, state, local, and foreign taxes, and other assessments of
a similar nature (whether imposed directly or through withholding), including
any interest, additions to tax, or penalties applicable thereto ("TAXES") for
all periods ending through the date hereof, imposed in connection with or
applicable to the Property, or where payment is not yet due, IWRA has
established or will establish or cause to be established on or before the
Closing Date, an adequate accrual for the payment of all such taxes.
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9.16.3 TAX LIENS. There are no liens for Taxes
upon any Property of IWRA or any of its subsidiaries, except for liens for
Taxes not yet due.
9.16.4 TAX AUDITS. No Governmental Authority,
including without limitation, any Tax authority, is currently reviewing or
has given notice of its intent to review IWRA's business or financial records
for any open year.
9.16.5 WITHHOLDING TAXES. IWRA shall withhold
proper and accurate amounts from IWRA's employee payrolls for all periods
prior to the Closing Date in material compliance with all withholding
provisions of applicable local, state, and federal laws.
9.17 NONPROFIT STATUS.
9.17.1 IWRA. IWRA qualifies as a nonprofit
corporation organized under the laws of Iowa to promote those purposes
enumerated in section 99B.7, subsection 3, paragraph "b" of the Iowa Code.
IWRA promotes those purposes enumerated in section 99B.7, subsection 3,
paragraph "b" of the Iowa Code.
9.17.2 REVIEW BY GOVERNMENTAL AUTHORITY OF IWRA.
No Governmental Authority, including without limitation, any Tax authority,
is reviewing or has given any notice that a Governmental Authority intends
to review the status of IWRA as a nonprofit corporation organized under the
laws of Iowa to promote those purposes enumerated in section 99B.7,
subsection 3, paragraph "b" of the Iowa Code.
9.18 LIENS AGAINST THE GAMING LICENSE. IWRA expressly
represents and warrants that no lien currently exists against its Gaming
License.
9.19 LIENS AGAINST THE GAMING EQUIPMENT. IWRA expressly
represents and warrants that it owns or otherwise has a valid right to use
and possess the Gaming Equipment free and clear of any adverse claim and that
no lien currently exists against the Gaming Equipment.
9.20 BOOKS AND RECORDS. The books of account, minute books,
and other related records of IWRA, which have been provided to HBR as part of
the Property Documents, are true, complete and correct in all material
respects and have been maintained in accordance with sound business
practices, including the mainte nance of an adequate system of internal
controls.
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9.21 NO UNDISCLOSED LIABILITIES. IWRA has disclosed all
known liabilities to HBR, except for liabilities and obligations incurred in
the ordinary course of business and consistent with past practice. Since the
Execution Date, IWRA has not incurred any liability or obligation of any
nature, whether or not accrued, contingent or otherwise, that has, or would
be reasonably likely to have, a material adverse effect on IWRA or the
Property taken as a whole.
9.22 ACCOUNTS RECEIVABLE. All current accounts receivable
of IWRA, whether reflected in the Financial Statements or otherwise,
represent income earned in the ordinary course of business. Other than the
approximately $67,000 due to IWRA from the Iowa Greyhound Association
pursuant to awards from arbitration decisions, each of current accounts
receivable is expected to be collected in full, without any set-off, within
sixty (60) days after the day on which it became due and payable.
9.23 DISPUTED ACCOUNTS PAYABLE. There are no unpaid
invoices or bills representing amounts alleged to be owed by IWRA, which IWRA
has disputed or determined to dispute or refused to pay.
9.24 INTELLECTUAL PROPERTY. IWRA owns, or is licensed or
otherwise possesses legally enforceable rights to use Intangible Property,
including, without limitation, the Software and electronic equipment
associated with the operation and maintenance of all activities on the
Property, and the consummation of this Agree ment will not alter or impair
such ability in any respect. IWRA further warrants and represents that, to
IWRA's knowledge, there are no oppositions, cancellations, invalidity
proceedings, interferences or re-examination proceedings presently pending
with respect to the Intangible Property that are reasonably likely to have a
material adverse effect on IWRA or the Property. IWRA further warrants and
represents that it has not received any notice that its conduct infringes
upon any intellectual property rights or any other proprietary right of any
other Person, and IWRA has not received any written notice from any other
Person pertaining to or challenging the right(s) of IWRA. IWRA warrants and
represents that it has not made any still pending claim of a violation or
infringement by others of its rights to or in connection with any
Intellectual Property associated with the Property.
9.24.1 SCHEDULE 9.24.1 attached hereto sets forth
a true and complete list of all patents and patent applications, trademark
registrations and applications, service mark registrations and applications,
copyright registrations and applications, material unregistered trademarks,
service marks, copyrights and Internet domain names used or held for use in
connection with the Property whether
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IWRA is the licensee or licensor thereunder (excluding, however, the Excluded
Intangible Property).
9.24.2 IWRA is the valid licensee or sole and
exclusive owner of all the Intangible Property, free and clear of all
encumbrances.
9.24.3 IWRA owns or has the valid right to use
all of the Intangible Property used or held for use by it in connection with
its business. IWRA further warrants and represents that to the knowledge of
IWRA, there are no conflicts with or infringements of any Intangible Property
by any third party, that the past and current conduct of IWRA or any agent of
IWRA does not conflict with or infringe in any way on any proprietary right
of any third party, that there is no claim, suit, action or proceeding
pending or, to IWRA's knowledge, threatened against IWRA (i) alleging any
such conflict or infringement with any third party's proprietary rights or
(ii) challenging the ownership, use, validity or enforceability of the
Intangible Property.
9.25 LABOR MATTERS
9.25.1 IWRA is not a party to nor bound by any
collective bargaining or similar agreement with any labor organization or
work rules or practices agreed to with any labor organization or employee
association applicable to employees of IWRA, with the exception of the
collective bargaining agreement between Iowa West Racing Association d/b/a
Bluffs Run Casino and International Union, United Plant Guard Workers of
America (the "UNION"), dated May 1, 1998.
9.25.2 With the exception of the Union, no labor
union has been certified by the National Labor Relations Board as bargaining
agent for IWRA's employees; no notice has been received from any labor union
stating that it has been designated as the bargaining agent for any of said
employees; and no petition has been filed by any labor union requesting an
election to determine whether or not it is the exclusive bargaining agent for
any of said employees.
9.25.3 With the exception of the employees
represented by the Union, none of the employees of IWRA is represented by any
labor organization and (with the exception of certain activities undertaken
by the Teamsters and ICU-UCFW (food workers union), respectively, which
activities did not result in an election and were ceased by January 1, 1999)
there have been no union organizing
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activities among the employees of IWRA within the past five (5) years, nor
does any question concerning representation exist concerning such employees.
9.25.4 There is no labor strike, dispute,
corporate campaign, slowdown, stoppage or lockout actually pending,
threatened against or affecting the Property, and during the past five (5)
years there has not been any such action.
9.25.5 There is no unfair labor practice charge,
complaint or Proceeding against IWRA pending or threatened before the
National Labor Relations Board or any similar state or foreign agency.
9.25.6 There is no pending grievance or
arbitration Proceeding arising out of any collective bargaining agreement or
other grievance procedure relating to IWRA or the Property.
9.25.7 With the exception of standard form
confidentiality and non-compete agreements (true and correct copies of the
forms of which were provided by IWRA to HBR prior to the Execution Date), a
true and correct copy of each employment contract, consulting agreement and
severance agreement between IWRA and any employee of IWRA shall be provided
to HBR as part of the Property Documents.
9.25.8 A true and complete copy of each written
personnel policy, rule and procedure applicable to employees of IWRA shall be
provided to HBR as part of the Property Documents.
9.25.9 IWRA is, and has at all times been, in
compliance, in all material respects, with all Laws respecting employment and
employment practices, terms and conditions of employment, wages, hours of
work and occupational safety and health, and is not engaged in any unfair
labor practices, as defined in the National Labor Relations Act or other Laws.
9.25.10 Except as disclosed on SCHEDULE 9.3,
there is no charge with respect to or relating to IWRA pending before the
Equal Employment Opportunity Commission or any other agency responsible for
the prevention of unlawful employment practices.
9.25.11 IWRA has not received notice of the
intent of any federal, state, local or foreign agency responsible for the
enforcement of labor or
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employment laws to conduct an investigation, and no such investigation is in
progress.
9.25.12 There are no complaints, lawsuits or
other Proceedings pending or, to IWRA's knowledge, threatened in any forum
by or on behalf of any present or former employee of IWRA, any applicant for
employment or classes of the foregoing alleging breach of any express or
implied contract of employment, any laws governing employment or the
termination thereof or other discriminatory, wrongful or tortious conduct in
connection with the employment relationship.
9.25.13 Since the enactment of the Worker
Adjustment and Retraining Notification Act of 1988 (the "WARN ACT"), IWRA has
not effectuated a "plant closing" (as defined in the WARN Act) affecting the
Property or a "mass layoff" (as defined in the WARN Act) affecting the
Property; nor has IWRA been affected by any transaction or engaged in layoffs
or employment terminations sufficient in number to trigger application of any
similar state, local or foreign Law or regulation.
9.25.14 SCHEDULE 9.25.14 attached hereto sets
forth a true and complete list of (i) the names and current salaries of all
officers and key employ ees of IWRA; (ii) the wage rates for non-salaried and
non-executive salaried employ ees of IWRA by classification; and (iii) all
group insurance programs in effect for employees of IWRA. IWRA further
warrants and represents that it is not in default with respect to any of its
obligations referred to in the preceding sentence, and that to IWRA's
knowledge, no officer, key employee or group of employees has any plans to
terminate employment with IWRA as a result of the execution of this Agreement
or otherwise.
9.26 COMPLIANCE WITH THE WARN ACT. IWRA shall be
responsible for any liability under the WARN Act or such similar statute or
regulation for those "mass layoff" or "plant closing" (each as defined in the
WARN Act) by IWRA occurring on or before the Closing Date. HBR shall be
responsible for any liability under the WARN Act or such similar statute or
any such "mass layoff" or "plant closing" by HBR after the Closing Date.
9.27 UTILITIES ACCESS. The Property has access to all
water, sewer, electric, natural gas, telephone, drainage facilities and all
other utilities necessary to operate the Property as a casino and dog track
and as contemplated to be operated by the Lease and the Management Agreement,
and such access has been provided in
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material compliance with all requirements of Laws. All municipal charges for
water, sewer or solid waste disposal have been paid in full.
9.28 COMPLIMENTARIES. IWRA is not committed to any
complimentary arrangement for food or beverage for any guest or client as of
the Closing Date or any period thereafter which has not been taken into
account in determining its "current liabilities," as determined in accordance
with generally accepted accounting principles consistent with IWRA's past
practice.
9.29 CUSTOMER DATABASE. To IWRA's knowledge, no employee,
representative, agent or member of IWRA has delivered, and IWRA shall not
knowingly permit any employee, representative, agent or member to deliver
IWRA's customer database file and records to a third party (other than
mailing houses processing such information on behalf of IWRA or Current
Manager) or allow a third party access to IWRA's customer database files and
records. IWRA employs an electronic player tracking system that collects and
stores information about guests and clients of the Gaming Facility,
including, without limitation, gambling preferences, profits and losses and
complimentary arrangements. IWRA's customer database files and records are
updated and maintained by IWRA regularly and shall be updated and maintained
by IWRA through the Closing Date in accordance with past practice.
9.30 MATERIAL MISSTATEMENTS OR OMISSIONS. No representation
or warranty by IWRA in this Agreement, nor any document, exhibit, statement,
certificate or schedule heretofore or hereinafter furnished to HBR by IWRA
pursuant hereto, or in connection with the transactions contemplated hereby,
contains or will contain any untrue statement of a material fact, or omits or
will omit to state any material fact necessary to make the statements or
facts contained therein not misleading.
9.31 AD VALOREM TAXES. The Real Property has not been
classified under any designation authorized by Law to obtain a special low ad
valorem tax rate or receive an abatement or deferment of ad valorem taxes
which, in such case, will result in additional, catch-up ad valorem taxes in
the future in order to recover the amounts previously abated or deferred. The
Real Property is not currently exempt from ad valorem taxes.
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9.32 MECHANIC'S LIENS. No materials have been delivered to,
and no work has been performed on, the Real Property within the last ninety (90)
days for which payment has not been made in full.
9.33 LIENS ON PERSONAL PROPERTY AND INTANGIBLE PROPERTY.
Subject only to the liens set forth on SCHEDULE 9.33 attached hereto and
incorporated herein, IWRA owns the Personal Property and the Intangible
Property, and on the Closing Date, IWRA shall sell and transfer the Personal
Property and the Intangible Property to HBR free and clear of all liens, claims,
pledges, security interests or other encumbrances.
9.34 CONDITION OF PROPERTY. Except as otherwise expressly
provided herein or in any of the Closing documents executed in connection
herewith, IWRA makes no representation or warranty as to the condition of the
Property and HBR is purchasing the Property "AS-IS" and "WITH ALL FAULTS."
9.35 STIPULATED AGREEMENT. Reference is made to that certain
Stipulated Agreement, dated November 9, 1998 (the "STIPULATED AGREEMENT"), by
and between the Administrator of the Iowa Racing and Gaming Commission and IWRA.
In connection with the Stipulated Agreement, IWRA has conducted an investigation
which included discussions with Current Manager, General Manager, licensed
engineers and other contractors and professionals relating to implementing a
plan for the modification of the exterior entrances of the Property to minimize
the potential entry into gaming areas of the Property by underage individuals
(the "MODIFICATIONS"). IWRA believes in good faith, following such
investigation, that, in light of prudent business practices and the effect such
Modifications may have upon customer traffic on the Property, the cost of
designing, constructing and implementing reasonable Modifications that would be
acceptable to the Gaming Commission will not exceed $150,000.00.
10. HBR'S REPRESENTATIONS AND WARRANTIES.
HBR represents and warrants to IWRA, as of the Execution Date
and as of the Closing Date, as follows:
10.1 NO CONFLICTS. Subject to the required approvals and
consents listed on SCHEDULE 10.1 attached hereto and incorporated herein, the
execution and delivery of this Agreement by HBR, the consummation of the
transactions herein contemplated to be performed by HBR, and compliance with the
terms of this
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Agreement by HBR will not conflict with, or, with or without notice or the
passage of time or both, result in a breach of any of the terms or provisions
of, or constitute a default under, any indenture, deed of trust, mortgage,
loan agreement, or other document, instrument or agreement, oral or written,
to which HBR is a party or by which HBR is bound, or any regulation,
judgment, order or decree of any Governmental Authority having jurisdiction
over HBR.
10.2 DUE ORGANIZATION; CONSENTS. HBR is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Nevada. All requisite corporate action has been taken by HBR in connection with
entering into this Agreement, and will be taken prior to the Closing in
connection with, the execution and delivery of the instruments referenced herein
and the consummation of the transactions contemplated hereby. Other than the
Consents and such other consents as will be obtained by HBR prior to the
Closing, no consent of any partner, shareholder, beneficiary, creditor,
investor, judicial or administrative body, Governmental Authority or other party
will be required in connection with the execution by HBR of this Agreement
and/or the performance by HBR of its obligations hereunder.
10.3 HBR'S AUTHORITY; VALIDITY OF AGREEMENTS. HBR has full
right, power and authority to accept the Property from IWRA as provided in this
Agreement, to carry out its obligations hereunder and to execute, deliver and
perform, and enter into and consummate, all of the documents and transactions
contemplated by this Agreement. The individual(s) executing this Agreement on
behalf of HBR and the instruments referenced herein on behalf of HBR have the
legal power, right and actual authority to bind HBR to the terms hereof and
thereof. This Agreement is, and all other documents and instruments to be
executed and delivered by HBR in connection herewith shall be, duly authorized,
executed and delivered by HBR and shall be valid, binding and enforceable
obligations of HBR, subject to any limitation by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting
creditors' rights generally.
10.4 LITIGATION. As of the date hereof, there are no
"Proceedings" (as hereinafter defined) before any judicial or quasi-judicial
body, by any Governmental Authority or other third party, pending, or to HBR's
knowledge, threatened, against or affecting HBR and, to HBR's knowledge, there
is no basis for any such Proceeding. No attachments, execution proceedings,
assignments for the benefit of creditors, insolvency, bankruptcy, reorganization
or other Proceedings are pending, or, to HBR's knowledge, threatened, against
HBR.
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10.5 CURRENT ASSETS. As of the date hereof, HBR has current
assets of not less than $2,000,000 and shall maintain such assets until the
Closing Date.
11. ADDITIONAL COVENANTS OF IWRA.
In addition to the covenants and agreements of IWRA set forth
elsewhere in this Agreement, IWRA covenants and agrees that:
11.1 GAMING LICENSE AND STATUS. IWRA shall use its best
efforts to (i) maintain in good standing the Gaming License, including, but not
limited to, making all timely filings and paying all fees required for the
continued use of the Gaming License; (ii) maintain IWRA's status as a nonprofit
corporation under all applicable Laws and pursuant to the licensing requirements
set forth in 99B.7 and 99D.8 of the Iowa Code; (iii) continue to meet all the
requirements of a license holder under 99F.7 of the Iowa Code or any other
requirements under applicable Laws and (iv) meet any and all requirements that
may be imposed by the Gaming Commission or any other Governmental Authority.
11.2 IWRA'S NONPROFIT STATUS. IWRA will conduct its operations
so as to qualify as a nonprofit corporation organized under the laws of Iowa to
promote those purposes enumerated in section 99B.7, subsection 3, paragraph "b"
of the Iowa Code.
11.3 PROMOTION OF GAMING. To the extent permitted by Law, IWRA
shall, and shall use its reasonable best efforts to cause the Foundation, and
each of their respective affiliates, members, directors, and officers to (i)
promote gaming activities in Pottawattamie County, Iowa, including, without
limitation, dog racing, land-based casinos, and riverboat casinos, and (ii)
preserve and advance the relationship between each of IWRA and the Foundation
and the City of Council Bluffs, the County of Pottawattamie, the State of Iowa
and all Governmental Authorities with jurisdiction over gaming activities. IWRA
shall use its reasonable best efforts to support any measures related to gaming
reasonably requested by HBR, including, without limitation, any law, referendum
or bill. Except as specifically permitted in Section 11.4 hereof, IWRA
acknowledges that its support or commencement of any lawsuit challenging the
State of Iowa's gaming tax laws would be a violation of this covenant.
