<PAGE>
SCHEDULE 14A
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
BOARDWALK CASINO, INC.
(Name of Registrant as Specified in Its Charter)
Payment of Filing Fee (Check the appropriate box):
[_] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock, par value $.001 per Share
(2) Aggregate number of securities to which transaction applies: 7,181,429
shares of Common Stock, par value $.001 per share (the "Shares")*
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined): $5.00 per
share
(4) Proposed maximum aggregate value of transaction: $35,907,145**
(5) Total fee paid: $7,182
[X] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identity the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement No.:
(3)Filing Party:
(4) Date Filed:
* Based upon the number of Shares outstanding as of April 29, 1998
(7,181,429).
** Estimated solely for purpose of calculating the filing fee for this
preliminary proxy statement. The estimated proposed maximum aggregate value
of the transaction is based upon 7,181,429 Shares, which is the number of
Shares outstanding as of April 29, 1998, multiplied by the merger
consideration of $5.00 per Share ($35,907,145 in the aggregate).
<PAGE>
BOARDWALK CASINO, INC.
3750 LAS VEGAS BOULEVARD SOUTH
LAS VEGAS, NEVADA 89109
April 30, 1998
To the Stockholders of Boardwalk Casino, Inc.:
You are cordially invited to attend a Special Meeting of Stockholders of
Boardwalk Casino, Inc. (the "Company") to be held on Wednesday, May 27, 1998,
at 11 a.m. local time at the Holiday Inn(R) Casino Boardwalk, 3750 Las Vegas
Boulevard South, Las Vegas, Nevada 89109. At the Special Meeting, you will be
asked to approve the Merger (as defined herein) and approve and adopt the
Agreement and Plan of Merger dated December 22, 1997 among Mirage Resorts,
Incorporated ("Mirage"), Mirage Acquisition Sub, Inc., a wholly owned
subsidiary of Mirage ("Acquisition"), and the Company, pursuant to which
Acquisition will be merged with and into the Company and the Company will, as
the surviving corporation of the Merger, become a wholly owned subsidiary of
Mirage (the "Merger"). If the Merger is consummated, each share of the
Company's Common Stock will be converted in the Merger into the right to
receive $5.00 in cash.
The Company's financial advisor, Roberts & Green, Inc., has rendered an
opinion to the effect that, as of the date of their opinion and based upon the
reasoning described therein, the consideration to be received by the Company's
stockholders in the Merger is fair to the Company's stockholders from a
financial point of view.
THE BOARD OF DIRECTORS OF THE COMPANY BELIEVES THE PROPOSED MERGER IS IN THE
BEST INTEREST OF THE COMPANY AND ITS STOCKHOLDERS AND RECOMMENDS THAT YOU VOTE
FOR APPROVAL OF THE MERGER AND APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
STOCKHOLDERS SHOULD REVIEW THE ENCLOSED PROXY STATEMENT WHICH DESCRIBES IN
DETAIL CERTAIN RISKS AND BENEFITS INHERENT IN THE MERGER.
FOR THE MERGER TO BE CONSUMMATED, HOLDERS OF A MAJORITY OF THE OUTSTANDING
COMMON STOCK MUST VOTE IN PERSON OR BY PROXY TO APPROVE THE MERGER AND TO
APPROVE AND ADOPT THE MERGER AGREEMENT AT THE SPECIAL MEETING. CERTAIN
STOCKHOLDERS OF THE COMPANY, WHO HOLD IN THE AGGREGATE APPROXIMATELY 53.2% OF
THE OUTSTANDING COMMON STOCK, HAVE AGREED TO VOTE THEIR SHARES IN FAVOR OF THE
MERGER AND THE MERGER AGREEMENT. ACCORDINGLY, IF SUCH SHARES ARE SO VOTED, THE
MERGER WILL BE APPROVED AND THE MERGER AGREEMENT WILL BE APPROVED AND ADOPTED
WITHOUT ANY ACTION ON THE PART OF ANY OTHER STOCKHOLDER OF THE COMPANY.
The attached Proxy Statement describes the proposed transactions more fully.
Please read and carefully consider the information presented in the
accompanying Proxy Statement and complete, date, sign and return the enclosed
proxy card in the accompanying prepaid envelope.
Sincerely,
Forrest J. Woodward, II
President
<PAGE>
BOARDWALK CASINO, INC.
3750 LAS VEGAS BOULEVARD SOUTH
LAS VEGAS, NEVADA 89109
----------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 27, 1998
To the Stockholders of
Boardwalk Casino, Inc.:
Notice is hereby given that a Special Meeting of Stockholders (the "Special
Meeting") of Boardwalk Casino, Inc., a Nevada corporation (the "Company"),
will be held on Wednesday, May 27, 1998 at the Holiday Inn(R) Casino
Boardwalk, 3750 Las Vegas Boulevard South, Las Vegas, Nevada 89109 at 11 a.m.,
local time, for the following purposes:
1. To consider and vote upon a proposal to approve the Merger (as defined
in the Merger Agreement) and approve and adopt the Agreement and Plan of
Merger dated December 22, 1997, as such may be amended from time to time
(the "Merger Agreement") among Mirage Resorts, Incorporated, a Nevada
corporation ("Mirage"), Mirage Acquisition Sub, Inc., a Nevada corporation
and a wholly owned subsidiary of Mirage ("Acquisition"), and the Company,
pursuant to which (i) Acquisition will be merged with and into the Company
and the Company, as the surviving corporation of the Merger, will become a
wholly owned subsidiary of Mirage, and (ii) each share of the common stock,
par value $.001 per share, of the Company (the "Common Stock") will be
converted into the right to receive $5.00 in cash.
2. To transact such other business as may properly come before the
Special Meeting or any adjournments or postponements thereof.
The Board of Directors has fixed April 29, 1998 as the record date (the
"Record Date") for determination of stockholders entitled to notice of and to
vote at the Special Meeting and any adjournments or postponements thereof.
Accordingly, only holders of record of Common Stock at the close of business
on the Record Date shall be entitled to vote at the Special Meeting and any
adjournment or postponement thereof.
By Order of the Board of Directors
Las Vegas, Nevada
April 30, 1998
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE PROMPTLY COMPLETE,
DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD IN THE ACCOMPANYING PREPAID
ENVELOPE.
<PAGE>
BOARDWALK CASINO, INC.
PROXY STATEMENT FOR
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 27, 1998
This Proxy Statement ("Proxy Statement") is being furnished to stockholders
of Boardwalk Casino, Inc. (the "Company") in connection with the solicitation
of proxies by the Board of Directors from holders of outstanding shares of the
common stock, par value $.001 per share, of the Company (the "Common Stock")
for use at the Special Meeting of Stockholders (including any adjournments or
postponements thereof, the "Special Meeting") to be held on Wednesday, May 27,
1998 at the Holiday Inn Casino Boardwalk, 3750 Las Vegas Boulevard South, Las
Vegas, Nevada 89109 at 11 a.m., local time.
At the Special Meeting, holders of Common Stock (the "Stockholders") will
consider and vote upon a proposal to approve the Merger (as defined herein)
and approve and adopt the Agreement and Plan of Merger dated December 22,
1997, as such may be amended from time to time (the "Merger Agreement"), among
Mirage Resorts, Incorporated, a Nevada corporation ("Mirage"), Mirage
Acquisition Sub, Inc., a Nevada corporation and a wholly owned subsidiary of
Mirage ("Acquisition"), and the Company, pursuant to which: (i) Acquisition
will be merged with and into the Company (the "Merger"), and the Company, as
the surviving corporation of the Merger, will become a wholly owned subsidiary
of Mirage, and (ii) each share of Common Stock that is outstanding at the
effective time of the Merger (the "Effective Time") (other than shares of
Common Stock which are owned by the Company, Mirage or Acquisition, which will
be cancelled without payment, or shares as to which dissenters' rights are
perfected) will be converted into the right to receive $5.00 in cash (the
"Merger Consideration").
Consummation of the Merger is conditioned upon, among other things, approval
of the Merger and approval and adoption of the Merger Agreement by the
requisite vote of the Stockholders and the receipt of certain regulatory
approvals and consents. The Special Meeting may be postponed or adjourned
until the requisite vote is obtained. There can be no assurance that the
conditions to the Merger will be satisfied or, where permissible, waived or
that the Merger will be consummated. For further information concerning the
terms and conditions of the Merger, see "The Merger" and "The Merger Agreement
and Related Agreements."
A copy of the Merger Agreement is included in this Proxy Statement as Annex
A and is incorporated herein by reference. The summaries of the portions of
the Merger Agreement set forth in this Proxy Statement do not purport to be
complete and are subject to, and are qualified in their entirety by reference
to, the text of the Merger Agreement.
For the Merger to be consummated, holders of a majority of the outstanding
Common Stock must vote in person or by proxy to approve the Merger and approve
and adopt the Merger Agreement at the Special Meeting. Certain Stockholders of
the Company, who hold in the aggregate approximately 53.2% of the outstanding
Common Stock, have informed the Company that they intend to vote their shares
in favor of the Merger and the Merger Agreement. These Stockholders have also
entered into agreements with Mirage which are described herein and appended to
this Proxy Statement as Annexes B, C and D and which require them to vote in
favor of the Merger and the Merger Agreement. Therefore, holders of the number
of shares of Common Stock required to approve the Merger and approve and adopt
the Merger Agreement have informed the Company that they intend to vote for
the approval of the Merger and the approval and adoption of the Merger
Agreement and, if such shares are so voted, the Merger will be approved and
the Merger Agreement will be approved and adopted without any action on the
part of any other Stockholder.
THE BOARD OF DIRECTORS, AFTER CAREFUL CONSIDERATION, HAS APPROVED THE MERGER
AGREEMENT AND DETERMINED THAT THE MERGER IS FAIR TO AND IN THE BEST INTERESTS
OF THE COMPANY AND ITS STOCKHOLDERS, AND RECOMMENDS THAT
<PAGE>
STOCKHOLDERS VOTE FOR APPROVAL OF THE MERGER AND APPROVAL AND ADOPTION OF THE
MERGER AGREEMENT.
In reaching its determination, the Board of Directors considered, among
other things, the opinion of Roberts & Green, Inc., financial advisor to the
Company (the "Financial Advisor"), as to the fairness of the Merger
Consideration to be received by the Stockholders pursuant to the Merger. The
opinion of the Financial Advisor is included as Annex E hereto and is
incorporated herein by reference. Stockholders are urged to read the opinion
in its entirety for further information with respect to the assumptions made,
matters considered and limitations on the review undertaken by the Financial
Advisor. See "The Merger--Opinion of the Company's Financial Advisor."
Nevada law provides statutory appraisal and other rights to Stockholders who
may wish not to vote for approval of the Merger and approval and adoption of
the Merger Agreement. See "The Merger--Specific Rights of Dissenting
Stockholders" and Annex F hereto.
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT IN
CONNECTION WITH THE SOLICITATION OF PROXIES MADE HEREBY, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR ANY OTHER PERSON.
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
AVAILABLE INFORMATION................................................... 5
SUMMARY................................................................. 6
The Parties........................................................... 6
The Special Meeting................................................... 6
The Majority Stockholders; the Stockholder Agreements................. 8
The Merger............................................................ 8
The Merger Agreement.................................................. 10
Certain Tax Consequences of The Merger................................ 12
Appraisal Rights for Dissenting Stockholders.......................... 12
Market Prices......................................................... 12
VOTING AND PROXIES...................................................... 13
Record Date; Solicitation of Proxies.................................. 13
Vote Required......................................................... 13
THE MERGER.............................................................. 15
General............................................................... 15
Background of And Reasons For The Merger.............................. 15
Recommendation of the Board of Directors of the Company............... 19
Opinion of the Company's Financial Advisor............................ 19
Accounting Treatment.................................................. 20
Specific Rights of Dissenting Stockholders............................ 20
Interests of Certain Persons In The Merger............................ 21
Warrants.............................................................. 21
Exchange Procedures................................................... 21
Business of Mirage.................................................... 22
Source and Amount of Funds............................................ 22
THE MERGER AGREEMENT AND RELATED AGREEMENTS............................. 23
General............................................................... 23
Representations and Warranties........................................ 23
Certain Covenants..................................................... 24
No Solicitation of Acquisition Proposals.............................. 25
Regulatory Approvals.................................................. 26
Conditions to the Merger.............................................. 26
Termination........................................................... 27
The Majority Stockholders; the Stockholder Agreements................. 29
CERTAIN TAX CONSEQUENCES TO STOCKHOLDERS................................ 31
BUSINESS................................................................ 32
General............................................................... 32
Location.............................................................. 32
Background............................................................ 32
Current Operations.................................................... 32
Competition........................................................... 33
Employees............................................................. 33
Property.............................................................. 33
Litigation............................................................ 33
Regulation and Licensing.............................................. 33
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.......................................................... 38
MARKET PRICES AND DIVIDENDS............................................. 43
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.......... 44
INDEPENDENT PUBLIC ACCOUNTANTS.......................................... 45
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
STOCKHOLDER PROPOSALS................................................... 45
OTHER MATTERS........................................................... 45
INDEX TO FINANCIAL STATEMENTS........................................... F-1
FINANCIAL STATEMENTS OF BOARDWALK CASINO, INC. FOR THE FISCAL YEAR ENDED
SEPTEMBER 30, 1997..................................................... F-2
</TABLE>
ANNEX A
--Agreement and Plan of Merger dated December 22, 1997 among Mirage
Resorts, Incorporated, Mirage Acquisition Sub, Inc., and Boardwalk
Casino, Inc.
ANNEX B
--Agreement of Purchase and Sale and Joint Escrow Instructions dated
as of December 22, 1997 by and between Restaurant Ventures of
Nevada, Inc. and Avis Jansen, as sole trustee of the Norbert W.
Jansen and Avis Jansen Family Trust dated July 14, 1993
ANNEX C
--Agreement dated December 22, 1997 between Mirage Resorts,
Incorporated and Avis P. Jansen, individually, as executrix of the
Estate of Norbert W. Jansen and as Trustee for the Jansen Family
Trust under an Agreement dated July 14, 1993, as amended
ANNEX D
--Agreement dated December 22, 1997 by and among Mirage Resorts,
Incorporated, on the one hand, and Diversified Opportunities Group
Ltd., Jacobs Entertainment Nevada, Inc., and Jeffrey P. Jacobs
ANNEX E
--Opinion of Roberts & Green, Inc., financial advisor of the Company,
dated December 22, 1997
ANNEX F
--Nevada Revised Statutes, Sections 92A.300-92A.500
ANNEX G
--Report on Form 10-Q for the quarter ended December 31, 1997
4
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "SEC"). The reports, proxy statements
and other information filed by the Company with the SEC may be inspected and
copied at the Public Reference Section of the SEC at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's
regional offices located at Seven World Trade Center, 13th Floor, New York,
New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of all or parts of such materials also may be
obtained from the Public Reference Section of the SEC at Judiciary Plaza, 450
Fifth Street, N.W. Washington, D.C. 20549 at prescribed rates. The SEC also
maintains a Web Site at http://www.sec.gov that contains reports and other
information regarding registrants that file electronically with the SEC. In
addition, material filed by the Company may be inspected at the offices of The
Nasdaq Stock Market, Inc. ("Nasdaq") at 1735 K Street, N.W., Washington, D.C.
20006.
5
<PAGE>
SUMMARY
The following is a summary of certain information contained elsewhere in this
Proxy Statement. Reference is made to, and this summary is qualified in its
entirety by, the more detailed information contained elsewhere in this Proxy
Statement and in the attached Annexes. Unless otherwise indicated or the
context otherwise requires, references to the "Company" are to Boardwalk
Casino, Inc., a Nevada corporation. Stockholders are urged to read carefully
this Proxy Statement, including the Annexes hereto, in its entirety.
THE PARTIES
Boardwalk Casino, Inc. The Company owns and operates the Holiday Inn(R)
Casino Boardwalk in Las Vegas, Nevada and leases the shopping center next to
the hotel-casino. The Holiday Inn(R) Casino Boardwalk is situated on a 7.8-acre
site on Las Vegas Boulevard (the "Las Vegas Strip") between Flamingo Road and
Tropicana Avenue. It includes 653 hotel rooms, approximately 33,000 square feet
of casino space, a coffee shop, a buffet restaurant, a snack bar, an
entertainment lounge, two bars, two outdoor swimming pools and 1,125 garage and
surface parking spaces (including those spaces leased under the shopping center
lease). It also contains a small gift shop under lease to Holiday Gifts, Inc.,
a Nevada corporation owned by Avis P. Jansen, the Chairman of the Board of
Directors and a principal stockholder of the Company. The Company's principal
executive office is located at 3750 Las Vegas Boulevard South, Las Vegas,
Nevada 89109 and its telephone number is (702) 735-2400.
Mirage Resorts, Incorporated. Mirage owns and operates some of the most
successful, well-known casino-based entertainment resorts in the world. These
resorts include (i) The Mirage, a tropical-themed hotel-casino and destination
resort on the Las Vegas Strip, (ii) Treasure Island at the Mirage, a pirate-
themed hotel-casino and destination resort adjacent to The Mirage, (iii) the
Golden Nugget, the largest hotel-casino in downtown Las Vegas, and (iv) the
Golden Nugget--Laughlin, a relatively small hotel-casino in Laughlin, Nevada.
Mirage also owns a 50% interest in a joint venture which owns and operates the
Monte Carlo Resort Casino, a hotel-casino resort on the Las Vegas Strip
adjacent to the Holiday Inn Casino Boardwalk. Mirage is currently constructing
Bellagio, an elegant hotel-casino and destination resort on the Las Vegas
Strip, and Beau Rivage, a luxurious hotel-casino and beachfront resort in
Biloxi, Mississippi. Mirage's principal executive offices are located at 3400
Las Vegas Boulevard South, Las Vegas, Nevada 89109 and its phone number is
(702) 791-7111. If the Merger is consummated, Mirage will hold all of the
common stock of the surviving corporation.
Mirage Acquisition Sub, Inc. Acquisition is a Nevada corporation created
solely for the purpose of consummating the Merger and is a direct wholly owned
subsidiary of Mirage. The principal executive office of Acquisition is located
at 3400 Las Vegas Boulevard South, Las Vegas, Nevada 89109, and its phone
number at that address is (702) 791-7111.
THE SPECIAL MEETING
Purpose of the Special Meeting; Date, Time and Place. The Special Meeting of
Stockholders will be held at the Holiday Inn(R) Casino Boardwalk, 3750 Las
Vegas Boulevard South, Las Vegas, Nevada 89109 on Wednesday, May 27, 1998 at
11 a.m., local time. At the Special Meeting, the Stockholders will consider and
vote upon the approval of the Merger and the approval and adoption of the
Merger Agreement.
In the Merger, each share of Common Stock issued and outstanding at the
Effective Time (other than shares of Common Stock which are owned by the
Company, Mirage or Acquisition, which will be cancelled without payment, or
shares as to which dissenters' rights are perfected) will be converted into the
right to receive the Merger Consideration, which will consist of $5.00 in cash.
6
<PAGE>
Vote Required; Voting Procedures; Record Date. The close of business on April
29, 1998 has been fixed as the record date (the "Record Date") for the
determination of Stockholders entitled to notice of, and to vote at, the
Special Meeting. Only holders of record of Common Stock at the close of
business on the Record Date will be entitled to vote at the Special Meeting. As
of April 29, 1998, 7,181,429 shares of Common Stock were issued and
outstanding, each of which will be entitled to one vote on each matter to be
acted upon at the Special Meeting.
A majority of the outstanding shares of Common Stock entitled to vote,
represented in person or by proxy, is required for a quorum at the Special
Meeting. The affirmative vote of the holders of a majority of the outstanding
shares of Common Stock as of the Record Date is required to approve the Merger
and approve and adopt the Merger Agreement. Abstentions may be specified with
respect to the approval of the Merger and approval and adoption of the Merger
Agreement and will be counted as present for the purpose of determining the
existence of a quorum but will have the effect of a negative vote due to the
requirement of affirmative votes described in the preceding sentence.
Shares of Common Stock which are represented by properly executed proxies,
unless such proxies shall have previously been properly revoked, will be voted
in accordance with the instructions indicated in such proxies. If no contrary
instructions are indicated, such shares will be voted FOR approval of the
Merger and approval and adoption of the Merger Agreement, and in the discretion
of the persons named in the proxy as proxy appointee as to any other matter
which may properly come before the Special Meeting. While brokers who hold
shares of Common Stock in "street name" have the authority to vote on certain
items when they have not received instructions from beneficial owners, brokers
will not be entitled to vote on the Merger and Merger Agreement absent
instructions. Shares of Common Stock held by brokers who do not receive
instructions but which are reported as "instructions withheld" will be treated
as present, in person or by proxy, at the Special Meeting and counted as
present for quorum purposes. A failure by a broker to vote will have the effect
of a negative vote on the approval of the Merger and approval and adoption of
the Merger Agreement.
It is not expected that any matters other than those referred to in this
Proxy Statement will be brought before the Special Meeting. If, however, other
matters are properly presented, including, among other things, a motion to
adjourn or postpone the Special Meeting to another time and/or place for the
purpose of, among other things, soliciting additional proxies in favor of
approval of the Merger and approval and adoption of the Merger Agreement, one
or more of the persons named as proxy appointees will vote in accordance with
their best judgment on such matters and consistent with the voting rights of
such shares as provided by the Company's Bylaws and the Nevada Revised Statutes
("NRS"); provided, however, that no proxy that is voted or is treated as voted
against approval of the Merger and approval and adoption of the Merger
Agreement will be voted in favor of any adjournment or postponement for the
purpose of soliciting additional proxies. At any subsequent reconvening of the
Special Meeting, all proxies will be voted in the same manner as such proxies
would have been voted at the original convening of the Special Meeting, except
for proxies that have been effectively revoked prior to such reconvened
meeting. The grant of a proxy will also confer discretionary authority on the
persons named in the proxy to vote in accordance with their best judgment on
matters incident to the conduct of the Special Meeting. See "Voting and
Proxies--Vote Required."
Any Stockholder may revoke a proxy at any time before it is voted by filing
with the Secretary of the Company, at the offices of the Company, an instrument
revoking the proxy or by returning a duly executed proxy bearing a later date,
or by attending the Special Meeting and voting in person. Any such filing
should be sent to Boardwalk Casino, Inc., 3750 Las Vegas Boulevard South, Las
Vegas, Nevada 89109, Attention: Secretary. Attendance at the Special Meeting
will not by itself constitute revocation of a proxy. See "Voting and Proxies."
In addition to the solicitation of proxies by use of the mails, proxies may
also be solicited by the Company and its directors, officers, and employees
(who will receive no additional compensation therefor) by telephone, telegram,
facsimile transmission and other electronic communication methods or personal
interview. The Company will reimburse banks, brokerage houses, custodians and
other fiduciaries who hold shares of Common
7
<PAGE>
Stock in their name or custody, or in the name of nominees for others, for
their out-of-pocket expenses incurred in forwarding copies of the proxy
materials to those persons for whom they hold such shares. The Company will
bear the costs of the Special Meeting and of soliciting proxies therefor. See
"Voting and Proxies" and "The Merger Agreement--Fees and Expenses."
THE MAJORITY STOCKHOLDERS; THE STOCKHOLDER AGREEMENTS
Certain Stockholders of the Company, who hold in the aggregate 3,821,429
shares of Common Stock, or approximately 53.2% of the total number of
outstanding shares of Common Stock, have agreed to sell their shares to Mirage
for $5.00 per share in cash and, pending such sale, to vote their shares in
favor of approval of the Merger and the approval and adoption of the Merger
Agreement. Concurrently with the execution of the Merger Agreement, (i) Mirage
entered into agreements with Avis P. Jansen, individually, as executrix of the
Estate of Norbert W. Jansen, as Trustee for the Jansen Family Trust and as
president of Holiday Gifts, Inc., a Nevada corporation (collectively,
"Jansen"), pursuant to which, among other things, Mirage has agreed to purchase
2,750,000 shares of Common Stock owned by Jansen (the "Jansen Shares") and 600
shares (the "Jansen Preferred") of 6% Non-Voting Cumulative Preferred Shares,
Series A of the Company (the "Preferred Stock") owned by Jansen, and a wholly
owned subsidiary of Mirage has agreed to purchase an adjacent parcel of land
located at 3734 Las Vegas Boulevard South (the "Land") owned by Jansen and
leased to the Company (collectively, the "Jansen Agreements"), and (ii) Mirage
entered into an agreement with Diversified Opportunities Group Ltd., an Ohio
limited liability company ("Diversified"), Jacobs Entertainment Nevada, Inc, a
Nevada corporation ("Jacobs Entertainment"), and Jeffrey P. Jacobs ("Jacobs")
(Diversified, Jacobs Entertainment and Jacobs are collectively referred to as
the "Jacobs Sellers," and together with Jansen as the "Majority Stockholders"),
pursuant to which, among other things, Mirage has agreed to purchase 1,071,429
shares of Common Stock (the "Jacobs Shares") owned by the Jacobs Sellers, has
agreed to purchase and has purchased a $5 Million Subordinated Note (the
"Note") and 2,650 shares of Preferred Stock (the "Jacobs Preferred") owned by
the Jacobs Sellers, and has agreed to make a payment in consideration for the
termination of the Jacobs Sellers' rights relating to the Company, the Land and
the Jansen Shares (the "Jacobs Agreement" and collectively with the Jansen
Agreements, the "Stockholder Agreements"). Copies of the Jansen Agreements are
included in this Proxy Statement as Annexes B and C, and a copy of the Jacobs
Agreement is included as Annex D.
In addition, pursuant to the Stockholder Agreements, the Majority
Stockholders have agreed (for as long as the Merger Agreement is in effect),
that at any meeting of the holders of Common Stock, however called, or in
connection with any written consent of the holders of Common Stock, such
Majority Stockholders shall vote their shares of Common Stock (or cause them to
be voted) in favor of approval of the Merger and the approval and adoption of
the Merger Agreement. The Majority Stockholders have each granted an
irrevocable proxy to Mirage to vote their shares of Common Stock in the manner
described above if the Majority Stockholders fail to do so. See "The Merger
Agreement and Related Agreements--The Majority Stockholders; the Stockholder
Agreements."
THE MERGER
Required Vote. Approval of the Merger and approval and adoption of the Merger
Agreement requires the affirmative vote of the holders of a majority of the
outstanding shares of Common Stock. Under the terms of the Stockholder
Agreements described above, the Majority Stockholders are required to cast an
aggregate of 3,821,429 shares of Common Stock, or approximately 53.2% of the
total number of outstanding shares of Common Stock, in favor of approval of the
Merger and approval and adoption of the Merger Agreement at the Special
Meeting. Therefore, assuming such shares are so voted, the Merger will be
approved and the Merger Agreement will be approved and adopted without any
action on the part of any other Stockholder.
Interests of Certain Persons in the Merger. In connection with the Merger
Agreement, Jansen and the Jacobs Sellers entered into the Stockholder
Agreements, which, among other things, provide for payments to be made in
respect of the Preferred Stock, the Land, the Note, and the termination of
certain rights relating to the Company, the Land and the Jansen Shares. See
"The Merger--Interests of Certain Persons in the Merger" and "The Merger
Agreement and Related Agreements--The Majority Stockholders; the Stockholder
Agreements."
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In addition, pursuant to the Company's 1994 Stock Compensation Plan (as
defined) and the Outside Directors Stock Option Plan (as defined), each option
outstanding will vest and become immediately exercisable upon a change of
control of the Company (which, as defined, includes the Merger). However, each
of the options granted to officers and directors of the Company under the
Company's 1994 Stock Compensation Plan and the Outside Directors Stock Option
Plan has an exercise price in excess of the Merger Consideration.
Mirage owns all of the outstanding 16.50% First Mortgage Notes of the Company
(the "First Mortgage Notes"), the Note, and the Jacobs Preferred. Mirage also
owns 1,000 shares of Common Stock. In its capacity as the holder of all of the
First Mortgage Notes, Mirage has consented to the Merger and the transactions
contemplated thereby, and, pursuant to the Merger Agreement, has consented to
the Company's deferral, at its option, of the March 31, 1998 interest payment
on the First Mortgage Notes until September 30, 1998, and agreed that such
deferred interest would accrue interest at the coupon rate and not the default
interest rate provided for in the First Mortgage Notes. The Company may pay
such deferred interest and any interest thereon at any time prior to September
30, 1998. See "The Merger--Interests of Certain Persons in the Merger" and "The
Merger Agreement and Related Agreements--The Majority Stockholders; the
Stockholder Agreements."
Source and Amount of Funds. If the Merger is consummated, the total amount
required to (i) purchase the shares of Common Stock owned by the Majority
Stockholders pursuant to the Stockholder Agreements, (ii) pay the Merger
Consideration (as defined) to the Company's remaining Stockholders, and (iii)
pay transaction-related fees and expenses is estimated to be approximately $36
million. In addition, pursuant to the Stockholder Agreements, Mirage has
purchased the Jacobs Preferred and the Note, and has agreed to purchase the
Jansen Preferred and the Land, among other things. See "The Merger Agreement
and Related Agreements--The Majority Stockholders; the Stockholder Agreements."
Funds for all such purchases are expected to be obtained from Mirage's $1.75
billion credit facility from a group of commercial banks.
Recommendation of the Board of Directors and Reasons for the Merger. The
Board of Directors of the Company (the "Board of Directors" or the "Board"), at
a meeting held on December 22, 1997 approved (with Jacobs abstaining) the
Merger and approved and adopted the Merger Agreement and directed that the
Merger and the Merger Agreement be submitted to the holders of Common Stock for
approval and adoption. The Board of Directors has determined that the Merger is
fair to and in the best interests of the Company and its Stockholders and
recommends that the Stockholders vote FOR approval of the Merger and approval
and adoption of the Merger Agreement.
In reaching its decision to approve the Merger and the Merger Agreement, the
Board considered a number of factors, including management's belief that, in
the event the Merger is not consummated, the combination of existing cash and
cash flows from operations will not be sufficient to meet the Company's
obligations as they become due during fiscal 1998. These obligations include
scheduled interest payments on the First Mortgage Notes (approximately
$6,600,000 for the year) and the scheduled interest and principal repayment on
the $5,000,000 Note due September 30, 1998. Accordingly, these matters raise
substantial doubt about the ability of the Company to continue as a going
concern. In light of these factors, the Board determined that the interests of
the Stockholders were best served by accepting the $5.00 per share offer made
by Mirage. For a discussion of the factors considered by the Board in reaching
its determination, see "The Merger--Background of and Reasons For the Merger"
and "--Recommendation of the Board of Directors of the Company."
Opinion of the Company's Financial Advisor. The Financial Advisor, Roberts &
Green, Inc. ("Roberts & Green"), has delivered its written opinion to the Board
that, as of the date thereof, the Merger Consideration to be received by the
Stockholders in the Merger is fair from a financial point of view to such
holders. The full text of the written opinion of the Financial Advisor, which
sets forth information with respect to assumptions made, matters considered and
limitations on the review undertaken in connection with the opinion, is
included in this Proxy Statement as Annex E. Stockholders are urged to, and
should, read such opinion in its entirety. See "The Merger--Opinion of the
Company's Financial Advisor."
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Roberts & Green, in its capacity as Financial Advisor, will receive fees and
compensation from the Company of $450,000. James Scibelli, President of Roberts
& Green, is a former director of the Company and owns 50,000 shares of Common
Stock. Mr . Scibelli served as a director of the Company from February 11, 1994
to October 31, 1997.
Accounting Treatment. The Merger will be treated as a "purchase" for
accounting purposes.
THE MERGER AGREEMENT
Effective Time of Merger; Payment for the Common Stock. If the Merger is
approved and the Merger Agreement is approved and adopted by the Stockholders,
the Merger will become effective (the "Effective Time") upon the filing of the
articles of merger with the Secretary of State of the State of Nevada. It is
anticipated that, subject to the satisfaction or waiver, if permissible, of the
conditions set forth in the Merger Agreement, such filing will be made promptly
after all of the conditions precedent to the consummation to the Merger have
been satisfied or waived. The Merger Agreement is included in this Proxy
Statement as Annex A.
As promptly as practicable following the Effective Time, a paying agent to be
designated by Mirage in accordance with the Merger Agreement (the "Paying
Agent") will forward to the holders of certificates formerly evidencing shares
of Common Stock ("Certificates") detailed instructions with regard to the
surrender of such Certificates and a letter of transmittal to accompany any
surrendered Certificates. Payment will be made to such former holders of Common
Stock as promptly as practicable following receipt by the Paying Agent of
Certificates and other required documents. No interest will be paid or accrued
on the cash payable upon the surrender of Certificates.
STOCK CERTIFICATES SHOULD NOT BE SENT WITH THE ENCLOSED PROXY CARD. IF THE
MERGER IS CONSUMMATED, STOCKHOLDERS WILL BE FURNISHED INSTRUCTIONS FOR
EXCHANGING THEIR SHARES OF COMMON STOCK FOR CASH.
Conditions to the Merger; Regulatory Approvals. The obligations of Mirage,
Acquisition and the Company to consummate the Merger are subject to the
satisfaction or waiver of certain conditions contained in the Merger Agreement,
including obtaining requisite Stockholder and certain regulatory approvals
(including approvals from relevant gaming authorities). In addition, Mirage's
and Acquisition's obligations to consummate the Merger are conditioned on,
among other things, receipt of all necessary third-party consents (including
obtaining the consent by the Effective Time of the licensor under the Company's
Holiday Inn Conversion License Agreement, which consent is required to be
obtained without any payment required of, or penalty imposed on, Mirage,
Acquisition or the Company), receipt of an unconditional commitment to issue a
title insurance policy in a certain form with respect to Company-owned real
estate, and purported exercises of dissenters' rights, if any, with respect to
the Merger not exceeding 10% of the number of shares of Common Stock
outstanding at the Record Date. See "The Merger Agreement and Related
Agreements--Conditions to the Merger", "--Termination" and "--Regulatory
Approvals."
One of the conditions to the Merger is expiration or termination of the
waiting period applicable to consummation of the Merger under the Hart-Scott-
Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"). On
February 2, 1998, Mirage and the Company received notice of the early
termination of the waiting period under the HSR Act. Before the Merger can be
consummated, Mirage and the Company must have obtained all material consents
and approvals required under the Nevada Gaming Control Act and the rules and
regulations promulgated thereunder (collectively, the "Gaming Laws"), as well
as obtaining all of the permits and licenses required by the Nevada Gaming
Commission (the "Nevada Commission"), the Nevada State Gaming Control Board
(the "Nevada Board") and the Clark County Liquor and Gaming Licensing Board
(the "Clark County Board" or the "CCB") (collectively, the "Nevada Gaming
Authorities").
No Solicitation of Acquisition Proposals. The Merger Agreement prohibits the
Company and its affiliates from soliciting or otherwise encouraging third
parties to acquire the Company. In certain cases, Mirage will have the right to
receive a payment if the Company approves or recommends an Acquisition Proposal
(as defined) or upon the occurrence of a Subsequent Transaction (as defined)
prior to the date which is nine (9) months after the
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termination of the Merger Agreement or under certain other circumstances. See
"--Fees and Expenses" and "The Merger Agreement and Related Agreements--No
Solicitation of Acquisition Proposals" and "--Termination."
As used in the Merger Agreement, "Acquisition Proposal" means any tender or
exchange offer involving the Company or its securities, any proposal for a
merger, consolidation or other business combination involving the Company, any
proposal or offer to acquire in any manner a substantial equity interest in, or
a substantial portion of the business or assets of, the Company, any proposal
or offer with respect to any recapitalization or restructuring with respect to
the Company or any proposal or offer with respect to any other transaction
similar to any of the foregoing with respect to the Company; provided, however,
that, as used in the Merger Agreement, the term "Acquisition Proposal" does not
apply to any such transaction involving Mirage, Acquisition or their
affiliates.
Termination. The Merger Agreement may be terminated and the Merger abandoned
prior to Effective Time, notwithstanding the approval by the Stockholders at
the Special Meeting, (a) by mutual consent of the parties, or (b) by Mirage
under certain circumstances, including, among other things (i) the failure by
the Company's Stockholders to approve the Merger Agreement by the required vote
at the Special Meeting, (ii) the approval or recommendation by the Board of an
Acquisition Proposal or a decision by the Board to withdraw, modify or change
in a manner adverse to Mirage its recommendation to approve the Merger and the
Merger Agreement, (iii) the amendment, revocation, repeal, withdrawal,
restriction or modification of the provision of the Company's Bylaws (the
"Control Share Opt-Out Bylaw") rendering the Nevada control share acquisition
statute inapplicable to the Company (a "Bylaw Repeal"), (iv) the acquisition by
any person or group of beneficial ownership of 25% of the outstanding Common
Stock or voting power of the Company (a "Third-Party Acquisition"), (v) the
Company's breach or failure in any material respect to perform or comply with
its material covenants and agreements in the Merger Agreement or breach of any
of its representations or warranties contained in the Merger Agreement, in any
material respect (a "Company Breach") or (vi) if any of the parties to the
Stockholder Agreements (other than Mirage) commits any material breach of, or
fails in any material respect to perform or comply with any of its material
covenants and agreements contained in, such agreement, or breaches any of its
representations or warranties contained therein in any material respect. The
Merger Agreement will also terminate if the Merger does not occur by June 30,
1998. See "The Merger Agreement--Termination."
In the event of termination of the Merger Agreement, the Merger Agreement
shall forthwith become null and void and there shall be no liability or
obligation on the part of Mirage and Acquisition, or either of them, or the
Company, or their respective officers, directors or employees, except (i)
liability for fraud or for willful material breach of the Merger Agreement,
(ii) liability of Mirage or Acquisition for any breach of the confidentiality
provision contained in the Merger Agreement, and (iii) the Company's
obligations to make the payments described in the following paragraph.
Fees and Expenses. Each party to the Merger Agreement will bear its own costs
and expenses incurred in connection with the Merger Agreement and the
consummation of the transactions contemplated thereby, except that (a) the
Company must pay or cause to be paid to Mirage a fee in the amount of
$1,000,000 (payable in equal quarterly installments) in the event that Mirage
or Acquisition terminates the Merger Agreement due to a Third-Party Acquisition
or a Company Breach; and (b) the Company must pay or cause to be paid to Mirage
an amount of $2,000,000 plus all costs and expenses of Mirage and Acquisition
relating to the Merger Agreement and the transactions contemplated thereby
(including without limitation fees and expenses of Mirage's counsel,
accountants and financial advisors, if any, but less any payments made pursuant
to (a)) in the event that (i) Mirage or Acquisition terminates the Merger
Agreement due to the failure to obtain Stockholder approval, a Third-Party
Acquisition or a Company Breach, and, prior to the date which is nine months
(9) after the termination of the Merger Agreement, a Subsequent Transaction
occurs, or (ii) Mirage or Acquisition terminates the Merger Agreement due to a
Bylaw Repeal or the approval or recommendation by the Board of an Acquisition
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Proposal or a decision by the Board to withdraw, modify or change in a manner
adverse to Mirage its recommendation to approve the Merger and the Merger
Agreement. See "The Merger Agreement--Termination."
CERTAIN TAX CONSEQUENCES OF THE MERGER
The receipt of cash for shares of Common Stock in the Merger will be a
taxable transaction for federal income tax purposes and may also be a taxable
transaction under applicable state, local, foreign or other tax laws.
Stockholders are urged to consult their own tax advisors as to the particular
tax consequences of the Merger, including the applicability and effect of
state, local, foreign and other taxes. See "Certain Tax Consequences To
Stockholders."
APPRAISAL RIGHTS FOR DISSENTING STOCKHOLDERS
Under Nevada law, Stockholders who follow the required procedures are
entitled to appraisal rights in connection with the Merger. See "The Merger--
Specific Rights of Dissenting Stockholders."
MARKET PRICES
Shares of Common Stock are listed and traded on the Nasdaq SmallCap Market.
The average closing sale price per share of Common Stock on the Nasdaq SmallCap
Market for the twenty trading day period ended December 19, 1997, the business
date preceding public announcement of the execution of the Merger Agreement,
was $3.85. On December 19, 1997, the high, low and closing sales prices of a
share of Common Stock on the Nasdaq SmallCap Market were $4.16, $3.88 and
$4.16, respectively. On April 28, 1998, the latest practicable trading day
before the printing of this Proxy Statement, the high, low and closing sales
prices of a share of Common Stock on the Nasdaq SmallCap Market were $4.63,
$4.50 and $4.50, respectively.
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VOTING AND PROXIES
This Proxy Statement is being furnished to Stockholders in connection with
the solicitation of proxies by or on behalf of the Board of Directors for use
at the Special Meeting.
RECORD DATE; SOLICITATION OF PROXIES
The close of business on April 29, 1998 has been fixed as the Record Date
for the determination of Stockholders entitled to notice of and to vote at the
Special Meeting. As of April 29, 1998, there were 7,181,429 shares of Common
Stock issued and outstanding and entitled to vote at the Special Meeting.
Holders of shares of Common Stock are entitled to one vote at the Special
Meeting for each share of Common Stock held of record by them at the Record
Date.
In addition to the solicitation of proxies by use of the mails, proxies may
also be solicited by the Company and its directors, officers and employees
(who will receive no additional compensation therefor) by telephone, telegram,
facsimile transmission and other electronic communication methods or personal
interview. The Company will reimburse banks, brokerage houses, custodians and
other fiduciaries who hold shares of Common Stock in their name or custody, or
in the name of nominees for others, for their out-of-pocket expenses incurred
in forwarding copies of the proxy materials to those persons for whom they
hold such shares. The Company will bear the costs of the Special Meeting and
of soliciting proxies therefor.
VOTE REQUIRED
A majority of the outstanding shares of Common Stock entitled to vote as of
the Record Date, represented in person or by proxy, is required for a quorum
at the Special Meeting. The affirmative vote of the holders of a majority of
the outstanding shares of Common Stock as of the Record Date is required for
approval of the Merger and approval and adoption of the Merger Agreement.
Abstentions may be specified with respect to the approval of the Merger and
approval and adoption of the Merger Agreement and will be counted as present
for the purpose of determining the existence of a quorum but will have the
effect of a negative vote due to the requirement of affirmative votes
described in the preceding sentence.
Under the terms of the Stockholder Agreements, the Majority Stockholders,
who hold in the aggregate 3,821,429 shares, or approximately 53.2% of the
total number of outstanding shares of Common Stock, have agreed that they will
cause all of the shares of Common Stock held by them to be present for quorum
purposes at the Special Meeting and to vote their shares of Common Stock, or
cause them to be voted, in favor of the approval of the Merger and approval
and adoption of the Merger Agreement. Therefore, holders of the number of
shares of Common Stock required to approve the Merger and approve and adopt
the Merger Agreement have informed the Company that they intend to vote for
the approval of the Merger and approval and adoption of the Merger Agreement
and, if such shares are so voted, the Merger will be approved and the Merger
Agreement will be approved and adopted without any action on the part of any
other Stockholder.
Shares of Common Stock which are represented by properly executed proxies,
unless such proxies shall have previously been properly revoked, will be voted
in accordance with the instructions indicated in such proxies. If no contrary
instructions are indicated, such shares will be voted FOR approval of the
Merger and approval and adoption of the Merger Agreement, and, in the
discretion of the persons named in the proxy as proxy appointees, as to any
other matter which may properly come before the Special Meeting.
While brokers who hold shares of Common Stock in street name have the
authority to vote on certain items when they have not received instructions
from beneficial owners, brokers will not be entitled to vote on the Merger and
the Merger Agreement absent instructions. Shares of Common Stock held by
brokers who do not receive instructions but which are reported as
"instructions withheld" will be treated as present, in person or by proxy, at
the Special Meeting and counted as present for quorum purposes. A failure by a
broker to vote will have the effect of a negative vote on the approval of the
Merger and the approval and adoption of the Merger Agreement.
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It is not expected that any matters other than those referred to in this
Proxy Statement will be brought before the Special Meeting. If, however, other
matters are properly presented, including, among other things, a motion to
adjourn or postpone the Special Meeting to another time and/or place for the
purpose of, among other things, soliciting additional proxies in favor of
approval of the Merger and approval and adoption of the Merger Agreement, one
or more of the persons named as proxy appointees will vote in accordance with
their best judgment on such matters and consistent with the voting rights of
such shares as provided by the Company's Bylaws and the NRS; provided,
however, that no proxy that is voted or is treated as voted against approval
of the Merger and approval and adoption of the Merger Agreement will be voted
in favor of any adjournment or postponement for the purpose of soliciting
additional proxies. At any subsequent reconvening of the Special Meeting, all
proxies will be voted in the same manner as such proxies would have been voted
at the original convening of the Special Meeting, except for proxies that have
been effectively revoked prior to such reconvened meeting. The grant of a
proxy will also confer discretionary authority on the persons named as proxy
appointees to vote in accordance with their best judgment on matters incident
to the conduct of the Special Meeting.
Any holder of shares of Common Stock may revoke a proxy at any time before
it is voted by filing with the Secretary of the Company an instrument revoking
the proxy or by returning a duly executed proxy bearing a later date, or by
attending the Special Meeting and voting in person. Any such filing should be
sent to Boardwalk Casino, Inc., 3750 Las Vegas Boulevard South, Las Vegas,
Nevada 89109; Attention: Secretary. Attendance at the Special Meeting will not
by itself constitute revocation of a proxy.
As promptly as practicable following the Effective Time, the Paying Agent
will forward to the holders of Certificates formerly evidencing shares of
Common Stock detailed instructions with regard to the surrender of such
Certificates and a letter of transmittal to accompany any surrendered
Certificates. Payment will be made to such former holders of shares of Common
Stock as promptly as practicable following receipt by the Paying Agent of
Certificates and other required documents. No interest will be paid or accrued
on the cash payable upon the surrender of Certificates.
STOCK CERTIFICATES SHOULD NOT BE SENT WITH THE ENCLOSED PROXY CARD. IF THE
MERGER IS CONSUMMATED, STOCKHOLDERS WILL BE FURNISHED INSTRUCTIONS FOR
EXCHANGING THEIR SHARES OF COMMON STOCK FOR CASH.
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THE MERGER
The information contained in this Proxy Statement with respect to the Merger
is qualified in its entirety by reference to the complete text of the Merger
Agreement, a copy of which is included in this Proxy Statement as Annex A and,
where applicable, to the Jansen Agreements and the Jacobs Agreement, copies of
which are included in this Proxy Statement as Annexes B and C and D,
respectively. Such Annexes are incorporated herein by reference. The Merger
Agreement sets forth the terms and conditions upon which the Merger is to be
effected. If the Merger is approved and the Merger Agreement is approved and
adopted by the requisite vote of Stockholders at the Special Meeting, and all
other conditions to the obligations of the parties thereto are satisfied or
waived, the Merger will be consummated and Acquisition will merge with and
into the Company at the Effective Time. The Company will be the surviving
corporation (the "Surviving Corporation") in the Merger. STOCKHOLDERS ARE
URGED TO READ THE MERGER AGREEMENT IN ITS ENTIRETY FOR A MORE COMPLETE
DESCRIPTION OF THE MERGER.
GENERAL
Pursuant to the Merger Agreement, each share of Common Stock outstanding
immediately prior to the Effective Time (other than shares of Common Stock
which are owned by the Company, Mirage or Acquisition, which will be cancelled
without payment, or shares as to which dissenters' rights are perfected) will
be converted into the right to receive $5.00 in cash, payable to the holder
thereof, without interest (the "Merger Consideration"). As a result of the
Merger, holders of shares of Common Stock will cease to have an equity
interest in, or possess any rights as stockholders of, the Surviving
Corporation. All shares of Preferred Stock of the Company which are
outstanding at the Effective Time shall remain outstanding and shall not be
affected by the Merger.
Upon consummation of the Merger, the registration of the Common Stock under
the Exchange Act will be terminated, and the Common Stock will cease to be
reported and listed on The Nasdaq Stock Market, Inc. and The Pacific Exchange.
BACKGROUND OF AND REASONS FOR THE MERGER
Company History. The Holiday Inn(R) Casino Boardwalk is the successor
business of a two-story Holiday Inn(R) motel which opened on that location in
1965. Additional guest rooms were added in 1966 as part of a four-story
addition. The Holiday Inn(R) name was removed from the property in 1985,
reflecting the age and condition of the property at that time. The Jansen
family took control of the property in 1985 and began planning for additional
expansion and extensive refurbishment, including the addition of substantial
casino space and other amenities.
On December 16, 1993, the Company entered into a license agreement with
Holiday Inns Franchising, Inc. to operate a "Holiday Inn(R)" hotel at its
location. The agreement, as amended, required the Company to perform certain
construction and renovation work and to open 200 rooms as a Holiday Inn(R) by
May 1, 1994 and a minimum of 300 additional rooms as a Holiday Inn(R) by April
1, 1996. The agreement provides that the Company will pay (i) a monthly
royalty of 5% of the gross rooms revenues; (ii) a "marketing contribution" of
1.5% of the gross rooms revenues; (iii) a "reservation contribution" of 1.0%
of the gross rooms revenues; and (iv) a monthly Holidex fee of $6.43 for each
guest room on the Holidex reservation system. The license granted under the
agreement expires ten years from the date of the opening of the hotel under
the "Holiday Inn" system (June 16, 1994), subject to earlier termination as
set forth therein.
The Company's initial public offering in 1994 and subsequent issuance of
First Mortgage Notes and other indebtedness were principally used to fund the
refurbishment and expansion of the property.
The Company's founder and Chief Executive Officer, Norbert W. Jansen, passed
away on January 6, 1997 while the construction was still underway. The Company
was able to complete construction of the additional
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hotel rooms in accordance with the Holiday Inn agreement, the casino expansion
and construction of the buffet as planned. However, funds were not available
from internal sources to complete certain aspects of the master expansion plan
that proved important to the Company's operations. For example, the hotel has
no porte cochere, which is unusual for a hotel of its size, and a planned
pedestrian bridge from the parking garage to the second floor of the casino
building was never completed. In addition, in mid 1997, a section of the older
part of the hotel, used principally for storage and an employee cafeteria, was
condemned by the Clark County building department due to a sinking foundation.
During 1996 and 1997, there was also a sharp increase in competition in Las
Vegas in general and in the neighborhood of the Company in particular. The
Holiday Inn(R) Casino Boardwalk is the second smallest hotel-casino along the
three mile long central core of the Las Vegas Strip and offers substantially
fewer amenities and services than most of its competitors. The negative impact
of additional guest rooms, restaurants and casino capacity in the neighborhood
outweighed the positive impact of additional foot and automobile traffic.
As a result, the Company earned substantially less during fiscal 1996 and
1997 than was anticipated, reporting net losses of approximately $4,400,000
and $3,485,000, respectively. During fiscal 1997, the Company was in default
of the limitation of total indebtedness covenant contained in the First
Mortgage Notes. The poor earnings and technical default made it expensive for
the Company to borrow additional funds and unlikely that it would be able to
do so. The poor earnings also adversely affected the price of the Common
Stock, making it difficult to raise money by issuing additional Common Stock.
In October 1997, the Company required an immediate capital infusion of
$3,250,000 in order to make an interest payment due on the First Mortgage
Notes and retire an outstanding $600,000 obligation. The two largest
Stockholders of the Company, Avis P. Jansen and Jeffrey P. Jacobs, agreed to
purchase $2,650,000 and $600,000 of 6% Non-Voting Cumulative Preferred Shares
of the Company, respectively, thereby avoiding a potential bankruptcy filing
by the Company. In addition to the sale of the Preferred Stock, the Company
also granted Mr. Jacobs an option to acquire up to an additional 15,000
Preferred Shares for up to two years. Furthermore, Mr. Jacobs was granted the
purchase option and a development right to a parcel of property that was
initially granted to the Company pursuant to a lease agreement with the Jansen
Family Trust effective October 1, 1996. These arrangements were set forth in a
Memorandum of Understanding dated October 29, 1997 by and among the Company,
Diversified, Jacobs Entertainment or its nominee, and Mrs. Jansen (the
"Memorandum"). As a result of the foregoing financing arrangement, pursuant to
the Jacobs Agreement executed concurrently with the Merger Agreement, the
Jacobs Sellers will receive a total of $3,735,000 in consideration for, among
other things, the termination and release of any and all of their rights,
title and interest which they may have under or pursuant to the Option
Agreement (as defined below), the Memorandum and the Purchase Agreement (as
defined below). See "The Merger Agreement and Related Agreements -- The
Majority Stockholders; the Stockholder Agreements."
Background of the Transaction. The terms of the Merger Agreement and the
Stockholder Agreements are the result of negotiations between representatives,
legal advisors and financial advisors of the Company, Jansen, the Jacobs
Sellers and Mirage. The following is a brief discussion of the background of
those negotiations.
On December 11, 1997, Robert Baldwin, President of Mirage's Bellagio
subsidiary, Daniel R. Lee, Chief Financial Officer of Mirage and legal
advisors of Mirage met informally with the Company's President and members of
the Board of Directors of the Company, including Avis P. Jansen and Jeffrey P.
Jacobs, and the Company's legal and financial advisors and Mr. Jacobs'
financial advisor to discuss preliminarily the possibility of making a cash
offer in which Mirage would acquire the Company at a price of $4.25 per share.
The structure of the transaction discussed was one in which Jansen and the
Jacobs Sellers would sell their shares of Common Stock to Mirage and the
remaining Stockholders of the Company would be entitled to receive the same
price per share in a merger or other business combination. Messrs. Baldwin and
Lee explained that, in order for Mirage to acquire the Company, it would also
have to acquire the Land and the Jacobs Sellers would have to terminate all
agreements relating to the Company, the Land and the Jansen Shares. Messrs.
Baldwin and Lee also disclosed to the Company that Mirage had previously
purchased the First Mortgage Notes on September 23, 1997 and two parcels of
adjacent land previously owned by third parties on November 12, 1997 and
December 4, 1997, respectively. The Company had been engaged in negotiations
since June 1997 to purchase one of those parcels
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but was unsuccessful in completing the transaction. It was at this meeting on
December 11, 1997 that the Company and its officers, directors, principal
shareholders and affiliates first learned that Mirage had, in fact, purchased
the First Mortgage Notes and the two surrounding properties.
On December 12, 1997, Mr. Lee and legal advisors of Mirage met with a
representative of the Jacobs Sellers to discuss the possible purchase of the
Jacobs Shares, the Jacobs Preferred, the Note and the Jacobs Sellers'
interests in certain other agreements relating to the Company, the Land and
the Jansen Shares. The discussions ended without resolution of several
significant issues.
Later on December 12, 1997, Messrs. Baldwin and Lee and legal advisors of
Mirage met again informally with the Company's President and members of the
Company's Board of Directors (including Mrs. Jansen, but not Mr. Jacobs) and
indicated that, assuming issues with the Jacobs Sellers could be resolved (and
there was considerable doubt as to whether they could be resolved), Mirage
would consider proposing an acquisition of the Company at a price of $5.00 per
share. The directors of the Company who were present at this meeting indicated
that they would consider what Mirage had discussed and contact Mr. Lee
regarding further discussions.
Over the next several days, additional discussions were held between Mirage,
Mrs. Jansen, Mr. Jacobs and their respective representatives and legal
advisors. The Company's Board of Directors was kept informed about the
progress of the discussions.
On December 18, 1997, the Company's Board of Directors met and took the
following actions in order to facilitate the continuing discussions with
Mirage: (a) the Board amended the Company's Bylaws to elect that the
provisions of Sections 78.378 to 78.3793 of NRS governing the acquisition of a
controlling interest in an issuing corporation not be applicable to the
Company, and (b) pursuant to Section 78.438 of NRS relating to combinations
with interested stockholders, the Board approved Mirage and its affiliates
reaching and entering into agreements, arrangements or understandings
providing for the substantially contemporaneous purchase of all of the voting
shares of the Company held by Jansen and the Jacobs Sellers and, subject to
the approval and adoption by the Board and the Stockholders of the terms of
any proposed agreements, arrangements or understandings relating thereto, all
the remaining voting shares of Common Stock from the remaining Stockholders
through a merger or other form of combination. The Board also authorized the
Company's officers to continue to negotiate with Mirage with a view to
reaching proposed agreements, arrangements or understandings in the form of
definitive agreements for submission to the Board for approval or rejection.