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11.4 LITIGATION. Other than any Proceeding commenced by IWRA
against HBR, from and after the date hereof, neither IWRA nor any of its
affiliates, members, directors, and officers or any other entity associated with
IWRA, shall commence or allow to be commenced on its behalf or join in any
Proceeding with respect to all or any portion of the Property, including,
without limitation, any Proceeding regarding the current tax rates applicable to
income generated from riverboat casinos and land-based casinos, without the
prior written consent of HBR, which consent may be withheld in HBR's sole and
absolute discretion. Notwithstanding the foregoing sentence, HBR agrees that
IWRA may join the lawsuit commenced by Racing Association of Central Iowa
against Michael Fitzgerald, Treasurer, State of Iowa, ET. AL, Equity No. 36601;
PROVIDED, THAT, IWRA shall (i) only be a passive participant in such lawsuit,
and (ii) use reasonable efforts to avoid and minimize any public announcements
or notices that identify IWRA's participation in such action. For purposes
hereof as a "passive participant," IWRA may: (a) move to intervene in such
lawsuit, (b) file joinders to motions, pleadings and briefs made by any other
party in such lawsuit, (c) appear at all hearings, depositions and at trial, (d)
join in discovery requests made by any other party in such lawsuit and respond
to discovery requests made upon IWRA, (e) produce evidence and call witnesses at
trial to support its case, (f) enter into stipulations, (g) join in any appeal
brought by any other party in such lawsuit, (h) respond to court orders and
subpoenas and (i) file requests for administrative relief if necessary to
intervene in such lawsuit or to execute on any judgement rendered or recover any
amounts awarded in such lawsuit; PROVIDED, FURTHER that as a "passive
participant" IWRA shall not: (x) initiate any dispositive motion (which shall
not prohibit joining in any dispositive motion made by another party or filing a
dispositive motion that is substantially similar to a pending dispositive motion
that was previously filed by another party in such lawsuit), (y) advance any
legal theory or argument which has not already been made by another party in
such lawsuit (which shall not prohibit private discussions regarding potential
legal theories or arguments among the parties to such litigation or their
counsel), or (z) take any action inconsistent with any of the foregoing.
11.5 GOVERNMENTAL AUTHORITIES. In the event that any
Governmental Authority requires a change to be made to this Agreement, the
Lease, the Management Agreement and/or the transactions as contemplated by such
documents, IWRA hereby agrees to promptly and diligently negotiate in good faith
any such required changes so that neither HBR nor IWRA suffers any economic
detriment of more than $50,000 and each party's business objectives and economic
position as contemplated herein and in the Lease and the Management Agreement is
preserved to the fullest extent possible.
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11.6 ACCOUNT FOR INDEMNITY CLAIMS. Commencing on the Closing
Date and continuing through the third (3rd) anniversary of the Closing Date,
IWRA shall maintain a segregated, unencumbered account (the "INDEMNITY ACCOUNT")
containing the maximum amount of funds which are permitted to be held by IWRA
under chapter 504(B) of the Iowa Code and section 99D.8 of the Iowa Code from
fees and other compensation received pursuant to the Sponsorship Agreement
(including any renewal or extension thereof) and any similar agreements or
arrangements IWRA has with other casino owners or operators. Except as required
by applicable Laws, the balance of the Indemnity Account shall not fall below
the funds received by IWRA (net of reasonable operating expenses) for the most
recent 250 days. The Indemnity Account shall be available for the payment of any
claims brought by HBR against IWRA which arise under or in connection with this
Agreement and are agreed upon by IWRA or finally determined by an arbitrator
pursuant to the terms of Section 18.9 hereof (including, without limitation,
Section 16.2 hereof, the Lease, or the Management Agreement). IWRA hereby
acknowledges and agrees that the Indemnity Account shall not be HBR's sole
remedy for claims brought by HBR against IWRA and that HBR shall be entitled to
pursue any remedy available to it, whether at law or in equity.
12. ADDITIONAL COVENANTS OF HBR.
12.1 CALCULATION OF THE CAP PAYMENT. If, at any time on or
before December 31, 2006, the State of Iowa sets a gaming tax rate which reduces
the tax applicable to the first $108,540,000 of net casino revenues earned at
the Gaming Facility (the "REDUCED GAMING TAX"), then HBR shall pay to IWRA an
amount (the "CAP PAYMENT") determined as follows:
12.1.1 Calculating the difference between the
present tax attributable to $108,540,000 (that being $38,244,000) and the tax
that would be applicable to $108,540,000 if the Reduced Gaming Tax were applied,
and multiplying said difference by 5.75; and
12.1.2 Subtracting from the amount calculated under
Section 12.1.1 above an amount equal to the nominal value of the portion of the
Initial Tax Savings Payment attributable to periods after the effective date of
the Reduced Gaming Tax.
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12.2 DELIVERY OF THE CAP PAYMENT. HBR shall deliver any Cap
Payment due hereunder as follows:
12.2.1 If the later of (i) the date that the Reduced
Gaming Tax Rate becomes law, and (ii) the effective date of the Reduced Gaming
Tax Rate, if such date is different than the date set forth in clause (i) (the
"REDUCED GAMING TAX EFFECTIVE DATE"), is prior to January 1, 2001, then, at
IWRA's election, 66.66% of the Cap Payment shall be paid to IWRA in immediately
available funds not later than 180 days after the Reduced Gaming Tax Effective
Date; provided, that if IWRA elects not to offset any amounts owed pursuant to
this Section 12.2.1, such amounts shall accrue interest at six percent (6%) per
annum, and the remaining 33.33% of the Cap Payment (together with interest on
such amount accreting at 6% per annum) shall be paid to IWRA in immediately
available funds when and if HBR is obligated to pay the Holdback and the Bonus
pursuant to Section 2.2 hereof. If IWRA is not entitled to the Holdback and the
Bonus, IWRA shall forfeit 33.33% of the Cap Payment, together with any interest
thereon. If IWRA is required to reimburse any portion of the Holdback and the
Bonus to HBR, IWRA shall also reimburse at such time 33.33% of the Cap Payment
(together with interest on such amount at a rate of 6% per annum from the date
the Holdback and the Bonus were paid to IWRA to the date of reimbursement).
12.2.2 If the Reduced Gaming Tax Effective Date is on
or after January 1, 2001, but prior to January 1, 2002, then, at IWRA's
election, 33.33% of the Cap Payment shall be paid to IWRA in immediately
available funds not later than 180 days after the Reduced Gaming Tax Effective
Date; provided, that if IWRA elects not to offset any amounts owed pursuant to
this Section 12.2.2, such amounts shall accrue interest at six percent (6%) per
annum, and the remaining 66.66% of the Cap Payment (together with interest on
such amount accreting at 6% per annum) shall be paid to IWRA in immediately
available funds when and if HBR is obligated to pay the Holdback and the Bonus
pursuant to Section 2.2 hereof. If IWRA is not entitled to the Holdback and the
Bonus, IWRA shall forfeit 66.66% of the Cap Payment, together with any interest
thereon. If IWRA is required to reimburse any portion of the Holdback and the
Bonus to HBR, IWRA shall also reimburse at such time 66.66% of the Cap Payment
(together with interest on such amount at a rate of 6% per annum from the date
the Holdback and the Bonus were paid to IWRA to the date of reimbursement).
12.2.3 If the Reduced Gaming Tax Effective Date is on
or after January 1, 2002, then, at IWRA's election, 100% of the Cap Payment
shall be
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paid to IWRA in immediately available funds not later than 180 days after HBR
is obligated to pay the Holdback and the Bonus pursuant to Section 2.2
hereof; provided, that if IWRA elects not to offset any amounts owed pursuant
to this Section 12.2.3, such amounts shall accrue interest at six percent
(6%) per annum. If IWRA is not entitled to the Holdback and the Bonus, IWRA
shall forfeit 100% of the Cap Payment, together with any interest thereon. If
IWRA is required to reimburse any portion of the Holdback and the Bonus to
HBR, IWRA shall also reimburse at such time 100% of the Cap Payment (together
with interest on such amount at a rate of 6% per annum from the date the
Holdback and the Bonus were paid to IWRA to the date of reimbursement).
12.3 CERTAIN RIGHTS ASSIGNABLE. Notwithstanding the provisions
of Section 18.6.1 of this Agreement, IWRA may assign its rights to payment of
any amounts payable pursuant to Sections 12.1 and 12.2 to the Foundation,
PROVIDED, that the Foundation shall have executed an agreement to bound by the
terms of Sections 12.1 and 12.2 of this Agreement. Upon receipt of notice from
IWRA that such assignment has occurred, HBR shall make such payments directly to
the Foundation in accordance with Sections 12.1 and 12.2.
12.4 EQUITABLE ADJUSTMENT. If prior to December 31, 2006, the
State of Iowa makes any further decreases to the effective gaming tax rate, the
parties shall make such payments and equitable adjustments to the terms hereof
as are necessary to effectuate the intent of Sections 2.1(ii) and 12.1 above. If
IWRA is not entitled to payment of the Holdback and the Bonus pursuant to
Sections 2.2.1 or 2.2.3, IWRA shall pay HBR an amount equal to the nominal value
of the portion of the Initial Tax Savings Payment attributable to periods after
the Referendum Date.
12.5 GOVERNMENTAL AUTHORITIES. In the event that any
Governmental Authority requires a change to be made to this Agreement, the
Lease, the Management Agreement and/or the transactions as contemplated by such
documents, HBR hereby agrees to promptly and diligently negotiate in good faith
any such required changes so that neither IWRA nor HBR suffers any economic
detriment of more than $50,000 and each party's business objectives and economic
position as contemplated herein and in the Lease and the Management Agreement is
preserved to the fullest extent possible.
12.6 FINANCING. HBR shall use commercially reasonable efforts
to obtain from a lender, as soon as reasonably practicable following the
Execution Date, a commitment letter (the "COMMITMENT LETTER") or a letter
agreeing to utilize its best
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efforts to syndicate a credit facility to provide the financing for the
transactions contemplated hereunder (the "BEST EFFORTS LETTER"), each on
terms reasonably acceptable to HBR.
13. RISK OF LOSS.
13.1 CONDEMNATION. If, prior to the Closing, all or any
"Material Portion" (as hereinafter defined) is taken by condemnation or eminent
domain (or is the subject of a pending taking which has not been consummated),
IWRA shall immediately notify HBR of such fact. In such event, HBR shall have
the option to terminate this Agreement upon written notice to IWRA given not
later than thirty (30) days after HBR's receipt of such notice from IWRA. Upon
such termination, the parties shall equally share the cancellation charges, if
any, of Escrow Agent and Title Company, and neither party shall have any further
rights or obligations hereunder, other than pursuant to Sections 4.1.2 and 8.7
and Article 15 hereof, any provision hereof which expressly survives the
termination of this Agreement. HBR shall have no right to terminate this
Agreement as a result of any taking of any portion of the Property that is not a
Material Portion. If HBR does not elect or has no right to terminate this
Agreement, IWRA shall assign and turn over to HBR, and HBR shall be entitled to
receive and keep, all awards for the taking by condemnation and HBR shall be
deemed to have accepted the Property subject to the taking without reduction in
the Consideration. As used herein, the term "MATERIAL PORTION" shall mean any
portion having a value in excess of $100,000.
13.2 CASUALTY. Prior to the Closing and notwithstanding the
pendency of this Agreement, the entire risk of loss or damage by earthquake,
hurricane, tornado, flood, landslide, fire or other casualty shall be borne and
assumed by IWRA. If, prior to the Closing any "Material Damage" (as hereinafter
defined) occurs to any portion of the Property as a result of earthquake,
hurricane, tornado, flood, landslide, fire or other casualty, IWRA shall
immediately notify HBR of such fact. In such event, HBR shall have the option to
terminate this Agreement upon written notice to IWRA given not later than thirty
(30) days after HBR's receipt of such notice from IWRA. Upon such termination,
the parties shall equally share the cancellation charges, if any, of Escrow
Agent and Title Company, and neither party shall have any further rights or
obligations hereunder, other than pursuant to Sections 4.1.2 and 8.7 and Article
15 hereof. HBR shall have no right to terminate this Agreement as a result of
any damage or destruction of any portion of the Property that does not
constitute Material Damage. If HBR does not elect or has no right to terminate
this Agreement, IWRA shall assign and turn over, and HBR shall be entitled to
receive
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and keep, insurance proceeds relating to damage to the Property (other than
any insurance proceeds with respect to the Gaming Equipment) payable with
respect to such damage or destruction (which shall then be repaired or not at
HBR's option and cost) and HBR shall receive, as a credit against the
Consideration, an amount equal to the deductible amount with respect to the
insurance and the parties shall proceed to the Closing pursuant to the terms
hereof without modification of the terms of this Agreement. If HBR does not
elect or has no right to terminate this Agreement by reason of any casualty,
HBR shall have the right to participate in any adjustment of any insurance
claim. As used herein, the term "MATERIAL DAMAGE" shall mean damage or
destruction, the cost of repair of which exceeds $100,000.
14. REMEDIES.
14.1 DEFAULT BY HBR. In the event that the Escrow and this
transaction fail to close solely as a result of the default of HBR in the
performance of its obligations under this Agreement, then IWRA shall be entitled
to pursue any remedy available to them hereunder, at law or in equity, excluding
the remedy of specific performance.
14.2 DEFAULT BY IWRA. In the event that the Closing of the
transactions contemplated in this Agreement does not occur by reason of any
default by IWRA of its obligations under this Agreement, then HBR shall be
entitled to pursue any remedy available to it hereunder, at law or in equity,
including, without limitation, the specific performance of this Agreement.
15. BROKERS.
15.1 IWRA'S BROKER. IWRA hereby represents, warrants to and
agrees with HBR that it has not had, and shall not have, any dealings with any
third party to whom the payment of any broker's fee, finder's fee, commission or
other similar compensation ("COMMISSION") shall or may become due or payable in
connection with the transactions contemplated hereby other than with McCarthy &
Co. (the "BROKER"). IWRA agrees to pay all Commissions due and payable to the
Broker in connection with the transactions contemplated hereby pursuant to its
separate agreement with the Broker. IWRA shall indemnify, protect, defend and
hold HBR harmless from and against any and all claims, losses, damages, costs
and expenses (including, without limitation, reasonable attorneys' fees, charges
and disbursements) incurred by HBR by reason of any breach or inaccuracy of the
representation, warranty and agreement of IWRA contained in this Section 15.1.
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15.2 HBR'S BROKER. HBR hereby represents, warrants to and
agrees with IWRA that it has not had, and shall not have, any dealings with any
third party to whom the payment of any Commission shall or may become due or
payable in connection with the transactions contemplated hereby other than with
Bear Stearns & Co., Inc. (the "HBR BROKER"). HBR agrees to pay all Commissions
due and payable to the HBR Broker in connection with the transactions
contemplated hereby pursuant to its separate agreement with the HBR Broker. HBR
shall indemnify, protect, defend and hold IWRA harmless from and against any and
all claims, losses, damages, costs and expenses (including, without limitation,
reasonable attorneys' fees, charges and disbursements) incurred by IWRA by
reason of any breach or inaccuracy of the representation, warranty and agreement
of HBR contained in this Section 15.2.
16. INDEMNIFICATION.
16.1 HBR'S INDEMNIFICATION. HBR hereby agrees to indemnify,
protect, defend and hold IWRA harmless from and against, on an after tax basis,
any claim, demand, obligation, loss, cost, damage, liability, judgment or
expense (including, without limitation, reasonable attorneys' fees, charges and
disbursements) (collectively, "CLAIMS") arising out of or in connection with (a)
the breach of any of HBR's representations or warranties set forth herein or (b)
the ownership, operation (including, without limitation, HBR's obligations with
respect to the Transferred Employees (other than HBR's 90 day salary obligation
with respect to the General Manager set forth in Section 4.4.1) or maintenance
of the Property by HBR after the Closing, excluding however, any Claims related
to the financial performance of the Property after the Closing.
16.2 IWRA'S INDEMNIFICATION. IWRA hereby agrees to indemnify,
protect, defend and hold HBR harmless from and against, on an after tax basis,
any Claims arising out of or in connection with (a) the breach of any of IWRA's
representations or warranties set forth herein or (b) the ownership, operation
or maintenance of the Property prior to the Closing.
16.3 FURTHER ASSURANCES. Each party shall do, execute and
deliver, or shall cause to be done, executed and delivered, all such further
acts and instruments which the other party may reasonably request in order to
more fully effectuate the indemnifications provided for in this Agreement.
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17. CONFIDENTIALITY AND PUBLIC ANNOUNCEMENTS.
17.1 CONFIDENTIALITY. Subject to Section 17.2 below, HBR and
IWRA hereby agree to be bound by that certain Confidentiality and Non-Disclosure
Agreement, dated May 4, 1999 (the "CONFIDENTIALITY AGREEMENT") by and between
Broker, on behalf of IWRA, and Harveys Casino Resorts, the parent company of
HBR. Notwithstanding any provision to the contrary contained in the
Confidentiality Agreement, IWRA hereby agrees that HBR may provide to
prospective lenders any information requested by such lenders in connection with
the transactions contemplated in this Agreement, the Lease and the Management
Agreement, provided, however, that HBR shall cause such prospective lenders to
agree to be bound by the confidentiality provisions contained in the
Confidentiality Agreement with respect to such information prior to disclosure.
17.2 PUBLIC ANNOUNCEMENTS. Notwithstanding Section 17.1 above,
HBR and IWRA shall consult with the other parties hereto before issuing, and
provide each other the opportunity to review and comment upon, any press release
or other public statements with respect to the transactions contemplated by this
Agreement and shall not issue any such press release or make any such public
statement prior to such consultation. The parties agree that the initial press
release to be issued with respect to the transactions contemplated by this
Agreement shall be in the form heretofore agreed to by the parties.
18. MISCELLANEOUS PROVISIONS.
18.1 GOVERNING LAW. This Agreement and the legal relations
between the parties hereto shall be governed by and construed and enforced in
accordance with the laws of the State of Iowa, without regard to its principles
of conflicts of law.
18.2 ENTIRE AGREEMENT. This Agreement, including the exhibits
and schedules attached hereto, together with the Lease, the Management
Agreement, and the Confidentiality Agreement, constitutes the entire agreement
between HBR and IWRA pertaining to the subject matter hereof and supersedes all
prior agreements, understandings, letters of intent, negotiations and
discussions, whether oral or written, of the parties, and there are no
warranties, representations or other agreements, express or implied, made to any
party by any other party in connection with the subject matter hereof except as
specifically set forth herein or in the documents delivered pursuant hereto or
in connection herewith.
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18.3 MODIFICATION; WAIVER. No supplement, modification, waiver
or termination of this Agreement shall be binding unless executed in writing by
the party to be bound thereby. No waiver of any provision of this Agreement
shall be deemed or shall constitute a waiver of any other provision hereof
(whether or not similar), nor shall such waiver constitute a continuing waiver
unless otherwise expressly provided.
18.4 NOTICES. All notices, consents, requests, reports,
demands or other communications hereunder (collectively, "NOTICES") shall be in
writing and may be given personally, by registered or certified mail, by
telecopy or by Federal Express (or other reputable overnight delivery service)
as follows:
To HBR: HBR Realty Company, Inc.
c/o Harveys Casino Resorts
Highway 50 & Stateline Avenue
Lake Tahoe, Nevada 89449
Attention: Mr. Charles W. Scharer
Telephone: (775) 586-6756
Telecopy: (775) 586-6852
With A Copy To: Scarpello & Alling, Ltd.
Kingsbury Square
276 Kingsbury Grade, Suite 2000
Lake Tahoe, Nevada 89449
Attention: Ronald D. Alling, Esq.
Telephone: (775) 588-6676
Telecopy: (775) 588-4970
and to: Skadden, Arps, Slate, Meagher & Flom LLP
300 South Grand Avenue, Suite 3400
Los Angeles, California 90071
Attention: Nick P. Saggese, Esq. and
Allan G. Mutchnik, Esq.
Telephone: (213) 687-5000
Telecopy: (213) 687-5600
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To IWRA: Iowa West Racing Association, Nonprofit Corporation
500 West Broadway, Suite 100
Council Bluffs, Iowa 51503
Attention: Mr. Tony Payne
Telephone: (712) 325-3133, ext. 11
Telecopy: (712) 322-2267
With A Copy To: Peters Law Firm
233 Pearl Street
Council Bluffs, Iowa 51502
Attention: James Campbell, Esq.
Telephone: (712) 328-3157
Telecopy: (712) 328-9092
To Escrow Fidelity National Title Insurance Company
Agent: 700 Louisiana, Suite 2400
Houston, Texas 77002
Attention: Ms. Lolly Avant
Telephone: (713) 228-3009
Telecopy: (713) 225-2726
or to such other address or such other Person as the addressee party shall have
last designated by notice to the other parties. All Notices shall be deemed to
have been given when received. All Notices given by telecopy shall be followed
by the delivery of a hard copy of such Notice, provided that such Notice shall
be deemed to have been given when received by telecopy.
18.5 EXPENSES. Subject to the provision for payment of
Closing Costs in accordance with the terms of Section 8.7 hereof and any other
provision of this Agreement, whether or not the transactions contemplated by
this Agreement shall be consummated, all fees and expenses incurred by any party
hereto in connection with this Agreement shall be borne by such party.
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18.6 ASSIGNMENT.
18.6.1 IWRA'S RIGHT TO ASSIGN. IWRA shall not
have the right, power or authority to assign all or any portion of this
Agreement or its rights hereunder or to delegate any duties or obligations
arising under this Agreement, voluntarily, involuntarily or by operation of law,
without HBR's prior written consent.
18.6.2 HBR'S RIGHT TO ASSIGN. HBR shall have the
right, power and authority to assign all or any portion of this Agreement or its
rights hereunder or to delegate any duties or obligations arising under this
Agreement, voluntarily, involuntarily or by operation of law, without IWRA's
consent, to any affiliate of HBR; provided, however, that no such assignment or
delegation shall relieve HBR of its obligations or liabilities under this
Agreement.
18.7 SEVERABILITY. Any provision or part of this
Agreement which is invalid or unenforceable in any situation in any jurisdiction
shall, as to such situation and such jurisdiction, be ineffective only to the
extent of such invalidity and shall not affect the enforceability of the
remaining provisions hereof or the validity or enforceability of any such
provision in any other situation or in any other jurisdiction.
18.8 SURVIVAL. All representations and warranties made
by IWRA in Article 9, by HBR in Article 10 and all other representations and
warranties to the extent that they relate to the condition of the Property shall
survive the delivery of the Deed and the Closing until the third anniversary of
the Closing Date. The following provisions shall survive the delivery of the
Deed and the Closing: Sections 2.2 (Holdback), 2.3 (Letter of Credit), 2.4
(Allocation of the Consideration), 4.1.2 (HBR's indemnity obligation for HBR's
diligence tests), 4.4 (Transferred and Non-Transferred Employees), 4.11
(Reasonable Efforts), 8.6 (Post Closing Adjustments), 12.1 (Calculation of the
Cap Payment), 12.2 (Delivery of the Cap Payment), 12.3 (Certain Rights
Assignable), 12.4 (Equitable Adjustment), 12.5 (Governmental Authorities), 18.8
(Survival), 18.9 (Arbitration), 18.17 (Post Closing Access to Records), 18.19
(Attorneys' Fees) and Articles 11 (Additional Covenants of IWRA), 14 (Remedies),
15 (Brokers), 16 (Indemnification), and 17 (Confidentiality and Public
Announcements).
18.9 ARBITRATION. Any dispute, controversy or claim
arising out of or relating to this Agreement, the Lease or the Management
Agreement, or the
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breach, termination or validity hereof or thereof, shall be finally settled
by arbitration in accordance with the Commercial Arbitration Rules of the
American Arbitration Association then in effect, as modified herein (the
"RULES"). The place of arbitration shall be Omaha, Nebraska. There shall be
three arbitrators, of whom HBR shall appoint one and IWRA shall appoint one
within thirty (30) days of the receipt by the respondent of the demand for
arbitration. The two arbitrators so appointed shall select the chair of the
arbitral tribunal within thirty (30) days of the appointment of the second
arbitrator. If such arbitrator is not appointed within the time limit
provided herein, such arbitrator shall be appointed by the American
Arbitration Association ("AAA") in accordance with the Rules. Any arbitrator
appointed by the AAA shall be an experienced arbitrator who is either a
retired judge or a practicing attorney with no less than fifteen years of
experience with large commercial cases. Any arbitration proceedings, decision
or award rendered hereunder and the validity, effect and interpretation of
this arbitration agreement shall be governed by the Iowa Arbitration Act,
Chapter 679A of the Iowa Code. By agreeing to arbitration, the parties do not
intend to deprive any court of its jurisdiction to issue a pre-arbitral
injunction, pre-arbitral attachment or other order in aid of arbitration
proceedings and the enforcement of any award. Without prejudice to such
provisional remedies in aid of arbitration as may be available under the
jurisdiction of a court, the arbitral tribunal shall have full authority to
grant provisional remedies and to award damages for the failure of any party
to respect the arbitral tribunal's orders to that effect. Any decision or
award rendered hereunder shall be final and binding on the parties and
judgment upon such decision or award may be entered in any court having
jurisdiction thereof.
18.10 SUCCESSORS AND ASSIGNS; THIRD PARTIES. Subject to
and without waiver of the provisions of Section 18.6 hereof, all of the rights,
duties, benefits, liabilities and obligations of the parties shall inure to the
benefit of, and be binding upon, their respective successors and assigns. Except
as specifically set forth or referred to herein, nothing herein expressed or
implied is intended or shall be construed to confer upon or give to any Person,
other than the parties hereto and their successors or permitted assigns, any
rights or remedies under or by reason of this Agreement.
18.11 COUNTERPARTS. This Agreement may be executed in as
many counterparts as may be deemed necessary and convenient, and by the
different parties hereto on separate counterparts, each of which, when so
executed, shall be deemed an original, but all such counterparts shall
constitute one and the same instrument.
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18.12 HEADINGS. The Section headings of this Agreement
are for convenience of reference only and shall not be deemed to modify,
explain, restrict, alter or affect the meaning or interpretation of any
provision hereof.
18.13 TIME OF ESSENCE. Time shall be of the essence with
respect to all matters contemplated by this Agreement.
18.14 FURTHER ASSURANCES. In addition to the actions
recited herein and contemplated to be performed, executed, and/or delivered by
IWRA and HBR, IWRA and HBR agree to perform, execute and/or deliver or cause to
be performed, executed and/or delivered at or after the Closing any and all such
further acts, instruments, deeds and assurances as may be reasonably required to
consummate the transactions contemplated hereby, including, without limitation,
and subject to the Confidentiality Agreement secured pursuant to Section 17.1,
any instruments, and documents as may be reasonably requested by HBR's lender in
the financing of the acquisition of the Property. HBR and IWRA hereby further
agree to make available in a prompt and timely manner any information requested
from the Gaming Commission or any of its duly authorized representatives.
18.15 NUMBER AND GENDER. Whenever the singular number is
used, and when required by the context, the same includes the plural, and the
masculine gender includes the feminine and neuter genders.
18.16 CONSTRUCTION. This Agreement shall not be
construed more strictly against one party hereto than against any other party
hereto merely by virtue of the fact that it may have been prepared by counsel
for one of the parties.
18.17 POST CLOSING ACCESS TO RECORDS. Upon receipt by
IWRA of HBR's reasonable written request at anytime and from time to time within
a period of three (3) years after the Closing, IWRA shall make all of IWRA's
records relating to the Property available to HBR for inspection and copying (at
HBR's sole cost and expense).
18.18 EXHIBITS AND SCHEDULES. All exhibits and
schedules attached hereto are hereby incorporated by reference as though set
out in full herein.
18.19 ATTORNEYS' FEES. In the event that any party
hereto brings an action or proceeding against any other party to enforce or
interpret any of the
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covenants, conditions, agreements or provisions of this Agreement, the
prevailing party in such action or proceeding shall be entitled to recover
all reasonable costs and expenses of such action or proceeding, including,
without limitation, attorneys' fees, charges, disbursements and the fees and
costs of expert witnesses.
18.20 BUSINESS DAYS. As used herein, the term "BUSINESS
DAY" shall mean a day that is not a Saturday, Sunday or legal holiday. In the
event that the date for the performance of any covenant or obligation under this
Agreement shall fall on a Saturday, Sunday or legal holiday, the date for
performance thereof shall be extended to the next Business Day.
18.21 AMENDMENT OR SUPPLEMENT. This Agreement may be
amended or supplemented in writing by HBR and IWRA with respect to any of the
terms contained in this Agreement.
[SIGNATURE PAGES FOLLOW.]
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IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
HBR:
HBR REALTY COMPANY, INC.
a Nevada corporation
By: /s/ Charles W. Scharer
-------------------------------
Name: Charles W. Scharer
Title: President
IWRA:
IOWA WEST RACING ASSOCIATION,
NONPROFIT CORPORATION,
an Iowa nonprofit corporation
By: /s/ Charles L. Smith
--------------------------------
Name: Charles L. Smith
Title: President
By: /s/ Joseph D. Lehan
----------------------------------
Name: Joseph D. Lehan
Title: Secretary
<PAGE>
ESCROW AGENT:
The undersigned Escrow Agent hereby accepts the foregoing Purchase and Sale
Agreement and Joint Escrow Instructions and agrees to act as Escrow Agent under
this Agreement in strict accordance with its terms.
FIDELITY NATIONAL TITLE INSURANCE COMPANY
By: /s/ Lolly Avant
--------------------------------
Name: Lolly Avant
Title: Vice President
<PAGE>
LIST OF EXHIBITS
EXHIBIT "A" LAND PARCEL
EXHIBIT "B" LEASED PROPERTIES
EXHIBIT "C" FORM OF LEASE
EXHIBIT "D" FORM OF MANAGEMENT AGREEMENT
EXHIBIT "E" CONSIDERATION ALLOCATION
EXHIBIT "F" INTENTIONALLY OMITTED
EXHIBIT "G" FORM OF DEED
EXHIBIT "H" FORM OF BILL OF SALE
EXHIBIT "I" FORM OF NON-FOREIGN AFFIDAVIT
EXHIBIT "J" FORM OF SPONSORSHIP AGREEMENT
EXHIBIT "K" FORM OF OFFICER'S CERTIFICATE
EXHIBIT "L" BLUFFS RUN CASINO Y2K STATUS SHEET
<PAGE>
LIST OF SCHEDULES
SCHEDULE 2.1 PRESENT VALUE OF THE GAMING TAX SAVINGS
SCHEDULE 2.3 TERMS OF THE LETTER OF CREDIT
SCHEDULE 5.3 SCHEDULE OF GAMING EQUIPMENT
SCHEDULE 6.1.9 SCHEDULE OF ASSUMED AGREEMENTS
SCHEDULE 6.1.10 SCHEDULE OF DESIGNATED AGREEMENTS
SCHEDULE 9.1 SCHEDULE OF CONTRACTS
SCHEDULE 9.3 SCHEDULE OF LITIGATION
SCHEDULE 9.9 CONSENTS SCHEDULE
SCHEDULE 9.12 SCHEDULE OF LEASES
SCHEDULE 9.24.1 SCHEDULE OF INTELLECTUAL PROPERTY
SCHEDULE 9.25.14 SCHEDULE OF OFFICERS AND KEY EMPLOYEES
SCHEDULE 9.33 SCHEDULE OF LIENS ON PERSONAL PROPERTY AND INTANGIBLE
PROPERTY
SCHEDULE 10.1 SCHEDULE OF REQUIRED APPROVALS & CONSENTS
i
<PAGE>
EXHIBIT 10.51
LEASE
by and between
HBR REALTY COMPANY, INC.,
a Nevada corporation,
as Landlord,
and
IOWA WEST RACING ASSOCIATION, NONPROFIT CORPORATION,
an Iowa nonprofit corporation,
as Tenant,
for
the Bluffs Run Casino
located at
2701 23rd Street
Council Bluffs, Iowa
Dated: October 5, 1999
<PAGE>
LEASE
This Lease (this "LEASE"), dated for reference purposes only as of October
5, 1999, is made by and between HBR REALTY COMPANY, INC., a Nevada corporation
("LANDLORD"), and IOWA WEST RACING ASSOCIATION, NONPROFIT CORPORATION, an Iowa
nonprofit corporation ("TENANT"). Landlord and Tenant are sometimes collectively
referred to herein as the "PARTIES" and individually as a "PARTY."
R E C I T A L S :
A. Landlord owns the real property more particularly described on
EXHIBIT "A" hereof (the "LAND"). Located on the Land are certain improvements
(the "IMPROVEMENTS") containing, among other things, a dog racing track and
casino, commonly known as "Bluffs Run Casino." The Improvements, together
with all other improvements and fixtures now or hereafter located on the
Land, including, without limitation all of the following, are hereinafter
referred to as the "GAMING FACILITY": fixtures, apparatus, equipment,
facilities and appliances used in connection with the operation or occupancy
of the Land (such as heating and air conditioning systems and facilities used
to provide any utility services, parking services, refrigeration,
ventilation, trash disposal, recreation or other services thereto),
electrical lighting systems, electrical systems, electrical distribution
systems (power panels, buss ducting, conduits, disconnects, lighting
fixtures), telephone systems and all the appurtenances thereto (including all
equipment, instruments, receivers, lines, wiring systems, jacks, hook-ups and
connections), space heaters, air conditioning equipment, air lines, carpets,
window coverings, wall coverings, plumbing, plumbing fixtures, plumbing
systems, boilers, pressured or unpressured fire vessels, fire sprinklers,
standpipe and hose, fire extinguishing systems (including fire alarm and
smoke detection systems and equipment), fire hydrants and signs.
B. All personal property, furniture, furnishings and equipment owned or
leased by Landlord and located at the Gaming Facility and used in connection
with the Gaming Facility are collectively referred to herein as the "PERSONAL
PROPERTY". The Personal Property includes, without limitation, supplies,
computer equipment, service equipment, kitchen equipment, decorations, china,
glassware, linens, silverware, kitchen and bar small goods, paper goods,
printing, stationary and uniforms, fixtures, appliances, fittings, vehicles and
inventories, EXCEPTING, the gaming equipment (collectively, the "GAMING
EQUIPMENT") described on EXHIBIT "B" attached hereto, which is owned by Tenant.
C. All contracts, to which Landlord is a party which relate to the
operation of the Gaming Facility are collectively referred to herein as the
"SERVICE CONTRACTS." The Service Contracts include, without limitation, supply
contracts, utility contracts, water and sewer service contracts of any nature,
repair, service or maintenance contracts, management contracts, janitorial
contracts, elevator contracts, landscaping contracts, pest control and supply
contracts, insurance policies and all other contracts or documents of any nature
relating to or affecting the Gaming Facility and the Personal Property, each as
amended from time to time.
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D. All intangible property owned, leased or licensed by Landlord and used
in connection with the Gaming Facility or the Personal Property is collectively
referred to herein as the "INTANGIBLE PROPERTY." The Intangible Property
includes, without limitation: (a) all contract rights (including, without
limitation, the Service Contracts), current accounts receivable (as determined
in accordance with generally accepted accounting principles), books, records,
reports, operating and training manuals, test results, environmental
assessments, if any, as-built plans, specifications and other similar documents
and materials relating to the use, operation, mainte nance, repair, construction
or fabrication of all or any portion of the Gaming Facility and/or the Personal
Property; (b) all rights, if any, in and to the trademarks, tradenames, patents,
and trade secrets; (c) all computer software used in the operation and
maintenance of all activities conducted on the Property (collectively, the
"SOFTWARE"); (d) all transferable business licenses, architectural, site,
landscaping or other permits, applications, approvals, authorizations and other
entitlements affecting any portion of the Gaming Facility; (e) all transferable
guarantees, warranties and utility contracts relating to all or any portion of
the Gaming Facility; (f) all human resources files and records and all other
records relating to any employees of Landlord; and (g) goodwill, all customer
lists and player lists, mailing lists, casino files, copies of accounting
records and copies of financial statements.
E. Landlord and Tenant expressly acknowledge and reaffirm Tenant's
obligation and Landlord's commitment made to the Iowa Racing & Gaming Commission
(the "GAMING COMMISSION") at their September 23, 1999 meeting, whereby Tenant
will submit a plan to spend up to $150,000.00 in capital improvements to resolve
the minors entry issue and submit a plan therefor to the Gaming Commission on or
before September 23, 2000.
Landlord and Tenant hereby agree as follows:
1. LEASE. Landlord hereby leases to Tenant and Tenant hereby leases from
Landlord, upon all of the terms, covenants and conditions set forth in this
Lease, the Gaming Facility, the Personal Property, the Service Contracts and the
Intangible Property (collectively, the "PREMISES").
2. USE. Tenant shall occupy the Gaming Facility upon the commencement of
the "Initial Term" (as hereinafter defined) and thereafter shall continuously
use, or cause to be used, the Gaming Facility for a pari-mutuel dog racetrack
and casino, including all activities incident thereto. Tenant shall cause the
Gaming Facility to be open twenty-four hours a day, seven days a week, subject
to force majeure. Subject to licensing requirements of the State of Iowa,
Landlord may in its sole discretion, at any time, change, alter, or amend the
name of the Gaming Facility.
3. TERM. The initial term of this Lease (the "INITIAL TERM") shall be for
twenty-five (25) years, commencing on October 5, 1999 ("COMMENCEMENT DATE") and
expiring on the twenty-fifth (25th) anniversary of the Commencement Date.
Following the Initial Term, this Lease shall automatically renew for successive
twenty-five (25) year terms on the same terms and conditions, unless and until
Landlord gives Tenant thirty (30) days prior written notice of its
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intent to terminate this Lease. The Initial Term and all renewal terms of this
Lease are collectively referred to herein as the "TERM." Notwithstanding the
foregoing, if the Management Agreement, dated as of the date hereof ("MANAGEMENT
AGREEMENT"), by and between Harveys BR Management Company, a Nevada corporation
("MANAGER"), and Tenant terminates, expires or is declared invalid pursuant to a
final order by a court or other governmental authority with competent
jurisdiction over the Management Agreement and/or this Lease after the parties
have each used commercially reasonable efforts to take any and all actions
necessary to keep the Management Agreement and/or this Lease in force and
effect, the Management Agreement and/or this Lease shall automatically terminate
and the parties shall negotiate in good faith and enter into a replacement
Management Agreement and/or Lease to replace such terminated, expired or invalid
Management Agreement and/or Lease. The parties hereby agree that,
notwithstanding the foregoing sentence, Tenant shall not be obligated to incur
any significant financial liability or obligation as a result of its
commercially reasonable efforts and actions to keep the Management Agreement
and/or the Lease in force and effect.
3.1 HOLDING OVER.
3.1.1 If Tenant holds possession of all or any part of the
Premises after the expiration of the Term of this Lease or the earlier
termination of the Term, Tenant shall become a tenant from month-to-month, and
Tenant shall continue to pay Rent (as defined below) in the amount payable upon
at the expiration of the Term or upon the earlier termination of this Lease and
all other provisions, representations, covenants and agreements contained herein
shall remain in full force and effect.