Negotiations continued over the next four days and, on December 22, 1997,
the Board of Directors of the Company (with Jacobs abstaining), after
receiving the opinion of the Financial Advisor that the terms of the Merger
were fair to the Stockholders from a financial point of view, approved the
Merger and approved and adopted the Merger Agreement and the transactions
contemplated thereby. Later that day, the Company and Mirage entered into the
Merger Agreement (and Mirage entered into the Jansen Agreements and the Jacobs
Agreement with the respective parties thereto) and Mirage and the Company
issued a joint press release to that effect.
Roberts & Green, in its capacity as Financial Advisor, will receive fees and
compensation from the Company of $450,000. James Scibelli, President of
Roberts & Green, is a former director of the Company and owns 50,000 shares of
Common Stock. Mr. Scibelli served as a director of the Company from February
11, 1994 to October 31, 1997.
Reasons for the Merger. In determining to approve the Merger and approve and
adopt the Merger Agreement and to recommend that Stockholders approve the
Merger and approve and adopt the Merger Agreement, the Board of Directors
considered a number of factors, including the following:
The Board of Directors and management of the Company have believed for some
time that because the Company's primary asset consisted of a single,
relatively small sized Las Vegas casino and hotel, the Company had become
vulnerable to the effects of constantly increasing competition in the Las
Vegas gaming market. The Holiday Inn(R) Casino Boardwalk is the second
smallest hotel-casino along the central Las Vegas Strip corridor.
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It has substantially fewer guest rooms and other amenities than the numerous
surrounding mega resorts. The Holiday Inn(R) Casino Boardwalk, for example,
has no showroom and no fine dining restaurants. Furthermore, the Company has
substantially fewer financial resources than its surrounding competitors.
The Board of Directors and management of the Company had considered several
plans to expand the facility, either on a stand-alone basis or with various
potential partners. There is, however, very limited space for such expansion.
Mirage, either directly or through a joint venture, owns land surrounding the
Holiday Inn(R) Casino Boardwalk on three sides (with the exception of a small
gas station) and had indicated to the Company
that it had its own development plans and, therefore, was not willing to sell
any land to the Company or enter into a joint venture with the Company to
expand the existing facility.
Furthermore, covenants in the First Mortgage Notes restrict the Company's
ability to finance any such expansion. The First Mortgage Notes bear interest
at 16.50% per annum and are not prepayable by the Company until 2001. Between
2001 and their maturity in 2005, the First Mortgage Notes are prepayable
according to a formula which, based on current market conditions, would result
in the Company paying a large premium over the face amount of the First
Mortgage Notes. In addition, acceleration of the First Mortgage Notes may have
resulted in a large premium over their face amount. Mirage purchased the
entire issue of First Mortgage Notes from a financial institution in September
1997.
The Board of Directors and management of the Company believe that the
combination of existing cash and cash flows from operations will not be
sufficient to meet the Company's obligations as they become due during fiscal
1998. These obligations include scheduled interest payments on the First
Mortgage Notes (approximately $6,600,000 for the year) and the scheduled
interest on and the September 30, 1998 maturity of the Note (approximately
$5,300,000). The Company's cash flow available for interest expense and
repayment of principal (i.e., earnings before interest, taxes, depreciation
and amortization) was $7,500,000 in fiscal 1997.
Mirage is a relatively large company, with annual revenues of over $1.5
billion and an annual net income of over $200 million. Mirage has been the
preeminent developer of large entertainment-based resorts, including The
Mirage, Treasure Island at the Mirage and the 50%-owned Monte Carlo Resort
Casino. Each of these three hotels has approximately 3,000 guest rooms and a
wide assortment of entertainment and service amenities. In addition, Mirage is
building the 3,000 guest room Bellagio, a $1.6 billion resort located
approximately one-half mile north of the Holiday Inn(R) Casino Boardwalk along
the Las Vegas Strip. Bellagio is scheduled to open on October 15, 1998.
Originally, the Company's management believed that the Holiday Inn(R) Casino
Boardwalk would benefit from foot traffic between the Monte Carlo Resort
Casino and other resorts located to the south of the Holiday Inn(R) Casino
Boardwalk and Bellagio. Mirage, however, is currently constructing a monorail
between the Monte Carlo Resort Casino and Bellagio which will reduce traffic
along the sidewalk in front of the Holiday Inn(R) Casino Boardwalk. Mirage
intends to provide direct access for guests of the Holiday Inn(R) Casino
Boardwalk to such monorail station, subject to the approval of its joint
venture partner in the Monte Carlo Resort Casino. Mirage, however, has
indicated to the Company that such guest convenience and potential generation
of traffic would not be available to the Holiday Inn(R) Casino Boardwalk
unless it were a wholly owned subsidiary of Mirage.
Finally, Mirage owns approximately 33 acres behind and adjacent to the
Holiday Inn(R) Casino Boardwalk with limited frontage on the Las Vegas Strip.
For Mirage and Mirage alone, the Holiday Inn(R) Casino Boardwalk represented
an opportunity to assemble a large site for another highly competitive mega
resort, either by expanding the Holiday Inn(R) Casino Boardwalk or replacing
it with a new facility. As a result, the Board of Directors and management of
the Company believed that Mirage was the most logical buyer for the Company
and that Mirage was willing to pay a high price relative to the Company's
earnings and the size of the Company's facilities.
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In light of the Holiday Inn(R) Casino Boardwalk's lack of amenities vis-a-
vis the surrounding competition, limited land and limited financial resources,
the Board of Directors of the Company determined that the interests of the
Stockholders were best served by accepting the $5.00 per share offer of
Mirage. The Merger Consideration represents a substantial premium over the
recent trading prices of the Common Stock prior to the execution of the Merger
Agreement.
RECOMMENDATION OF THE BOARD OF DIRECTORS OF THE COMPANY
The Board of Directors has determined that the Merger and the Merger
Agreement and the transactions contemplated thereby are advisable and in the
best interests of the Company and its Stockholders and has approved the Merger
and approved and adopted the Merger Agreement. ACCORDINGLY, THE BOARD OF
DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE TO APPROVE THE MERGER AND APPROVE
AND ADOPT THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY.
OPINION OF THE COMPANY'S FINANCIAL ADVISOR
On August 12, 1997, the Company retained Roberts & Green to act as its
exclusive financial advisor to render financial advisory and investment
banking services to the Company with the goal of increasing shareholder value,
including but not limited to entering into negotiations to sell all, or
substantially all, of the Company's assets, locating an equity partner for the
Company or locating a new source of debt financing. In addition, Roberts &
Green was retained to act on the Company's behalf to negotiate the leasing or
acquisition of certain parcels of land adjoining the Company's property.
The Company believed that it was in the best interests of the Company to
retain Roberts & Green based on Roberts & Green's qualifications, experience,
expertise and knowledge of the Company and its operations. Mr. Scibelli,
President of Roberts & Green, had served as a director of the Company since
its initial public offering and has extensive background and knowledge
regarding the Company and its results of operations and future prospects.
On December 19, 1997, the Company retained Roberts & Green to act as
Financial Advisor in connection with the Merger and related matters. The
Financial Advisor was retained to advise the Company with respect to the
Merger and to render an opinion regarding the fairness, from a financial point
of view, of the consideration to be received by the Stockholders in the
Merger. In the course of the Board meetings leading up to the signing of the
Merger Agreement, the Financial Advisor reviewed with the Board a variety of
information, including the Company's prospects, the trading price of the
Common Stock and the Company's financial resources and found the Merger
Consideration fair from a financial point of view.
Based on the foregoing, on December 22, 1997, Roberts & Green delivered to
the Board of Directors a written opinion that, as of such date, the
consideration to be received by the Stockholders in the Merger is fair from a
financial point of view (the "Opinion"). A copy of the Opinion is included in
this Proxy Statement as Annex E. Stockholders are urged to read the Opinion in
its entirety for assumptions made and matters considered by Roberts & Green.
In connection with rendering its Opinion, Roberts & Green reviewed such
information as it deemed necessary or appropriate for the purpose of rendering
its Opinion. Roberts & Green reviewed information including but not limited to
the following: (i) the Company's audited financial statements included in the
1995 and 1996 Reports on Form 10-KSB and the Report on Form 8-K filed by the
Company on November 13, 1997; (ii) the Company's unaudited financial
statements included in its Quarterly Reports on Form 10-QSB for the periods
ended December 31, 1996, March 31, 1997 and June 30, 1997; (iii) the Company's
draft financial statements for the fiscal year ended September 30, 1997 and
information provided by management of the Company regarding actual results
through November 30, 1997 and projected results through the end of fiscal year
1998 (ending September 30, 1998); (iv) the latest draft of the Merger
Agreement; (v) information from the
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Company's chief financial officer concerning the status of the Company and its
near-term prospects, including the Company's need for capital improvements and
interest payment requirements; (vi) acquisition data and valuation multiples
for comparable public companies, including the recently announced acquisitions
for Riviera Holdings Corp., Showboat, Inc., and Elsinore Corp., as well as an
analysis of the EBITDA ratio for Monarch Casino & Resort, Inc., and Rio Hotel
& Casino, Inc.; (vii) the historical market prices and trading history of the
Common Stock; and (viii) other financial, economic and market information. In
addition, Roberts & Green discussed with members of senior management of the
Company at its offices in Las Vegas the historical and prospective industry
environment and operating results for the Company.
In rendering its Opinion, Roberts & Green assumed and relied upon the
accuracy, completeness and fairness, without assuming any responsibility for
the independent verification of, all financial and other information that was
available from public sources, that was provided to Roberts & Green by the
Company, or that was otherwise reviewed by Roberts & Green. With respect to
financial projections supplied to Roberts & Green, Roberts & Green assumed
that they were reasonably prepared based on the Company's then current
estimate of results, and Roberts & Green has relied upon such projections and
made no independent verification of the bases, assumptions, calculations or
other information contained therein. Roberts & Green has not made or been
provided with an independent evaluation or appraisal of the assets or
liabilities (contingent or otherwise) of the Company, and Roberts & Green does
not assume any responsibility for verifying any of the information reviewed.
In connection with the Merger, Roberts & Green was not authorized or requested
to solicit third party indications of interest in acquiring all or part of the
Company, and Roberts & Green was not asked to consider, and its Opinion does
not address, the consideration the Company might receive from a third-party
purchaser, the relative merits of the Merger as compared to any alternative
business strategies that might exist for the Company or the effect of any
other transaction in which the Company might engage. Roberts & Green's Opinion
is necessarily based upon information available to it, and financial, stock
market and other conditions and circumstances existing and disclosed to
Roberts & Green as of the date of the Opinion.
THE FULL TEXT OF THE OPINION, WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS
CONSIDERED AND LIMITATIONS OF THE REVIEW UNDERTAKEN, IS INCLUDED IN THIS PROXY
STATEMENT AS ANNEX E AND IS INCORPORATED HEREIN BY REFERENCE. STOCKHOLDERS ARE
URGED TO READ THE OPINION CAREFULLY IN ITS ENTIRETY. THE OPINION IS DIRECTED
ONLY TO THE FAIRNESS TO THE STOCKHOLDERS OF THE MERGER CONSIDERATION FROM A
FINANCIAL POINT OF VIEW AND DOES NOT ADDRESS ANY OTHER ASPECT OF THE MERGER
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED THEREBY. THE SUMMARY OF THE OPINION
SET FORTH IN THIS PROXY STATEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
THE FULL TEXT OF SUCH OPINION.
Roberts & Green was engaged as Financial Advisor to the Company in
connection with the Merger and to render the Opinion and will receive fees in
connection therewith of $450,000.
ACCOUNTING TREATMENT
The Merger will be treated as a "purchase" for accounting purposes.
SPECIFIC RIGHTS OF DISSENTING STOCKHOLDERS
Pursuant to Nevada corporate law, NRS Sections 92A.300-92A.500 attached
hereto as Annex F, any Stockholder who follows the required procedures is
entitled to dissent from this proposed corporate action, and to obtain the
statutory prescribed fair value of his or her shares of Common Stock. "Fair
value" for this purpose means the value of the shares immediately before the
effectuation of the corporate action to which the stockholder objects,
excluding any appreciation or depreciation in anticipation of the corporate
action unless exclusion would be inequitable. Although the stockholder is
entitled to dissent and obtain payment therefor, the stockholder may not
challenge the corporate action creating his entitlement unless the action is
unlawful or fraudulent with respect to him or the corporation. If a
stockholder wishes to assert dissenter's rights, that stockholder must: (i)
deliver to the Company, before the vote is taken, written notice of his intent
to demand payment for his shares if the Merger is effectuated; and (ii) must
not vote his shares in favor of the proposed
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action. A stockholder who does not satisfy the requirements referenced in the
preceding sentence is not entitled to payment (other than the Merger
Consideration) for his shares under NRS Chapter 92A. If the Merger is approved
at the Special Meeting, the Company will notify stockholders who satisfy the
requirements to assert dissenter's rights of the information required by NRS
92A.430.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In connection with the Merger Agreement, Jansen and the Jacobs Sellers
entered into the Stockholder Agreements, which, among other things, provide
for payments to be made in respect of the Preferred Stock, the Land, the Note,
and the termination of certain rights relating to the Company, the Land and
the Jansen Shares. See "The Merger Agreement and Related Agreements--The
Majority Stockholders; the Stockholder Agreements."
In addition, pursuant to the Company's 1994 Stock Compensation Plan and the
Outside Directors Stock Option Plan, each option outstanding will vest and
become immediately exercisable upon a change of control of the Company (which,
as defined, includes the Merger). However, each of the options granted to
officers and directors of the Company under the Company's 1994 Stock
Compensation Plan and the Outside Directors Stock Option Plan has an exercise
price in excess of the Merger Consideration.
Mirage owns all of the outstanding First Mortgage Notes, the Note and the
Jacobs Preferred. Mirage also owns 1,000 shares of Common Stock. In its
capacity as the holder of all of the First Mortgage Notes, Mirage has
consented to the Merger and the transactions contemplated thereby, and,
pursuant to the Merger Agreement, has consented to the Company's deferral, at
its option, of the March 31, 1998 interest payment on the First Mortgage Notes
until September 30, 1998, and agreed that such deferred interest will accrue
interest at the coupon rate. Without such deferral, the Company is unlikely to
be able to make such payment when due without seeking outside sources of
capital, such as the issuance of additional shares of Preferred Stock. The
Company may pay its deferred interest payment and any interest thereon at any
time prior to September 30, 1998. See "The Merger Agreement and Related
Agreements--The Majority Stockholders; the Stockholder Agreements."
WARRANTS
Mirage currently holds all of the First Mortgage Notes and, upon
consummation of the Merger and the related transactions, will hold all of the
outstanding Preferred Stock. Following the effectiveness of the Merger and
until the expiration or termination of all outstanding warrants to purchase
Common Stock, Mirage intends to keep the First Mortgage Notes and the
Preferred Stock outstanding. In addition, until such time, Mirage intends to
make all additional advances, if any, to the Company in the form of loans.
EXCHANGE PROCEDURES
At or prior to the Effective Time, Mirage will designate a bank or trust
company to act as Paying Agent for the shares of Common Stock in connection
with the Merger. Mirage will deposit, or cause to be deposited, with the
Paying Agent for the benefit of the holders of Certificates, cash or
immediately available funds in United States dollars in an amount that equals
the aggregate Merger Consideration, which funds shall be invested by the
Paying Agent as directed by Mirage or the Surviving Corporation.
As soon as reasonably practicable after the Effective Time, the Paying Agent
will forward to the holders of Certificates instructions with regard to the
surrender of such Certificates and a letter of transmittal to accompany any
surrendered Certificates. Delivery shall be effected, and risk of loss and
title to the Certificates shall pass, only upon proper delivery of the
Certificates to the Paying Agent.
From and after the Effective Time, the holders of Certificates evidencing
ownership of shares of Common Stock outstanding immediately prior to the
Effective Time will cease to have any rights with respect to such shares,
except as otherwise provided by the Merger Agreement or by applicable law, and
such Certificates will represent only the right to receive the Merger
Consideration. As soon as practicable following receipt by the Paying Agent of
a duly executed letter of transmittal and one or more Certificates, payment of
the Merger
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Consideration will be made to such former holders of Common Stock and the
Certificate(s) so surrendered shall be cancelled. If payment of the Merger
Consideration (or any portion thereof) is to be made to a person other than
the person in whose name the surrendered Certificate(s) is registered, the
surrendered Certificate(s) must be properly endorsed in accordance with the
instructions on the letter of transmittal and the person surrendering the
Certificate(s) must pay to the Paying Agent any transfer or other taxes
required by reason of the payment to a person other than the registered holder
of such surrendered Certificate(s) or establish to the satisfaction of the
Surviving Corporation that such tax has been paid or is not applicable. No
interest will be paid or accrued on the cash payable upon the surrender of
Certificates.
BUSINESS OF MIRAGE
Mirage owns and operates some of the most successful, well-known casino-
based entertainment resorts in the world. These resorts include (i) The
Mirage, a tropical-themed hotel-casino and destination resort on the Las Vegas
Strip, (ii) Treasure Island at the Mirage, a pirate-themed hotel-casino and
destination resort adjacent to The Mirage, (iii) the Golden Nugget, the
largest hotel-casino in downtown Las Vegas, and (iv) the Golden Nugget--
Laughlin, a relatively small hotel-casino in Laughlin, Nevada. Mirage also
owns a 50% interest in a joint venture which owns and operates the Monte Carlo
Resort Casino, a hotel-casino resort on the Las Vegas Strip adjacent to the
Holiday Inn(R) Casino Boardwalk. Mirage is currently constructing Bellagio, an
elegant hotel-casino and destination resort on the Las Vegas Strip, and Beau
Rivage, a luxurious hotel-casino and beachfront resort in Biloxi, Mississippi.
If the Merger is consummated, Mirage will hold all of the Common Stock of the
Surviving Corporation.
SOURCE AND AMOUNT OF FUNDS
If the Merger is consummated, the total amount required to (i) purchase the
shares of Common Stock owned by the Majority Stockholders pursuant to the
Stockholder Agreements, (ii) pay the Merger Consideration to the Company's
remaining Stockholders, and (iii) pay transaction-related fees and expenses is
estimated to be approximately $36 million. In addition, pursuant to the
Stockholder Agreements, Mirage has purchased the Jacobs Preferred and the
Note, and has agreed to purchase the Jansen Preferred and the Land, among
other things. See "The Merger Agreement and Related Agreements--The Majority
Stockholders; the Stockholder Agreements." Funds for all such purchases are
expected to be obtained from Mirage's $1.75 billion credit facility from a
group of commercial banks.
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THE MERGER AGREEMENT AND RELATED AGREEMENTS
The following is a summary of material terms of the Merger Agreement, a copy
of which is included in this Proxy Statement as Annex A, and the Jansen
Agreements and the Jacobs Agreement, copies of which are included in this
Proxy Statement as Annexes B and C and D, respectively. Such Annexes are
incorporated herein by reference. The summary of the Merger Agreement and the
Stockholder Agreements contained herein is not a complete description of the
terms and conditions thereof and is qualified in its entirety by reference to
the Merger Agreement and the Stockholder Agreements. Stockholders are urged to
review the Merger Agreement and the Stockholder Agreements carefully.
GENERAL
Pursuant to the Merger Agreement, at the Effective Time, Acquisition will
merge with and into the Company and the separate corporate existence of
Acquisition shall thereupon cease, with the Company remaining as the Surviving
Corporation and becoming a wholly owned subsidiary of Mirage. The directors of
Acquisition will become the directors of the Company in its capacity as the
Surviving Corporation, in each case until their respective successors are
elected or appointed and qualified. The articles of incorporation and bylaws
of the Company, as in effect immediately prior to the Effective Time, shall be
the articles of incorporation and bylaws of the Surviving Corporation until
thereafter amended as provided by such articles of incorporation or bylaws or
by applicable law.
As a result of the Merger, each share of Common Stock issued and outstanding
immediately prior to the Effective Time (other than shares of Common Stock
which are owned by the Company, Mirage or Acquisition, which will be cancelled
without payment, or shares as to which dissenters' rights are perfected) shall
be converted into the right to receive the Merger Consideration, which
consists of $5.00 in cash, payable to the holder thereof, without interest. In
the Merger, each share of Acquisition's common stock issued and outstanding
immediately prior to the Effective Time shall be converted into and become
71,795 fully paid and nonassessable shares of common stock of the Surviving
Corporation. All shares of Preferred Stock of the Company which are
outstanding at the Effective Time, the First Mortgage Notes and the Note (all
of which are or will be held by Mirage) shall remain outstanding and shall not
be affected by the Merger. Upon consummation of the Merger, the registration
of the Common Stock under the Exchange Act will be terminated, and the Common
Stock will cease to be reported and listed on The Nasdaq Stock Market, Inc.
and The Pacific Exchange.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties made by
the Company relating to, among other things: (a) the due organization, good
standing and corporate power of the Company, qualification or licensing to do
business and similar corporate matters, (b) the capitalization of the Company,
(c) the authorization, execution, delivery and enforceability of the Merger
Agreement, (d) the amendment of the Company's bylaws to opt-out of the
relevant provisions of the Nevada control share statute, Sections 78.378
through 78.3793, inclusive, of NRS, and to approve the purchases from the
Majority Stockholders and the proposed Merger under the Nevada business
combination statute, the Board's approval of the Merger and approval and
adoption of the Merger Agreement and resolution to recommend that the
Stockholders of the Company approve the Merger and approve and adopt the
Merger Agreement, (e) compliance with applicable foreign, federal, state and
local laws and regulations applicable to the business conducted by the
Company, (f) the non-contravention of the Company's articles of incorporation
or bylaws and the absence of any required consents and approvals, other than
those specifically described therein, (g) the Company's consent to the
termination and release of its rights and obligations under the Memorandum,
(h) the accuracy of the Company's filings with the SEC, representations as to
the financial statements and absence of undisclosed liabilities, (i) absence
of certain changes, including changes in the Company's capitalization, (j)
accuracy of the information in the Proxy Statement, (k) absence of material
litigation, (l) taxes, (m) employee benefits, (n) intellectual
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property, (o) material contracts, (p) insurance, (q) labor matters, (r) real
property, (s) environmental matters, and (t) completeness of representations
and absence of undisclosed facts. None of the representations and warranties
made by the Company in the Merger Agreement will survive the Effective Time.
The Merger Agreement also contains various representations and warranties
made by Mirage and Acquisition relating to, among other things: (a) the due
organization, good standing and corporate power of Mirage and Acquisition, and
similar corporate matters, (b) the authorization, execution, delivery and
enforceability of the Merger Agreement, (c) the non-contravention of the
charters and bylaws of Mirage and Acquisition, and the absence of any required
consents and approvals, other than those specifically described therein, (d)
the absence of any material misstatement or omission in information supplied
expressly for inclusion in the Proxy Statement, (e) Acquisition's operations,
(f) the capitalization of Acquisition, and (g) the availability to Mirage of
financing necessary to pay the aggregate Merger Consideration. None of the
representations and warranties made by Mirage or Acquisition in the Merger
Agreement will survive the Effective Time.
CERTAIN COVENANTS
The Company has agreed that from the date of the Merger Agreement until the
Effective Time, except as expressly contemplated by the Merger Agreement or as
agreed to in writing by Mirage, the Company will carry on its business in the
usual, regular and ordinary course, in substantially the same manner as
heretofore conducted, and will use its reasonable best efforts to preserve its
business organization, keep its officers and employees and preserve existing
business relationships. In addition, the Company has agreed that, prior to the
Effective Time, without the prior written consent of Mirage, the Company will
not: (a) declare, set aside or pay any dividends on or make other
distributions in respect of any shares of its capital stock, or split, combine
or reclassify any shares of its capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in substitution
for any shares of its capital stock, (b) issue, pledge, deliver, sell or
transfer or authorize or propose the issuance, pledge, delivery, sale or
transfer of, or repurchase, redeem or otherwise acquire directly or
indirectly, any shares of its capital stock of any class or any options,
warrants or other rights exercisable for or securities convertible into or
exchangeable for, any such shares, other than pursuant to the exercise of
outstanding options or warrants pursuant to the terms thereof as of the date
of the Merger Agreement or amend any of the terms of any of such securities,
(c) propose or adopt any amendment to its articles of incorporation or bylaws
(or similar charter documents) or take any action to alter the size or
composition of its Board of Directors, (d) transfer, sell, lease, license,
mortgage or otherwise dispose of or encumber any material assets, or enter
into any commitment to do such, other than in the ordinary course of business,
consistent with past practice, (e) incur, become subject to, or agree to incur
any debt for borrowed money or incur or become subject to any other obligation
or liability (absolute or contingent), except current liabilities incurred,
and obligations under contracts entered into, in the ordinary course of
business consistent with prior practice, or pay or be liable for prepayment or
other penalties in connection with the early retirement of any Company
indebtedness for borrowed money, (f) make any change in the compensation
payable or to become payable to any of its officers, directors, employees,
agents, affiliates or consultants, enter into or amend any employment,
severance, termination or other agreement or make any loans to any of its
officers, directors, employees, agents, affiliates or consultants or make any
change in its existing borrowing or lending arrangements for or on behalf of
any of such persons, or otherwise enter into any transactions with or make any
payment to or for any affiliate of the Company, in each case whether
contingent on consummation of the Merger or otherwise, except for increases in
the compensation payable to non-management salaried employees in the ordinary
course of business and consistent with past practice, (g) (I) pay, agree to
pay or make any accrual or arrangement for payment of any pension, retirement
allowance or other employee benefit pursuant to any existing plan, agreement
or arrangement to any officer, director or employee except in the ordinary
course of business and consistent with past practice or as permitted by the
Merger Agreement, (II) pay or agree to pay or make any accrual or arrangement
for payment to any employees of the Company of any amount relating to unused
vacation days, (III) commit itself or themselves to adopt or pay, grant,
issue, accelerate or accrue salary or other payments or benefits pursuant to
any pension, profit-sharing, bonus, extra compensation, incentive, deferred
compensation, stock purchase, stock option, stock appreciation right, group
insurance, severance pay, retirement or other employee benefit plan, agreement
or arrangement, or
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any employment or consulting agreement with or for the benefit of any
director, officer, employee, agent or consultant, whether past or present, or
(IV) amend in any material respect any such existing plan, agreement or
arrangement, (h) enter into, amend or terminate any agreements, commitments or
contracts which, individually or in the aggregate, are material to the
financial condition, business, assets, properties or results of operations of
the Company, or waive, release, assign or relinquish any material rights or
claims thereunder, except in the ordinary course of business, consistent with
past practice, (i) discharge or satisfy any lien or encumbrance or pay any
obligation or liability (absolute or contingent) other than current
liabilities in the ordinary course of business, (j) cancel or agree to cancel
any material debts or claims, except in each case in the ordinary course of
business, (k) waive any rights of substantial value, (l) pay, discharge,
satisfy or settle any litigation or other claims, liabilities or obligations
(absolute, accrued, asserted, unasserted, contingent or otherwise) involving
the payment by the Company of more than $50,000, (m) make any equity
investments in third parties, (n) create any subsidiaries, (o) (I) incur, pay,
or be subject to any material obligation to make any payment of, or in respect
of, any tax on or before the Effective Time, except in the ordinary course of
business consistent with past practice, (II) settle any material audit, make
or change any material tax election or file any amended tax returns, or (III)
agree to extend or waive any statute of limitations on the assessment or
collection of tax, (p) adopt a plan of complete or partial liquidation,
dissolution, merger, consolidation, restructuring, recapitalization or other
reorganization of the Company (other than the Merger) or otherwise make any
material change in the conduct of the business or operations of the Company,
or (q) agree in writing or otherwise to take any of the foregoing actions or
any other action which would constitute a material adverse effect with respect
to the Company in any of the items and matters covered by the representations
and warranties of the Company in the Merger Agreement, or make any
representation or warranty of the Company in the Merger Agreement materially
inaccurate in any respect.
Each of the parties to the Merger Agreement has agreed to use all reasonable
efforts to take, or cause to be taken, all actions necessary, proper or
advisable to consummate the Merger.