3.1.2 Acceptance by Landlord of Rent after the Expiration Date or
earlier termination of this Lease shall not result in a renewal or reinstatement
of this Lease.
3.1.3 The foregoing provisions of this Section 3 are in addition
to and do not affect Landlord's right to re-entry or any other rights of
Landlord hereunder or as otherwise provided by law.
4. RENT. Tenant shall, as rent for the Premises and in consideration for
Landlord entering into this Lease, pay to Landlord "Rent" (as defined below),
weekly and in arrears, commencing on the first (1st) day of the second full
week of the Initial Term. "RENT" shall be in an amount equal to twenty
percent (20%) of the "CASH FLOW" (as defined below) of the Premises;
provided, that until the fifth (5th) business day following the date that the
results of the "Referendum" (as defined in that certain Purchase and Sale
Agreement and Joint Escrow Instructions, dated as of August 31, 1999 (the
"PURCHASE AGREEMENT"), by and between Landlord and Tenant) are certified to
the County Auditor of Pottawattamie County, Iowa (the "REFERENDUM PAYMENT
DATE"), Tenant shall be permitted to retain $1,350,000.00 ("TENANT'S RETAINED
AMOUNT") of Cash Flow every six months. Until the occurrence of the
Referendum Payment Date, Tenant's Retained Amount shall be deducted from the
first weekly Rent payment due on the sixth (6th) month anniversary of the
date of this Lease and on every six (6) month anniversary thereafter. If
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any weekly Rent payment retained by Tenant is less than Tenant's Retained
Amount, subsequent weekly Rent payments (or any portion thereof) shall continue
to be retained by Tenant until Tenant has retained the full Tenant's Retained
Amount for such six (6) month period. In the event the Referendum Payment Date
occurs before the end of any such six (6) month anniversary period, Tenant's
Retained Amount for such period shall be prorated and shall be payable within
five (5) days of the Referendum Payment Date. Except as provided herein, all
Rent shall be payable by Tenant to Landlord without demand, offset, deduction or
reduction of any sort whatsoever. Rent shall be paid directly to Landlord by
Manager. Provided Tenant has not taken any action (or inaction) which would
wrongfully hinder, prevent or frustrate Manager's ability to pay any Rent or
otherwise perform its duties under the Management Agreement, Tenant shall not
have any liability for any Rent should Manager fail to pay such Rent, with
Landlord's only remedy in the event of such default being termination of this
Lease unless the failure to pay Rent by Manager is due to the willful and
fraudulent act (including, without limitation, Tenant's action to prevent or
hinder Manager's access to funds in the "Operating Account" (as defined in the
Management Agreement)) or the misappropriation of funds in the Operating
Account. The parties agree that Landlord shall have no recourse against Tenant
or any property of Tenant, other than the Operating Account maintained by
Manager pursuant to the Management Agreement for payment of Rent or any other
amounts due hereunder.
"CASH FLOW" as used herein, means, for any period, all revenues and income
of any kind, directly or indirectly derived from use or operation of the
Facility and Gaming Operations (as defined in the Management Agreement),
including, without limitation, pari-mutuel commissions, simulcast income, Gaming
Operations wins, parking and admissions, merchandise sales, food, beverage, and
entertainment income, rentals or other payments from lessees, sublessees and
concessionaires and proceeds of the sale of any Gaming Equipment, as defined
herein, LESS all costs and expenses with respect to the Facility and Gaming
Operations, including, without limitation, the Initial Payment (as defined in
the Management Agreement) and Tenant's Retained Amount, purses, pari-mutuel
taxes and fees, audit and license fees, gaming taxes and fees, complimentary
items, departmental operating expenses, selling, general and administrative
expenses, expenditures for purchasing, leasing and maintaining Gaming Equipment
(including, without limitation, contracts which may be in the name of Tenant as
permitted under the Management Agreement), auditing expenses, greyhound adoption
costs, property taxes but excluding depreciation, amortization, and Tenant's
administrative expenses and charitable contributions. Cash Flow shall be
determined on the accrual basis of accounting in accordance with generally
accepted accounting principles.
At the end of each fiscal year, the actual weekly Cash Flow of the Premises
shall be reconciled with the weekly Cash Flow as calculated during such fiscal
year by the certified public accountants then serving the Premises and, if
necessary, an adjusting payment or refund shall be made.
5. DELIVERY. Subject to Landlord's representations and warranties set forth
herein, Landlord shall deliver the Premises to Tenant in an "AS IS" condition on
the Commencement
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Date. Tenant hereby acknowledges that it has inspected the Premises and that
it accepts the same in its current condition.
6. MAINTENANCE; ALTERATIONS.
6.1 LANDLORD'S OBLIGATION. Landlord shall, at Landlord's expense, keep
the Premises in good order, condition and repair. Tenant shall have no
obligation to repair or maintain the Premises.
6.2 DEFINITIONS. The term "UTILITY INSTALLATIONS" is used in this
Lease to refer to all carpeting, window coverings, air lines, power panels,
electrical distribution, security, fire protection systems, communication
systems, lighting fixtures, heating, ventilating, and air conditioning
equipment, plumbing, and fencing in, on or about the Premises. The term
"TRADE FIXTURES" shall mean the Gaming Equipment. The term "ALTERATIONS"
shall mean any modification of the Premises, other than Utility Installations
or Trade Fixtures, whether by addition or deletion.
6.3 ALTERATIONS. Tenant may not, without Landlord's prior written
consent, make any Alterations or Utility Installations in, on, under or about
the Premises, whether structural or nonstructural, or install or remove any
Trade Fixtures, unless required by applicable law.
6.4 OWNERSHIP. All Alterations and Utility Additions made to the
Premises by Tenant shall be the property of and owned by Landlord and
considered a part of the Gaming Facility.
6.5 REMOVAL. Unless otherwise agreed to in writing, Tenant may remove
any or all the Trade Fixtures upon the expiration or earlier termination of
this Lease.
6.6 SURRENDER. Tenant shall surrender the Premises on the date the
Term of this Lease expires or any earlier termination date, in its condition
as of such time.
7. INSURANCE AND INDEMNITY.
7.1 LIABILITY INSURANCE. At all times after the execution of this
Lease, Landlord and Tenant will carry and maintain, at Landlord's expense, a
commercial (comprehen sive) liability insurance policy naming Landlord and
Tenant as named insureds, including (but not limited to) insurance against
assumed or contractual liability under this Lease, with respect to liability
arising out of the ownership, use, occupancy or maintenance of the Premises and
all areas appurtenant thereto. Such insurance shall (i) have a deductible amount
of $1,000,000 or less and (ii) be on an occurrence basis providing single limit
coverage in amounts provided in the Management Agreement.
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7.2 PROPERTY INSURANCE. At all times after the execution of this Lease,
Landlord and Tenant will carry and maintain, at Landlord's expense, all-risk
property and casualty insurance naming Landlord and Tenant as named insureds,
and Landlord and Tenant, together with the holders of any mortgages or deeds of
trust on the Premises, as loss payees as said parties' interests may appear,
including theft coverage, written at replacement cost value and with replacement
cost endorsement, covering said interests in the Premises (including but not
limited to all fixtures attached thereto), all of Landlord's or Tenant's
personal property in the Premises (including without limitation, inventory,
trade fixtures, floor coverings, furniture and other property removable by
Tenant under the provisions of the Lease) and all leasehold improvements
installed in the Premises. Such policy or policies of insurance shall (i) have a
deductible amount of $1,000,000 or less and (ii) insure the interests of
Landlord and Tenant in the Gaming Equipment against loss or damage by casualty
in its full insurable value.
7.3 Intentionally omitted.
7.4 POLICY REQUIREMENTS. The Company or companies writing any insurance
which Landlord and/or Tenant are required to carry and maintain or cause to be
carried or maintained pursuant to this Section, as well as the form of such
insurance, shall at all times be subject to approval of the Gaming Commission
and any such company or companies shall be licensed to do business in the State
of Iowa and maintain during the policy term a "General Policyholders Ratings" of
at least B+, V, as set forth in the most current issue of "Best's Insurance
Guide." Comprehensive commercial liability and all risks, property, and casualty
insurance policies shall be primary and noncontributory, and shall also contain
a provision by which the insurer agrees that such policy shall not be canceled,
materially changed or not renewed without at least thirty (30) days' advance
notice to Tenant, at Tenant's notice address, as specified in Section 18.1
hereof. Each such policy, or a certificate thereof, shall be deposited with
Tenant by Landlord promptly upon commencement of Landlord's obligation to
procure the same. If Landlord shall fail to perform any of its obligations under
this Section 7, Tenant may perform the same.
7.5 WAIVER OF SUBROGATION. Without affecting any other rights or remedies,
Tenant and Landlord (each, a "WAIVING PARTY") each hereby release and relieve
the other, and waive their entire right to recover damages (whether in contract
or in tort) against the other, for loss of or damage to the Waiving Party's
property arising out of or incident to the perils required to be insured against
under this Section 7. The effect of such releases and waivers of the right to
recover damages shall not be limited by the amount of insurance carried or
required, or by any deductibles applicable thereto.
7.6 INDEMNITY. Landlord shall indemnify Tenant and Tenant's employees,
agents, successors and assigns and hold each of them harmless from and against
any and all liability, claims, damages, or causes of action of any nature,
including court costs and reasonable attorney's fees, arising out of the
negligent act or omission of Landlord, or of any person or entity
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for whose acts Landlord is responsible, or arising out of any Default (as
hereinafter defined) by Landlord.
8. DAMAGE OR DESTRUCTION.
8.1 DAMAGE OR DESTRUCTION. In the event of partial damage or
destruction of the Premises not exceeding fifty percent (50%) of the full
insurable value of the Premises, and if the damage or destruction thereto is
such that the Premises may be repaired, reconstructed or restored within a
period of six (6) months from the date of the happening of such casualty and
Landlord will receive insurance proceeds sufficient to cover the cost of such
repairs (except for any deductible amount provided by Landlord's policy,
which deductible amount shall be paid by Landlord), Landlord shall commence
and proceed diligently with the work of repair, reconstruction and
restoration and this Lease shall continue in full force and effect. In the
event of any damage to or destruction of the Premises, other than as provided
in the foregoing sentence, Landlord may elect, in its sole and absolute
discretion (a) to repair, reconstruct and restore the Premises, in which case
this Lease shall continue in full force and effect or (b) not to repair,
reconstruct and restore the Premises, in which case this Lease shall
terminate upon notice thereof to Tenant. Landlord hereby acknowledges that in
the event there is any damage or destruction to the Premises, Tenant shall
have no obligation to repair or restore the same, nor shall Tenant have any
liability under this Lease for any damage thereto from any cause.
8.2 TERMINATION--ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to this Section 8, an equitable adjustment shall be made concerning any
advance rent paid by Tenant to Landlord.
8.3 WAIVE STATUTES. Landlord and Tenant agree that the terms of this
Lease shall govern the effect of any damage to or destruction of the Premises
with respect to the termination of this Lease and hereby waive the provisions of
any present or future statute to the extent inconsistent herewith.
9. REAL AND PERSONAL PROPERTY TAXES. Landlord shall pay, prior to
delinquency, all real property taxes and assessments ("REAL PROPERTY TAXES")
applicable to the Premises during the Term of this Lease. During the Term,
Landlord shall also pay, prior to delinquency, any personal property taxes on
any part of the Premises which is subject to such taxes.
10. UTILITIES. Landlord shall pay for all water, gas, heat, light, power,
telephone, trash disposal and other utilities and services supplied to the
Premises, together with any taxes thereon. Tenant shall not be liable for any
utility charges.
11. ASSIGNMENT AND SUBLETTING.
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11.1 CONSENT REQUIRED. Tenant may not, without Landlord's prior
written consent, assign, sublease, transfer, hypothecate, encumber, pledge,
or otherwise convey (collectively, "TRANSFER") this Lease, the Premises or
Tenant's rights hereunder.
11.2 NO RELEASE. A Transfer, whether or not permitted by Landlord,
shall not release Tenant of any obligations hereunder, or for the performance
of any other obligations to be performed by Tenant under this Lease, subject
to the other terms and conditions of this Lease.
12. DEFAULT; BREACH; REMEDIES.
12.1 DEFAULT; BREACH. A "DEFAULT" is defined as a failure by Tenant or
Landlord to keep, observe or perform any covenant, agreement, term or
provision of this Lease or the Purchase Agreement, including, without
limitation, the failure by Tenant to maintain, in good standing pursuant to
applicable laws, rules, regulations, ordinances and/or orders, the racing and
gaming licenses necessary to operate the Gaming Facility as a dog racing
track and casino (collectively, the "GAMING LICENSES") or the failure by
Tenant or Manager to keep, observe or perform their respective obligations
under the Management Agreement. A "BREACH" is defined as the occurrence of a
Default and the failure by Tenant, Landlord or Manager, as the case may be,
to cure such Default prior to the expiration of the applicable grace period,
if any.
12.2 BREACH BY TENANT OR LANDLORD.
12.2.1 BREACH BY TENANT. A Default by Tenant as to the covenants,
agreements, terms, or provisions of this Lease, the Management Agreement or the
Purchase Agreement to be observed, complied with or performed by Tenant where
such Default continues for a period of thirty (30) days after Tenant's receipt
of written notice thereof by or on behalf of the Landlord shall constitute a
Breach of this Lease, the Management Agreement and the Purchase Agreement;
PROVIDED, HOWEVER, if the nature of the Default is reasonably susceptible of
cure but more than thirty (30) days are reasonably required for its cure, then
Tenant shall not be deemed to be in Breach of this Lease, the Management
Agreement and the Purchase Agreement if Tenant promptly commences such cure
within such thirty (30) day period, and thereafter diligently pursues the cure
thereof; PROVIDED FURTHER, HOWEVER, if the nature of the Default is such that it
cannot be cured or ceases to be reasonably susceptible of cure, then Tenant
shall immediately be in breach of this Lease, the Management Agreement and the
Purchase Agreement. Notwithstanding the foregoing, a failure by Tenant to
maintain the Gaming Licenses in good standing pursuant to applicable law, and
the continuance of such failure for more than five (5) days, shall constitute a
Breach of this Lease, the Management Agreement, and the Purchase Agreement,
unless such failure is due solely to the act or neglect of Landlord or Manager
or due to the Breach of this Lease or the Management Agreement by Landlord or
Manager.
12.2.2 BREACH BY LANDLORD. A Default by Landlord as to the material
covenants, agreements, terms, or provisions of this Lease or the Purchase
Agreement to
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be observed, complied with or performed by Landlord, or a Default by Manager as
to the material covenants, agreements, terms or provisions of the Manager
Agreement to be observed, complied with or performed by Manager where such
Default continues for a period of thirty (30) days after Landlord's receipt of
written notice thereof by or on behalf of the Tenant shall constitute a Breach
of this Lease, the Management Agreement and the Purchase Agreement; PROVIDED,
HOWEVER, if the nature of the Default is reasonably susceptible of cure but more
than thirty (30) days are reasonably required for its cure, then Landlord or
Manager, as applicable, shall not be deemed to be in Breach of this Lease, the
Management Agreement and the Purchase Agreement if Landlord promptly commences
such cure within such thirty (30) day period, and thereafter diligently pursues
the cure thereof; PROVIDED FURTHER, HOWEVER, if the nature of the Default is
such that it cannot be cured or ceases to be reasonably susceptible of cure,
then Landlord or Manager, as applicable, shall immediately be in breach of this
Lease, the Management Agreement and the Purchase Agreement.
12.3 LIMITATION OF LIABILITY - Tenant. Neither Tenant nor its
members, affiliates, and successors or assigns shall have any personal
liability, responsibility or obligation for the performance of any obligation
of Tenant hereunder and Landlord agrees that in no event shall any monetary
judgments for such Breach or Default be sought or secured against any of the
foregoing; PROVIDED, HOWEVER, this limitation of liability shall not apply to
damages suffered by Landlord or Manager caused by Tenant's failure to keep
and maintain the covenants contained in Section 14 hereof.
12.4 LIMITATION OF LIABILITY - LANDLORD. Landlord's parents,
affiliates, shareholders, successors or assigns shall have no personal
liability, responsibility or obligation for the performance of any obligation
of Landlord hereunder and Tenant agrees that in no event shall any monetary
judgments for such Breach or Default be sought or secured against any of the
foregoing.
13. CONDEMNATION.
13.1 TERMINATION OF LEASE. If the Premises or any portion thereof
are taken under the power of eminent domain or sold under the threat of the
exercise of said power (collectively, "CONDEMNATION"), Landlord may, at
Landlord's sole and absolute discretion, terminate this Lease as of the date
the condemning authority takes such possession.
13.2 AWARD. Any award for the taking of all or any part of the
Premises under the power of eminent domain or any payment made under threat
of the exercise of such power shall, after payment of all obligations secured
by the Premises and obligations owed to Tenant and any manager of the
Premises, be the sole property of Landlord, including, but not limited to,
any compensation for the value of the fee interest, or any other interest of
Landlord.
14. COVENANTS. Tenant hereby covenants that:
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14.1 During the Term of this Lease, Tenant (i) shall continue to
qualify as a nonprofit corporation organized under the laws of Iowa to
promote the purposes enumerated in section 99B.7, subsection 3, paragraph "b"
of the Iowa Code (the "IOWA CODE PROVISION") and (ii) shall use its best
efforts to promote the purposes enumerated in the Iowa Code Provision.
14.2 During the Term of this Lease, Tenant shall use its best
efforts to maintain the good standing status of the Gaming Licenses,
including, without limitation, making timely filings and promptly paying any
and all fees required for the continued use of the Gaming Licenses.
14.3 Tenant shall not directly or indirectly sell, contribute,
assign or create any right, title or interest whatsoever in or to the
Premises, the Gaming Licenses, or the Gaming Equipment, or create or permit
to exist thereon any lien, charge or encumbrance, or enter into any agreement
to do any of the foregoing, without the prior written consent of Landlord
(which consent may be granted or withheld in Landlord's sole and absolute
discretion).
15. RELATIONSHIP OF THE PARTIES. Nothing contained in this Lease or in the
relationship between Landlord and Tenant shall be deemed to constitute a
partnership, joint venture or any other relationship between them, except that
of landlord and tenant.
16. SEVERABILITY. If any provision of this Lease or the application of any
provision of this Lease is determined by a court of competent jurisdiction to be
invalid or unenforceable, the remainder of this Lease shall not be affected but
shall be enforced to the extent permitted by law and otherwise consistent with
the intent hereof.
17. NO PRIOR OR OTHER AGREEMENTS. This Lease, together with the Management
Agreement, the Confidentiality and Non-Disclosure Agreement, dated as of May 4,
1998, and the Purchase Agreement, contains all agreements between the Parties
with respect to any matter mentioned herein and under no other prior or
contemporaneous agreement or understanding shall be effective. This Lease
supersedes all of the other prior or contemporaneous agreements of the Parties
with respect to the subject matter hereof.