NO SOLICITATION OF ACQUISITION PROPOSALS
The Company has agreed that it will not, and its affiliates will not, and
will use their reasonable efforts to ensure that their respective officers,
directors, employees, investment bankers, attorneys, accountants and other
representatives and agents do not, directly or indirectly, initiate, solicit,
encourage or participate in negotiations or discussions relating to, or
provide any information to any person concerning, or take any action to
facilitate the making of, any offer or proposal which constitutes or is
reasonably likely to lead to any Acquisition Proposal (as defined) of the
Company or any affiliate, or any inquiry with respect thereto, or agree to
approve or recommend any Acquisition Proposal. The Company has agreed that it
will, and will cause its affiliates, and their respective officers, directors,
employees, investment bankers, attorneys, accountants and other agents to,
immediately cease and cause to be terminated all existing activities,
discussions and negotiations, if any, with any parties conducted heretofore
with respect to any of the foregoing. Notwithstanding the foregoing, the
Company may, directly or indirectly, provide access and furnish information
concerning its business, properties or assets to any corporation, partnership,
person or other entity or group pursuant to an appropriate confidentiality
agreement, and may negotiate and participate in discussions and negotiations
with such entity or group concerning an Acquisition Proposal if (x) such
entity or group has submitted an unsolicited bona fide written proposal to the
Board of Directors of the Company relating to an Acquisition Proposal which
contemplates the acquisition of all of the stock, assets or business of the
Company and (i) in which the offeror demonstrates proof of its financial
capability and authority to consummate the transactions contemplated by such
offer (including without limitation the payments required by Section 10.1(b)
of the Merger Agreement); and (ii) which provides for net aggregate cash
proceeds to the Company or all of its Stockholders in an amount greater than
that provided for hereunder, at a per share purchase price greater than the
Merger Consideration (or, in the event the Merger Consideration has been
increased by Mirage, such greater amount), (y) the Company's Financial Advisor
has advised the Board of Directors of the Company that such Acquisition
Proposal is more favorable to the Company's Stockholders, from a financial
point of view, than the transactions contemplated hereby, and (z) in the
opinion of the Board of Directors of the Company, after consultation with
independent legal counsel to the
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Company, the failure to provide such information or access or to engage in
such discussions or negotiations would result in a substantial risk of
liability for a breach of fiduciary duties of the members of the Board of
Directors. The Company will immediately notify Mirage of any such offers,
proposals or Acquisition Proposals (including without limitation the terms and
conditions thereof and the identity of the person making it), and will keep
Mirage apprised of all developments with respect to any such Acquisition
Proposal, including without limitation any modifications thereof. Except with
Mirage's consent, the Company is obligated not to release any third party
from, or waive any provisions of, any confidentiality or standstill agreement
to which the Company is a party. The Company is obligated to hold the Special
Meeting notwithstanding the existence of an Acquisition Proposal and is
required to take all further action in furtherance of the consummation of the
transactions contemplated under the Merger Agreement.
As used in the Merger Agreement, "Acquisition Proposal" means any tender or
exchange offer involving the Company or its securities, any proposal for a
merger, consolidation or other business combination involving the Company, any
proposal or offer to acquire in any manner a substantial equity interest in,
or a substantial portion of the business or assets of, the Company, any
proposal or offer with respect to any recapitalization or restructuring with
respect to the Company or any proposal or offer with respect to any other
transaction similar to any of the foregoing with respect to the Company;
provided, however, that, as used in the Merger Agreement, the term
"Acquisition Proposal" does not apply to any such transaction involving
Mirage, Acquisition or their affiliates.
REGULATORY APPROVALS
Nevada Gaming Law Regulatory Approvals. The Company holds required gaming
approvals, registrations, licenses and permits in Nevada. See "Business--
Regulation and Licensing". In Nevada, certain regulatory requirements must be
complied with and/or certain approvals must be obtained in connection with the
Merger. Approval of the Nevada Gaming Authorities must be obtained before the
Merger can be consummated.
U.S. Antitrust Matters. The Merger is subject to the requirements of the HSR
Act and the rules and regulations promulgated thereunder, which provide that
certain transactions may not be consummated until required information and
materials have been furnished to the Antitrust Division of the Department of
Justice (the "Antitrust Division") and the Federal Trade Commission (the
"FTC") and certain waiting periods have expired or been terminated. The
Company and Mirage each filed notification and report forms under the HSR Act
with the FTC and the Antitrust Division. On February 2, 1998, Mirage and the
Company received notice of the early termination of the waiting period under
the HSR Act.
CONDITIONS TO THE MERGER
The obligations of the Company, Mirage and Acquisition to effect the Merger
are subject to the satisfaction or waiver, if permissible, on or prior to the
Effective Time of the following conditions: (a) the parties to the Merger
Agreement will have obtained all licenses, permits, registrations,
authorizations, consents, waivers, orders or other approvals of governmental
authorities, including the Nevada Gaming Authorities, required to be obtained,
and all filings, notices or declarations required to be made by the parties
and their subsidiaries, officers, directors and affiliates in order to
consummate the Merger and the transactions contemplated by the Merger
Agreement, and in order to permit the Company to conduct its business in the
jurisdictions regulated by the relevant gaming authorities after the Effective
Time in the same manner as conducted by the Company prior to the Effective
Time, shall have been obtained or made, and no such approval shall contain any
conditions, limitations or restrictions which Mirage reasonably determines in
good faith will have or is reasonably expected to have a material adverse
effect with respect to the Company, (b) no temporary restraining order,
preliminary injunction or permanent injunction or other order precluding,
restraining, enjoining, preventing or prohibiting the consummation of the
Merger shall have been issued by any federal, state or foreign court or other
governmental or regulatory authority and remain in effect, (c) the absence of
any federal, state, local or foreign statute, rule or regulation having been
enacted which prohibits, restrains, enjoins or restricts the consummation of
the Merger, would limit Surviving Corporation's conduct of its business or
would make the consummation of the Merger
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illegal, (d) the approval of the Merger and the approval and adoption of the
Merger Agreement and the transactions contemplated thereby at the Special
Meeting by the affirmative vote of the holders of a majority of all
outstanding shares of Common Stock in accordance with applicable law, (e) the
termination or expiration of any and all waiting periods applicable to the
consummation of the Merger under the HSR Act, and (f) on or prior to the
Effective Time, Mirage will have deposited with the Paying Agent the aggregate
Merger Consideration.
In addition, the obligations of Mirage and Acquisition to effect the Merger
are subject to the fulfillment at or prior to the Effective Date of the
additional following conditions, unless waived by Mirage: (a) the accuracy in
all material respects of the representations and warranties of the Company set
forth in the Merger Agreement (i) as of the date of execution of the Merger
Agreement and (ii) as of the date of the closing (provided that any such
representation and warranty made as of a specific date must be true and
correct as of such specific date); (b) the performance in all material
respects by the Company of all of its obligations and covenants under the
Merger Agreement prior to or as of the date of the closing; (c) the absence of
any material adverse change in the business, assets (tangible or intangible),
results of operations, liabilities, prospects or financial condition of the
Company after the date of the signing of the Merger Agreement through the
Effective Date; (d) receipt by Mirage and Acquisition of all third-party
consents and approvals required to be obtained by the Company or Mirage in
connection with the transactions contemplated by the Merger Agreement, under
any contract to which the Company or Mirage (or any of Mirage's subsidiaries)
may be a party, except for such third-party consents and approvals as to which
the failure to obtain, either individually or in the aggregate, would not
reasonably be expected to result in a Company material adverse effect with
respect to the Company; (e) receipt by Mirage by the Effective Time of the
written consent to the Merger and the transactions contemplated hereby
(including without limitation Mirage's acquisition of the Jansen Shares and
the Jacobs Shares pursuant to the Stockholder Agreements) of the licensor
under that certain Holiday Inn Conversion License Agreement dated December 16,
1993, as amended, between Holiday Inns Franchising, Inc. and the Company,
which consent must be obtained without any payment required of, or penalty
imposed on, Mirage, Acquisition or the Company; (f) Mirage's determination, in
its sole discretion, that all warrants, options and other rights to purchase
Company securities either have been terminated or will terminate at the
Effective Time or will constitute only the right to receive the excess, if
any, between the per share Merger Consideration over the exercise price per
share of such options or warrants (the "Option/Warrant Spread") without
payment made in respect thereof (other than the stock options outstanding
under the Company's 1994 Stock Compensation Plan or the Outside Directors
Stock Option Plan ("Compensation Options"), which will continue in accordance
with their terms); (g) receipt by Mirage of the unconditional commitment of
Nevada Title Company to issue its ALTA form of owner's policy of title
insurance with endorsements designated by Mirage in favor of the Company and
Mirage insuring that the Company is the fee owner of the Company-owned real
estate in the amount of $101 million, subject only to certain exceptions or
exclusions referred to or described in the Merger Agreement; (h) the absence
of any breaches of the representations, warranties or covenants set forth in
the Stockholder Agreements by any of the parties thereto; and (i) confirmation
from the Company that its receipt of notice from the holders of Common Stock
purporting to exercise dissenters' rights, if any, with respect to the Merger
does not exceed ten percent (10%) of the total number of shares of Common
Stock outstanding as of the Record Date for the Special Meeting.
TERMINATION
The Merger Agreement may be terminated and the Merger abandoned at any time
prior to the Effective Time, notwithstanding the approval of Stockholders at
the Special Meeting: (a) by mutual consent of Mirage and the Company; (b) by
Mirage or Acquisition, or by the Board of Directors of the Company (i) if the
Merger shall not have been consummated on or prior to June 30, 1998; provided,
however, that such right to terminate the Merger Agreement under this clause
(b)(i) is not available to any party whose failure to fulfill any material
obligation under the Merger Agreement has been the cause of, or resulted in,
the failure of the Merger to be consummated on or prior to such date; or (ii)
if a court of competent jurisdiction or other governmental or regulatory
authority issues an order, decree or ruling or takes any other action (which
order, decree, ruling or
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other action the parties to the Merger Agreement will use their reasonable
efforts to lift), in each case permanently restraining, enjoining or otherwise
prohibiting the transactions contemplated by the Merger Agreement and such
order, decree, ruling or other action becomes final and non-appealable; (c) by
Mirage or Acquisition (i) if neither Mirage nor Acquisition is in material
breach of the Merger Agreement and the Board of Directors of the Company shall
have withdrawn, modified or changed in a manner adverse to Mirage or
Acquisition its approval or recommendation of the Merger Agreement or the
Merger or shall have approved or recommended an Acquisition Proposal (an
"Approval Withdrawal"), (ii) if any approval of the Stockholders contemplated
by the Merger Agreement shall not have been obtained by reason of the failure
to obtain the required vote at the Special Meeting or at any adjournment or
postponement thereof (a "Failure to Obtain the Vote"), (iii) if any person or
group (other than Mirage or any of its affiliates) acquires beneficial
ownership (as such term is defined in Rule 13d-3 under the Exchange Act), or
the right to acquire beneficial ownership, of 25% or more of the outstanding
Common Stock or the voting power of the Company's equity securities, whether
by purchase of outstanding shares from third parties or by exercise of options
or warrants existing at the time of execution of the Merger Agreement or
thereafter (a "Third-Party Acquisition"), (iv) if the Company breaches or
fails in any material respect to perform or comply with any of its material
covenants and agreements contained in the Merger Agreement, or breaches any of
its representations or warranties contained in the Merger Agreement, in any
material respect (a "Company Breach"), (v) if the Control Share Opt-Out Bylaw
is amended, revoked, repealed, withdrawn, restricted or modified in any
respect (a "Bylaw Repeal"), or (vi) if any of the parties to the Stockholder
Agreements (other than Mirage) commits any material breach of, or fails in any
material respect to perform or comply with any of its material covenants and
agreements contained in, such agreement, or breaches any of its
representations or warranties contained therein in any material respect; or
(d) by the Company, if Mirage or Acquisition breaches or fails in any material
respect to perform or comply with any of their respective material covenants
and agreements contained in the Merger Agreement, or breaches any of their
respective representations or warranties contained therein, in any material
respect, which breach is not cured in the case of a representation or
warranty, prior to the closing or, in the case of a covenant or agreement,
within ten (10) days following receipt by Mirage of written notice from the
Company specifying such breach.
If Mirage or Acquisition terminates the Merger Agreement because of a Third-
Party Acquisition or a Company Breach, then the Company will pay or cause to
be paid to Mirage a fee in the amount equal to $1,000,000; provided, however,
that if Mirage or Acquisition terminates the Merger Agreement pursuant to a
Company Breach by reason of a breach of the representation and warranty
contained in Section 4.2(c) of the Merger Agreement (relating to the
termination of options and warrants) and there remain outstanding warrants,
options (other than Compensation Options) and other rights to purchase not
more than 500,000 shares of Common Stock which have not been terminated or
otherwise constitute only the right to receive the Option/Warrant Spread, then
Mirage shall not be entitled to such $1,000,000 fee. Any such payments to
which Mirage may become entitled will be payable in equal quarterly
installments with the first installment being due three months following the
relevant triggering event; provided, however, that, in the event the Company
issues shares of capital stock after the date of the Merger Agreement (whether
through private placements, public offerings, the exercise of options,
warrants or other rights to acquire Company securities or otherwise), the
Company will make additional payments of the amount equal to the net cash
proceeds of such issuance ("Issue Proceeds") to Mirage within two business
days after the later of such issuance or such triggering event and such
payment will be credited against the installment payments due hereunder in
reverse order of maturity.
If Mirage or Acquisition terminates the Merger Agreement (a) because of a
Failure to Obtain the Vote, a Third-Party Acquisition or a Company Breach and
any of the following events (a "Subsequent Transaction") occurs prior to the
date which is nine (9) months after the termination of the Merger Agreement:
(i) any person or group (other than Mirage) enters into a definitive agreement
or agreement in principle with the Company or any person holding at least ten
percent (10%) of the Company's then outstanding voting securities with respect
to an Acquisition Proposal or other business combination with the Company
(including a transaction in which the then outstanding shares of the Common
Stock would, after such business combination, represent less than a majority
of the then outstanding Common Stock) or (ii) any person or group (other than
Mirage) acquires beneficial ownership (as such term is defined in Rule 13d-3
under the Exchange Act) of a majority of the voting
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power of the Company's equity securities, or (b) pursuant to an Approval
Withdrawal or Bylaw Repeal, then (i) the Company will pay or cause to be paid
to Mirage an amount equal to $2,000,000 plus all costs and expenses of Mirage
and Acquisition relating to the Merger Agreement and the transactions
contemplated thereby (including without limitation fees and expenses of
Mirage's counsel, accountants and financial advisors, if any). In the event
that Mirage terminates the Merger Agreement pursuant to a Third-Party
Acquisition or a Company Breach and becomes entitled to receive the $1,000,000
fee, and a Subsequent Transaction occurs prior to the date which is nine (9)
months after the termination of the Merger Agreement, then Mirage will be
entitled to the $2,000,000 payment less any payments received pursuant to the
$1,000,000 fee.
In the event of termination of the Merger Agreement, the Merger Agreement
shall forthwith become null and void and there shall be no liability or
obligation on the part of Mirage and Acquisition, or either of them, or the
Company, or their respective officers, directors or employees, except (i)
liability for fraud or for willful material breach of the Merger Agreement,
(ii) liability of Mirage or Acquisition for any breach of the confidentiality
provision contained in the Merger Agreement, and (iii) the Company's
obligations to make the payments described in the preceding paragraphs.
THE MAJORITY STOCKHOLDERS; THE STOCKHOLDER AGREEMENTS
Certain Stockholders of the Company, who hold in the aggregate 3,821,429
shares of Common Stock, or approximately 53.2% of the total number of
outstanding shares of Common Stock, have agreed to sell their shares to Mirage
and, pending such sale, to vote their shares in favor of approval of the
Merger and approval and adoption of the Merger Agreement.
Pursuant to an agreement by and among the Company, Diversified and Jansen
dated as of September 24, 1996 (the "Purchase Agreement"), the Company sold
571,429 shares of Common Stock to Diversified at $7.00 per share and issued to
Diversified a convertible subordinated note in the principal amount of
$5,000,000. In addition, pursuant to the terms of an Option and Proxy
Agreement dated as of September 24, 1996 by and among the Company, Diversified
and Jansen (the "Option Agreement"), Jansen sold an aggregate of 500,000
shares of Common Stock to Diversified and granted an option to Diversified to
purchase up to an additional 1,000,000 shares of Common Stock subject to
certain terms and conditions. The Option Agreement also provided for first
refusal and first offer rights for Diversified for shares of Common Stock to
be sold by Jansen. Further, the Option Agreement granted an irrevocable proxy
under certain conditions to Diversified to vote Jansen's shares of Common
Stock. The Option Agreement was amended by the Memorandum on October 29, 1997
to increase under certain circumstances the number of additional shares which
Diversified could purchase from Jansen from 1,000,000 to 1,734,620.
Pursuant to the Jansen Agreements, and subject to the terms and conditions
set forth therein, Mirage has agreed: (i) to purchase 2,750,000 shares of
Common Stock owned by Jansen, at a purchase price of $5.00 per share in cash
for a total aggregate purchase price of $13,750,000, which includes 1,734,620
shares as to which Jansen has granted a purchase option to Diversified or its
nominee pursuant to the Option Agreement; (ii) to purchase the Jansen
Preferred for an aggregate purchase price of $600,000, plus any accumulated
but unpaid dividends on the Jansen Preferred as of the date of payment; and
(iii) to purchase, through its subsidiary Restaurant Ventures of Nevada, Inc.,
a Nevada corporation, the Land for a purchase price of $7,382,380. In exchange
for a payment from Mirage of $268,000 and as further consideration to Mirage
under the Jansen Agreements, Jansen has agreed to amend the term of that
certain lease agreement between Holiday Gifts, Inc. and the Company, effective
as of September 1, 1996, which permits Holiday Gifts, Inc. to operate a gift
shop upon the Company's premises, to a month-to-month arrangement and to make
certain other modifications thereto. The closing of the transactions
contemplated by the Jansen Agreements will take place substantially
concurrently with the closing of the Merger. Copies of the Jansen Agreements
are included in this Proxy Statement as Annexes B and C.
Pursuant to the Jacobs Agreement, on January 5, 1998, Mirage purchased the
Jacobs Preferred owned by the Jacobs Sellers for the aggregate purchase price
of $2,650,000 plus accumulated dividends and the Note for
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the purchase price of $5,000,000 plus accrued interest. In addition, pursuant
to the Jacobs Agreement, and subject to the terms and conditions contained
therein, Mirage has agreed: (i) to purchase 1,071,429 shares of Common Stock
owned by the Jacobs Sellers at a purchase price of $5.00 per share in cash for
a total aggregate purchase price of $5,357,145; and (ii) to pay the Jacobs
Sellers a total of $3,735,000 in consideration for, among other things, the
termination and release of any and all of their rights, title and interest
which they may have under or pursuant to the Option Agreement, the Memorandum
and the Purchase Agreement. The closing of the remaining transactions
contemplated by the Jacobs Agreement will take place substantially
concurrently with the closing of the Merger. A copy of the Jacobs Agreement is
included in this Proxy Statement as Annex D. The Company has consented to the
entry by the Jacobs Sellers into the Jacobs Agreement and to such termination
and release of rights and agreed that, effective upon the closing, any and all
rights, title and interest which the Company may have under such agreements
(including any claims against the other parties under those agreements) will
be terminated and released.
Pursuant to the Stockholder Agreements, the Majority Stockholders have
agreed (for as long as the Merger Agreement is in effect), that at any meeting
of the holders of Common Stock, however called, or in connection with any
written consent of the holders of Common Stock, such Majority Stockholder
shall cause all of the shares of Common Stock held by it to be present for
quorum purposes and shall vote them (or cause them to be voted) (a) in favor
of the Merger, the execution and delivery by the Company of the Merger
Agreement and the approval of the terms thereof and each of the other actions
contemplated by the Merger Agreement and its respective Stockholder Agreement
and any actions required in furtherance thereof; (b) against any action or
agreement that would result in a breach in any respect of any covenant,
representation or warranty or any other obligation or agreement of the Company
under the Merger Agreement or its respective Stockholder Agreement; and (c)
except as otherwise agreed to in writing in advance by Mirage, against any of
the following actions or agreements (other than the Merger Agreement or the
transactions contemplated thereby): (i) any action or agreement that is
intended, or might reasonably be expected, to impede, interfere with, delay,
postpone or attempt to discourage or adversely affect the Merger and the
transactions contemplated by its respective Stockholder Agreement and the
Merger Agreement; (ii) any extraordinary corporate transaction, such as a
merger, consolidation or other business combination involving the Company;
(iii) a sale, lease or transfer of a material amount of assets of the Company
or a reorganization, recapitalization, dissolution or liquidation of the
Company; (iv) any change in the management or Board of Directors of the
Company; (v) any change in the present capitalization or dividend policy of
the Company; (vi) any amendment of the Company's articles of incorporation or
bylaws; or (vii) any other material change in the Company's corporate
structure or business. The Majority Stockholders have each granted an
irrevocable proxy to Mirage to vote their shares of Common Stock in the manner
described above if the Majority Stockholders fail to do so. In addition, the
Majority Stockholders may not offer for sale, sell, transfer, tender, pledge,
encumber, assign, or otherwise dispose of, or grant any voting rights or
proxies with respect to, any of their shares of Common Stock.
To the extent the Stockholder Agreements otherwise permit Mirage to do so,
Mirage has agreed not to waive the condition to its closing obligation in the
Stockholder Agreement with one Majority Stockholder that the Stockholder
Agreement(s) with the other Majority Stockholder shall have been consummated
or consummated concurrently. In the event the transactions contemplated by all
of the Stockholder Agreements are fully consummated, then all of the
conditions to Mirage's obligation to effect the Merger shall be deemed
satisfied or waived.
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CERTAIN TAX CONSEQUENCES TO STOCKHOLDERS
The following discussion sets forth certain federal income tax consequences
of the Merger to Stockholders. The discussion does not purport to consider all
aspects of federal income taxation which may be relevant to a Stockholder, and
the tax treatment of a Stockholder may vary according to the Stockholder's
situation. Certain Stockholders (including insurance companies, tax-exempt
organizations, financial institutions, broker-dealers, foreign corporations
and persons who are not citizens or residents of the United States) may be
subject to special rules not discussed below. In addition, the discussion does
not consider the effect of any foreign, state or local tax laws. The
discussion assumes that Stockholders hold their Common Stock as "capital
assets" (generally property held for investment) within the meaning of Section
1221 of the Internal Revenue Code of 1986, as amended (the "Code"). Finally,
Stockholders should be aware that the conclusions set forth in the following
discussions could be affected by future legislation, case law, or
administrative interpretations which could be applicable to Stockholders.
The receipt of cash in exchange for Common Stock pursuant to the Merger will
be a taxable transaction for U.S. federal income tax purposes and may also be
a taxable transaction under applicable state, local and foreign tax laws. A
Stockholder will generally recognize gain or loss for U.S. federal income tax
purposes in an amount equal to the difference between such Stockholder's
adjusted tax basis in such Stockholder's Common Stock and the cash received by
such Stockholder. Such gain or loss will be a capital gain or loss if such
Common Stock is held as a capital asset.
Under the provisions of the Taxpayer Relief Act of 1997 (the "TRA"), in the
case of individuals and other persons not taxed as corporations, the long-term
capital gain holding period was increased from 12 months to 18 months and the
maximum long-term capital gain tax rate was reduced from 28% to 20%. Under the
TRA, a gain or loss will be a long-term capital gain or loss with respect to
Common Stock held for more than 18 months at the Effective Time of the Merger.
Any gain on Common Stock held for less than 18 months but more than 12 months
at the Effective Time will be taxable at the maximum capital gains tax rate of
28%. Any gain on Common Stock held for less than 12 months at the Effective
Time will be taxable as ordinary income, which is taxed at rates up to 39.6%.
In the case of corporate Stockholders, capital gains and capital losses
continue to be classified as long-term if the holding period exceeds one year.
In the case of individuals and other persons not taxed as corporations,
capital losses are allowed only to the extent of capital gains plus the lesser
of (i) $3,000 ($1,500 in the case of a married individual filing a separate
tax return) or (ii) the excess of losses over such gains. In the case of
corporate Stockholders, capital losses are allowed only to the extent of
capital gains. Generally, a corporation may carry its excess capital loss back
three years or forward five years, subject to certain provisions of the Code.
Generally, in the case of a non-corporate taxpayer, excess capital losses may
be carried forward indefinitely and used each year, subject to the $3,000
limitation ($1,500 in the case of a married individual filing a separate
return), until the loss is exhausted.
The receipt of the Merger Consideration may be subject, under certain
circumstances, to "backup withholding" at a 31% rate. This withholding
generally applies only if the Stockholder (i) fails to furnish his or her
social security or other taxpayer identification number ("TIN") within a
reasonable time after the request therefor, (ii) furnishes an incorrect TIN,
(iii) is notified by the Internal Revenue Service that he or she has failed to
report properly interest or dividends, or (iv) fails, under certain
circumstances, to provide a certified statement, signed under penalty of
perjury, that the TIN provided is the correct number and that he or she is not
subject to backup withholding. Amounts paid as backup withholding (but not any
applicable penalties) are creditable against a Stockholder's federal income
tax liability.
The foregoing discussion may not apply to Stockholders who acquire their
Common Stock pursuant to the exercise of employee stock options or other
compensation arrangements with the Company, who are not citizens or residents
of the United States or who are otherwise subject to special tax treatment.
EACH STOCKHOLDER IS URGED TO CONSULT HIS, HER OR ITS TAX ADVISOR WITH RESPECT
TO THE TAX CONSEQUENCES OF THE MERGER, INCLUDING THE EFFECTS OF APPLICABLE
STATE, LOCAL OR OTHER TAX LAWS.
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BUSINESS
GENERAL
Boardwalk Casino, Inc. (the "Company") is a Nevada corporation that owns and
operates the Holiday Inn(R) Casino Boardwalk in Las Vegas, Nevada and leases
the shopping center next to the hotel-casino. The Holiday Inn(R) Casino
Boardwalk is situated on a 7.8-acre site on Las Vegas Boulevard between
Flamingo Road and Tropicana Avenue. It includes 653 hotel rooms, approximately
33,000 square feet of casino space, a coffee shop, a buffet restaurant, a
snack bar, an entertainment lounge, two bars, two outdoor swimming pools and
1,125 garage and surface parking spaces (including those spaces leased under
the shopping center lease). It also contains a small gift shop under lease to
Holiday Gifts, Inc. Approximately one year ago, the Company completed a
substantial hotel and casino renovation and expansion program.
Boardwalk Casino, Inc. was incorporated under the laws of the State of
Nevada on July 27, 1993. The Company's principal executive office is located
at 3750 Las Vegas Boulevard South, Las Vegas, Nevada 89109 and its telephone
number is (702) 735-2400.
LOCATION
The Holiday Inn(R) Casino Boardwalk is located on Las Vegas Boulevard, more
commonly known as "The Las Vegas Strip," the center of gambling activity in
Las Vegas. While there are other concentrations of casinos located in downtown
Las Vegas and suburban locations, the Las Vegas Strip has the highest
concentration of casino space and hotel rooms in Southern Nevada and it is the
location of substantially all of the premier Las Vegas hotels.
BACKGROUND
The Company was granted a Holiday Inn franchise license on June 16, 1994
upon completing the renovation of its existing hotel. In September 1995, the
Company substantially completed a renovation of the casino by expanding the
casino floor space by 18,000 square feet and remodeling the front facade of
the property. In May 1996, the Company substantially completed the development
and construction of a new 16-story 451-room hotel tower on its property in
addition to the existing four- and six-story towers. As a result of these
expansions and other incremental additions, the Holiday Inn(R) Casino
Boardwalk currently consists of a 653-room hotel and a casino of approximately
33,000 square feet with 661 slot machines, 20 table games and a full-service
race and sports book.
CURRENT OPERATIONS
Gaming. Historically, the casino has accounted for approximately 40% of the
net revenues of the Holiday Inn(R) Casino Boardwalk. The gaming revenue
provided by slot machines and the Company's race and sports book are the
primary components of the Company's gaming revenues. Currently, the Holiday
Inn(R) Casino Boardwalk has 661 slot machines and 20 table games on its casino
floor and operates a full-service race and sports book. On average, the
preponderance of the weekly gaming net revenues are generated on weekends.