18. NOTICES.
18.1 PLACE. All notices required or permitted by this Lease shall be
in writing and may be delivered in person (by hand or by messenger or courier
service) or may be sent by certified or registered mail or U.S. Postal
Service Express Mail, with postage prepaid, or by facsimile transmission, and
shall be deemed sufficiently given if served in a manner specified in this
Section. The addresses noted below shall be that Party's address for delivery
or mailing of notice purposes. Tenant shall only be obligated to deliver any
notices intended for Landlord to the one address noted below. Either Party
may by written notice to the other specify a different address for notice
purposes.
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To Landlord: HBR Realty Company, Inc.
c/o Harveys Casino Resorts
Highway 50 & Stateline Avenue
Lake Tahoe, Nevada 89449
Attention: Mr. Charles W. Scharer
Telephone: (775) 586-6756
Telecopy: (775) 586-6852
With A Copy To: Scarpello & Alling, Ltd.
Kingsbury Square
276 Kingsbury Grade, Suite 2000
Stateline, Nevada 89449
Attention: Ronald D. Alling, Esq.
Telephone: (775) 588-6676
Telecopy: (775) 588-4970
and to: Skadden, Arps, Slate, Meagher & Flom LLP
300 South Grand Avenue, Suite 3400
Los Angeles, California 90071
Attention: Allan G. Mutchnik, Esq.
Telephone: (213) 687-5391
Telecopy: (213) 687-5600
To Tenant: Iowa West Racing Association, Nonprofit Corporation
500 West Broadway, Suite 100
Council Bluffs, Iowa 51503
Attention: Mr. Tony Payne
Telephone: (712) 325-3133, ext. 11
Telecopy: (712) 322-2267
With A Copy To: Peters Law Firm
233 Pearl Street
Council Bluffs, Iowa 51502
Attention: James Campbell, Esq.
Telephone: (712) 328-3157
Telecopy: (712) 328-9092
18.2 DEEMED RECEIPT. Any notice sent by registered or certified mail,
return receipt requested, shall be deemed given on the date of delivery shown on
the receipt card, or if no delivery date is shown, the postmark thereon. Notices
delivered by United States Express Mail or overnight courier that guarantees
next day delivery shall be deemed given twenty-four (24) hours after delivery of
the same to the United States Postal Service or courier. If any notice is
transmitted by facsimile transmission or similar means, the same shall be deemed
served or
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delivered upon telephone confirmation of receipt of the transmission thereof,
provided a copy is thereafter also delivered via delivery or mail. If notice is
received on a Sunday or legal holiday, it shall be deemed received on the next
business day.
19. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the
parties, their personal representatives, successors and assigns and be governed
by and interpreted in accordance with the laws of the State of Iowa. The parties
to this Lease have been involved in the drafting of this Lease. This Lease shall
not be construed for or against any particular Party, but shall be interpreted
to effectuate the intent of the Parties based upon the language of this Lease.
This Lease shall constitute a covenant running with the Land.
20. ARBITRATION OF DISPUTES. Any dispute, controversy or claim arising
out of or relating to this Lease, or the breach, termination or validity
hereof, shall be finally settled by arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association then in
effect, as modified herein (the "RULES"). The place of arbitration shall be
Omaha, Nebraska. There shall be three arbitrators, of whom Landlord shall
appoint one and Tenant shall appoint one within thirty (30) days of the
receipt by the respondent of the demand for arbitration. The two arbitrators
so appointed shall select the chair of the arbitral tribunal within thirty
(30) days of the appointment of the second arbitrator. If such arbitrator is
not appointed within the time limit provided herein, such arbitrator shall be
appointed by the American Arbitration Association ("AAA") in accordance with
the Rules. Any arbitrator appointed by the AAA shall be an experienced
arbitrator who is either a retired judge or a practicing attorney with no
less than fifteen years of experience with large commercial cases. Any
arbitration proceedings, decision or award rendered hereunder and the
validity, effect and interpretation of this arbitration agreement shall be
governed by the Iowa Arbitration Act, Chapter 679A of the Iowa Code (1999).
By agreeing to arbitration, the parties do not intend to deprive any court of
its jurisdiction to issue a pre-arbitral injunction, pre-arbitral attachment
or other order in aid of arbitration proceedings and the enforcement of any
award. Without prejudice to such provisional remedies in aid of arbitration
as may be available under the jurisdiction of a court, the arbitral tribunal
shall have full authority to grant provisional remedies and to award damages
for the failure of any party to respect the arbitral tribunal's orders to
that effect. Any decision or award rendered hereunder shall be final and
binding on the parties and judgment upon such decision or award may be
entered in any court having jurisdiction thereof.
21. ATTORNEY'S FEES. If any Party brings an action or proceeding to enforce
the terms hereof or declare rights hereunder, the prevailing party in any such
proceeding, action, or appeal thereon, shall be entitled to reasonable
attorney's fees and disbursements.
22. LANDLORD'S ACCESS. Landlord and Landlord's agents shall have the
right to enter the Premises at any time, for any purpose and without advance
notice to Tenant.
12
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23. SIGNS. Landlord, at its sole and absolute discretion, may install any
and all signs in or on the Premises. Tenant may not install any signs in or on
the Premises without the prior written consent of Landlord.
24. QUIET POSSESSION. Upon payment by Tenant of the Rent for the Premises
and observance and performance of all of the covenants, conditions and
provisions on Tenant's part to be observed and performed under this Lease,
Tenant shall have quiet possession of the Premises for the entire term hereof
subject to all of the provisions of this Lease.
25. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to
any amount or sum of money to be paid by one Party to the other under the
provisions hereof, the Party against whom the obligation to pay the money is
asserted shall have the right to make payment "under protest" and such payment
shall not be regarded as a voluntary payment and there shall survive the right
on the part of said Party to institute suit for recovery of such sum. If it
shall be adjudged that there was no legal obligation on the part of said Party
to pay such sum or any part thereof, said Party shall be entitled to recover
such sum or so much thereof as it was not legally required to pay under the
provisions of this Lease.
26. COUNTERPARTS. This Lease may be executed in counterparts at different
times and places, each of which shall be deemed an original, but all of which
shall together constitute one and the same instrument.
27. AMENDMENTS. This Lease may not be changed, modified, renewed, extended,
canceled or discharged, or any covenant or provision waived, except by an
agreement in writing, signed by the Party against whom enforcement of the
change, modification, renewal, extension, discharge or waiver is sought.
28. MEMORANDUM OF LEASE. Simultaneously with the execution of this Lease,
Landlord and Tenant shall execute a memorandum of lease (the "MEMORANDUM"), in
the form attached hereto as EXHIBIT "C", to be recorded in the official records
of Pottawattamie County, Iowa. Landlord shall pay the cost of said recordation.
29. ESTOPPEL CERTIFICATES. Tenant shall within twenty (20) days of written
request from Landlord, execute, acknowledge and deliver a statement in writing
substantially in the form attached to this Lease as EXHIBIT "D" with all blanks
filled in, and on any other form reasonably requested by a proposed lender or
purchaser, (i) certifying that this Lease is unmodified and in full force and
effect (or, if modified, stating the nature of such modification and certifying
that this Lease as so modified is in full force and effect), (ii) acknowledging
that there are not, to Tenant's knowledge, any uncured defaults on the part of
Landlord hereunder, or specifying such defaults if any are claimed, and (iii)
setting forth such further information with respect to this Lease or the
Premises, as may be requested thereon. Any such statement may be relied upon by
any prospective purchaser or encumbrancer of all or any portion of the Land or
the Premises. Tenant's failure to deliver such statement within such time shall
be conclusive
13
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upon Tenant that the Lease is in full force and effect and without modification
except as may be represented by Landlord in any certificate prepared by Landlord
and delivered to Tenant for execution.
30. CHANGE IN GAMING FACILITY. In the event Landlord elects to add onto,
demolish or otherwise modify in any way the Gaming Facility, the Gaming Facility
as so modified shall be subject to this Lease. Tenant and Landlord agree to
perform, execute, and/or deliver or cause to be performed, executed, or
delivered at Landlord's sole expense, any and all such further acts,
instruments, deeds and assurances as may be reasonably required to evidence such
modification, including, without limitation, an amendment to this Lease and the
Memorandum. Tenant and Landlord hereby further agree that such modification
shall not require a change in the formula used to calculate Rent and no
additional consideration shall be required for such modification.
31. TERMINATION AS A RESULT OF A CHANGE IN LAW. In the event during the
Term of this Lease, applicable laws, rules, regulations, ordinances and/or
orders with respect to dog racing, pari-mutuel gaming, or the operation of the
Gaming Facility (i) change to allow a transfer of the Gaming Licenses to
Landlord (or an affiliate of Landlord), then Tenant shall, within ten (10) days
of a written request from Landlord, and subject to any necessary prior approval
of the appropriate State of Iowa licensing authorities, transfer the Gaming
Licenses to Landlord or its designee, or (ii) prohibit all gaming or pari-mutuel
activities on the Premises, then this Lease shall terminate and be of no further
force or effect from the date of such transfer. In the event this Lease
terminates for this, or any other reason, the Management Agreement shall also
terminate.
[SIGNATURE PAGE FOLLOWS.]
14
<PAGE>
Landlord and Tenant have executed this Lease as of the date first
written above.
"LANDLORD":
HBR REALTY COMPANY, INC.,
a Nevada corporation
By:
/s/ Charles W. Scharer
----------------------------
Name:
Title:
"TENANT":
IOWA WEST RACING ASSOCIATION,
NONPROFIT CORPORATION,
an Iowa nonprofit corporation
By:
/s/ Charles L. Smith
-----------------------------
Name: Charles L. Smith
Title: President
By:
/s/ Joseph D. Lehan
-----------------------------
Name: Joseph D. Lehan
Title: Secretary
<PAGE>
EXHIBIT "A"
LEGAL DESCRIPTION
A tract of land located in the W 1/2 SE 1/4 of Section 3, Township 74, Range 44
more particu larly described as follows: Commencing at the center of said
Section 3, Township 74, Range 44; thence South 00o 39'35" West, (assumed
bearing) along the West line of the Southeast Quarter of said Section 3,
Township 74, Range 44, a distance of 330 feet to the point of beginning; thence
South 88o 23'26" East along a line 330 feet South of and parallel to the North
line of said Southeast Quarter Section 3, a distance of 200 feet; thence North
00o 39'35" East along a line 200 feet East of and parallel to the West line of
said Southeast Quarter Section 3, a distance of 290 feet; thence South 88o
23'26" East along a line 40 feet South of and parallel to the North line of said
Southeast Quarter Section 3, a distance of 1117.97 feet; thence South 00o 39'48"
West, a distance of 2435.39 feet to a point that is 165 feet North of and
1317.73 feet East of the South Quarter corner of said Section 3, Township 74,
Range 44; thence North 88o 40'24" West along a line 165 feet North of and
parallel to the South line of said Southeast Quarter Section 3, a distance of
1317.73 feet to the West line of said Southeast Quarter Section 3; thence North
00o 39'35" East along said West line of the Southeast Quarter Section 3, a
distance 2151.89 feet to the point of beginning.
16
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EXHIBIT "B"
GAMING EQUIPMENT
17
<PAGE>
EXHIBIT "C"
FORM OF MEMORANDUM OF LEASE
<TABLE>
<CAPTION>
<S><C>
PREPARER
INFORMATION Allan G. Mutchnik, c/o Skadden Arps, et. al., 300 South Grand Avenue, Los Angeles, California 90071 (213) 687-5000
----------------------------------------------------------------------------------------------------------------------
Individual Name Street Address City State Zip Code
- ---------------------------------------------------------------------------------------------------------------------------------
SPACE ABOVE THIS LINE FOR RECORDER
</TABLE>
MEMORANDUM OF LEASE
THIS MEMORANDUM OF LEASE (this "MEMORANDUM") is made and entered
into as of ________________, 1999, by and between HBR REALTY COMPANY, INC., a
Nevada corporation ("LANDLORD"), and IOWA WEST RACING ASSOCIATION, NONPROFIT
CORPORATION, an Iowa nonprofit corporation ("TENANT").
WHEREAS, Landlord and Tenant have entered into that certain Lease
(as modified, supplemented, and assigned, the "LEASE"), pursuant to which
Landlord leases to Tenant and Tenant leases from Landlord that certain property
located in the City of Council Bluffs, Iowa, County of Pottawattamie, State of
Iowa, more particularly described on EXHIBIT "A" attached hereto and
incorporated herein by reference (the "PROPERTY").
NOW, THEREFORE, for good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, Landlord and Tenant hereby
agree as follows:
The initial term (the "INITIAL TERM") of the Lease is for
twenty-five (25) years, commencing on ______________, 1999 and expiring on the
twenty-fifth (25th) anniversary date thereof, unless sooner terminated pursuant
to the terms of the Lease. The Lease shall automatically renew for successive
twenty-five (25) year terms, unless and until Landlord gives Tenant thirty (30)
days prior written notice of its intent to terminate the Lease.
The parties hereby acknowledge and agree that this Memorandum is
being executed solely for the purpose of giving notice to the public of the
existence of the Lease, the terms and conditions of which are expressly
incorporated herein by reference for all purposes as though fully set forth
herein. Should there be any inconsistency between the terms of this Memorandum
and the terms of the Lease, the terms of the Lease shall prevail.
18
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Memorandum as of the day and year first above written.
LANDLORD:
HBR REALTY COMPANY, INC.,
a Nevada corporation
By: ________________________________
Name:
Its:
TENANT:
IOWA WEST RACING ASSOCIATION,
NONPROFIT CORPORATION,
an Iowa corporation
By: __________________________
Name: Charles L. Smith
Title: President
By: __________________________
Name: Joseph D. Lehan
Title: Secretary
19
<PAGE>
STATE OF __________________ )
) ss:
COUNTY OF ________________ )
On this ____ day of _____________, ________, before me, the undersigned, a
Notary Public in and for said State, personally appeared Charles L. Smith to me
personally known, who being by me duly sworn, did say that he is the president
of Iowa West Racing Association, Nonprofit Corporation, an Iowa nonprofit
corporation, that no seal has been procured by the said corpora tion; that said
instrument was signed on behalf of said corporation by authority of its Board of
Directors; and that the said president as such officer, acknowledged the
execution of said instrument to be the voluntary act and deed of said
corporation, by it and by him voluntarily executed.
By:
----------------------------
Notary Public
STATE OF __________________ )
) ss:
COUNTY OF ________________ )
On this ____ day of _____________, ________, before me, the undersigned, a
Notary Public in and for said State, personally appeared Joseph D. Lehan to me
personally known, who being by me duly sworn, did say that he is the secretary
of Iowa West Racing Association, Nonprofit Corporation, an Iowa nonprofit
corporation, that no seal has been procured by the said corpora tion; that said
instrument was signed on behalf of said corporation by authority of its Board of
Directors; and that the said secretary as such officer, acknowledged the
execution of said instrument to be the voluntary act and deed of said
corporation, by it and by him voluntarily executed.
By:
-----------------------------
Notary Public
20
<PAGE>
STATE OF __________________ )
) ss:
COUNTY OF ________________ )
On this ____ day of _____________, ________, before me, the undersigned, a
Notary Public in and for said State, personally appeared _______________________
to me personally known, who being by me duly sworn, did say that he is
the______________________ of HBR Realty Company, Inc., a Nevada corporation,
that no seal has been procured by the said corporation; that said instrument was
signed on behalf of said corporation by authority of its Board of Directors; and
that the said_______________________ as such officer, acknowledged the execution
of said instrument to be the voluntary act and deed of said corporation, by it
and by him voluntarily executed.
By:
---------------------------
Notary Public
21
<PAGE>
EXHIBIT "A" TO MEMORANDUM OF LEASE
LEGAL DESCRIPTION
A tract of land located in the W 1/2 SE 1/4 of Section 3, Township 74, Range 44
more particU larly described as follows: Commencing at the center of said
Section 3, Township 74, Range 44; thence South 00 DEG.39'35" West, (assumed
bearing) along the West line of the Southeast Quarter of said Section 3,
Township 74, Range 44, a distance of 330 feet to the point of beginning; thence
South 88 DEG.23'26" East along a line 330 feet South of and parallel to the
North line of said Southeast Quarter Section 3, a distance of 200 feet; thence
North 00 DEG.39'35" East along a line 200 feet East of and parallel to the West
line of said Southeast Quarter Section 3, a distance of 290 feet; thence South
88 DEG.23'26" East along a line 40 feet South of and parallel to the North line
of said Southeast Quarter Section 3, a distance of 1117.97 feet; thence South 00
DEG.39'48" West, a distance of 2435.39 feet to a point that is 165 feet North of
and 1317.73 feet East of the South Quarter corner of said Section 3, Township
74, Range 44; thence North 88 DEG.40'24" West along a line 165 feet North of and
parallel to the South line of said Southeast Quarter Section 3, a distance of
1317.73 feet to the West line of said Southeast Quarter Section 3; thence North
00 DEG.39'35" East along said West line of the Southeast Quarter Section 3, a
distance 2151.89 feet to the point of beginning.
22
<PAGE>
EXHIBIT "D"
FORM OF ESTOPPEL CERTIFICATE
ESTOPPEL CERTIFICATE
THIS TENANT ESTOPPEL CERTIFICATE ("CERTIFICATE"), dated as of
______________, is executed by IOWA WEST RACING ASSOCIATION, NONPROFIT
CORPORATION, an Iowa nonprofit corporation ("TENANT"), in favor of HBR REALTY
COMPANY, INC., a Nevada corporation together with its nominees, designees and
assigns (collectively, "LANDLORD"), and ____________________
("PURCHASER"/"LENDER").
RECITALS
A. Tenant and Landlord entered into that certain Lease, dated as of
_______________ (together with all amendments, modifications, supplements,
guarantees and restatements thereof, the "LEASE"), for that certain real
property more particularly described on EXHIBIT "A" attached hereto and
incorporated herein (the "PROPERTY").
B. Pursuant to the Lease, Tenant has agreed that upon the request of
Landlord, Tenant would execute and deliver an estoppel certificate certifying
the status of the Lease.
NOW, THEREFORE, Tenant certifies, warrants, and represents to Landlord
and Purchaser/Lender as follows:
SECTION 1. LEASE.
Attached hereto as EXHIBIT "B" is a true, correct and complete copy of
the Lease, including the following amendments, modifications, supplements,
guarantees and restatements thereof, which together represent all of the
amendments, modifications, supplements, guarantees and restatements thereof:
___________________________________________________________________________.
SECTION 2. PROPERTY.
Pursuant to the Lease, Tenant leases the Property, consisting of among
other things, a dog racing track and casino, commonly known as "Bluffs Run
Casino."
SECTION 3. FULL FORCE OF LEASE.
The Lease has been duly authorized, executed and delivered by Tenant,
is in full force and effect has not been terminated and constitutes a legally
valid instrument, binding and enforceable against Tenant in accordance with its
terms, subject only to applicable limitations imposed by laws relating to
bankruptcy and creditor's rights.
23
<PAGE>
SECTION 4. COMPLETE AGREEMENT.
The Lease constitutes the complete agreement between Landlord and
Tenant for the Property, except as modified by the Lease amendments noted above
(if any), has not been modified, altered or amended.
SECTION 5. ACCEPTANCE OF PROPERTY.
Tenant has accepted possession and is currently occupying the Property.
SECTION 6. LEASE TERM.
The initial term of the Lease commenced on ________________and ends on
_________, subject to successive automatic twenty-five (25) year renewals unless
Landlord terminates the Lease with thirty days prior written notice and as
further provided in the Lease attached hereto.
SECTION 7. PURCHASE RIGHTS.
Tenant has no option, right of first refusal, right of first offer, or
other right to acquire or purchase all or any portion of the Property, except as
follows: NONE.
SECTION 8. RIGHTS OF TENANT.
Except as expressly stated in this Certificate or in the Lease, Tenant:
(a) has no right to renew or extend the term of the Lease;
(b) has no option or other right to purchase all or any part of the
Property;
(c) has no right, title, or interest in the Property, other than as
Tenant under the Lease.
SECTION 9. RENT.
(a) The obligation to pay rent under the Lease commenced on
______________. The rent under the Lease is current, and Tenant is not in
default in the performance of any of its obligations under the Lease.
(b) Tenant is currently paying rent equal to twenty percent (20%) of
the Cash Flow (as defined in the Lease) from the Property. Tenant has not
received and is not, presently, entitled to any abatement, refunds, rebates,
concessions or forgiveness of rent or other charges, free rent, partial rent, or
credits, offsets or reductions in rent, except for Tenant's Retained Amount (as
defined in the Lease).
24
<PAGE>
(c) To the best of Tenant's knowledge, there are no existing defenses
or offsets against rent due or to become due under the terms of the Lease, and
there presently is no default or other wrongful act or omission by Landlord
under the Lease or otherwise in connection with Tenant's occupancy of the
Property, nor is there a state of facts which with the passage of time or the
giving of notice or both could ripen into a default on the part of Tenant, or to
the best knowledge of Tenant, could ripen into a default on the part of Landlord
under the Lease, except as follows:
_______________________________________________________________________________
_______________________________________________________________________________
(If none, please state "None.")
SECTION 10. SECURITY DEPOSIT.
There is no security deposit currently being held by Landlord.
SECTION 11. PREPAID RENT.
The amount of prepaid rent, separate from the security deposit, is Zero
Dollars ($0.00). Rent has been paid through _____________, _______.
SECTION 12. INSURANCE.
Tenant is not required to maintain any insurance on the Property or its
contents.
SECTION 13. PENDING ACTIONS.
There is not pending or, to the knowledge of Tenant, threatened against
or contemplated by the Tenant, any petition in bankruptcy, whether voluntary or
otherwise, any assignment for the benefit of creditors, or any petition seeking
reorganization or arrangement under the federal bankruptcy laws or those of any
state.
SECTION 14. TENANT IMPROVEMENTS.
As of the date of this Certificate, to the best of Tenant's knowledge,
Landlord has performed all obligations required of Landlord pursuant to the
Lease; no offsets, counterclaims, or defenses of Tenant under the Lease exist
against Landlord; and no events have occurred that, with the passage of time or
the giving of notice, would constitute a basis for offsets, counter claims, or
defenses against Landlord, except as follows:__________________________________
_______________________________________________________________________________
____________________. (If none, please state "None.")
SECTION 15. ASSIGNMENTS BY TENANT.
25
<PAGE>
Tenant has not sublet or assigned the Property or the Lease or any
portion thereof to any sublessee or assignee. No one except Tenant and its
employees will occupy the Leased Pre mises. The address for notices to be sent
to Tenant is as set forth in the Lease.
SECTION 16. NOTIFICATION BY TENANT.
From the date of this Certificate and continuing until
___________________, Tenant agrees to immediately notify Landlord and
Purchaser/Lender in writing by registered or certified mail, return receipt
requested, at the following addresses, on the occurrence of any event or the
discovery of any fact that would make any representation contained in this
Certificate inaccurate:
If to Purchaser/Lender: ________________________
________________________
Attention: _______________________
With A Copy To: ________________________
________________________
Attention: _______________________
Tenant makes this Certificate with the knowledge that it will be relied
upon by Pur chaser/Lender in agreeing to purchase the Property.
Tenant has executed this Certificate as of the date first written above
by the person named below, who is duly authorized to do so.
TENANT:
IOWA WEST RACING ASSOCIATION,
NONPROFIT CORPORATION,
an Iowa nonprofit corporation
By: __________________________
Name: Charles L. Smith
Title: President
By: __________________________
Name: Joseph D. Lehan
Title: Secretary
26
<PAGE>
EXHIBIT 10.52
FIRST AMENDMENT TO PURCHASE AND SALE AGREEMENT
AND JOINT ESCROW INSTRUCTIONS
THIS FIRST AMENDMENT TO PURCHASE AND SALE AGREE MENT AND JOINT
ESCROW INSTRUCTIONS (this "AMENDMENT") is made and entered into as of October 6,
1999, by and between HBR REALTY COMPANY, INC., a Nevada corporation ("HBR"), and
IOWA WEST RACING ASSOCIATION, NONPROFIT CORPORATION, an Iowa nonprofit
corporation ("IWRA").
R E C I T A L S
A. HBR and IWRA have entered into that certain Purchase and
Sale Agreement and Joint Escrow Instructions, dated as of August 31, 1999 (the
"PURCHASE AGREEMENT"). All capitalized terms used but not otherwise defined
herein shall have the meanings set forth for the same in the Purchase Agreement.
B. The parties now desire to amend the Purchase Agreement in
accordance with the terms and conditions hereof.
NOW, THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, HBR and IWRA hereby
agree as follows:
A G R E E M E N T
1. LEASE.
The parties hereby acknowledge that, at the request of the
Gaming Commission, certain changes were made to the Lease and such changes are
mutually acceptable to HBR and IWRA. EXHIBIT "C" (Form of Lease) attached to the
Pur chase Agreement shall be deleted in its entirety and the revised Lease,
attached hereto as new EXHIBIT "C" shall be inserted in lieu thereof.
2. ALLOCATION OF THE CONSIDERATION.
The parties hereby agree that Section 2.4 of the Purchase
Agreement shall be deleted in its entirety and the following shall be
substituted in its place:
1
<PAGE>
"2.4 ALLOCATION OF THE CONSIDERATION. The
Consideration (less any payments required under Section 2.2 hereof) shall be
allocated among the Property in accordance with section 1060 of the Internal
Revenue Code of 1986, as amended (the "CODE"), and the Treasury regulations
promulgated thereunder. On or before the sixtieth (60th) day after the Closing
Date, HBR shall allocate the Consideration (less any payments required under
Section 2.2 hereof) among the Property and deliver such schedule to IWRA (the
"ALLOCATION SCHEDULE"). Such Allocation Schedule shall be reasonably acceptable
to IWRA. HBR and IWRA agree to file their respective United States federal and
state income "Tax Returns" (as defined below), including Internal Revenue
Service Form 8594, in a manner consistent with the Allocation Schedule, as it
may be adjusted, from time to time."
3. TRANSFERRED EMPLOYEES.
Notwithstanding any provision to the contrary contained in the
Purchase Agreement, HBR and IWRA hereby agree that HBR shall take such steps as
may be necessary to assume, effective immediately following the Closing Date,
the health and welfare benefit programs currently in place for the Transferred
Employees (the "PROGRAMS") at substantially the same levels of coverage provided
to such Transferred Employees prior to the Closing Date and IWRA shall continue
to be responsible for and shall indemnify and hold HBR harmless with respect to
any costs and excess liability incurred under such Programs with respect to
claims incurred on or prior to the Closing Date by or on behalf of such
Transferred Employees and their beneficiaries and dependents. As soon as
practicable following the Closing Date, HBR shall use commercially reasonable
efforts to cover the Trans ferred Employees with its own health and welfare
benefit program in accordance with the terms of the Purchase Agreement. HBR
specifically does not assume any contracts, liabilities or obligations with
respect to the IWRA 401(k). The provisions of this Section 3 shall survive the
Closing.
4. LICENSES.
Schedule 6.1.13 of the Purchase Agreement shall be amended to
read as follows:
"All liquor licenses, sales and use tax permits, elevator
permits, food service permits, occupancy permits and any other governmental
licenses or permits relating to the Property that by their terms or applicable
law are not transferrable."
2
<PAGE>
5. LITIGATION.
Schedule 9.3 of the Purchase Agreement shall be amended to add
the following:
"IWRA has entered into the Stipulated Agreement with the
Administrator of the Iowa Racing and Gaming Commission with respect to certain
modifica tions that need to be made to the exterior entrances of the Property to
minimize the potential entry into gaming areas by underage individuals."
6. STIPULATED AGREEMENT.
Subject to the representation and warranty of IWRA contained
in Section 9.35 of the Purchase Agreement, HBR agrees that it will be
responsible, at its own cost, for taking the actions necessary to comply with
the Stipulated Agreement, or such other actions as are necessary to satisfy the
Gaming Commission with respect thereto. The provisions of this Section 8 shall
survive the Closing.
7. PROPERTY REPORT.
HBR has elected to proceed to Closing notwithstanding the
matters disclosed and recommendations made in that certain "Pre-Purchase
Assessment of The Bluffs Run Casino in Council Bluffs, Iowa For Harveys Casino
Resorts, Las Vegas, Nevada" dated September 28, 1999 (WJE No. 991892), prepared
by Wiss, Janney, Elstner Associates, Inc., and attachments thereto.
8. ASSIGNMENT OF LICENSE.
IWRA hereby covenants that after the Closing, IWRA shall use
its best efforts to grant to HBR substantially the same rights IWRA holds
pursuant to Sections b, g, and l of that certain Non-Exclusive License
Agreement, executed on October 4, 1999, by and among Douglas M. Okuniewicz,
Alabama-Iowa Management, Inc., and IWRA, a copy of which is attached hereto as
SCHEDULE 1. The provisions of this Section 8 shall survive the Closing.
3
<PAGE>
9. MISCELLANEOUS.
a. EFFECT OF AMENDMENT. In the event of any inconsistency
between the terms of the Purchase Agreement and the terms of this Amendment,
the terms of this Amendment shall prevail.
b. RATIFICATION. Except as otherwise expressly modified
hereby, the Purchase Agreement shall remain in full force and effect, and all of
the terms and provisions of the Purchase Agreement, as herein modified, are
hereby ratified and reaffirmed.
c. COUNTERPARTS. This Amendment may be executed in as many
counterparts as may be deemed necessary and convenient, and by the different
parties hereto on separate counterparts, each of which, when so executed, shall
be deemed an original, but all such counterparts shall constitute one and the
same instrument. Additionally, the parties hereby covenant and agree that, for
purposes of facilitating the execution of this Amendment, a facsimile signature
shall be deemed to be an original signature and a telecopy delivery (i.e., the
transmission by any party of its signature on an original or any copy of this
Amendment via telecopy or fax machine) shall be deemed to be the delivery of
such party's original signature.
[SIGNATURE PAGE FOLLOWS.]
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Amendment as of the day and year first above written.
HBR:
HBR REALTY COMPANY, INC.
a Nevada corporation
By: /s/ Charles W. Scharer
--------------------------------
Name: Charles W. Scharer
Title: President
IWRA:
IOWA WEST RACING ASSOCIATION,
NONPROFIT CORPORATION,
an Iowa nonprofit corporation
By: /s/ Charles L. Smith
--------------------------------
Name: Charles L. Smith
Title: President
By: /s/ Joseph D. Lehan
--------------------------------
Name: Joseph D. Lehan
Title: Secretary
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EXHIBIT "C"
[REVISED EXHIBIT]
FORM OF LEASE
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SCHEDULE 1
Copy of Non-Exclusive License Agreement,
executed on October 4, 1999, by and among
Douglas M. Okuniewicz, Alabama-Iowa
Management , Inc., and IWRA.
PLEASE SEE THE ATTACHED.
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EXHIBIT 10.53
AMENDED AND RESTATED
EXCURSION BOAT SPONSORSHIP AND OPERATIONS AGREEMENT
THIS AGREEMENT (this "Agreement") is entered into this ____ day of
___________________, 1999, by and between Iowa West Racing Association
(hereinafter referred to as "Iowa West"), an Iowa nonprofit corporation, and
Harveys Iowa Management Company, Inc. (hereinafter referred to as "Harveys"), a
Nevada corporation qualified to do business in Iowa.
WITNESSETH
WHEREAS, on or about August 22, 1994, Iowa West and Harveys entered
into that certain Excursion Boat Sponsorship and Operations Agreement (the
"Sponsorship Agreement"); and
WHEREAS, Paragraph 14(e) of the Sponsorship Agreement requires that any
amendment or supplementation of the Sponsorship Agreement would only be
effective if it was in writing between the parties thereto; and
WHEREAS, the parties do now wish to amend and restate the
Sponsorship Agreement as hereinafter set forth;
NOW THEREFORE in consideration of the mutual covenants and agreements
herein contained and other good and valuable consideration, receipt whereof is
hereby acknowledged, it is hereby mutually understood and agreed as follows:
1. LICENSE APPLICATION.
Iowa West shall, each year, or as otherwise required, promptly
apply to the Iowa Racing and Gaming Commission (the "Commission") pursuant to
Chapter 99F as a sponsor for a license to conduct gambling games. Harveys will
promptly, each year, or as otherwise required, apply to the Commission for a
license to operate an excursion gambling boat under Chapter 99F.
2. CONDITIONS PRECEDENT TO SPONSORSHIP AND OPERATIONS
AGREEMENT.
This Agreement shall be effective only upon approval of this
Agreement, and any amendments thereto, by the Commission.
3. NON-ASSIGNABILITY OF LICENSES.
Neither party may assign any of its rights, duties or
obligations under any license issued by the Commission without the prior
approval of the Commission.
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4. LICENSE AGREEMENT AND OPERATION FEE.
(a) Harveys shall pay to Iowa West an operation fee equal to
3.69 percent of the Adjusted Gross Gaming Receipts generated by the excursion
gambling boat during the term of this Agreement and any extension. Such
operation fee shall be paid monthly, on or before the 10th day of the month
following the month in which such operation fee was generated. As used herein,
the term "Adjusted Gross Gaming Receipts shall have that same meaning as set
forth in Iowa Code Section 99F.1(1).
(b) Harveys shall be solely responsible for the payment of all
admission fees owing to the state and local governments under Sections99F.10 of
the Iowa Code, including admission fees relating to passengers with
complimentary passes. The parties agree that the fees set forth above are the
only sums to which Iowa West is entitled under this Agreement; all such fees
paid to Iowa West are deemed and agreed to be subject to the restrictions
imposed by Sections 99F.6(4) of the Iowa Code.
(c) Harveys shall pay to the Commission all the wagering taxes
imposed by Section 99F.11 of the Iowa Code.
(d) Harveys shall indemnify and hold Iowa West harmless from
any and all claims relating to all sums due for admission fees owing to any
government entity under Sections99F.10 of the Iowa Code; including all income or
excise taxes owed to the United States or any state government, and all wagering
taxes owing to the State of Iowa under Section 99F.11 of the Iowa Code.
5. LICENSE APPLICATION FEES.
Each party hereto shall be responsible for their own license
application fees and expenses resulting from this Agreement, and any application
fee required hereunder, including DCI investigation fees, attorneys fees in
connection with this Agreement, and the license applications to the Commission
contemplated hereby.
6. TERM OF THE AGREEMENT.
(a) This Agreement shall become effective at 12:01 A.M. on
the 1st day following both Commission approval and the close of escrow pursuant
to the Purchase Agreement between Iowa West and HBR Realty Company, Inc., and
shall terminate at 11:59 p.m. on December 31, 2010, unless extended pursuant to
6(b), below.
(b) Provided that Harveys is not in default of this
Agreement, Harveys shall have the option to extend the term of this Agreement
for five (5) succeeding three (3) year terms, provided Harveys shall give
written notice of its desire to exercise each
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such option, which notice shall be delivered to Iowa West on or before 180 days
prior to December 31 in the year in which each such option expires. If Harveys
desires to exercise such option, all the terms and conditions of this Agreement
shall be applicable to such extended term.
7. HOLD HARMLESS AND INSURANCE REQUIREMENTS.
During the term of this Agreement, Harveys shall indemnify,
defend and hold harmless Iowa West, its officers, directors, employees, and
agents, from and against any and all liabilities, obligations, claims, damages,
causes of action, cost and expenses imposed upon, incurred by, or asserted
against them by reason of all operations, whether insurable or not, and any
accident, injury to or death of persons, or loss of or damage to property
occurring on the excursion gambling boat. Harveys further covenants and agrees
that it will at its own expense procure comprehensive public liability insurance
insuring both Harveys and Iowa West in an amount not less than $5,000,000.00
single limit. Said liability insurance policy shall apply with respect to all
insurable operations and functions of the excursion gambling boat. A copy of
policies of insurance protecting the interests of Iowa West shall be forwarded
directly to Iowa West.
8. NON-EXCLUSIVITY.
It is understood that Iowa West may enter into other
sponsorship agreements and in that event Iowa West agrees that the terms of such
agreements shall be at least as favorable to Iowa West as the terms set forth
herein and at least as onerous to the other operators as the terms set forth
herein. Iowa West agrees to provide a copy of such agreements to Harveys for
their review at least three (3) business days prior to execution. Harveys agrees
to review such agreements only with respect to compliance with this paragraph
and to consider all information contained therein as confidential. If, however,
the Commission determines that the Pottawattamie County area is able to support
only one excursion boat operator in addition to Bluffs Run Greyhound Park, Iowa
West agrees that Harveys will be the excursion boat operator Iowa West supports
and sponsors.
9. ASSIGNABILITY.
(a) Iowa West shall not have the right, power or authority
to assign all or any portion of this Agreement or its rights hereunder or to
delegate any duties or obligations arising under this Agreement voluntarily,
involuntarily or by operation of law, without Harveys prior written consent.
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(b) Harveys shall have the right, power and authority to
assign all or any portion of this Agreement or its rights hereunder or to
delegate any duties or obligations arising under this Agreement, voluntarily,
involuntarily, or by operation of law, and without Iowa West's consent subject
only to Commission or other governmental approval, if required.
(c) Notwithstanding anything herein to the contrary, both
parties hereto expressly acknowledge that Iowa West may form a single purpose
subsidiary in which to receive fees derived under this and other excursion boat
sponsorship agreements.
10. AMENDMENT.
This Agreement may be amended or modified at any time, but
only by a writing signed by both parties and, if required, approved
by the Iowa Racing and Gaming Commission.
11. GOVERNING LAW.
This Agreement shall be governed by the laws of the State of
Iowa and the rules and regulations of the Commission, and each party shall be
responsible for its own compliance with all laws of the State of Iowa and the
rules of the Commission.
12. REPORTS, ACCOUNTING AND AUDITING.
(a) Iowa West and Harveys shall prepare and file all
reports, including financial reports, as required of each such party,
respectively by Iowa law and rules and regulations of the Commission. In
addition, each party shall keep such books and records and have audits performed
as required of them, respectively, by Iowa law and the Commission. Each party
shall be responsible for providing at its own expense all audit and accounting
services for any reports and audits required by the Commission.