In connection with its gaming activities, the Company follows a policy of
stringent controls in compliance with the standards set by the Nevada Gaming
Authorities. As a matter of policy, the Company does not extend credit to its
gaming customers.
Non-Gaming. The Holiday Inn(R) Casino Boardwalk has 653 rooms, two outdoor
pools and a retail gift shop leased to Holiday Gifts, Inc. The Company offers
its hotel rooms at modest prices (as of September 30, 1997, the average room
rate was approximately $61.00). For fiscal year 1997, the Holiday Inn(R)
Casino Boardwalk's average occupancy was approximately 81.6%, as compared to
76.4% for fiscal year 1996. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" for more information regarding
the Company's gaming and non-gaming operations and revenues.
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<PAGE>
The Company offers a full service coffeeshop, a buffet restaurant, a snack
bar, an entertainment lounge and two bars for its casino and restaurant
patrons. As with its hotel accommodations, the Company's food and beverage
services are moderately priced.
COMPETITION
There is intense competition among companies in the gaming industry, many of
which have significantly greater financial resources than the Company. The
Holiday Inn(R) Casino Boardwalk faces competition from all other casinos and
hotels in the Las Vegas areas. Indirectly and to a lesser extent, its
operations compete generally with gaming operations in other parts of the
State of Nevada, such as Reno, Laughlin and Lake Tahoe, with facilities in
Atlantic City, New Jersey and other parts of the world and with state-
sponsored lotteries, on- and off-track wagering, card parlors, riverboat and
Native American gaming ventures and other forms of legalized gambling. Certain
states have legalized, and several other states are considering legalizing,
casino gaming in designated areas. Legalized casino gaming in other states and
on Native American reservations represents additional competition to the
Company and could adversely affect the Company's operations, particularly if
such gaming were to occur in areas close to the Company's operations.
EMPLOYEES
As of September 30, 1997, the Company employed 650 full-time employees,
including its two executive officers, 43 managers and supervisors, 170 casino
personnel, 245 food and beverage personnel, 165 hotel personnel and 25
administrative personnel. The Company occasionally employs part-time workers
as needed. None of the Company's employees is covered by a collective
bargaining agreement. The Company believes that its relationship with its
employees is excellent.
PROPERTY
Effective October 1, 1996, the Company entered into a lease agreement (the
"Lease Agreement") as the tenant with The Jansen Family Trust as the landlord.
The Lease Agreement covers the Land to the north of the hotel and casino which
enables the Company to control the use of the Land and any buildings thereon.
The Land has 150 feet of frontage on the Las Vegas Strip. It currently
contains a two-story office building which is leased to several retail and
office tenants, including the executive and administrative offices of the
Company. The Lease Agreement commenced October 1, 1996 and has a term of 24
months, with an option to extend the lease term for an additional five years
and a second, successive, option to extend it an additional 23 years. The base
rent of $70,000 per month ($840,000 per year) is subject to adjustment after
five years. In addition, the Lease Agreement grants the Company an option to
purchase the Land under certain terms and conditions, which became subordinate
to Jacobs Sellers' right to purchase the Land under the Memorandum in October
1997.
LITIGATION
As of September 30, 1997, based on the advice of legal counsel, the Company
has accrued approximately $555,000 (which includes $64,000 of accrued
interest) related to an anticipated gaming tax assessment from the Nevada
Gaming Control Board ("NGCB"). The NGCB has audited the Company's gaming tax
returns in 1996 and the Company believes it is probable that the NGCB will
determine that the Company has improperly deducted certain promotional wagers
by patrons in calculating gross revenue for gaming tax purposes. The Company
plans to appeal an assessment; however, the likelihood of a successful outcome
cannot be determined. Except as set forth above, no material legal proceedings
to which the Company is a party or to which the property of the Company is
subject are pending and no such proceedings are known by the Company to be
contemplated.
REGULATION AND LICENSING
The ownership and operation of casino gaming facilities in Nevada are
subject to (i) the Nevada Gaming Control Act and the regulations promulgated
thereunder (the "Nevada Act") and (ii) various local regulations. The
Company's gaming operations are subject to the licensing and regulatory
control of the Nevada Gaming Authorities.
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<PAGE>
The laws, regulations and supervisory procedures of the Nevada Gaming
Authorities are based upon declarations of public policy that 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) providing a source of state and
local revenues through taxation and licensing fees. Change in such laws,
regulations and procedures could have an adverse effect on the Company's
gaming operations.
The Company is required to be licensed by the Nevada Gaming Authorities. The
gaming licenses require the periodic payment of fees and taxes and are not
transferable. The Company is also required to be registered by the Nevada
Commission as a publicly traded corporation ("Registered Corporation") and as
such, it is required periodically to submit detailed financial and operating
reports to the Nevada Commission and furnish any other information that the
Nevada Commission may require.
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. An applicant
for licensing or an applicant for a finding of suitability must pay all 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 licensing, the Nevada Gaming
Authorities have the jurisdiction to disapprove a change in a corporate
position.
If the Nevada Gaming Authorities were to find an officer, director or key
employee unsuitable for licensing or unsuitable to continue having a
relationship with the Company, the Company would have to sever all
relationships with such person. In addition, the Nevada Commission may require
the Company to terminate the employment of any person who refused to file
appropriate applications. Determinations of suitability or questions
pertaining to licensing are not subject to judicial review in Nevada.
The Company is required to submit detailed financial and operating reports
to the Nevada Commission. Substantially all material loans, leases, sales of
securities and similar financing transactions of the Company 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 it holds could be limited, conditioned, suspended or revoked,
subject to compliance with certain statutory and regulatory procedures. In
addition, the Company and the persons involved could be subject to substantial
fines for each separate violation of the Nevada Act at the discretion of the
Nevada Commission. Further, a supervisor could be appointed by the Nevada
Commission to operate the Company's gaming property and, under certain
circumstances, earnings generated during the supervisor's appointment (except
for the reasonable rental value of the gaming property) could be forfeited to
the State of Nevada. Limitation, conditioning or suspension of any gaming
license of the Company or the appointment of a supervisor could (and
revocation of any gaming license would) have a material adverse effect on the
Company's gaming operations.
Any beneficial holder of Common Stock or any other voting security of the
Company ("Company Voting Securities") regardless of the number of shares
owned, may be required to file an application, be investigated, and have such
person's suitability as a beneficial holder of Company Voting Securities
determined if the Nevada Commission has reason to believe that such ownership
would otherwise be inconsistent with the declared policies of the State of
Nevada. The applicant must pay all costs of the investigation incurred by the
Nevada Gaming Authorities in conducting any such investigation.
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<PAGE>
The Nevada Act requires any person who acquires beneficial ownership of more
than 5% of Company Voting Securities to report the acquisition to the Nevada
Commission. The Nevada Act requires that beneficial owners of more than 10% of
Company Voting Securities apply to the Nevada Commission for a finding of
suitability within thirty days after the Chairman of the Nevada Board mails
the written notice requiring such filing. Under certain circumstances, an
"institutional investor," as defined in the Nevada Act, which acquires
beneficial ownership of more than 10%, but not more than 15%, of Company
Voting Securities may apply to the Nevada Commission for a waiver of such
finding of suitability if such institutional investor holds Company Voting
Securities for investment purposes only. An institutional investor shall not
be deemed to hold Company Voting Securities for investment purposes unless
Company Voting Securities were acquired and are held in the ordinary course of
business as an institutional investor and not for the purpose of causing,
directly or indirectly, the election of a majority of the members of the Board
of Directors of the Company, any change in the Company's corporate charter,
bylaws, management, policies or operations of the Company, or any other action
which the Nevada Commission finds to be inconsistent with holding Company
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 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, limited partnership, limited liability
company 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 30 days after being ordered to do so by the Nevada Commission
or by the Chairman of the Nevada Board may be found unsuitable. The same
restrictions apply to a record owner if the record owner, after request, fails
to identify the beneficial owner. Any stockholder found unsuitable and who
holds, directly or indirectly, any beneficial ownership of Company Voting
Securities beyond such period of time as may be prescribed by the Nevada
Commission may be guilty of a criminal offense. The Company is subject to
disciplinary action if, after it receives notice that a person is unsuitable
to be a stockholder or to have any other relationship with the Company, the
Company (i) pays that person any dividend or interest upon any Company Voting
Securities; (ii) allows that person to exercise, directly or indirectly, any
voting right conferred through securities held by that person; (iii) pays
remuneration in any form to that person for services rendered or otherwise; or
(iv) fails to pursue all lawful efforts to require such unsuitable person to
relinquish the voting securities for cash at fair market value. Additionally,
the CCB has the authority to approve all persons owning or controlling the
stock of any corporation controlling a gaming licensee.
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 such debt security of a Registered Corporation. If
the Nevada Commission determines that a person is unsuitable to own such
security, then pursuant to the Nevada Act, the Registered Corporation can be
sanctioned, including the loss of its approvals, if without the prior approval
of the Nevada Commission, it (i) pays to the unsuitable person any dividend,
interest or any distribution whatsoever; (ii) recognizes any voting right by
such unsuitable person in connection with such securities; (iii) pays the
unsuitable person remuneration in any form; or (iv) makes any payment to the
unsuitable person by way of principal, redemption, conversion, exchange,
liquidation or similar transaction.
The Company is required to maintain a current stock ledger in Nevada which
may be examined by the Nevada Gaming Authorities at any time. If any
securities are held in trust by an agent or by a nominee, the record holder
may be required to disclose the identity of the beneficial owner to the Nevada
Gaming Authorities. A failure to make such disclosure may be grounds for
finding the record holder unsuitable. The Company is also required to render
maximum assistance in determining the identity of the beneficial owner of any
Company Voting Securities. The Nevada Commission has the power to require the
Company's stock certificates to bear a
35
<PAGE>
legend indicating that the securities are subject to the Nevada Act. However,
to date, the Nevada Commission has not imposed such a requirement on the
Company.
The Company may not make a public offering of its securities without the
prior approval of the Nevada Commission if the securities or the proceeds
therefrom are intended to be used to construct, acquire or finance gaming
facilities in Nevada, or to retire or extend obligations incurred for such
purposes. Any approval, if granted, does not constitute a finding,
recommendation or approval of the Nevada Gaming Authorities as to the accuracy
or adequacy of the prospectus or the investment merits of the securities
offered thereby. Any representation to the contrary is unlawful.
Changes in control of the Company through merger, consolidation, stock or
asset acquisitions, management or consulting agreements, or any act or conduct
by a person whereby such person obtains control, may not occur without the
prior approval of the Nevada Commission. Entities seeking to acquire control
of a Registered Corporation must satisfy the Nevada Board and Nevada
Commission in a variety of stringent standards prior to assuming control of
such Registered Corporation. The Nevada Commission may also require
controlling stockholders, officers, directors and other persons having a
material relationship or involvement with the entity proposing to acquire
control, to be investigated and licensed as part of the approval process
relating to the transaction.
The Nevada legislature has declared that some corporate acquisitions opposed
by management, repurchases of voting securities and corporate defense tactics
affecting Nevada gaming licenses, and Registered Corporations that are
affiliated with those operations, may be injurious to stable and productive
corporate gaming. The Nevada Commission has established a regulatory scheme to
ameliorate the potentially adverse effects of these business practices upon
Nevada's gaming industry and to further Nevada's policy to: (i) assure the
financial stability of corporate gaming operators and their affiliates; (ii)
preserve the beneficial aspects of conducting business in the corporate form;
and (iii) promote a neutral environment for the orderly governance of
corporate affairs. Approvals are, in certain circumstances, required from the
Nevada Commission before the Company can make exceptional repurchases of
voting securities above the current market price thereof and before a
corporate acquisition opposed by management can be consummated. The Nevada Act
also requires prior approval of a plan of recapitalization proposed by the
Company's Board of Directors in response to a tender offer made directly to
its stockholders for the purpose of acquiring control of the Company.
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 Company's 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 operators where entertainment is furnished in
connection with the selling of food or refreshments. Nevada Corporate
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 the Licensee's participation in such
foreign gaming. The revolving fund is subject to increase or decrease in the
discretion of the Nevada Commission. Thereafter, Licensees are required to
comply with certain reporting requirements imposed by the Nevada Act. A
Licensee is also subject to disciplinary action by the Nevada Commission if it
knowingly violates any laws of the foreign jurisdiction pertaining to the
foreign gaming operation, fails to conduct the foreign gaming operation in
accordance with the standards of honesty and integrity required of Nevada
gaming operations, engages in activities that are harmful to the State of
Nevada or its ability
36
<PAGE>
to collect gaming taxes and fees, or employs a person in the foreign operation
who has been denied a license or finding of suitability in Nevada on the
ground of personal unsuitability.
The sale of alcoholic beverages by the Company is subject to licensing,
control and regulation by applicable local regulatory agencies. All licenses
are revocable and are not transferable. The agencies involved have full power
to limit, condition, suspend or revoke any such license, and any such
disciplinary action could (and revocation would) have a material adverse
effect upon the operations of the Company.
37
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
Boardwalk Casino, Inc. (the "Company") was formed in July 1993 for the
purpose of operating a casino and a hotel in Las Vegas, Nevada. See "Notes to
Financial Statements".
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
------------- -------------
<S> <C> <C>
Revenues:
Casino......................................... $ 23,149,451 $ 16,897,527
Rooms.......................................... 11,839,744 7,224,324
Food and beverage.............................. 6,977,697 4,031,278
Other.......................................... 1,785,545 837,895
------------ ------------
Gross revenues............................... 43,752,437 28,991,024
Promotional allowances......................... (2,052,392) (1,079,467)
------------ ------------
41,700,045 27,911,557
------------ ------------
Costs and expenses:
Casino......................................... 14,160,946 10,787,868
Rooms.......................................... 5,192,093 3,460,334
Food and beverage.............................. 7,131,585 4,168,259
Other.......................................... 230,862 173,138
Selling, general and administrative............ 7,480,641 5,174,502
Depreciation and amortization.................. 3,524,249 2,525,044
------------ ------------
37,720,376 26,289,145
------------ ------------
Income (loss) from operations.................... 3,979,669 1,622,412
------------ ------------
Other (income) expense:
Interest income................................ (81,842) (395,416)
Interest expense............................... 8,054,164 7,874,115
Interest capitalized........................... (507,286) (1,442,493)
------------ ------------
7,465,036 6,036,206
------------ ------------
Income (loss) before income taxes & extraordinary
item............................................ $ (3,485,367) $ (4,413,794)
============ ============
</TABLE>
RESULTS OF OPERATIONS
In June of 1997 the Company completed the third phase of its project to
expand and renovate the former existing hotel and casino facilities (the
"Expansion"). Phase one of the Expansion was completed in May 1994 which was
the renovation of the original 202 existing hotel rooms. Phase two of the
Expansion was completed in September 1995 with the addition of a new casino
facility that increased floor space from 15,000 square feet to 33,000 square
feet and the first of two parking garages consisting of 550 spaces was
completed in December 1995. The third phase of the Expansion consisted of the
development and construction of a new 16-story (451 room) hotel tower
completed in stages from February 1996 to July 1996, the second garage,
consisting of 440 spaces was completed in May 1996, the completion of the
27,000 square foot buffet and meeting rooms on the second floor of the casino
in March and June of 1997, respectively.
The Company's sales efforts have been improved with the availability of
meeting rooms that were completed in June 1997. The food and beverage
department has also benefitted from the completion of the meeting rooms with
increased catering business attaining attractive margins. Banquet sales will
improve as the sales department promotes the new facilities.
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<PAGE>
The Company in the next fiscal year has committed a block of rooms for
casino program patrons that are expected to increase the percentage of hotel
guests that play the Company's various gaming venues. The Company has an
arrangement, with an established program promoter, to fill the block of rooms
with qualified casino patrons.
The Company also expects, in the next fiscal year, to purchase a player
tracking system that links all slot machines and provides real time statistics
that will reward customers according to their play.
YEAR ENDED SEPTEMBER 30, 1997 COMPARED WITH YEAR ENDED SEPTEMBER 30, 1996
The results of operations for the year ended September 30, 1997 reflect the
revenues and costs associated with the new casino facility and the additional
451 rooms in the new tower which were open for the entire year. The Company
incurred a net loss for the year ended September 30, 1997 of $3,485,367
compared to a net loss of $4,413,794 in the prior year, a decrease in the net
loss of $928,427 (21%). The reduction in loss was attributable to a $2,357,257
(145.3%) increase in income from operations, from an operating profit of
$1,622,412 in 1996 to an operating profit of $3,979,669 in 1997 which was
offset by an increase in net interest expense and income of $1,428,830.
The Company's net revenues increased $13,788,488 (49.4%), to $41,700,045 in
1997 from $27,911,557 in 1996. The increase in revenues for fiscal 1997 was
attributable to the following: (i) an increase of $6,251,924 in casino
revenues, (ii) $4,615,420 in additional room revenue attributable to a
completed new hotel tower for the full fiscal year, (iii) an increase in food
and beverage revenues of $2,946,419 due to the opening of a new buffet during
the year and a greater number of hotel guests, (iv) an increase in other
revenues by $947,650 with a large portion of that increase generated from
additional retail space and (v) offset by an increase in promotional
allowances of $972,925. Operating expenses, including depreciation and
amortization, increased $11,431,231 (43.5%) to $37,720,376 in 1997 from
$26,289,145 in the prior year. The increase in operating expenses was
primarily due to the addition of a new casino facility and start-up and
increased operating costs of the new hotel tower for an entire year.
CASINO OPERATIONS
For fiscal 1997, casino revenues increased $6,251,924 or 37% to $23,149,451.
The increase is attributable to (i) a $2,163,548 increase in revenue from the
race and sports books to $9,314,035 in fiscal 1997 from $7,150,487 for the
same period in 1996, (ii) a $3,035,783 increase in slot machine revenues to
$10,437,652 in fiscal 1997 from $7,401,869 for the same period in 1996 and
(iii) a $1,052,593 increase in revenue from table games to $3,397,764 in
fiscal 1997 from $2,345,171 for the same period in 1996.
Casino expenses increased $3,373,078 (31.3%) to $14,160,946 for fiscal year
1997 from $10,787,868 for the same period of 1996. The increase in casino
expenses was primarily due to: (i) increased revenue in the race and sports
book resulting in related increases in race track and system operator fees of
$1,326,066, (ii) additional staffing which resulted in higher payroll and
employee benefit costs of $1,294,741, (iii) additional revenues increased
related slot participation expenses, gaming tax and licenses by $662,372.
ROOM OPERATIONS
Room revenues increased $4,615,420, or 63.9%, to $11,839,744 for fiscal 1997
from $7,224,324 for the comparable 1996 period. The increase in room revenues
reflects an increase in room nights sold by 72,862 or 60%, to 194,248 for
fiscal 1997 from 121,386 for the comparable 1996 period. This increase was
enhanced by
an increase in the average daily room rate by $1.43 to $60.95 for fiscal 1997
from $59.52 for the same period of 1996. Fiscal year 1997 had an additional
79,133 room nights available for occupancy compared to fiscal year 1996. The
increased room availability during 1997 over 1996 was due to the hotel tower
being open for the entire fiscal year. The 16th floor, which is comprised of
11 suites, was available for occupancy by late July 1996. During the year the
Company employed a professional sales department which had opened several
corporate
39
<PAGE>
accounts, including a national airline for its flight crews. Despite the
79,133 additional room nights available, the hotel occupancy percentage
increased 5.2% to 81.6% for the fiscal year 1997 compared to 76.4% for fiscal
1996.
Rooms expense increased $1,731,759, or 50%, for fiscal 1997 to $5,192,093
from $3,460,334 for the same period in 1996. This increase is primarily
attributable to (i) an increase in personnel to service the new hotel tower
for the entire year at an additional cost of $1,127,704, (ii) related
franchise fees and travel agent commissions on the additional revenues totaled
$489,025, (iii) additional uniforms, laundry and room supplies totaled
$173,280 (iv) additional credit card fees and equipment rental costs of
$111,611. These expenses were offset by decreases in legal fees, linen
replacement, repairs and maintenance, and miscellaneous expenses.
FOOD AND BEVERAGE OPERATIONS
Food and beverage revenues increased by $2,946,419 (73.1%), to $6,977,697
for fiscal 1997 from $4,031,278 for the comparable 1996 period. The increase
is directly a result of opening the new buffet for six months of operations
during fiscal 1997, as well as the new hotel tower which had a full year of
operations during fiscal 1997.
Food and beverage expenses increased $2,963,326 (71.1%), to $7,131,585 for
fiscal 1997 from $4,168,259 for 1996 reflecting increases in food and beverage
costs associated with the increased sales. Food and beverage expenses as a
percentage of gross food and beverage revenues decreased to 102.2% for fiscal
1997 from 103.4% for fiscal year 1996. This decrease is a result of increased
casino promotional activity with an increase in food and beverage served on a
complimentary basis, which food and beverage costs are included in casino
expense.
OTHER OPERATING REVENUES AND EXPENSES
Other revenues increased by $947,650 (113.1%) to $1,785,545 for fiscal 1997
compared to $837,895 for 1996. The increase was attributable to (i) an
increase of $555,290 in rental income derived from the new retail facilities,
(ii) an increase of $362,994 in telephone and movie revenues and (iii) the
balance of the increased revenues coming from arcade and vending facilities.
The other costs increased $57,724 (33.3%) to $230,862 in fiscal 1997
compared to $173,138 in fiscal 1996. The increase is primarily due to the cost
of movies purchased.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization totaled $3,524,249 in 1997, reflecting a
$999,205 (39.6%) increase over the 1996 amount of $2,525,044. The increase was
due to the following: (i) a new casino facility was opened in September 1995
at a cost of $10,897,881, (ii) a new hotel tower was placed in service May
1996 at a cost of $19,893,988, (iii) two new parking facilities were completed
during the fiscal year at a cost of $6,268,874, (iv) a central plant was
completed September 1995 at a cost of $1,825,842 and (iv) additional gaming
devices and casino equipment at a cost of $3,321,176 were placed in service
starting in September 1995 through fiscal year 1997.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses increased $2,306,139 (44.6%) to
$7,480,641 in 1997 from $5,174,502 in 1996. The increase in administrative
expenses was primarily due to (i) utilities and rent increased
40
<PAGE>
$995,704, (ii) advertising and promotional expenses increased $759,673, (iii)
increase in legal and professional fees of $306,344, (iv) small equipment,
supplies and maintenance service contract costs increased $194,542.
OTHER (INCOME) EXPENSE AND EXTRAORDINARY ITEM
In 1997, the Company received $81,842 in interest income as compared to
$395,416 in 1996. The $313,574 (79.3%) decrease is attributable to the lower
invested balance of marketable securities in the 1997 period.
Net interest costs increased to $7,546,878 in 1997 from $6,431,622 in 1996
(an increase of $1,115,256 or 17.3%). Approximately $507,286 of interest was
capitalized in 1997 in connection with the Expansion compared to $1,442,493 of
interest that was capitalized in 1996.
LIQUIDITY AND CAPITAL RESOURCES
The net loss for the year ended September 30, 1997 was $3,485,000. The
Company's operations generated a positive cash flow of approximately
$3,962,000, which was primarily due to the temporary default under the First
Mortgage Notes and the non-payment of interest payable on September 30, 1997
of $3,300,000 on the $40,000,000 First Mortgage Notes, which default was
subsequently cured during fiscal year 1998.
Investing activities for fiscal 1997 used approximately $4,483,000, which
were primarily comprised of approximately $4,273,000 expended for the
construction and furnishing of the new buffet and meeting rooms located on the
second floor above the casino.
Financing activities provided approximately $600,000 from additional
borrowings. Such proceeds were offset by $2,615,000 of principal payments on
long-term debt, notes payable and capital leases during fiscal 1997.
The Company had unrestricted cash assets of $2,236,018 (3.5% of total
assets) at September 30, 1997 compared to $4,722,549 (7.6% of total assets) at
September 30, 1996. The ratio of current assets to current liabilities was .25
to 1 at September 30, 1997 and .82 to 1 at September 30, 1996.
During fiscal 1997, and prior to the execution of the Merger Agreement and
the Stockholder Agreements, Mirage acquired the First Mortgage Notes from the
previous noteholder in a private placement transaction. In connection with the
Merger Agreement, Mirage has agreed to defer the March 31, 1998 interest
payment on the First Mortgage Notes until September 30, 1998, at the Company's
option (the "Deferral Option"). Interest will accrue on the deferred interest
at the same 16.5% rate as the First Mortgage Notes and will also be due and
payable on September 30, 1998. Mirage also consented to the Merger and the
other transactions contemplated thereby in its capacity as holder of all of
the First Mortgage Notes.
Notwithstanding the Deferral Option, management of the Company believes that
the combination of existing cash and cash flows from operations will not be
sufficient to meet the Company's obligations as they become due during fiscal
1998. These obligations include scheduled interest payments on the First
Mortgage Notes (approximately $6,600,000 for the year) and the scheduled
interest and principal repayment on the Note due September 30, 1998.
Management expects that the need for cash will be significantly relieved upon
completion of the Merger. However, the Merger Agreement is subject to certain
conditions, including regulatory and stockholder approvals. Should the Merger
Agreement not be approved, or should the closing of the Merger be delayed, the
Company would not have sufficient resources to pay interest and scheduled
principal of the indebtedness acquired by Mirage, without modification of the
terms of such indebtedness.
There is no assurance that the Merger Agreement will be approved, that such
approval would be received on a timely basis, nor that modifications to the
terms of the indebtedness would be obtained, if necessary. Accordingly, these
matters raise substantial doubt about the ability of the Company to continue
as a going concern. The final outcome of these matters is not presently
determinable and the September 30, 1997 financial statements of the Company do
not include any adjustments that might result from the outcome of this
uncertainty.
41
<PAGE>
IMPACT OF THE YEAR 2000 ISSUE
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the
Company's computer programs that have date-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result
in a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.
The Company determined that it will be required to modify or replace
significant portions of its software so that its computer systems will
properly utilize dates beyond December 31, 1999. The Company presently
believes that with modifications to existing software and conversions to new
software, the Year 2000 Issue can be mitigated. However, if such modifications
and conversions are not made, or are not completed timely, the Year 2000 Issue
could have a material impact on the operations of the Company.
During fiscal 1998, the Company plans to initiate formal communications with
all of its significant suppliers and large customers to determine the extent
to which the Company is vulnerable to those third parties' failure to
remediate their own Year 2000 Issue. There can be no guarantee that the
systems of other companies on which the Company's systems rely will be timely
converted, or that a failure to convert by another company, or a conversion
that is incompatible with the Company's systems, would not have a material
adverse effect on the Company.
The Company will utilize both internal and external resources to reprogram,
or replace, and test the software for Year 2000 modifications as is deemed to
be necessary. However, as the Company has not completed a formal assessment of
the systems affected by the Year 2000 Issue, the Company does not have a
reasonable basis to conclude that the impacts of the Year 2000 Issue on its
systems will not materially affect future financial results, or cause reported
financial information not to be necessarily indicative of future operating
results or future financial condition.
42
<PAGE>
MARKET PRICES AND DIVIDENDS
The Common Stock is traded in the over-the-counter market and is quoted on
the Nasdaq SmallCap Market under the symbol "BWLK" and on The Pacific Exchange
under the symbol "BWK". For the past two fiscal years, the high and low bid
prices of the Common Stock as reported to the Company by the National
Association of Securities Dealers, Inc. were as follows:
<TABLE>
<CAPTION>
FYE 1997 QUARTER ENDED: HIGH LOW
----------------------- ---- ---
<S> <C> <C>
December 31, 1996.......................................... 7 1/8 4 3/8
March 31, 1997............................................. 6 7/8 4 3/8
June 30, 1997.............................................. 5 5/8 3 7/8
September 30, 1997......................................... 5 3 1/2
<CAPTION>
FYE 1996 QUARTER ENDED: HIGH LOW
----------------------- ---- ---
<S> <C> <C>
December 31, 1995.......................................... 6 5/8 5 1/4
March 31, 1996............................................. 8 1/2 5 3/4
June 30, 1996.............................................. 8 9/16 7 1/2
September 30, 1996......................................... 6 5/8 5 3/4
</TABLE>
The over-the-counter quotations set forth herein reflect inter-dealer
prices, without retail mark-up, mark-down or commission and may not represent
actual transactions.