(b) Each party agrees that the Commission and the other
party to this Agreement shall have the right to audit each parties records to
the extent necessary to provide verification of compliance under this Agreement.
In the event the Commission or either party determines that a party is not in
compliance with the terms of this Agreement, then in addition to all other
remedies provided for by law, each party shall have the right to specifically
enforce the terms and provisions of this Agreement.
13. DEFAULT.
The occurrence of any one or more of the following events
shall constitute a default by a party hereunder:
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(a) Failure of the party to perform or comply with any of
the duties and obligations imposed upon said party under the terms of this
Agreement.
(b) The suspension or revocation of the party's license
under Chapter 99F of the Iowa Code by the State of Iowa or the Commission.
(c) The party's adjudication as a bankrupt or as insolvent,
or the appointment of a receiver or an assignment for the benefit of the
creditors by or on behalf of either party.
(d) Liquidation or dissolution of the party, which
liquidation or dissolution is not caused by the other party.
If one of the foregoing acts of default occurs and is not remedied by the
defaulting party within thirty (30) days after the giving of written notice by
the non-defaulting party of said default, then the non-defaulting party shall
have all legal and equitable rights and remedies provided at law, including
termination of this Agreement, specific performance, or injunctive relief. The
remedies of the non-defaulting party shall be cumulative, and the exercise of
any one or more remedies provided at law shall not be construed as a waiver of
any other remedies. Further, no course of dealing between the parties or failure
on the part of a non-defaulting party to exercise any right or remedy shall
operate as a waiver of such right to claim a default in the future.
14. MISCELLANEOUS PROVISIONS.
(a) NOTICES. All notices, requests, demands and other
communications hereunder shall be deemed to have been given if delivered in
person or if sent by certified mail postage prepaid, or by telecopy, or by
Federal Express (or other reputable overnight delivery service) to the other
party at the following addresses:
To Iowa West: Iowa West Racing Association
2701 23rd Avenue
P.O. Box 1562
Council Bluffs, IA 51502-1562
Telephone: 712-325-3133
Telecopy: 712-322-2267
with duplicate to: James A. Campbell
Peters Law Firm, P.C.
233 Pearl Street
P.O. Box 1078
Council Bluffs, IA 51502-1078
Telephone: 712-328-3157
Telecopy: 712-328-9092
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To Harveys: Harveys Iowa Management Company,
Inc.
c/o Harveys Casino Resorts
Attention: Charles W. Scharer,
President
P.O. Box 128
Lake Tahoe, NV 89449
Telephone: 775-586-6756
Telecopy: 775-586-6852
with duplicate to: Scarpello & Alling, Ltd.
Attention: Ronald D. Alling
276 Kingsbury Grade, Suite 2000
P.O. Box 3390
Lake Tahoe, NV 89449-3390
Telephone: 775-588-6676
Telecopy: 775-588-4970
or to such other address or such other Person as the addressee party shall have
last designated by notice to the other parties. All Notices shall be deemed to
have been given when received. All Notices given by telecopy shall be followed
by the delivery of a hard copy of such Notice, provided that such Notice shall
be deemed to have been given when received by telecopy.
(b) DISPUTE. In the event a dispute arises between the parties
hereto, the parties agree to utilize appropriate alternative dispute resolution
procedures, including but not limited to arbitration. The prevailing party shall
be entitled to recover its reasonable attorney's fees and court costs, if any,
incurred in connection with such dispute.
(c) RELATIONSHIP OF PARTIES. Nothing in this Agreement shall
be construed to create a partnership between the parties, a relationship of
employer and employee between the parties, or a relationship of principal and
agent between the parties.
(d) SUCCESSORS AND ASSIGNS. This Agreement and all of the
obligations, duties and rights of the parties hereunder shall inure to and be
binding upon the heirs, successors and assigns of the parties to the extent that
assignment is permitted under Paragraph 9 above.
(e) COMPLETE AGREEMENT. This Agreement embodies the entire
operating agreement between the parties and may be amended or supplemented only
by an instrument in writing executed by the parties against whom the enforcement
is sought. In addition to the acts and deeds recited in this agreement and
contemplated herein, the parties hereto shall execute any and all additional
agreements as may be necessary to consummate the transactions contemplated by
this agreement and to fulfill the intentions of this agreement.
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(f) WARRANTIES SURVIVE. All representations, warranties, and
indemnities set forth in this agreement shall survive the execution hereof.
(g) COUNTERPARTS. This agreement may be executed in a number
of identical counterparts, and if so executed, each such counterpart is deemed
an original for all purposes, and all such counterparts shall collectively
constitute one agreement.
(h) TIME IS OF THE ESSENCE. Time is of the essence of this
agreement and each and every provision contained herein.
(i) CONSTRUCTION. This Agreement shall be construed to comply
with all applicable Iowa laws, Commission rules and regulations relating to the
excursion boat gambling, and may be amended from time to time in order to comply
with such laws, Commission rules and regulations.
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK -
TEXT CONTINUES ON PAGE 8]
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(j) HEADINGS. Paragraph headings herein are for reference
purposes only.
IN WITNESS WHEREOF, these parties do execute this Agreement as of the
date first above noted at Council Bluffs, Iowa.
IOWA WEST RACING ASSOCIATION
By: /s/ Lynn G. Grobe
-------------------------------------
LYNN G. GROBE, Vice-President
By: /s/ Joseph D. Lehan
-------------------------------------
JOSEPH D. LEHAN ,Secretary
HARVEYS IOWA MANAGEMENT COMPANY, INC.
By: /s/ Charles W. Scharer
-------------------------------------
CHARLES W. SCHARER, President
By: /s/ John J. McLaughlin
-------------------------------------
JOHN J. MCLAUGHLIN, Secretary
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EXHIBIT 10.54
MANAGEMENT AGREEMENT
by and between
HARVEYS BR MANAGEMENT COMPANY, INC.
a Nevada corporation,
and
IOWA WEST RACING ASSOCIATION, an Iowa
nonprofit corporation.
DATED October 6, 1999
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MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT (this "Agreement") is made and entered into
on this 6th day of October, 1999 by and between Iowa West Racing
Association, an Iowa nonprofit corporation ("Iowa West") and Harveys BR
Management Company, Inc., a Nevada corporation ("HBRMC").
RECITALS
WHEREAS, Iowa West is licensed by the Iowa State Racing and Gaming
Commission ("IRGC") to conduct a greyhound racing facility with pari-mutuel
wagering and to operate gambling games therein (said pari-mutuel racetrack
facility and casino operation located in Council Bluffs, Iowa and commonly known
as Bluffs Run Casino is referred to hereinafter as the "Facility"); and
WHEREAS, HBRMC is a wholly owned subsidiary of Harveys Casino Resorts,
a Nevada corporation, an experienced owner/operator and manager of hotels and
casinos in various gaming jurisdictions; and
WHEREAS, HBR Realty Company, Inc. ("HBRRC") is a wholly owned
subsidiary and real estate holding company of Harveys Casino Resorts and is an
affiliate of HBRMC; and
WHEREAS, HBRRC has, pursuant to that certain Purchase and Sale
Agreement and Joint Escrow Instructions dated _____________, 1999 (the "Purchase
Agreement"), acquired certain of Iowa West's operating assets, including, but
not limited to, the Facility, the underlying land, parking areas, buildings,
facility structures, furniture, fixtures and equipment (excluding gaming
equipment) and working capital related to the Facility (the "Assets"); and
WHEREAS, pursuant to the terms of that certain Lease as of the date
hereof (the "Lease") HBRRC has leased the Facility and the other Assets to Iowa
West for operation thereof under its licenses with IRGC; and
WHEREAS, Iowa West desires to contract with HBRMC for management of the
Facility and the gaming operations conducted thereon, including, without
limitation, pari- mutuel wagering on live or simulcast greyhound or horse
racing, slot machines and any and all other wagering-related entertainment
conducted or at any time permitted to be conducted at the Facility (the "Gaming
Operations"), in accordance with the terms and conditions of this Agreement and
in conformance with IRGC regulations and all other applicable ordinances,
regulations, requirements, standards or laws of any federal, state, county or
municipal body (collectively "Laws")
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NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, it is understood and agreed between Iowa West and HBRMC as
follows:
1. MANAGEMENT SERVICES TO BE PERFORMED:
Iowa West hereby appoints and engages HBRMC as manager and
operator of the Facility and the Gaming Operations and grants HBRMC the
exclusive authority to manage, control, and operate the same on behalf of Iowa
West subject to the terms and conditions of this Agreement and HBRMC agrees and
accepts such engagement, to perform the following services for Iowa West:
Iowa West authorizes HBRMC to exclusively perform, and HBRMC
agrees to perform, at HBRMC's sole cost and expense, all management functions
and to make all management decisions necessary or appropriate, in HBRMC's sole
and absolute discretion, for the operation of the Facility and the Gaming
Operations in conformance with applicable governmental laws, ordinances and
regulations, and the terms of Iowa West's licenses granted by the IRGC necessary
for the continued operation of the Facility and the Gaming Operations (the
"Licenses"), and in accordance with the terms and conditions of this Agreement.
Said functions and decisions shall include, without
limitation:
a. Financial management of the Facility and Gaming
Operations, including, without limitation,
maintenance of the books of account and records on a
daily, monthly and annual basis in accordance with
accepted accounting procedures and practices;
preparation of financial statements; development of
appropriate budgets for development, marketing,
maintenance and operation of the Facility and Gaming
Operations; establishment and management of
appropriate operating and reserve accounts; and
payment of all applicable taxes and preparation of
all returns necessary in connection therewith;
b. Negotiation and execution of contracts in the name
of HBRMC or HBRRC for the operation of the Facility
and the Gaming Operations (other than those contracts
which by law or by their terms must be in the name of
Iowa West as holder of the Licenses or contracts
which remain in the name of Iowa West pursuant to
Paragraph 6.1.10 of the Purchase Agreement which
contracts may be in the name of Iowa West),
including, without limitation, asset acquisition and
financing thereof, agreements and arrangements with
concessionaires, licensees, tenants, suppliers,
subcontractors or other intended users of the
Facility, janitorial, garbage removal, security, food
service, insurance, legal and accounting services,
and other related operational services;
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c. Advertising and promotion of the Facility and Gaming
Operations;
d. Preparing, with the aid and assistance of Iowa West,
any and allreports to the IRGC as may be required by
the rules and regulations of the IRGC;
e. Selecting, hiring, terminating, supervising and
establishing salary, compensation and benefits for a
general manager for the Facility and for all other
employees and personnel necessary for the operation
of the Facility and Gaming Operations. All personnel
shall be employed by HBRMC and not by Iowa West and
HBRMC shall have absolute discretion in hiring,
supervising, directing, discharging and determining
the compensation, benefits and terms of employment of
such personnel;
f. Making or causing to be made all necessary repairs,
replacements, corrections and maintenance to the
Facility and Assets and as shall be required to
comply with all Laws;
g. Taking such reasonable actions as may be necessary
to comply with any and all Laws, affecting the
Facility or the Gaming Operation or with any other
authority having jurisdiction thereover, including
the IRGC (hereinafter, "Governmental Authorities");
h. Procuring and maintaining property, casualty and
liability insurance in amounts and coverages as will
be sufficient in light of the operations contemplated
at the Facility but in no event less than that
necessary to conform to reasonable industry standards
for similar businesses or operations; naming Iowa
West as a named insured on all policies of liability
insurance so maintained.
i. Contract and pay for auditing services necessary to
maintain the Licenses of Iowa West for the Bluffs
Run Casino and to pay for all licensing fees due to
the State of Iowa for such Licenses. (collectively
"Auditing and License Fees").
j. Doing all other things necessary or desirable for
the day to day administration, management,
maintenance and operation of the Facility and the
Gaming Operations.
2. MUTUAL COVENANTS AND DUTIES.
The parties agree to utilize their mutual best efforts for the
financial success
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of the Facility and the Gaming Operations and for the continuation of the
Licenses.
Iowa West covenants and agrees that it shall, during the term
of this Agreement, take all necessary actions and use its best efforts to retain
the Licenses. Iowa West further covenants and agrees, during the term of this
Agreement, to use its reasonable best efforts to (i) promote gaming activities
in Pottawattamie County, Iowa, including, without limitation, dog racing,
land-based casinos and river boat casinos, (ii) preserve and advance the
relationship between Iowa West and each of the City of Council Bluffs, the
County of Pottawattamie, the State of Iowa and all Governmental Authorities, and
(iii) support any measures in support of the foregoing as reasonably requested
by HBRMC, including, without limitation, any law, referendum or bill that may
affect the operation of the Facility or the Gaming Operations.
HBRMC covenants and agrees to use its best efforts to support
and promote the continuation of greyhound racing in the State of Iowa and to
reasonably cooperate with Iowa West in connection with same.
In addition to the actions recited herein and contemplated to
be performed, executed and/or delivered by HBRMC and Iowa West, each party
hereto agrees to perform, execute and/or deliver or cause to be performed,
executed and or delivered any and all such further acts, instruments and
assurances as may be reasonably required to effectuate the transactions
contemplated hereby, including, without limitation, providing any information
requested by the IRGC or any of its duly authorized representatives.
3. MANAGEMENT FEE.
During the term hereof Iowa West shall receive the first Five
Million Dollars ($5,000,000.00) in Cash Flow, as defined hereinbelow, (the
"Initial Payment"), and after payment thereof, HBRMC shall be paid a management
fee ("Management Fee") equal to eighty percent (80%) of the Cash Flow. The
parties agree that HBRMC shall have no recourse against Iowa West or any
property of Iowa West, other than the Operating Account (as hereinafter
defined), for payment of the Management Fee.
"Cash Flow" as used herein, means, for any period, all
revenues and income of any kind, directly or indirectly derived from use or
operation of the Facility and Gaming Operations, including, without
limitation, pari-mutuel commissions, simulcast income, Gaming Operations
wins, parking and admissions, merchandise sales, food, beverage, and
entertainment income, rentals or other payments from lessees, sublessees and
concessionaires and the proceeds of the sale of any Gaming Equipment, as
defined herein, LESS all costs and expenses with respect to the Facility and
Gaming Operations, including, without limitation, the Initial Payment and
"Tenant's Retained Amounts" (as defined in the Lease) purses, pari-mutuel
taxes and fees, all Audit and License Fees, gaming taxes and fees,
complimentary items, departmental operating expenses, selling, general and
administrative expenses,
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expenditures for purchasing, leasing and maintaining Gaming Equipment
(including, without limitation contracts which may be in the name of Iowa
West as permitted hereunder), auditing expenses, greyhound adoption costs,
and property taxes but excluding depreciation, amortization, and Iowa West's
administrative expenses and charitable contributions. Cash Flow shall be
determined on the accrual basis of accounting in accordance with generally
accepted accounting principles.
The Management Fee shall be calculated and paid to HBRMC on a
weekly basis and in arrears, commencing on the first (1st) day of the second
(2nd) full week of the term of this Agreement. At the end of each fiscal year,
the actual Cash Flow of the Facility shall be reconciled with the weekly Cash
Flow by the certified public accountants then serving the Facility and, if
necessary, an adjusting payment or refund shall be made. Such fees shall be
cumulative and shall not abate until paid to HBRMC.
Iowa West acknowledges that the Management Fee provided for
herein reflects the premium paid by HBRMC to acquire the Assets of Iowa West
pursuant to the Purchase Agreement and the amounts received thereunder. Said
premium and amounts affect the share of Cash Flow to Iowa West in this Agreement
and the lease payments under the Lease. The parties hereto further agree that
Iowa West shall have no obligation to provide any funds for the operation of the
Facility and the Gaming Operations other than revenues and income derived during
the term of this Agreement from the use or operation of the Facility and Gaming
Operations. To the extent that such revenue in any period is insufficient to pay
the costs and expenses of operation of the Facility and the Gaming Operations,
HBRRC shall advance funds for such costs and expenses. Repayment of such
advances shall be made from Cash Flow. All expenses incurred in the operation of
the Facility and Gaming Operations shall be deemed expenses and obligations of
HBRMC and not of Iowa West.
Notwithstanding anything contrary contained in this Agreement,
all funds collected by HBRMC for the account of Iowa West shall be deposited in
an operating account ("Operating Account") at an FDIC insured bank located in
Council Bluffs, Iowa, or Omaha, Nebraska. All funds collected by HBRMC for the
account of Iowa West shall be used by HBRMC and held in the Operating Account to
pay the Management Fee and operating expenses of the Facility as provided
herein. Funds may be withdrawn or disbursed from the Operating Account only upon
the signature of HBRMC, as agent for Iowa West.
4. TERM.
This Agreement shall commence as of the date hereof and
continue thereafter for a period of twenty-five (25) years (the "Initial
Period"), unless earlier terminated as provided herein.
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This Agreement shall automatically renew, on the same terms
and conditions, for successive terms equal to the Initial Period unless HBRMC
shall give Iowa West written notice of its intention not to so renew not less
than thirty (30) days prior to the expiration of the then current term.
5. ADVISORY COMMITTEE.
Iowa West and HBRMC shall create an advisory committee
("Advisory Committee") for the purpose of advising Iowa West and HBRMC with
respect to policies and general oversight of the Gaming Operations at the
Facility. HBRMC shall first appoint certain of its representatives to the
Advisory Committee and Iowa West shall then appoint an equal number of its
representatives, subject to HBRMC's reasonable right of approval. The Advisory
Committee shall appoint a chair who shall preside at all meetings (to be held in
Council Bluffs, Iowa, or such other location as the members of the Advisory
Committee shall select) and a secretary who shall keep a written record of all
meetings of the Committee. Matters for consideration by the Committee may be
introduced by either party hereto and the chairperson shall thereupon establish
a meeting or other method for dialogue to be taken within Fifteen (15) business
days after having received the notice of the matter to be considered. All
matters so considered along with all budgets, plans or other documents of any
type revealed to the Advisory Committee shall be considered and treated as
confidential information and each party agrees not to reveal, disclose or allow
to be revealed or disclosed any such confidential information obtained from the
other party to any third party. Disclosure of such information shall not be
prohibited if such information is or becomes a matter of public record or public
knowledge or is otherwise required to be disclosed by government authority or by
court order.
It is understood and agreed that any action on the part of the
Advisory Committee is advisory only and that no official action may be taken,
and no recommendation of the Advisory Committee shall be binding, unless it is
adopted by the respective parties as to matters within their respective province
as set forth in this Agreement. Matters which the Advisory Committee may address
include, but are not limited to, the review of capital and operating budgets,
long and short term business plans, licensing issues, and resolution of disputes
between the parties.
HBRMC shall prepare and submit to the Advisory Committee a
proposed annual operating and capital expenditures budget by the end of its
fiscal year. The Advisory Committee shall meet and review the budget as soon
as practicable after receipt. Iowa West shall serve in an consulting role as
to the advisability of any such budgets for the operation of the Facility and
the Gaming Operations.