As of the close of business on January 7, 1998, there were at least 1,900
record and beneficial owners of Common Stock.
The average closing sale price per share of Common Stock on the Nasdaq
SmallCap Market for the twenty trading day period ended December 19, 1997, the
business date preceding public announcement of the execution of the Merger
Agreement, was $3.85. On December 19, 1997, the high, low and closing sale
prices of a share of Common Stock on the Nasdaq SmallCap Market were $4.16,
$3.88 and $4.16, respectively. On April 28, 1998, the latest practicable
trading day before the printing of this Proxy Statement, the high, low and
closing sales price of a share of Common Stock on the Nasdaq SmallCap Market
were $4.63, $4.50 and $4.50, respectively.
The Company has not paid any dividends on its Common Stock and does not
currently anticipate paying dividends in the foreseeable future. The Company
currently intends to retain its earnings from operations, if any, for use in
expanding and developing its business. Any future decision as to the payment
of dividends will be at the discretion of the Company's Board of Directors and
will depend upon the Company's earnings, financial position, capital
requirements and such other factors as the Board of Directors deems relevant.
Further, the Merger Agreement, the Indenture and the Note contain significant
restrictions and/or prohibitions on the Company's ability to pay dividends on
its capital stock.
43
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the Common Stock as of February 15, 1998, by (i) all persons
known by the Company to be the owner, of record or beneficially, of more than
five percent of the outstanding Common Stock, (ii) each executive officer and
director of the Company and (iii) all directors and executive officers as a
group. Beneficial ownership is determined in accordance with the rules of the
SEC and generally includes voting or investment power with respect to
securities. Shares of Common Stock subject to options currently exercisable or
exercisable within 60 days of February 15, 1998 are deemed outstanding for
computing the percentage of the person holding such securities but are not
outstanding for computing the percentage of any other person.
As far as is known to management of the Company, no person owned
beneficially more than five percent of the outstanding shares of Common Stock
as of February 15, 1998 except as set forth below.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
NAME OWNED PERCENT OF SHARES
---- ------------------- -----------------
<S> <C> <C>
Norbert W. Jansen and Avis Jansen,
Trustees u/a/d 07/14/93(1)............. 2,750,000 38.3
Avis P. Jansen(1)(2).................... 2,775,500(3) 38.7
Forrest J. Woodward(8).................. 75,000(4) 1.0
Louis J. Sposato(8)..................... 112,500(5) 1.5
Keven J. Picardo(8)..................... 19,500(6) *
Jeffrey P. Jacobs(9).................... 1,071,429 14.9
Franklin Custodian Funds, Inc.--Income
Series(8).............................. 1,281,869(7) 15.1
Diversified Opportunities Group
Ltd.(9)................................ 1,071,429 14.9
Mirage Resorts, Incorporated(10)........ 3,822,429 53.2
All Executive Officers and Directors as
a group (5 persons).................... 4,053,429 54.8
</TABLE>
- --------
* Represents beneficial ownership of less than 1% of the outstanding shares of
Common Stock.
(1) The business address of Norbert W. Jansen and Avis Jansen, Trustees u/a/d
07/14/93 ("The Jansen Trust") and Avis P. Jansen is 3750 Las Vegas
Boulevard South, Las Vegas, Nevada 89109. Such shares are held of record
and beneficially by The Jansen Trust but may be deemed to also be
beneficially owned by Mrs. Jansen (within the meaning of Rule 13d-3 under
the Exchange Act) since, as trustee of The Jansen Trust, Mrs. Jansen has
the power to direct the voting and disposition of such shares.
(2) Avis P. Jansen is deemed to beneficially own the 2,750,000 shares
beneficially owned by The Jansen Trust.
(3) Includes options currently exercisable to acquire 25,000 shares of Common
Stock.
(4) Includes options currently exercisable to acquire 65,000 shares of Common
Stock.
(5) Includes options currently exercisable to acquire 112,500 shares of Common
Stock.
(6) Includes options currently exercisable to acquire 17,500 shares of Common
Stock.
(7) Represents warrants currently exercisable to acquire 1,281,869 shares of
Common Stock.
(8) The business address of Messrs. Woodward, Sposato, and Picardo is 3750 Las
Vegas Boulevard South, Las Vegas, Nevada 89109. The business address of
Franklin Custodian Funds, Inc.--Income Series is 777 Mariners Island
Blvd., San Mateo, California 94404. Franklin Custodian Funds, Inc.--Income
Series is an open-end management investment company registered with the
SEC.
(9) The business address of Jeffrey P. Jacobs and Diversified Opportunities
Group Ltd. ("Diversified") is c/o Jacobs Entertainment Ltd., 425 Lakeside
Avenue, Cleveland, Ohio 44114. Such shares are held of record and
beneficially by Diversified but may be deemed to also be beneficially
owned by Mr. Jacobs (within the meaning of Rule 13d-3 under the Exchange
Act) since Mr. Jacobs has the power to direct the voting and disposition
of such shares. The principal business of Diversified is developing and
acquiring investments in the gaming industry and managing, supervising,
selling or otherwise disposing of such investments and engaging in
activities incidental or ancillary thereto.
(10) Mirage may be deemed to be the beneficial owner of 3,821,429 shares of
Common Stock that are subject to the voting provisions and other
provisions of the Stockholder Agreements. The business address of Mirage
Resorts, Incorporated is 3400 Las Vegas Boulevard South, Las Vegas,
Nevada 89109. Mirage owns 1,000 shares of Common Stock and has shared
voting power for 3,821,429 shares.
44
<PAGE>
INDEPENDENT PUBLIC ACCOUNTANTS
Coopers & Lybrand L.L.P. serves as the Company's independent certified
public accountants. A representative of Coopers & Lybrand L.L.P. is expected
to be present at the Special Meeting, will have the opportunity to make a
statement if he desires to do so, and is expected to be available to respond
to appropriate questions by Stockholders.
STOCKHOLDER PROPOSALS
In the event that the Merger is not consummated, any stockholder of record
of the Company who desires to submit a proper proposal for inclusion in the
proxy materials relating to the next Annual Meeting of Stockholders must do so
in writing and it must be received at the Company's principal executive
offices by September 30, 1998. The proponent must be a record or beneficial
owner entitled to vote at the next Annual Meeting on his proposal and must
continue to own such security entitling him to vote through the date on which
the meeting is held.
OTHER MATTERS
The Board of Directors of the Company does not intend to bring any other
matters before the Special Meeting and as of the date hereof does not know of
any other matters that may be brought before the Special Meeting by others. If
any other matter should properly come before the Special Meeting, the persons
named in the enclosed proxy as proxy appointees will have discretionary
authority to vote the shares of Common Stock thereby represented in accordance
with their best judgment.
By Order of the Board of Directors,
Louis J. Sposato, Secretary
3750 Las Vegas Boulevard South
Las Vegas, Nevada 89109
45
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................................ F-2
Balance Sheets As Of September 30, 1997 And 1996......................... F-3
Statements Of Income (Loss) For The Years Ended September 30, 1997 And
1996.................................................................... F-4
Statements Of Shareholders' Equity For The Years Ended September 30, 1997
And 1996................................................................ F-5
Statements Of Cash Flows For The Years Ended September 30, 1997 And
1996.................................................................... F-6
Notes To Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors Boardwalk Casino, Inc. Las Vegas, Nevada
We have audited the accompanying balance sheets of Boardwalk Casino, Inc. as
of September 30, 1997 and 1996, and the related statements of income (loss),
shareholders' equity and cash flows for the years ended September 30, 1997 and
1996. 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, the financial statements referred to above present fairly,
in all material respects, the financial position of Boardwalk Casino, Inc. as
of September 30, 1997 and 1996, and the results of its operations and its cash
flows for the years ended September 30, 1997 and 1996 in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that
Boardwalk Casino, Inc. will continue as a going concern. As more fully
described in Note 2, the Company has entered into a merger and acquisition
agreement (the "Acquisition Agreement") with Mirage Resorts, Incorporated
("Mirage"). The Acquisition Agreement is subject to certain conditions,
including regulatory and shareholder approvals. Mirage is currently the holder
of approximately $45 million principal amount of the Company's indebtedness.
Should the Acquisition Agreement not be approved, or should the closing be
delayed, the Company would not have sufficient resources to pay interest and
scheduled principal of the indebtedness acquired by Mirage, without
modification of the terms of such indebtedness. There is no assurance that the
Acquisition Agreement will be approved, that such approval would be received
on a timely basis, nor that modifications to the terms of the indebtedness
would be obtained, if necessary. Accordingly, these matters raise substantial
doubt about the ability of the Company to continue as a going concern. The
final outcome of these matters is not presently determinable and the September
30, 1997 financial statements of the Company do not include any adjustment
that might result from the outcome of this uncertainty.
COOPERS & LYBRAND L.L.P.
Las Vegas, Nevada November 24, 1997 except for Note 2 as to which the date is
January 5, 1998
F-2
<PAGE>
BOARDWALK CASINO, INC.
BALANCE SHEETS
SEPTEMBER 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 2,236,018 $ 4,772,549
Receivables, net of allowance for doubtful accounts
of $8,276 (1997) and $17,105 (1996)............... 1,258,170 439,857
Inventory.......................................... 130,436 73,719
Prepaid expenses................................... 746,965 573,964
----------- -----------
Total current assets............................. 4,371,589 5,860,089
----------- -----------
Property and equipment, net of accumulated
depreciation of $8,885,392 (1997) and $5,705,685
(1996).............................................. 57,305,457 55,486,285
----------- -----------
Other assets:
Deferred costs, net of accumulated amortization of
$583,158 (1997) and $239,435 (1996)............... 1,416,761 1,645,090
Restricted cash.................................... 173,385 66,394
Other.............................................. 100,969 113,091
----------- -----------
Total other assets............................... 1,691,115 1,824,575
----------- -----------
Total assets..................................... $63,368,161 $63,170,949
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable................................... $ 1,520,268 $ 1,281,657
Construction accounts payable...................... 461,126 171,283
Accrued expenses................................... 3,224,525 2,497,615
Accrued interest expense........................... 3,426,870 --
Related party payables............................. 400,000 50,000
Notes payable...................................... 600,000 --
Current portion of obligations under capital
leases............................................ 2,517,920 3,115,522
Term debt classified as current, net of original
issue discount of $3,875,773 (Notes 2 and 6)...... 41,124,227 --
----------- -----------
Total current liabilities........................ 53,274,936 7,116,077
----------- -----------
Term debt, net of original issue discount of
$4,090,477.......................................... -- 40,909,523
Obligations under capital leases, less current
portion............................................. 1,833,477 3,400,234
----------- -----------
Total liabilities................................ 55,108,413 51,425,834
----------- -----------
Commitments and contingencies
Shareholders' equity:
Preferred stock, $.001 par value; 15,000,000 shares
authorized; none issued and outstanding........... -- --
Common stock, $.001 par value; 50,000,000 shares
authorized; 7,179,429 (1997 and 1996) shares
issued and outstanding............................ 7,179 7,179
Additional paid-in capital......................... 22,435,083 22,435,083
Accumulated deficit................................ (14,182,514) (10,697,147)
----------- -----------
Total shareholders' equity....................... 8,259,748 11,745,115
----------- -----------
Total liabilities and shareholders' equity....... $63,368,161 $63,170,949
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
BOARDWALK CASINO, INC.
STATEMENTS OF INCOME (LOSS)
FOR THE YEARS ENDED SEPTEMBER 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Revenues:
Casino............................................. $23,149,451 $16,897,527
Rooms.............................................. 11,839,744 7,224,324
Food and beverage.................................. 6,977,697 4,031,278
Other.............................................. 1,785,545 837,895
----------- -----------
Gross revenues................................... 43,752,437 28,991,024
Less promotional allowances.......................... (2,052,392) (1,079,467)
----------- -----------
Net revenues..................................... 41,700,045 27,911,557
----------- -----------
Costs and expenses:
Casino............................................. 14,160,946 10,787,868
Rooms.............................................. 5,192,093 3,460,334
Food and beverage.................................. 7,131,585 4,168,259
Other.............................................. 230,862 173,138
Selling, general and administrative................ 7,480,641 5,174,502
Depreciation and amortization...................... 3,524,249 2,525,044
----------- -----------
37,720,376 26,289,145
----------- -----------
Income from operations............................... 3,979,669 1,622,412
----------- -----------
Other (income) expense:
Interest income.................................... (81,842) (395,416)
Interest expense................................... 8,054,164 7,874,115
Interest capitalized............................... (507,286) (1,442,493)
----------- -----------
7,465,036 6,036,206
----------- -----------
Net income (loss).................................... $(3,485,367) $(4,413,794)
=========== ===========
Net income (loss) per share of common stock.......... $ (.49) $ (.70)
=========== ===========
Weighted average common shares outstanding........... 7,179,429 6,292,287
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
BOARDWALK CASINO, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1997 AND 1996
<TABLE>
<CAPTION>
COMMON STOCK
------------------
ADDITIONAL
SHARES PAID-IN ACCUMULATED
OUTSTANDING AMOUNT CAPITAL DEFICIT TOTAL
----------- ------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Balances, September 30,
1995................... 6,077,800 $6,078 $15,893,784 $ (6,283,353) $ 9,616,509
Issuance of warrants
to purchase common
stock................ -- -- 51,617 -- 51,617
Issuance of common
stock, net of
issuance costs....... 721,429 721 4,639,107 -- 4,639,828
Exercises of warrants,
net of issuance
costs................ 380,200 380 1,850,575 -- 1,850,955
Net loss.............. -- -- -- (4,413,794) (4,413,794)
--------- ------ ----------- ------------ -----------
Balances, September 30,
1996................... 7,179,429 7,179 22,435,083 (10,697,147) 11,745,115
Net loss.............. -- -- -- (3,485,367) (3,485,367)
--------- ------ ----------- ------------ -----------
Balances, September 30,
1997................... 7,179,429 $7,179 $22,435,083 $(14,182,514) $ 8,259,748
========= ====== =========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
BOARDWALK CASINO, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)................................. $(3,485,367) $ (4,413,794)
----------- ------------
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization................... 3,524,249 2,525,044
Provision for doubtful accounts................. 4,999 11,705
Amortization of original issue discount......... 214,704 462,472
Changes in operating assets and liabilities:
(Increase) in receivables..................... (809,484) (420,475)
(Increase) in inventory....................... (56,717) (8,168)
Increase in related party payables............ 350,000 50,000
(Increase) in prepaid expenses................ (173,001) (197,331)
Increase in accounts payable, net of amounts
for capital expenditures..................... 238,611 130,827
Increase in accrued expenses.................. 726,910 1,732,181
Increase (decrease) in accrued interest
payable...................................... 3,426,870 (2,600,297)
----------- ------------
Net cash provided by (used in) operating
activities................................. 3,961,774 (2,727,836)
----------- ------------
Cash flows from investing activities:
Capital expenditures, net of amounts in accounts
payable.......................................... (4,273,148) (21,209,818)
Net (additions) deductions to restricted cash
equivalents in escrow accounts................... (106,991) 17,856,729
(Increase) in deferred costs...................... (115,393) (93,812)
Decrease in other assets.......................... 12,122 21,920
----------- ------------
Net cash used by investing activities....... (4,483,410) (3,424,981)
----------- ------------
Cash flows from financing activities:
Proceeds from notes payable borrowings............ 600,000 3,429,611
Principal payments of notes payable............... -- (6,303,639)
Proceeds from long-term debt borrowings, net of
issuance costs................................... -- 4,668,993
Principal payments of capital lease obligations... (2,614,895) (1,062,235)
Proceeds from issuance of common stock and
warrants, net of issuance costs.................. -- 6,542,400
----------- ------------
Net cash (used in) provided by financing
activities................................. (2,014,895) 7,275,130
----------- ------------
Net (decrease) increase in cash and cash
equivalents................................ (2,536,531) 1,122,313
Cash and equivalents, beginning of period........... 4,772,549 3,650,236
----------- ------------
Cash and equivalents, end of period................. $ 2,236,018 $ 4,772,549
=========== ============
Supplemental cash flow information:
Cash paid for interest............................ $ 4,627,294 $ 10,474,412
=========== ============
Schedule of non-cash investing and financing
activities:
Property and equipment acquisitions included in
accounts payable............................... $ 461,126 $ 171,283
=========== ============
Capitalized lease obligations incurred.......... $ 450,606 $ 5,242,336
=========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
BOARDWALK CASINO, INC.
NOTES TO FINANCIAL STATEMENTS
1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Nature of Operations
Boardwalk Casino, Inc. ("BCI" or the "Company") is a Nevada corporation and
was formed in July 1993 for the purpose of operating a casino and a hotel
(collectively, the "Boardwalk Hotel and Casino") in Las Vegas, Nevada.
Casino Revenue
In accordance with industry practice, BCI recognizes as casino revenues the
net win from gaming activities, which is the difference between gaming wins
and losses.
Promotional Allowances
The retail value of hotel accommodations, food and beverage provided to
customers without charge is included in gross revenues and then deducted as
promotional allowances to arrive at net revenues. The estimated costs of
providing such promotional allowances have been classified as casino
expenses through interdepartmental allocations, as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------
1997 1996
------------ ------------
<S> <C> <C>
Hotel.............................................. $ 126,254 $ 79,615
Food and beverage.................................. 1,046,396 923,362
------------ ------------
$ 1,172,650 $ 1,002,977
============ ============
</TABLE>
Cash Equivalents, Concentration of Credit Risk and Restricted Cash
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. At September 30,
1997, the Company has approximately $913,400 on deposit with a single
financial institution in excess of federally insured limits. At September
30, 1997 and 1996, the Company had $173,385 and $66,394, respectively on
deposit as required by the Nevada Gaming Authorities which was restricted
for use by the Company.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
by the first-in, first-out (FIFO) method.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method. Estimated useful lives for property and equipment
are 10 to 40 years for building and improvements and 5 to 7 years for
furniture and equipment. Accelerated depreciation methods are generally
used for income tax purposes. Repairs and maintenance are charged to
expense when incurred.
A gain or loss is recognized upon disposal of property and equipment, and
the asset and related accumulated depreciation and amortization amounts are
removed from the accounts.
Advertising Costs
Advertising costs are expensed as incurred and totaled $933,560 and
$387,312 for the years ended September 30, 1997 and 1996, respectively.
Preopening Costs
Preopening costs associated with the expansion of the hotel-casino are
expensed as incurred.
F-7
<PAGE>
BOARDWALK CASINO, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Deferred Costs
Costs associated with the issuance of debt are deferred and amortized over
the life of the related indebtedness using the effective interest method.
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes"
("SFAS 109"). Under SFAS 109, deferred tax assets and liabilities are
recognized for the expected future tax consequences attributable to
differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled. Under SFAS 109, the effect on deferred
tax assets and liabilities of a change in tax rates is recognized in income
in the period that includes the enactment date.
Earnings Per Share
Earnings per share is based on the weighted average number of shares of
common stock outstanding during each period. Warrants and options to
purchase common stock which were issued in 1996, 1995 and 1994 were
excluded form the calculation of earnings (loss) per share, as their
inclusion would have been anti-dilutive (by reducing the loss per share).
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS
128"). SFAS 128 is effective for periods ending after December 15, 1997 and
replaces currently reported earnings per share with "basic", or undiluted,
earnings per share and "diluted" earnings per share. Basic earnings per
share is computed based on weighted average shares outstanding while
diluted earnings per share reflects the additional dilution for all
potentially dilutive securities, such as stock options and warrants.
The Company will adopt the provisions of SFAS 128 in its fiscal 1998
financial statements and the Company will be required to retroactively
adopt this standard when it reports its operating results for the quarters
and year ended September 30, 1998. When the Company presents this
information, it expects to report the following restated amounts for 1997
and 1996:
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
------------- -------------
<S> <C> <C>
Basic earnings per share:
Income before extraordinary item............... $(.49) $(.70)
Net income (loss).............................. (.49) (.70)
Diluted earnings per share:
Income before extraordinary item............... (.49) (.70)
Net income (loss).............................. (.49) (.70)
</TABLE>
Stock-based Compensation
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation", ("SFAS 123"). SFAS 123 established fair value-based
financial accounting and reporting standards for all transactions in which
a company acquires goods or services by issuing its equity instruments or
by incurring a liability to its supplier in amounts based on the price of
its common stock or other equity instruments.
F-8
<PAGE>
BOARDWALK CASINO, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
SFAS 123 provides that companies may continue to account for employee stock
compensation plans using the accounting prescribed by Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB
25"). Companies that elect not to adopt the fair-value based accounting
approach under SFAS 123 for employee stock compensation plans must
nevertheless comply with certain disclosure requirements and disclose pro
forma net income and earnings per share as if such approach under SFAS 123
had been adopted.
The disclosure requirements of SFAS 123 are effective for financial
statements for fiscal years beginning after December 15, 1995 and the pro
forma disclosure requirements are effective for stock awards granted in the
first fiscal year beginning after December 15, 1994.
The Company plans to utilize the disclosure option allowed by SFAS 123 and
continue to account for stock-based compensation under APB 25. The Company
did not issue any stock-based compensation to employees during fiscal years
1997 and 1996.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates,
particularly with respect to those matters discussed in Notes 2 and 6.
Accounting Pronouncement
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("SFAS 130"), which establishes standards for reporting and display of
comprehensive income and its components. SFAS 130 requires a separate
statement to report components of comprehensive income for each period
presented. The provisions of SFAS 130 are effective for fiscal years
beginning after December 15, 1997. Management believes that they currently
do not have items that would require presentation in a separate statement
of comprehensive income.
Reclassifications
Certain amounts in the 1996 financial statements have been reclassified to
conform with the 1997 presentation.
2.SUBSEQUENT EVENT--ACQUISITION AGREEMENT AND GOING CONCERN
On December 22, 1997, the Company entered into a merger and acquisition
agreement (the "Acquisition Agreement") with Mirage Resorts, Incorporated
("Mirage") where the Company agreed to be acquired by Mirage. In connection
with the Acquisition Agreement, Mirage has entered into separate purchase
agreements (the "Stock Agreements") with certain selling shareholders of
the Company to purchase their respective shares of common and preferred
stock. The preferred stock was issued by the Company in October 1997, as
more fully described in Note 10. The Stock Agreements, which are subject to
regulatory approval, provide Mirage with an approximate 53% interest in the
Company. The Acquisition Agreement also authorizes Mirage to purchase all
of the remaining outstanding shares (the remaining 47% interest) of the
Company's common stock for $5.00 per share (the closing price of the
Company's common stock on the day prior to the execution of the Acquisition
Agreement was $4.16). Completion of the Acquisition Agreement is subject to
regulatory approval and approval of a majority of the Company's
shareholders and is to be completed by no later than June 30, 1998 or the
Acquisition Agreement is subject to termination
F-9
<PAGE>
BOARDWALK CASINO, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
and the Company will become liable to Mirage for $1,000,000. Under the
terms of the Stock Agreements, the selling shareholders have agreed with
Mirage to vote in favor of the Acquisition Agreement, should such vote take
place prior to the closing of Stock Agreements.
Under the terms of the Acquisition Agreement, all issued and outstanding
warrants and stock options (other than options issued under the Company's
1994 Stock Compensation Plan or Outside Directors Stock Option Plan) will
terminate or constitute only the right to receive the excess, if any, of
the per share merger consideration ($5.00) over the per share exercise
price of such warrant or option.
As part of the Stock Agreements, Mirage (i) on January 5, 1998 purchased
from one of the selling shareholders the $5,000,000 note payable by the
Company which is due on September 30, 1998 (as more fully described in Note
6), and (ii) will acquire a land parcel from one of the selling
stockholders which is adjacent to the Company's hotel-casino and currently
under lease to the Company (as more fully described in Note 10). One of the
selling shareholders has agreed to terminate rights granted under the
Memorandum of Understanding executed in October 1997, for consideration of
approximately $3,700,000 from Mirage.
During fiscal 1997, and prior to the execution of the Acquisition Agreement
and the Stock Agreements, Mirage acquired the $40,000,000 First Mortgage
Notes (the "BCI Notes") from the previous noteholder in a private placement
transaction. In connection with the Acquisition Agreement, Mirage has
agreed to defer the $3,300,000 March 31, 1998 interest payment on the BCI
Notes until September 30, 1998, at the Company's option (the "Deferral
Option"). Interest will accrue on the deferred interest at the same rate as
the BCI Notes (16.5%) and will also be due and payable on September 30,
1998. Mirage also waived its redemption rights under the BCI Notes which
become effective upon a change in control.
Notwithstanding the Deferral Option, management of the Company believes
that the combination of existing cash and cash flows from operations will
not be sufficient to meet the Company's obligations as they become due
during fiscal 1998. These obligations include scheduled interest payments
on the BCI Notes (approximately $6,600,000 for the year) and the scheduled
interest and principal repayment on the $5,000,000 note payable due
September 30, 1998. Management expects that the need for cash will be
significantly relieved upon completion of the Acquisition Agreement and
merger with Mirage. However, as more fully described above, the Acquisition
Agreement is subject to certain conditions, including regulatory and
shareholder approvals. Should the Acquisition Agreement not be approved, or
should the closing be delayed, the Company would not have sufficient
resources to pay interest and scheduled principal of the indebtedness
acquired by Mirage, without modification of the terms of such indebtedness.
There is no assurance that the Acquisition Agreement will be approved, that
such approval would be received on a timely basis, nor that modifications
to the terms of the indebtedness would be obtained, if necessary.
Accordingly, these matters raise substantial doubt about the ability of the
Company to continue as a going concern. The final outcome of these matters
is not presently determinable and the September 30, 1997 financial
statements of the Company do not include any adjustment that might result
from the outcome of this uncertainty.
F-10
<PAGE>
BOARDWALK CASINO, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3.PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------
1997 1996
----------- -----------
<S> <C> <C>
Land and improvements.............................. $ 3,218,499 $ 3,042,769
Buildings and improvements......................... 47,499,476 38,736,144
Gaming equipment................................... 6,574,006 6,163,617
Furniture and other equipment...................... 8,790,209 8,077,178
----------- -----------
66,082,190 56,019,708
Less: accumulated depreciation..................... (8,885,392) (5,705,685)
----------- -----------
57,196,798 50,314,023
Construction in progress........................... 108,659 5,172,262
----------- -----------
$57,305,457 $55,486,285
=========== ===========
</TABLE>
Construction in progress at September 30, 1996 represents costs associated
with an expansion of the second floor of the casino which included
entertainment and meeting room space and a buffet facility. The second
floor construction was substantially completed in June 1997 at a total cost
of approximately $7,500,000. Construction in progress at September 30, 1997
represents architectural plans and construction costs related to the porte
cochere and bridge between the parking garages and the casino.
4.NOTES PAYABLE:
In November 1995, the Company executed a $600,000, 10% uncollateralized
promissory note with principal and interest due in May 1996. The note was
paid off with no gain or loss in September 1996 with proceeds from the
$5,000,000 subordinated, convertible note payable executed in September
1996 as more fully described in Note 6.
In December 1995, the Company executed a $500,000, 12% uncollateralized
promissory note to the Company's majority shareholder and CEO with
principal and interest due in September 1996. The note was paid off with no
gain or loss in September 1996 with proceeds from the $5,000,000
subordinated, convertible note payable executed in September 1996 as more
fully described in Note 6.
In March 1996, the Company executed a $500,000, 10% uncollateralized
promissory note to a director of the Company with principal and interest
due in September 1996. The note was paid off with no gain or loss in
September 1996 with proceeds from the $5,000,000 subordinated, convertible
note payable executed in September 1996 as more fully described in Note 6.
In March 1996, the Company executed a $750,000, 12% uncollateralized
promissory note to the Company's majority shareholder and CEO with
principal and interest due in September 1996. The note was paid off with no
gain or loss in September 1996 with proceeds from the $5,000,000
subordinated convertible note payable executed in September 1996, as more
fully described in Note 6.
In March 1997, the Company issued a $600,000 short-term note with 13.5%
annual interest payable monthly with the principal due September 25, 1997,
to a private investor who has provided other short-term financing to the
Company in the past. The note's principal and interest were paid in October
1997, with the proceeds from sale of preferred shares as more fully
described in Note 6.
F-11
<PAGE>
BOARDWALK CASINO, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5.LEASES:
The Company has entered into capital lease agreements whereby the Company
leases various equipment under two-, three-, five-, seven-, and twenty-year
leases which expire at various dates through 2015.
Capital lease obligations consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------
1997 1996
----------- -----------
<S> <C> <C>
Capital lease obligation, interest rate of prime
plus 3%, monthly principal and interest payments
of $57,744 through August 1998, collateralized by
slot equipment................................... $ 599,661 $ 1,519,684
Capital lease obligation, effective interest rate
of 12.50%, due in monthly installments of
$41,817, including interest, through November
1998, collateralized by casino and hotel equip-
ment............................................. 542,134 948,248
Capital lease obligation, interest rate of 10%,
semi-annual principal and interest payments of
$20,721 through August 2015, uncollateralized.... 320,201 337,988
Capital lease obligation, effective interest rate
of 12.50%, due in monthly installments of $23,418
through May 1999, collateralized by slot
equipment........................................ 382,683 600,732
Capital lease obligation, effective interest rate
of 12.50%, due in monthly installments of $61,794
through September 1999, collateralized by hotel
furniture, fixtures and equipment................ 1,315,172 1,822,938
Capital lease obligations, effective interest
rates ranging from 9.36% to 12.90%, due in aggre-
gate monthly installments of $7,619, and ending
at various times in 2001, collateralized by phone
equipment........................................ 286,053 346,070
Capital lease obligation, effective interest rate
of 12.50%, due in monthly installments of $9,083
through October 2000, collateralized by signage
equipment........................................ 271,595 347,222
Other............................................. 633,898 592,874
----------- -----------
4,351,397 6,515,756
Less amounts classified as current................ (2,517,920) (3,115,522)
----------- -----------
$ 1,833,477 $ 3,400,234
=========== ===========
</TABLE>
Property and equipment include the following property leased under capital
leases as of September 30, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Cost of equipment under capital leases............. $ 7,125,873 $ 7,001,501
Less, accumulated depreciation..................... (1,777,304) (1,018,864)
----------- -----------
$ 5,348,569 $ 5,982,637
=========== ===========
</TABLE>
F-12
<PAGE>
BOARDWALK CASINO, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Future minimum lease payments, by year and in the aggregate, under capital
leases with initial or remaining terms of one year or more consist of the
following at September 30, 1997.
<TABLE>
<S> <C>
1998............................................................ $ 2,801,265
1999............................................................ 1,341,589
2000............................................................ 283,719
2001............................................................ 102,388
2002............................................................ 18,724
Thereafter...................................................... 231,311
-----------
Total minimum lease payments.................................. 4,778,996
Less amount representing interest............................... (427,599)
-----------
Present value of minimum lease payments....................... 4,351,397
Less current portion............................................ (2,517,920)
-----------
Long-term obligations under capital leases.................... $ 1,833,477
===========
</TABLE>
Total aggregate rental expense under various operations leases, including
the rental expense under the office building lease, as more fully described
in Note 10, for the years ended September 30, 1997 and 1996 was $1,064,292
and $366,780, respectively.
The Company leases as lessor certain retail space in its casino facilities
under operating lease agreements. Additionally, as more fully described in
Note 10, in October 1997, the Company began subleasing (as lessor under
operating lease agreements) certain office and retail space in a building
it leases from its majority shareholder. The leases are short-term and
renewable based upon mutual agreement between the Company and the lessee.
Rental income under these agreements totaled $807,169 and $230,566 for the
years ended September 30, 1997 and 1996, respectively.
6.TERM DEBT:
As more fully described in Note 2, management of the Company believes that
the combination of existing cash and cash flows from operations will not be
sufficient to meet the scheduled interest payments on the $40,000,000 First
Mortgage Notes and the scheduled interest and principal repayment on the
$5,000,000 shareholder note payable, which would cause the Company to
violate the respective provisions of the note agreements and cause the debt
to be immediately due and payable. Accordingly, the term debt has been
classified as a current obligation as of September 30, 1997.
Term debt consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------------
1997 1996
----------- -----------
<S> <C> <C>
$40,000,000, 16.50% First Mortgage Notes due March
31, 2005 (the "BCI Notes") with interest payable
semi-annually, net of unamortized original issue
discount of $3,875,773 (1997) and $4,090,477
(1996) (a)........................................ $36,124,227 $35,909,523
Eurodollar rate plus 2% convertible subordinated
note payable to a shareholder, due September 30,
1998 with interest payable
quarterly (b)..................................... 5,000,000 5,000,000
----------- -----------
$41,124,227 $40,909,523
=========== ===========
</TABLE>
F-13
<PAGE>
BOARDWALK CASINO, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(a) On April 11, 1995, the Company completed a private placement of the BCI
Notes. The offering generated net proceeds of approximately $38,449,000
after deducting debt issuance costs. The BCI Notes are collateralized
by a first mortgage on substantially all of the assets of the Company,
including the expansion project. The Company recorded an original issue
discount of $4,345,772 in connection with the BCI Notes, related to the
issuance of 1,908,692 warrants to purchase common stock (exercisable at
$6.00 per share), based on the estimated market value of the warrants
at the date of issuance. Terms of the warrants are more fully described
in Note 7.
The Indenture governing the BCI Notes (the "Indenture") limited the use
of the net proceeds from the offering to fund the cost of a hotel and
casino expansion completed in 1996 (the "Expansion"). The proceeds were
placed in escrow with a trustee pending draw-downs for qualifying
project expenditures and were classified as restricted cash
equivalents. All of the proceeds from the BCI Notes were used as of
September 30, 1996. The BCI Notes are not subject to mandatory
redemption, except upon a change of control, decline in net worth, or
certain asset sales, all as defined in the Indenture. The Company has
the option to redeem the BCI Notes, beginning after September 2001 at a
premium, as defined in the Indenture.
The Indenture contains covenants that, among other things, limit the
ability of the Company to pay dividends or incur additional
indebtedness. Additional indebtedness is limited to $5,000,000 of
additional uncollateralized debt issuances and $7,000,000 of equipment
leases of which the recourse portion cannot exceed $2,000,000. The
Indenture also requires the Company to maintain a minimum net worth.
The net worth can be no less than the sum of $6,000,000 plus the
proceeds from the sale of common stock and 50% of the net income of the
Company for all periods beginning after April 1, 1995 (any net loss
during that period may not be deducted for purposes of the
calculation).
As of September 30, 1997, the Company was in default of certain debt
covenants under the Indenture. These covenant violations included: (i)
the Company entered into recourse debt agreements totaling
approximately $480,000 which were in excess of the $2,000,000 allowed
by the Indenture; (ii) certain payable balances incurred in the
ordinary course of business remained unpaid in excess of 60 days as of
September 30, 1997; and (iii) in March 1997, the Company issued a
$600,000 uncollateralized note payable to an unrelated third party
which is in excess of the $5,000,000 of uncollateralized indebtedness
allowed by the Indenture. In addition to the above matters, the Company
made its September 30, 1997 interest payment related to the BCI Notes
on October 29, 1997 which was within a 30 day grace period allowed for
by the Indenture.
During the first quarter of fiscal 1998, the Company cured the above
defaults under the Indenture. The terms of one of the recourse debt
agreements were modified to state that the agreement was no longer with
recourse and the unpaid principal balances of the other recourse debt
agreements were paid by the Company with cash flows from operations.
The Company has also paid the certain payable balances incurred in the
ordinary course of business which were in excess of 60 days past due
with cash flows from operations.
On October 29, 1997, the Company entered into a Memorandum of
Understanding with a shareholder of the Company (the "Memorandum"). In
connection with the Memorandum, and as more fully described in Note 10,
the Company raised $3,250,000 through the issuance of 3,250 shares of
$.001 preferred stock at a price of $1,000 per share to certain related
parties. Proceeds from the preferred stock issuance were used to make
the Company's September 30, 1997 interest payment in relation to the
BCI Notes and retire the $600,000 uncollateralized note payable
described in item (iii) above.
(b) In September 1996, the Company executed a $5,000,000 subordinated,
convertible promissory note collateralized by a second deed of trust on
the assets of the Company. Interest is payable quarterly at the
applicable Eurodollar rate plus 2% with principal due September 23,
1998 if not converted by the
F-14
<PAGE>
BOARDWALK CASINO, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
noteholder. In connection with the Memorandum, the conversion rights of
the note were canceled by the Company with mutual agreement of the
noteholder.
The note agreement includes certain covenants that, among others things,
limit the ability of the Company to pay dividends, sell certain assets
or incur indebtedness not allowed by the Indenture. As discussed above,
the Company incurred additional indebtedness which was not allowed by
the Indenture. However, these defaults were cured during the first
quarter of fiscal 1998.
The weighted average interest rate on notes payable, term debt, and
capital leases outstanding as of September 30, 1997 and 1996 was
approximately 15%.
7.SHAREHOLDERS' EQUITY:
A summary of the Company's equity transactions and issuances of warrants to
purchase common stock are summarized in the following paragraphs. At
September 30, 1997, 1996 and 1995, the Company had the following warrants
to purchase shares of common stock outstanding:
<TABLE>
<CAPTION>
WARRANTS WARRANTS
ISSUED IN ISSUED IN
WARRANTS CONNECTION CONNECTION
1994 BRIDGE ISSUED IN WITH ISSUANCE WITH PRIVATE
FINANCING CONNECTION WITH OF BCI PLACEMENT
AND IPO (A) NOTES PAYABLE (B) NOTES (C) OFFERING (D) TOTAL
----------- ----------------- ------------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Exercise price.......... $5.00 $5.625, $6.00 $6.00 $7.50
and $8.00
Expiration date......... Feb. 1998 Mar. 1996 to April 2000 to June 2000
Sept. 2000 Apr. 1, 2005
Balances, September 30,
1995................... 3,967,200 208,000 1,908,692 -- 6,083,892
Issued................ -- -- -- 75,000 75,000
Exercised............. (380,200) -- -- -- (380,200)
--------- ------------- ------------- --------- ---------
Balances, September 30,
1996................... 3,587,000 208,000 1,908,692 75,000 5,778,692
Issued................ -- -- -- -- --
Exercised............. -- -- -- -- --
--------- ------------- ------------- --------- ---------
Balances, September 30,
1997................... 3,587,000 208,000 1,908,692 75,000 5,778,692
========= ============= ============= ========= =========
</TABLE>
(a)1994 bridge financing, common stock offering and warrant exercises:
In 1994, the Company issued 450,000 warrants to purchase its common
stock in connection with a bridge financing (the "Bridge Warrants").
Each Bridge Warrant entitles the holder thereof to purchase one share of
common stock at an exercise price of $5.00 per share and expires in
February 1998. The Bridge Warrants contain provisions that protect the
bridge warrantholders against dilution by adjustment of the exercise
price in certain events including, but not limited to, stock dividends,
stock splits, reorganizations or mergers. Upon completion of the initial
public offering of the Company's common stock in February 1994, the
Bridge Warrants were automatically converted into warrants identical to
the Offering Warrants (described below). A bridge warrantholder does not
possess any rights as a shareholder of the Company.
The Company may redeem the Bridge Warrants at a price of $0.001 per
Bridge Warrant upon 60 days' prior written notice if the closing bid
quotation of the common stock has been at least $10.00 on all 20 of the
trading days ending on the third day prior to the day on which notice of
redemption is given.
On February 11, 1994, the Company completed an initial public offering
of its common stock. The Company issued 1,840,000 shares of common stock
at a selling price of $5.00 per share and issued
F-15
<PAGE>
BOARDWALK CASINO, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3,680,000 warrants (the "Offering Warrants") at a selling price of
$0.10 per warrant. The Company received net proceeds of $7,706,109 for
the stock and warrants, after deducting underwriters' commissions and
offering expenses.
Each Offering Warrant entitles the holder thereof to purchase one share
of common stock at a price of $5.00 per share until February 11, 1998,
at which time the Offering Warrant expires. The Offering Warrants
contain provisions that protect the warrantholders against dilution by
adjustment of the exercise price in certain events including, but not
limited to, stock dividends, stock splits, reorganizations or mergers.
A warrantholder does not possess any rights as a shareholder of the
Company.
The Company may redeem the Offering Warrants at a price of $0.001 per
Warrant upon 60 days' prior written notice if the closing bid quotation
of the common stock has been at least $10.00 on all 20 of the trading
days ending on the third day prior to the day on which notice of
redemption is given.
In connection with the offering, the Company also sold the underwriter,
for $100, an option (the "Option") to purchase 160,000 shares of common
stock and 320,000 Warrants. The Option has an exercise price of $7.00
per share of common stock and $0.14 per Warrant (140% of the respective
original offering prices). The Option is exercisable for a 36-month
period, commencing on February 11, 1995 and expiring on February 11,
1998.
During 1996, 380,200 warrants to purchase the Company's common stock
were exercised for an equal number of shares of the Company's common
stock. All of the warrants had an exercise price of $5.00, resulting in
net proceeds to the Company of $1,850,955 after issuance costs.
(b)1995 bridge financing transactions:
The Company issued 50,000 warrants to purchase its common stock in
connection with $1,000,000 of bridge loans, which loans have been
repaid. Each warrant entitles the holder thereof to purchase one share
of common stock at an exercise price of $6.00 per share. The warrants
expire in February 2000. The warrants contain provisions that protect
the warrantholders against dilution by adjustment of the exercise price
in certain events including, but not limited to, stock dividends, stock
splits, reorganizations or mergers. A warrantholder does not possess
any rights as a shareholder of the Company.
The Company issued 150,000 warrants to purchase its common stock in
connection with a 10% note payable issued in 1995, which note has been
repaid. Each warrant entitles the holder thereof to purchase one share
of common stock at an exercise price of $5.625 per share. The warrants
are exercisable between March 1996 and September 2000. The warrants
contain provisions that protect the warrantholders against dilution by
adjustments of the exercise price in certain events including, but not
limited to, stock dividends, stock splits, reorganizations or mergers.
A warrantholder does not possess any rights as a shareholder of the
Company.
The Company issued 8,000 warrants to purchase its common stock in
connection with a $400,000, 12% note payable issued in 1995, which note
has been repaid. Each warrant entitles the holder thereof to purchase
one share of common stock at an exercise price of $8.00 per share. The
warrants expire in September 2005. A warrantholder does not possess any
rights as a shareholder of the Company.
(c)BCI Notes offering:
As discussed in Note 6, the Company issued 1,908,692 warrants to
purchase its common stock in connection with the BCI Notes. Each
warrant entitles the holder thereof to purchase one share of common
stock at an exercise price of $6.00 per share and 626,823 and 1,281,869
of the warrants expire in April 2000 and April 2005, respectively. The
warrants contain provisions that protect the
F-16
<PAGE>
BOARDWALK CASINO, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
warrantholders against dilution by adjustment of the exercise price in
certain events including, but not limited to, stock dividends, stock
splits, reorganizations or mergers. A warrantholder does not possess
any rights as a shareholder of the Company.
(d)1996 private placement equity offering:
During 1996, the Company completed a private placement offering in
which it issued 150,000 shares of its common stock for $6.25 per share.
In connection with the issuance of the common stock, the Company also
sold 75,000 warrants to purchase common stock for $.25 per warrant.
Each warrant entitles the holder thereof to purchase one share of
common stock at a price of $7.50 per share until June 2000, at which
time the warrant expires. The Company received net proceeds of $956,250
for the issuance of the stock and warrants.
September 1996 Private Placement Equity Offering
In September 1996, the Company completed a private placement offering of
571,429 shares of its common stock at a selling price of $7.00 per share.
The Company received net proceeds of $3,735,195 for the stock, after
deducting offering expenses.
Increase in Authorized Shares of Common Stock
In December 1996, the Company's shareholders voted to amend the Company's
articles of incorporation to increase the number of authorized shares of
common stock from 15,000,000 to 50,000,000.
Stock Option Plans
On April 26, 1994, the Board of Directors adopted (and on March 15, 1995
the shareholders approved) the 1994 Stock Compensation Plan (the "1994
Plan"). The 1994 Plan provides that incentive stock options and
nonqualified stock options may be granted to certain officers, directors
(other than Outside Directors), employees and advisors of the Company or
its subsidiaries, if any, selected by the Compensation Committee.
The Company has granted a total of 745,000 options exercisable at prices
ranging from $6.25 to $9.00 expiring between April 26, 1999 and September
26, 2005. The options were granted at exercise prices equal to the fair
market value (or in the case of options granted to the president and
majority shareholder at 110% of market value) as of the date of grant. The
options vest in 25% increments annually, subject to acceleration upon a
change in control of the Company, as defined in the 1994 Plan agreement.
The grants of 450,000 of the options described above were subject to
shareholder approval of an increase in the authorized number of shares
reserved for issuance under the 1994 Plan to 2,000,000 shares. Such
approval was received during 1996.
No options were granted in the years ended September 30, 1996 or 1997.
Outside Directors Stock Option Plan
On April 26, 1994, the Board of Directors adopted (and on March 15, 1995
the shareholders approved) the Outside Directors Stock Option Plan (the
"Plan").
The Company has granted nonqualified options to three of its directors to
purchase 100,000 shares of the Company's common stock. The options are
exercisable at prices of $6.75 and $6.25 expiring between April
F-17
<PAGE>
BOARDWALK CASINO, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
26, 2004 and April 26, 2005. The foregoing options were granted at an
exercise price equal to the fair market value of the common stock as of the
date of grant. The options vest in 25% increments annually, subject to
acceleration upon a change in control of the Company, as defined in the
Plan agreement.
No options were granted in the years ended September 30, 1996 or 1997.
8.INCOME TAXES:
For the fiscal years ended September 30, 1997 and 1996, the Company
incurred net operating losses for federal income tax purposes, and
accordingly, these financial statements do not include a provision for
federal income taxes.
The following is a reconciliation of income taxes at the Federal statutory
rate with income taxes recorded by the Company:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Tax benefit computed at federal statutory income
tax rate (35%)................................. $(1,220,000) $(1,545,000)
Unrecognized tax benefit from operating losses.. 1,163,000 1,494,000
Other, net...................................... 57,000 51,000
----------- -----------
Total income tax provision (benefit).......... $ -- $ --
=========== ===========
</TABLE>
Deferred income taxes reflect the net effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred tax assets and liabilities
consist of the following at September 30, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Deferred tax assets:
Federal net operating loss carryforward.......... $ 5,008,000 $ 3,524,000
Gaming tax assessment............................ 194,000 175,000
Other............................................ 44,000 30,000
----------- -----------
Total deferred tax assets...................... 5,246,000 3,729,000
----------- -----------
Deferred tax liabilities:
Depreciation..................................... (882,000) (674,000)
----------- -----------
Total deferred tax liabilities................. (882,000) (674,000)
----------- -----------
Valuation allowance................................ (4,364,000) (3,055,000)
----------- -----------
Net deferred taxes............................. $ -- $ --
=========== ===========
</TABLE>
No income tax provision (benefit) has been recorded in the 1997 and 1996
financial statements, and the Company operates wholly in Nevada and,
therefore, has no state income tax liability.
Management has considered certain tax planning strategies as permitted by
SFAS 109. However, management has determined that tax benefits associated
with net recorded tax assets will most likely not be realized through
future taxable income. Accordingly, a full valuation allowance has been
recorded against the net deferred tax assets of the Company.
As of September 30, 1997, the Company had federal net operating loss
carryforwards of approximately $14,307,000 which expire between 2009 and
2012.
F-18
<PAGE>
BOARDWALK CASINO, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
9.COMMITMENTS AND CONTINGENCIES:
The Company has pending certain legal actions and claims incurred in the
normal course of business and is actively pursuing the defense thereof. In
the opinion of management, these actions and claims are either without
merit or are covered by insurance and will not have a material adverse
effect on the Company's financial position, results of operations or cash
flows.
Holiday Inn(R) Franchise Agreement
The Company was granted a Holiday Inn(R) ten-year franchise license on June
16, 1994 after completing renovation of its existing hotel, consisting of
126 rooms in a high-rise tower and 75 annex rooms. The agreement required
an original application fee of $77,500 and a fee of $125,400 for an
additional 451 rooms opened in the expansion (which is reflected in other
assets and is being amortized over the life of the agreement). The
agreement provides that the Company will pay to Holiday Inn(R) (i) a
monthly royalty of 5% of the gross rooms revenues; (ii) a "marketing
contribution" of 1.5% of the gross rooms revenues; (iii) a "reservation
contribution" of 1.0% of the gross rooms revenues; and (iv) a monthly
Holidex fee of $6.43 for each guest room. The license granted under the
agreement expires ten years from the date of the opening of the hotel under
the "Holiday Inn" system, subject to earlier termination as set forth
therein.
Gaming Tax Assessment
As of September 30, 1997, based on the advice of legal counsel, the Company
has accrued approximately $555,000 (which includes $64,000 of accrued
interest) related to an anticipated gaming tax assessment from the Nevada
Gaming Control Board ("NGCB"). The NGCB has audited the Company's gaming
tax returns in 1996 and the Company believes it is probable that the NGCB
will determine that the Company has improperly deducted certain promotional
wagers by patrons in calculating gross revenue for gaming tax purposes. The
Company plans to appeal an assessment; however, the likelihood of a
successful outcome cannot be determined.
10.RELATED-PARTY TRANSACTIONS:
Office Space Lease
During October 1997, the Company modified the existing lease agreement for
office space and storage facilities for its corporate offices from its
majority shareholders to increase the rent to $70,000 per month. The
modified lease term is for two years and allows the Company to use the
facilities for any purpose. The Company has options to extend the lease up
to an additional 28 years. Total aggregate rental expense related to the
office space and storage facilities was $840,000 and $101,375 for the years
ended September 30, 1997 and 1996, respectively. The lease agreement
entitles the Company to the rental income from the existing leases during
the lease term. The existing leases are on short-term, renewable leases
with current rents totaling approximately $28,000 per month.
The lease agreement also allowed the Company the first right of refusal to
purchase the land and building at their fair value should the shareholder
decide to sell them (the "First Refusal Right").
The Company has accrued $350,000 of rental payments in relation to the
office lease which is reflected as a current obligation as of September 30,
1997. Effective November 1, 1997, in connection with the Memorandum
described below, the Company has the option to defer payment of up to
$40,000 per month of the rent due under the office space lease until the
earlier of November 1, 1998 or the date of a sale of the building and land.
F-19
<PAGE>
BOARDWALK CASINO, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Memorandum Of Understanding
On October 27, 1997, the Company entered a Memorandum of Understanding (the
"Memorandum") with a shareholder of the Company. Such shareholder had
previously lent the Company $5,000,000 under a note payable due September
23, 1998, as more fully described in Note 6. The Memorandum called for the
Company to issue 3,250 shares of $.001 par value, 6% non-voting, cumulative
preferred stock, series A ("Preferred Stock") at a price of $1,000 per
share. The offering generated proceeds of $3,250,000. As more fully
described in Note 6, proceeds from the preferred stock issuance were used
to make the Company's September 30, 1997 interest payment in relation to
the BCI Notes and retire a $600,000 uncollateralized note payable. The
shareholder also acquired the First Refusal Right.
The Preferred Stock has a liquidation preference over the Company's common
stock in the event of liquidation. The Company shall be permitted to redeem
the Preferred Stock only upon the written request of any holder thereof on
or after April 1, 2005 at a price of $1,000 per share, plus all accrued and
unpaid dividends.
The Memorandum includes an option issued to the purchasing shareholder to
purchase up to an additional 15,000 shares of Preferred Stock at a purchase
price of $1,000 per share. The option expires on October 29, 1999. The
Memorandum also restricts the Company from modifying, extending or changing
the strike price of the terms of any of the warrants to purchase common
stock outstanding as of the date of the Memorandum.
In connection with the Memorandum, the shareholder also agreed to undertake
a feasibility study of a $20,000,000 development on the land (the
"Project"), which includes a termination fee of $2,000,000 payable by the
Company to the shareholder upon the occurrence of certain events which
interfere with or negatively impact the Project including the sale of the
land and building to another party.
Holiday Gifts, Inc.
The Company leases retail space, as lessor, in the above-described
facilities to Holiday Gifts, Inc. (HGI), a company affiliated through
common ownership. During the years ended September 30, 1997 and 1996,
rental income from HGI was $62,000 and $11,000, respectively. Rental income
from HGI is based at $5,000 per month plus 10% of sales over the $5,000
base.
11.FAIR VALUE OF FINANCIAL INSTRUMENTS:
The estimated fair value of the Company's financial instruments has been
determined by the Company using available market information and
appropriate valuation methodologies. The carrying amounts of cash and cash
equivalents, accounts receivable, accounts payable, capital lease
obligations and notes payable approximate their respective fair values due
to the short-term maturities and approximate market interest rates of these
instruments. As of September 30, 1997, the fair market value of the BCI
Notes is estimated to be approximately $50,500,000.
F-20
<PAGE>
ANNEX A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
DATED
DECEMBER 22, 1997
AMONG
MIRAGE RESORTS, INCORPORATED
MIRAGE ACQUISITION SUB, INC.
AND
BOARDWALK CASINO, INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
ARTICLE I THE MERGER................................................ A-1
1.1 The Merger................................................ A-1
1.2 Effective Time............................................ A-2
1.3 Closing................................................... A-2
1.4 Directors and Officers of the Surviving Corporation....... A-2
1.5 Stockholders' Meeting..................................... A-2
ARTICLE II CONVERSION OF SHARES...................................... A-3
2.1 Conversion of Capital Stock............................... A-3
2.2 Exchange of Certificates.................................. A-4
ARTICLE III [Intentionally Omitted]................................... A-4
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY............. A-5
4.1 Organization and Qualification............................ A-5
4.2 Capitalization of the Company............................. A-5
4.3 Power and Authority....................................... A-6
4.4 Board Recommendations; Anti-takeover Provisions........... A-6
4.5 Compliance................................................ A-7
4.6 Consents and Approvals; No Violation...................... A-8
4.7 Assignment of MOU......................................... A-9
4.8 SEC Reports; Financial Statements, Absence of Undisclosed
Liabilities.............................................. A-9
4.9 Absence of Certain Changes................................ A-9
4.10 Company Proxy Statement................................... A-10
4.11 Absence of Litigation..................................... A-10
4.12 Taxes..................................................... A-11
4.13 Employee Benefits......................................... A-11
4.14 Intellectual Property..................................... A-13
4.15 Material Contracts........................................ A-14
4.16 Insurance................................................. A-14
4.17 Labor Matters............................................. A-14
4.18 Real Property............................................. A-15
4.19 Environmental Matters..................................... A-16
4.20 Representations Complete.................................. A-18
4.21 Disclosure Schedule....................................... A-18
ARTICLE V REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB... A-18
5.1 Organization.............................................. A-18
5.2 Authority Relative to this Agreement...................... A-18
5.3 Consent and Approvals; No Violation....................... A-19
5.4 Information Supplied...................................... A-19
5.5 Merger Sub's Operations................................... A-19
5.6 Capitalization............................................ A-19
5.7 Financing................................................. A-19
ARTICLE VI CONDUCT OF BUSINESS BY THE COMPANY PRIOR TO EFFECTIVE
DATE..................................................... A-20
6.1 Ordinary Course........................................... A-20
6.2 Dividends; Changes in Stock............................... A-20
6.3 Issuance, Repurchase or Repricing of Securities........... A-20
6.4 Governing Documents; Board of Directors................... A-20
6.5 No Dispositions........................................... A-20
6.6 Indebtedness.............................................. A-20
</TABLE>
A-i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
6.7 Employees and Affiliates................................... A-20
6.8 Benefit Plans.............................................. A-21
6.9 Taxes...................................................... A-21
6.10 Consultation and Cooperation............................... A-21
6.11 Additional Matters......................................... A-21
6.12 Consent to Stockholder Agreements and Release.............. A-22
ARTICLE VII ADDITIONAL COVENANTS....................................... A-22
7.1 No Solicitation............................................ A-22
7.2 Access to Information; Confidentiality..................... A-23
7.3 HSR Act.................................................... A-24
7.4 Consents and Approvals..................................... A-24
7.5 Closing of Stockholder Agreements; Parent Obligation to
Effect Merger Once Stockholder Agreements Fully
Consummated............................................... A-25
7.6 Notification of Certain Matters............................ A-25
7.7 Additional Actions......................................... A-25
7.8 Interference with Transactions............................. A-26
7.9 Publicity.................................................. A-26
7.10 Opinion of Company Counsel................................. A-26
7.11 Resignation of Directors................................... A-26
7.12 Parent Consent to Merger................................... A-26
7.13 Parent Consent to Deferral of March Interest Payment on
First Mortgage Notes...................................... A-26
ARTICLE VIII CONDITIONS................................................. A-27
8.1 Conditions to each Party's Obligations to Effect the
Merger.................................................... A-27
8.2 Conditions to Obligations of Parent and Merger Sub to
Effect the Merger......................................... A-27
ARTICLE IX TERMINATION................................................ A-28
9.1 Termination................................................ A-28
9.2 Effect of Termination...................................... A-29
ARTICLE X GENERAL PROVISIONS......................................... A-30
10.1 Fees and Expenses.......................................... A-30
10.2 Amendment and Modification................................. A-30
10.3 Nonsurvival of Representations and Warranties.............. A-31
10.4 Notices.................................................... A-31
10.5 Definitions; Interpretation................................ A-31
10.6 Specific Performance....................................... A-32
10.7 Counterparts............................................... A-32
10.8 Entire Agreement; No Third Party Beneficiaries............. A-32
10.9 No Control of the Company by Parent Under Gaming Laws...... A-32
10.10 Severability............................................... A-32
10.11 Governing Law.............................................. A-32
10.12 Assignment................................................. A-32
10.13 No Prior Agreements........................................ A-32
</TABLE>
A-ii
<PAGE>
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (this "Agreement") is entered into on
December 22, 1997, by and among Mirage Resorts, Incorporated, a Nevada
corporation, located at 3400 Las Vegas Boulevard South, Las Vegas, Nevada
89109 ("Parent"), Mirage Acquisition Sub, Inc, a Nevada corporation and
wholly-owned subsidiary of Parent, located at 3400 Las Vegas Boulevard South,
Las Vegas, Nevada 89109 ("Merger SUB"), and Boardwalk Casino, Inc., a Nevada
corporation, located at 3750 Las Vegas Boulevard South, Las Vegas, Nevada
89109 (the "Company').