6. GAMING EQUIPMENT
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All slot machines and gaming equipment for which Licenses are
required, including any replacement parts, repairs, additions, substitutions,
and accessories thereto (plus the disposition price of said property sold but
not replaced to the extent such disposition price was not included in Cash Flow)
(the "Gaming Equipment") in place at the date of commencement of this Agreement
or acquired during the term of this Agreement, shall be owned by Iowa West for
all purposes. During the term of this Agreement, HBRMC, in its sole discretion,
to the extent permitted by applicable law, may acquire for the benefit of Iowa
West, by purchase lease or otherwise, additional Gaming Equipment as it sees
fit. Iowa West agrees to cooperate in the purchase of any Gaming Equipment
provided for in the capital expenditure budget of the Facility. The costs of any
such Gaming Equipment shall be a deduction from Cash Flow as set forth in
Section 3 hereof. Any financing obtained by HBRMC with respect to additional
Gaming Equipment or any lease of such Gaming Equipment, shall be without
recourse to Iowa West, except for any security interest that may be created in
such Gaming Equipment.
Upon termination of this Agreement at any time and for
whatever reason, Iowa West agrees to pay HBRMC the then fair market value of all
Gaming Equipment in use at the Facility as of the date hereof, as determined by
a mutually selected "Manufacturer," as defined in Section 99F.1(13) of the Iowa
Code from time to time.
Iowa West agrees to permit HBRMC to maintain all Gaming
Equipment in good condition and repair and HBRMC shall so maintain such Gaming
Equipment; keep it insured against al1 risks of loss or damage; and keep it free
of all liens, security interests or other encumbrances whatsoever, except that
arising from financing that may be arranged by HBRMC.
7. DEFAULT; BREACH; REMEDIES:
7.1 DEFAULT; BREACH. A "Default" is defined as a failure by
Iowa West, HBRMC or HBRRC to keep, observe or perform any covenant, agreement,
term or provision of this Agreement, the Purchase Agreement or the Lease,
including without limitation, the failure by Iowa West to take all necessary
actions and use all good faith efforts to retain its Licenses . A "Breach" is
defined as the occurrence of a Default and the failure by Iowa West, HBRMC, or
HBRRC, as the case may be, to cure such Default prior to expiration of the
applicable grace period, if any.
7.2 BREACH BY IOWA WEST, HBRMC OR HBRRC. A Default by Iowa
West as to the material covenants, agreements, terms, or provisions of this
Agreement, the Purchase Agreement or the Lease to be observed, complied with or
performed by Iowa West, where such Default continues for a period of thirty (30)
days after Iowa West's receipt of written notice thereof by or on behalf of
HBRMC, shall constitute a Breach of this Agreement, the Purchase Agreement and
the Lease; provided, however, if the nature of the Default is such
7
<PAGE>
that more than thirty (30) days are reasonably required for its cure, then
Iowa West shall not be deemed to be in Breach of this Agreement, the Purchase
Agreement or the Lease if Iowa West commences such cure within said thirty
(30) day period and thereafter diligently pursues the cure thereof, and
provided further that failure to pay the Management Fee under this Agreement
or the Rental or other amounts due under the Lease shall not constitute a
Default under this Agreement unless such failure is due to the wrongful
interference by Iowa West with the ability of HBRMC to withdraw funds from
the Operating Account.
A Default by HBRMC or by HBRRC as to material covenants,
agreements, terms or provisions of this Agreement, the Purchase Agreement or the
Lease to be observed, complied with or performed by HBRMC or HBRRC, as
applicable, where such Default continues for a period of thirty (30) days after
HBRMC's or HBRRC's, as applicable, receipt of written notice thereof by or on
behalf of Iowa West shall constitute a Breach of this Agreement, the Purchase
Agreement and the Lease; provided, however, if the nature of the Default is such
that more than thirty (30) days are reasonably required for its cure, then HBRMC
or HBRRC, as applicable, shall not be deemed to be in Breach of this Agreement,
the Purchase Agreement or the Lease if HBRMC or HBRRC, as applicable, commences
such cure within said thirty (30) day period and thereafter diligently pursues
the cure thereof.
7.3 INJUNCTIVE RELIEF. As long as existing or similar
restrictions are contained in the law of Iowa as are now contained in Section
99F.4A(2) of the Iowa Code, Iowa West acknowledges it is essential that it
maintain its existence and the Licenses, and its failure to do so may result in
irreparable injury and substantial economic damage to HBRMC, and should Iowa
West reasonably appear to HBRMC to cease its activities or threaten to terminate
its existence, it is agreed that unless such action by Iowa West is due to
actions of HBRMC or HBRRC, including, without limitation, any Breach of this
Agreement, the Lease or the Purchase Agreement by HBRMC or HBRRC. HBRMC shall be
entitled to immediately commence legal proceedings and be entitled to injunctive
relief both PENDENTE LITE and permanently without the requirement of the posting
of a bond since HBRMC's remedy at law would be inadequate or insufficient.
7.4 CURE OF DEFAULT. In the event HBRRC or HBRMC fails or
refuses to pay when due any tax or assessment relating to the Facility or to the
Gaming Operations that are to be paid by HBRRC or HBRMC on behalf of Iowa West,
except when being protested in good faith by HBRRC or HBRMC in a good manner
that will not jeopardize the Licenses , then Iowa West may pay the same, and the
amount so paid by Iowa West shall be immediately reimbursed by HBRMC.
7.5 NON-RECOURSE Except in the event of fraud or intentional
misconduct on the part of Iowa West (in which case this Section 7.5 shall not
apply to Iowa West), neither Iowa West nor its partners (general or limited),
shareholders, directors, officers, successors or assigns shall have any personal
liability, responsibility or obligation for the performance of any obligation of
Iowa West hereunder and HBRMC agrees that in no event shall any
8
<PAGE>
monetary judgments for such Breach or Default be sought or secured against
any of the foregoing.
Except in the event of fraud or intentional misconduct
on the part of HBRMC, HBRMC's parents, affiliates, shareholders, successors
or assigns shall have no personal liability, responsibility or obligation for
the performance of any obligation of HBRMC hereunder and Iowa West agrees
that in no event shall any monetary judgments for such Breach or Default be
sought or secured against any of the foregoing.
7.6 CHANGE IN LAW. In the event that Iowa West is unable to
maintain the Licenses to conduct Gaming Operations due to the failure of the
voter referendum in the year 2002, or due to a change in the laws of the State
of Iowa or the laws of the United States, this Agreement shall terminate as of
such date, and the parties shall be relieved of further obligations hereunder.
In such event, HBRMC shall distribute the funds in the Operating Account first
to pay all expenses of operation of the Facility and Gaming Operations
(excluding any Rent or Management Fees), then to any amounts owed Iowa West
under this Agreement, the Lease and the Purchase Agreement, then to payment of
the Rent and Management Fees.
8. INDEMNIFICATION
HBRMC shall indemnify, defend and hold Iowa West, its
affiliates, officers, directors, agents and employees, free and harmless from
all loss, liability or cost (including reasonable attorneys' fees) which Iowa
West may sustain, incur or assume as a result of any claims which may be
alleged, made, instituted or maintained against Iowa West, jointly or severally,
arising out of, or based upon the ownership, management, operation or use of the
Facility or Gaming Operations unless such loss, liability or cost results from
the gross negligence, willful misconduct or criminal conduct of Iowa West, its
officers, directors, agents or employees.
9. ASSIGNABILITY.
Iowa West shall not assign this Agreement without the express
written consent of HBRMC, which consent may be granted or withheld by HBRMC in
its sole and absolute discretion. This Agreement shall be freely assignable by
HBRMC, subject only to IRGC or other governmental approval, if required. Any
assignment by HBRMC shall not relieve HBRMC of its obligations hereunder.
Any assignment by Iowa West, whether or not permitted by
HBRMC, shall not release Iowa West of any of its obligations hereunder.
10. BINDING NATURE.
9
<PAGE>
This Agreement is binding upon and shall inure to the benefit
of the parties hereto, and subject to the provision of the previous paragraph,
their respective successors and assigns.
11. RELATIONSHIP OF PARTIES.
HBRMC will perform all of its duties hereunder as an
independent contractor of Iowa West and this Agreement shall not be construed to
create any partnership or joint venture between Iowa West and HBRMC. HBRMC is
acting as the manager for Iowa West only in the limited capacity set forth
herein and neither party hereto shall have the authority to bind the other or
create any liability on behalf of the other, except as expressly authorized
herein. HBRMC specifically has no authority to enter into any contract or
agreement for or on behalf of Iowa West. No provision hereof shall be construed
to confer any rights or benefits on other persons than the parties hereto.
12. GOVERNING LAW.
This Agreement shall be subject to, governed by, and
interpreted in accordance with the laws of the State of Iowa, without regard to
its principles of conflicts of laws.
13. ARBITRATION.
Any dispute, controversy or claim arising out of or relating
to this Agreement, the Lease or the Management Agreement, or the Breach,
termination or validity hereof or thereof, shall be finally settled by
arbitration in accordance with the Commercial Arbitration Rules of the American
Arbitration Association then in effect, as modified herein (the "Rules"). The
place of arbitration shall be Omaha, Nebraska. There shall be three (3)
arbitrators, of whom HBRMC shall appoint one and Iowa West shall appoint one (1)
within thirty (30) days of the receipt by the respondent of the demand for
arbitration. The two (2) arbitrators shall select the chair of the arbitration
tribunal within thirty (30) days of the appointment of the second arbitrator. If
such arbitrator is not appointed within the time limit provided herein, such
arbitrator shall be appointed by the American Arbitration Association ("AAA") in
accordance with the Rules. Any arbitrator appointed by the AAA shall be a
retired judge or a practicing attorney with no less than fifteen (15) years of
experience with large commercial cases, and an experienced arbitrator. Any
arbitration proceedings, decision or award rendered hereunder and the validity,
effect and interpretation of this arbitration agreement shall be governed by the
Iowa Arbitration Act, Section 679A of the Iowa Code. By agreeing to arbitration,
the parties do not intend to deprive any court of its jurisdiction to issue a
pre-arbitral injunction, pre-arbitral attachment or other order in aid of
arbitration proceedings and the enforcement of any award. Without prejudice to
such provisional remedies in aid of arbitration as may be available under the
jurisdiction of a court, the arbitral
10
<PAGE>
tribunal shall have full authority to grant provisional remedies and to award
damages for the failure of any party to respect the arbitral tribunal's
orders to that effect. Any decision or award rendered hereunder shall be
final and binding on the parties and judgment upon such award may be entered
in any court having jurisdiction thereof. The arbitrators appointed pursuant
to this paragraph are specifically directed to consider the wide latitude in
the management of the Facility and the Gaming Operations that is vested by
the parties to this Agreement in HBRMC, whose actions and decisions shall
stand unless they are unlawful or constitute a gross abuse of HBRMC's duties
hereunder or would otherwise jeopardize the Licenses.
14. ATTORNEYS' FEES
In the event that legal action becomes necessary to resolve
any controversy or dispute arising out of this Agreement, the unsuccessful party
in the action shall reimburse the prevailing party, if any, for the reasonable
expenses and attorneys' fees and costs incurred by the prevailing party.
15. NOTICES.
All notices required or permitted by this Agreement shall be
in writing and may be delivered in person (by hand or by messenger or courier
service) or may be sent by nationally recognized air carrier who can provide
proof of delivery, or by certified or registered mail or U.S. Postal Service
Express Mail, with postage prepaid, and return receipt requested or by facsimile
transmission (with a copy sent simultaneously by U.S. mail), and shall be deemed
sufficiently given if served in a manner specified in this section. The
addresses noted below shall be that party's address for delivery or mailing for
notice purposes. Either party may, by written notice to the other party, specify
a different address for notice purposes
11
<PAGE>
If to Iowa West:
Iowa West Racing Association
Attn: Tony Payne
2701 23rd Avenue
P.O. Box 1562
Council Bluffs, IA 51502-1562
Telephone: 712-325-3133
Telecopy: 712-328-9092
with duplicate to:
James A. Campbell
233 Pearl Street
Peters Law Firm, P.C.
P.O. Box 1078
Council Bluffs, IA 51502-1078
Telephone: 712-328-3157
Telecopy: 712-322-2267
If to HBRMC:
Harveys BR Management Company, Inc.
Post Office Box 128
Stateline, Nevada 89449
Attn: Charles W. Scharer
Telephone: 775-586-6756
Telecopy: 775-586-6852
with duplicate to:
Scarpello & Alling, Ltd.
276 Kingsbury Grade, Suite 200
P.O. Box 3390
Lake Tahoe, NV 89449-3390
Attn: Ronald D. Alling, Esq.
Telephone: 775-588-6676
Telecopy: 775-588-4970
12
<PAGE>
and to
Skadden, Arps, Slate, Meagher & Flom LLP
300 South Grand Avenue, Suite 3400
Los Angeles, California 90071
Attn: Allan G. Mutchnik, Esq.
Telephone 213-687-5391
Telecopy 213-687-5600
Any notice sent by registered or certified mail, return
receipt requested, shall be deemed given on the date of delivery shown on the
receipt card, or if no delivery date is shown, the postmark thereon. Notices
delivered by United States Express Mail or overnight courier that guarantees
next day delivery shall be deemed given twenty-four (24) hours after delivery of
the same to the United States Postal Service or courier. If any notice is
transmitted by facsimile transmission or similar means, the same shall be deemed
served or delivered upon telephone confirmation of receipt of the transmission
thereof, provided a copy is thereafter also delivered via delivery or mail. If
notice is received on a Sunday or legal holiday, it shall be deemed received on
the next business day.
16. SEVERABILITY.
If any provision of this Agreement or the application of any
provision of this Agreement to any person or circumstance shall be invalid or
unenforceable to any extent, the remainder of this Agreement and the application
of such circumstances shall not be affected and shall be enforced to the
greatest extent permitted by law, to the extent
consistent with the intent hereof.
17. WAIVER.
If either party waives the performance of any term, covenant
or condition contained in this Agreement, such waiver shall not be deemed to be
a waiver of the term, covenant, or condition itself or a waiver of any
subsequent breach of the same or any other term, covenant or condition contained
in this Agreement. Failure by either party to enforce any of the terms,
covenants or conditions of this Agreement for any length of time shall not be
deemed to waive or to decrease the right of such party to insist thereafter upon
strict performance by the other party. Waiver by either party of any term,
covenant or condition contained in this Agreement may be made only by a written
document signed by such party.
18. COUNTERPARTS.
This Agreement may be executed in counterparts at different
times and places, each of which shall be deemed an original, but all of which
shall together constitute one and
13
<PAGE>
the same instrument. It shall be necessary to account for only one such
counterpart in proving this Agreement
19. APPROVAL OF IRGC.
It is expressly understood and agreed that this Agreement
shall not be a binding obligation of either Iowa West or HBRMC until such time
as it is approved by the IRGC; the parties agree to cooperate in the submission
of this Agreement to the IRGC for its approval.
20. MODIFICATION.
This Agreement may not be changed, modified, renewed,
extended, canceled or discharged, or any covenant or provision waived, except by
an agreement in writing signed by the party against whom enforcement of the
change, modification, renewal, extension, discharge or waiver is sought.
21. ENTIRE AGREEMENT.
This Agreement constitutes the entire agreement between the
parties and supersedes all prior negotiations, understandings, and agreements
between HBRMC and Iowa West. Both Iowa West and HBRMC acknowledge and agree that
neither party has relied on any representations or promises in connection with
this Agreement not contained herein or in the Lease or Purchase Agreement.
22. CHANGE IN FACILITY OR GAMING OPERATIONS
In the event that the premises being leased to Iowa West
pursuant to the Lease shall be increased, decreased or otherwise modified,
HBRMC's management obligations under this Agreement shall be accordingly
expanded, diminished or modified to encompass the changes to said leased
premises. HBRMC and Iowa West agree to perform, execute and/or deliver or cause
to be performed, executed or delivered any and all such further acts,
instruments, and assurances as may be reasonably required to evidence any such
expansion, diminution or modification of HBRMC's management obligations
hereunder. Iowa West and HBRMC agree that any such expansion, diminution or
modification shall not change the calculation of the Management Fee hereunder
and that no additional consideration shall be required for any such expansion,
diminution or modification.
23. CHANGE IN LAWS
The parties hereby agree that in the event that there is a
material change in the applicable laws with respect to the Gaming Operations or
the operation of the Facility as contemplated by this Agreement, the parties
will promptly and diligently negotiate in good
14
<PAGE>
faith any such required changes so that neither party suffers any economic
detriment, and each party's business objectives and economic position as
contemplated in this Agreement are preserved to the fullest extent possible.
In the event that applicable laws change to allow a transfer of the Licenses
to HBRMC (or an affiliate of HBRMC), Iowa West shall, within ten (10) days of
a written request from HBRMC (or, in the event such transfer is not
reasonably possible within such ten day period despite Iowa West's best
efforts, as soon as reasonably possible thereafter), transfer such Licenses
to HBRMC or its designee, and this Agreement shall terminate and be of no
further force or effect from the date of such transfer. In the event this
Agreement expires or terminates for this, or any other reason, the Lease
shall also terminate.
IN WITNESS WHEREOF, the undersigned have caused their corporate names
to be hereunto affixed on the day and year first above written.
IOWA WEST RACING ASSOCIATION, AN IOWA NONPROFIT CORPORATION
By: /s/ Lynn G. Grobe
-----------------------------------
Lynn G. Grobe, Vice-President
By: /s/ Joseph D. Lehan
-----------------------------------
Joseph D. Lehan, Secretary
HARVEYS BR MANAGEMENT COMPANY, INC. A NEVADA CORPORATION
By: /s/ Charles W. Scharer
-----------------------------------
Charles W. Scharer, President
15
<PAGE>
Exhibit 21.1
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
NAME OF SUBSIDIARY STATE OF INCORPORATION OR ORGANIZATION
<S> <C>
West Ad........................................... Nevada
Reno Projects, Inc................................ Nevada
Harveys C. C. Management Company, Inc............. Nevada
Harveys L. V. Management Company, Inc............. Nevada
Harveys Iowa Management Company, Inc.............. Nevada
Harveys N.Y. Management Company, Inc.............. Nevada
Harveys Tahoe Management Company, Inc............. Nevada
HCR Services Company, Inc......................... Nevada
Harveys Mass. Management Company, Inc............. Nevada
Harveys P. C., Inc................................ Nevada
Harveys BR Management Company, Inc................ Nevada
HBR Realty Company, Inc........................... Nevada
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> NOV-30-1999
<PERIOD-START> FEB-02-1999
<PERIOD-END> NOV-30-1999
<CASH> 32,496
<SECURITIES> 0
<RECEIVABLES> 6,153
<ALLOWANCES> 343
<INVENTORY> 3,704
<CURRENT-ASSETS> 47,380
<PP&E> 459,631
<DEPRECIATION> 18,872
<TOTAL-ASSETS> 673,920
<CURRENT-LIABILITIES> 44,219
<BONDS> 400,577
61,442
0
<COMMON> 40
<OTHER-SE> 81,315
<TOTAL-LIABILITY-AND-EQUITY> 673,920
<SALES> 49,628
<TOTAL-REVENUES> 288,163
<CGS> 17,588
<TOTAL-COSTS> 242,534
<OTHER-EXPENSES> 93,573
<LOSS-PROVISION> 1,094
<INTEREST-EXPENSE> 24,272
<INCOME-PRETAX> 20,932
<INCOME-TAX> 8,134
<INCOME-CONTINUING> 12,798
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,798
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