Recitals
WHEREAS, Parent and the Board of Directors of Merger Sub have determined
that it is advisable and in the best interests of Parent and Merger Sub to
engage in a transaction whereby Parent will acquire the Company on the terms
and subject to the conditions set forth herein; and
WHEREAS, the Board of Directors of the Company has determined that it is
advisable and in the best interests of the Company and its stockholders to
engage in a transaction whereby Parent will acquire the Company on the terms
and subject to the conditions set forth in this Agreement; and
WHEREAS, as an inducement to Parent to acquire the Company, and as a
condition to Parent's willingness to enter into this Agreement, concurrently
with the execution and delivery of this Agreement, Jeffrey P. Jacobs and
certain of his affiliates (collectively "Jacobs"), and Avis Jansen, on behalf
of herself, the Estate of Norbert W. Jansen and the Jansen Family Trust
(collectively, "Jansen"), have each executed agreements with Parent, dated the
date hereof (collectively, the "Stockholder Agreements") pursuant to which
Jacobs and Jansen (individually, a "Selling Stockholder"; and collectively,
the "Selling Stockholders") have agreed, among other things, to sell to Parent
or Merger Sub all of their shares of common stock, par value $.001 per share,
of the Company (hereinafter referred to as either the "Shares" or the "Company
Common Stock") and the Company's 6% Non-Voting Cumulative Preferred Shares,
Series A (the "Preferred Shares"), and, pursuant to the Stockholder Agreements
with Jansen, the parties have agreed to certain amendments to the lease
agreement pursuant to which Jansen operates a gift shop upon the Company's
premises and that Parent will purchase from Jansen, and Jansen will sell to
Parent, certain real estate currently leased to the Company; and
WHEREAS, Parent and the respective Boards of Directors of Merger Sub and the
Company have approved the merger (the "Merger") of Merger Sub into the
Company, upon the terms and subject to the conditions set forth in this
Agreement, whereby each issued and outstanding share of Company Common Stock
not owned directly or indirectly by Parent or the Company, except shares of
Company Common Stock held by persons who object to the Merger and comply with
all the provisions of Nevada law concerning the rights, if any, of holders of
Company Common Stock to dissent from the Merger and demand appraisal of their
shares of Company Common Stock (each, a "Dissenting Stockholder"), will be
converted into the right to receive $5.00 per share in cash.
NOW, THEREFORE, in consideration of the premises and the representations,
warranties and agreements contained herein, the parties hereto agree as
follows:
ARTICLE I
The Merger
1.1 The Merger.
(a) Subject to the terms and conditions of this Agreement, and pursuant to
Section 92A.250 of the Nevada Revised Statutes ("NRS"), at the Effective Time
(as defined in Section 1.2) the Company and Merger Sub shall consummate the
Merger pursuant to which (i) Merger Sub shall be merged with and into the
Company and the
A-1
<PAGE>
separate corporate existence of Merger Sub shall thereupon cease, (ii) the
Company shall be the successor or surviving corporation in the Merger (the
"Surviving Corporation") and shall continue to be governed by the laws of the
State of Nevada, and (iii) the separate corporate existence of the Company
with all its rights, privileges, immunities, powers and franchises shall
continue unaffected by the Merger.
(b) Pursuant to the Merger, (i) the articles of incorporation of the
Company, as in effect immediately prior to the Effective Time, shall be the
articles of incorporation of the Surviving Corporation until thereafter
amended as provided by applicable law and such articles of incorporation, and
(ii) the bylaws of the Company, as in effect immediately prior to the
Effective Time, shall be the bylaws of the Surviving Corporation until
thereafter amended as provided by law, the articles of incorporation and such
bylaws.
(c) The Merger shall have the effects set forth in the NRS (including
without limitation Section 92A.250 thereof). Without limiting the generality
of the foregoing, and subject thereto, at the Effective Time, all the
properties, rights, privileges, powers and franchises of the Company and
Merger Sub shall vest in the Surviving Corporation, and all debts, liabilities
and duties of the Company and Merger Sub shall become the debts, liabilities
and duties of the Surviving Corporation. As of the Effective Time, the Company
shall become a wholly-owned subsidiary of Parent.
1.2 Effective Time. On the date of Closing (as defined in Section 1.3) as
soon as practicable following the satisfaction or waiver of the conditions set
forth in Article VIII (or on such other date as Parent and the Company may
agree) the parties shall cause articles of merger or other appropriate
documents (in any such case, the "Articles of Merger") to be executed and
filed with the Secretary of State of the State of Nevada in accordance with
the provisions of Chapter 92A of the NRS, and make all other filings and
recordings required by the NRS in connection with the Merger. The Merger shall
become effective at the time and on the date on which the Articles of Merger
have been duly filed with the Secretary of State of the State of Nevada or
such later time as is agreed upon by the parties and specified in the Articles
of Merger, and such time is hereinafter referred to as the "Effective Time."
1.3 Closing. The Closing of the Merger (the "Closing") will take place at
9:00 a.m., Las Vegas time, on a date to be specified by the parties, which
shall be no later than the second business day after satisfaction or waiver of
all of the conditions set forth in Article VIII hereof (the "Closing Date"),
at the offices of Jones Vargas, at 3773 Howard Hughes Parkway, 3rd Floor, Las
Vegas, Nevada, unless another date or place is agreed to in writing by the
parties hereto.
1.4 Directors and Officers of the Surviving Corporation. The directors and
officers of Merger Sub at the Effective Time shall, from and after the
Effective Time, be the directors and officers, respectively, of the Surviving
Corporation until their successors shall have been duly elected or appointed
or qualified or until their earlier death, resignation or removal in
accordance with the Surviving Corporation's articles of incorporation and
bylaws.
1.5 Stockholders' Meeting.
(a) The Company, acting through its Board of Directors, shall, in accordance
with applicable law:
(i) take all action necessary, in accordance with applicable law and its
articles of incorporation and bylaws, to duly call, give notice, convene
and hold a special meeting of the holders of Company Common Stock (the
"Special Meeting") as promptly as practicable for the purpose of
considering and taking action upon this Agreement;
(ii) prepare and file with the United States Securities and Exchange
Commission (the "SEC") a preliminary proxy or information statement
relating to the Merger and this Agreement and use its reasonable efforts
(x) to obtain and furnish the information required to be included by the
SEC in the Company Proxy Statement (as defined below) and, after
consultation with Parent, to respond promptly to any comments made by the
SEC with respect to the preliminary proxy or information statement and
cause a definitive proxy or information statement (the "Company Proxy
Statement") to be mailed to its stockholders and (y)
A-2
<PAGE>
to obtain the necessary approval of the Merger and approval and adoption of
this Agreement by its stockholders; and
(iii) include in the Company Proxy Statement the recommendation of the
Board of Directors that stockholders of the Company vote in favor of the
approval of the Merger and the approval and adoption of this Agreement.
(b) Parent and Merger Sub agree that they shall, and shall cause any
permitted assignee of each of them to, vote all Shares then owned by any of
them which are entitled to vote in favor of the approval of the Merger and the
approval and adoption of this Agreement.
ARTICLE II
Conversion of Shares
2.1 Conversion of Capital Stock. As of the Effective Time, by virtue of the
Merger and without any action on the part of the holders of any share of
Company Common Stock or common stock, no par value, of Merger Sub (the "Merger
Sub Common Stock"):
(a) Merger Sub Common Stock. Each issued and outstanding share of Merger Sub
Common Stock shall be converted into and become 71,795 fully paid and
nonassessable shares of common stock of the Surviving Corporation.
(b) Cancellation of Treasury Stock and Parent-Owned Stock. All shares of
Company Common Stock that are owned by the Company as treasury stock and any
shares of Company Common Stock owned by Parent, Merger Sub or any other direct
or indirect wholly-owned subsidiary of Parent shall be canceled and retired
and shall cease to exist and no consideration shall be delivered in exchange
therefor.
(c) Conversion of Shares. Each issued and outstanding share of Company
Common Stock (other than shares to be canceled in accordance with Section
2.1(b) and, if applicable, Shares held by Dissenting Stockholders as described
in Section 2.1(e)) shall be converted into the right to receive $5.00 in cash,
payable to the holder thereof, without interest (the "Merger Consideration"),
upon surrender of the certificate formerly representing such share of Company
Common Stock in the manner provided in Section 2.2. All such shares of Company
Common Stock, when so converted, shall no longer be outstanding and shall
automatically be canceled and retired and shall cease to exist, and each
holder of a certificate representing any such Shares shall cease to have any
rights with respect thereto, except the right to receive the Merger
Consideration therefor upon the surrender of such certificate in accordance
with Section 2.2, without interest.
(d) Company Preferred Stock. All shares of preferred stock of the Company,
including without limitation the Preferred Shares, which are outstanding at
the Effective Time shall remain outstanding and shall not be affected by the
Merger.
(e) Shares of Dissenting Stockholders. Notwithstanding anything in this
Agreement to the contrary, in the event that holders of Shares are determined
to have rights pursuant to Section 92A.380 of the NRS, any issued and
outstanding shares of Company Common Stock held by a Dissenting Stockholder
shall not be converted as described in Section 2.1(c) but shall become the
right to receive such consideration as may be determined to be due to such
Dissenting Stockholder pursuant to the laws of the State of Nevada; provided,
however, that the shares of Company Common Stock outstanding immediately prior
to the Effective Time and held by a Dissenting Stockholder who shall, after
the Effective Time, fail to perfect his right to appraisal, withdraw his
demand for appraisal or lose his right of appraisal, in any case pursuant to
Sections 92A.390 through 92A.440 of the NRS, shall be deemed to be converted
as of the Effective Time into the right to receive the Merger Consideration.
The Company shall give Parent (i) prompt notice of any written demands for
appraisal of shares of Company Common Stock received by the Company and (ii)
the opportunity to direct all negotiations and proceedings with respect to any
such demands. Prior to the Effective Time, the Company shall not, without the
prior written
A-3
<PAGE>
consent of Parent, voluntarily make any payment with respect to, or settle,
offer to settle or otherwise negotiate, any such demands.
2.2 Exchange of Certificates.
(a) Paying Agent. Parent shall designate a bank or trust company to act as
agent for the holders of shares of Company Common Stock in connection with the
Merger (the "Paying Agent") to receive the funds to which holders of shares of
Company Common Stock shall become entitled pursuant to Section 2.1(c). Such
funds shall be invested by the Paying Agent as directed by Parent or the
Surviving Corporation.
(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, the Paying Agent shall mail to each holder of record of a
certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of Company Common Stock (the "Certificates"),
whose Shares were converted pursuant to Section 2.1 into the right to receive
the Merger Consideration (i) a letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates
shall pass, only upon delivery of the Certificates to the Paying Agent and
shall be in such form and have such other provisions as Parent and the Company
may reasonably specify) and (ii) instructions for use in effecting the
surrender of the Certificates in exchange for payment of the Merger
Consideration. Upon surrender of a Certificate for cancellation to the Paying
Agent or to such other agent or agents as may be appointed by Parent, together
with such letter of transmittal, duly executed, the holder of such Certificate
shall be entitled to receive in exchange therefor the Merger Consideration for
each share of Company Common Stock formerly represented by such Certificate
and the Certificate so surrendered shall forthwith be canceled. If payment of
the Merger Consideration is to be made to a person other than the person in
whose name the surrendered Certificate is registered, it shall be a condition
of payment that the Certificate so surrendered shall be properly endorsed or
shall be otherwise in proper form for transfer and that the person requesting
such payment shall have paid any transfer and other taxes required by reason
of the payment of the Merger Consideration to a person other than the
registered holder of the Certificate surrendered or shall have established to
the satisfaction of the Surviving Corporation that such tax either has been
paid or is not applicable. Until surrendered as contemplated by this Section
2.2, each Certificate shall be deemed at any time after the Effective Time to
represent only the right to receive the Merger Consideration in cash as
contemplated by this Section 2.2.
(c) Transfer Books; No Further Ownership Rights in Company Common Stock. At
the Effective Time, the stock transfer books of the Company shall be closed
and thereafter there shall be no further registration of transfers of shares
of Company Common Stock on the records of the Company. From and after the
Effective Time, the holders of Certificates evidencing ownership of shares of
Company Common Stock outstanding immediately prior to the Effective Time shall
cease to have any rights with respect to such Shares, except as otherwise
provided for herein or by applicable law. If, after the Effective Time,
Certificates are presented to the Surviving Corporation for any reason, they
shall be canceled and exchanged as provided in this Article II.
(d) Termination of Fund; No Liability. At any time following six months
after the Effective Time, the Surviving Corporation shall be entitled to
require the Paying Agent to deliver to it any funds (including any interest
received with respect thereto) which had been made available to the Paying
Agent and which have not been disbursed to holders of Certificates, and
thereafter such holders shall be entitled to look to the Surviving Corporation
(subject to abandoned property, escheat or other similar laws) only as general
creditors thereof with respect to the Merger Consideration payable upon due
surrender of their Certificates, without any interest thereon. Notwithstanding
the foregoing, neither the Surviving Corporation nor the Paying Agent shall be
liable to any holder of a Certificate for Merger Consideration delivered to a
public official pursuant to any applicable abandoned property, escheat or
similar law.
ARTICLE III
[Intentionally Omitted]
A-4
<PAGE>
ARTICLE IV
Representations and Warranties of the Company
The Company represents and warrants to Parent and Merger Sub as follows:
4.1 Organization and Qualification.
(a) The Company is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation, and has
all requisite corporate power and authority to own, lease and operate its
properties and to carry on its business as now being conducted.
(b) The Company is duly qualified or licensed and in good standing to do
business in each jurisdiction in which the property owned, leased or operated
by it or the nature of the business conducted by it makes such qualification
or licensing necessary, and to perform all of its obligations under any
contract under which the Company (A) has or may acquire any rights, (B) has or
may become subject to any obligation or liability or (C) is or may, or any of
the assets used or owned by it are or may, become bound, except where the
failure to be so duly qualified or licensed and in good standing or to effect
such performance would not, individually or in the aggregate, have a Company
Material Adverse Effect. When used in this Agreement, the term "Company
Material Adverse Effect" means any change or effect that would (i) be
materially adverse to the business, assets (tangible or intangible), results
of operations, liabilities or financial condition of the Company, or (ii)
impair the ability of the Company to perform its obligations under this
Agreement or to consummate the transactions contemplated hereby.
(c) The Company has heretofore furnished or made available to Parent
complete and correct copies of the Company's articles of incorporation and
bylaws, each as amended to the date hereof, and all of such articles of
incorporation, bylaws and equivalent organizational documents are in full
force and effect. The Company is not in violation of any of the provisions of
the Company's articles of incorporation or bylaws.
4.2 Capitalization of the Company.
(a) The authorized capital stock of the Company consists of (i) 50,000,000
shares of Company Common Stock, of which 7,179,429 shares are currently issued
and outstanding and (ii) 15,000,000 shares of preferred stock, $.001 par
value, of which 3,250 Preferred Shares are currently issued and outstanding.
All outstanding shares of capital stock of the Company have been validly
issued, and are fully paid, nonassessable and free of preemptive rights. Set
forth in Schedule 4.2(a) are all outstanding options, warrants, or other
rights to purchase capital stock of the Company from the Company. Except as
set forth above or in Schedule 4.2(a), there are outstanding (A) no shares of
capital stock or other voting securities of the Company, (B) no securities of
the Company convertible into or exchangeable for shares of capital stock or
voting securities of the Company, (C) no options, subscriptions, warrants,
convertible securities, calls or other rights to acquire from the Company, and
no obligation of the Company to issue, deliver or sell, any capital stock,
voting securities or securities convertible into or exchangeable for capital
stock or voting securities of the Company, and (D) no equity equivalents,
performance shares, interests in the ownership or earnings of the Company or
other similar rights issued by the Company (the items referred to in clauses
(A)-(D) are referred to herein as "Company Securities"). Except as set forth
on Schedule 4.2(a) hereto, (i) there are no outstanding obligations of the
Company to repurchase, redeem or otherwise acquire any Company Securities,
(ii) no agreement or other document grants or imposes on any shares of the
Company Common Stock any right, preference, privilege or restriction with
respect to the transactions contemplated hereby (including without limitation
any rights of first refusal), other than the right to dissent from the Merger
as provided in Section 2.1(e) above and (iii) there are no bonds, debentures,
notes or other indebtedness having general voting rights (or convertible into
securities having such rights) of the Company issued and outstanding.
(b) The Company has no subsidiaries. Except for portfolio securities with an
aggregate fair market value not in excess of $50,000, the Company has not
made, directly or indirectly, any material investment or ownership
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interest in (including without limitation any ownership of capital stock or
other equity securities), advance to or purchase or guaranty of any
obligations of, any entity, nor is the Company subject to any obligation or
requirement to provide funds for or make any investment (in the form of a
loan, capital contribution or otherwise) in any entity. For purposes of this
Agreement, "Subsidiary" shall mean, with respect to any party, any corporation
or other organization, whether incorporated or unincorporated, of which (x) at
least a majority of the securities or other interests having by their terms
voting power to elect a majority of the Board of Directors or others
performing similar functions with respect to such corporation or other
organization is directly or indirectly owned or controlled by such party or by
any one or more of its subsidiaries, or by such party and one or more of its
subsidiaries, or (y) such party or any other subsidiary of such party is a
general partner (excluding such partnerships where such party or any
subsidiary of such party do not have a majority of the voting interest in such
partnership).
(c) All issued and outstanding warrants, options and other rights to acquire
Company Securities (other than the stock options outstanding under the
Company's 1994 Stock Compensation Plan or the Company's Outside Directors
Stock Option Plan (each, a "Compensation Option")), will, as of or prior to
the Effective Time, terminate or will thereafter constitute only the right to
receive the excess, if any, of the per share Merger Consideration over the per
share exercise price of such warrant, option or such other right, multiplied
by the number of shares for which such warrant or option is exercisable
immediately prior to the Effective Time (the "Option/Warrant Spread"), without
obligation of any other payment. The termination of all Compensation Options
will be governed by the termination provisions contained in the Company's 1994
Stock Compensation Plan or the Company's Outside Directors Stock Option Plan
attached to Schedule 4.2(a), as applicable.
4.3 Power and Authority.
(a) The Company has full corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by the
Company's Board of Directors. This Agreement has been duly and validly
executed and delivered by the Company and is a valid and binding agreement of
the Company, enforceable against it in accordance with its terms, except (a)
as such enforcement may be subject to bankruptcy, insolvency or similar laws
now or hereafter in effect relating to creditors rights generally
(collectively, the "Bankruptcy Exceptions"), and (b) as the remedy of specific
performance and injunctive and other forms of equitable relief may be subject
to equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought.
(b) Except for the action contemplated by Section 1.5 hereof, the Board of
Directors of the Company has duly and validly approved and taken all corporate
action required to be taken by the Board of Directors for the consummation by
the Company of the transactions to which it is a party contemplated by this
Agreement, including the Merger and the acquisition of Shares pursuant to the
Merger, the Stockholder Agreements and any Other Transactions.
4.4 Board Recommendations; Anti-Takeover Provisions.
(a) The Company's Board of Directors, at a meeting duly held on December 18,
1997 has (i) declared that as of such date it has not considered or acted on
any proposed agreement, arrangement, or understanding with Parent or any other
party with respect to the transactions contemplated by the Stockholder
Agreements and this Agreement, (ii) duly and validly taken all action
necessary to: (A) amend the Company's Bylaws in such a manner as is necessary
to ensure that the provisions of Sections 78.378 through 78.3793, inclusive,
of the NRS do not apply to the Company (and the provision of the Bylaws
effecting the foregoing shall be referred to as the "Control Share Opt-Out
Bylaw"); and (B) ensure that the prohibitions contained in Sections 78.411
through 78.444, inclusive, of the NRS applicable to "combinations" (as defined
in Section 78.416) would not apply to substantially contemporaneous purchasing
by Parent and/or its affiliates of (a) all of the outstanding voting shares of
the Company from the Selling Stockholders and (b) all the remaining
outstanding voting shares of the Company from the remaining stockholders, as
contemplated by this Agreement; and (iii) has received a written legal
opinion, dated the date hereof, of Jones Vargas, counsel to the Company,
addressed to the Company, Parent and Merger Sub, satisfactory in form and
substance to Parent and its counsel, to the effect described in clause (ii)
above as to matters of Nevada law.
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(b) The Company's Board of Directors, at a meeting duly held on December 22,
1997 has duly and validly: (i) determined that each of the Merger and the
transactions contemplated thereby is fair to and in the best interests of the
Company's stockholders; (ii) approved and adopted this Agreement and the
transactions contemplated hereby (including without limitation (x) the
acquisition of the Company by Parent or any of its affiliates, and any
purchase of Shares in connection therewith, by means of this Agreement, the
Merger, the Stockholder Agreements and/or any other transactions conducted to
effectuate the acquisition of the Company by Parent or its affiliates in
accordance with this Agreement ("Other Transactions") and (y) any other
transactions contemplated hereby and by the foregoing clause (x)); (iii)
resolved to recommend that the stockholders of the Company approve and adopt
this Agreement and the Merger; (iii) resolved not to alter, amend, repeal,
modify or otherwise restrict the effect of the Control Share Opt-Out Bylaw for
a period of not less than fourteen (14) days following the date of such
December 22, 1997 Board of Directors meeting; and (iv) has received an opinion
from its financial advisor that the Merger Consideration is fair to the
Company's stockholders from a financial point of view.
4.5 Compliance.
(a) Except as set forth in Schedule 4.5(a), since January 1, 1994, the
Company and its affiliates, officers, directors, agents and employees have
been and are in compliance with (i) all applicable laws, rules, statutes,
orders, ordinances and regulations of foreign, Federal, state and local
governmental authorities applicable to the businesses conducted by the
Company, and neither the Company nor any of its affiliates, is aware of any
claim of violation, or of any actual violation, of any such laws, rules,
statutes, orders, ordinances and regulations, by the Company, except where
such failure or violation (whether actual or claimed) would not have a Company
Material Adverse Effect and (ii) all applicable federal, state, local or
foreign statutes, ordinances, rules, regulations, permits, consents,
approvals, licenses, judgments, orders, decrees, injunctions or other
authorizations governing or relating to the Company's current or contemplated
casino, liquor related activities and gaming activities and operations,
including, without limitation, the Nevada Gaming Control Act, as amended (the
"Nevada Act"), and the rules and regulations promulgated thereunder, or
applicable to the properties owned or leased and used by the Company
(collectively, "Gaming Laws"). None of the Company or any employee, officer,
director or stockholder or any affiliate thereof, has received any written
claim, demand, notice, complaint, court order or administrative order from any
governmental authority since January 1, 1994, asserting that a license of the
Company or of any such employee, officer, director or stockholder or affiliate
thereof, as applicable, under any Gaming Laws should be revoked or suspended
or that any such party is not in full compliance with such license (with
respect to such employee, officer, director or stockholder or affiliate
thereof, to the extent that such revocation or suspension or non-compliance
might result in the revocation or suspension of the Company's license).
(b) Except as set forth in Schedule 4.5(b), since January 1, 1994, the
Company has possessed and currently possesses, and is current on all fees with
regard to, all franchises, certificates, licenses, permits and other
authorizations from any governmental authorities and all patents, trademarks,
service marks, trade names, copyrights, licenses and other rights that are
necessary to the Company for the present ownership, maintenance and operation
of its business, properties and assets (including without limitation all
gaming and liquor licenses), except where the failure to possess such
franchises, certificates, licenses, permits, and other authorizations,
patents, trademarks, service marks, trade names, copyrights, licenses and
other rights (other than those required to be obtained from the Nevada Gaming
Commission (the "Gaming Commission"), the Nevada State Gaming Control Board
(the "Control Board"), the Clark County Liquor and Gaming Licensing Board (the
"CCB"), and the City of Las Vegas ("Las Vegas") (the Gaming Commission, the
Control Board, the CCB, and Las Vegas are collectively referred to as the
"Gaming Authorities"), including approvals under the Gaming Laws) would not
have a Company Material Adverse Effect; and the Company is not in violation of
any thereof, except where such violation would not have a Company Material
Adverse Effect.
(c) Except as set forth in Schedule 4.5(c), since January 1, 1994, the
Company has not violated (with or without notice or lapse of time) any
applicable provisions of (i) any laws, rules, statutes, orders, ordinances or
regulations, or (ii) any note, bond, mortgage, indenture, contract, agreement,
lease, license, permit, franchise, or
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other instrument or obligations to which the Company is a party or by which
the Company or any of its properties are bound or affected, except as will not
have a Company Material Adverse Effect.
(d) Except as set forth in Schedule 4.5(d), since January 1, 1994: (i) the
Company is, and has been, in full compliance with all of the terms and
requirements of each award, decision, injunction, judgment, order, ruling,
subpoena, or verdict (each, an "Order") entered, issued, made, or rendered by
any court, administrative agency, or other governmental entity, officer or
authority or by any arbitrator to which it, or any of the assets owned or used
by it, is or has been subject, and (ii) no event has occurred or circumstance
exists that may constitute or result in (with or without notice or lapse of
time) a violation of or failure to comply with any term or requirement of any
Order to which the Company, or any of the assets owned or used by the Company,
is subject, except where such non-compliance, violation or failure to comply
would not have a Company Material Adverse Effect.
(e) Except as set forth in Schedule 4.5(e), the Company has not received, at
any time since January 1, 1994, any notice or other communication (whether
oral or written) regarding any actual, alleged, possible, or potential
violation of, or failure to comply with, any term or requirement of any Order
to which the Company, or any of the assets owned or used by the Company, is or
has been subject, except as would not have a Company Material Adverse Effect.
(f) Except as set forth on Schedule 4.5(f), no investigation or review by
any government entity, officer or authority, including without limitation any
investigation or review by Gaming Authorities or relating to compliance with
Gaming Laws, with respect to the Company is pending or, to the knowledge of
the Company, threatened, nor has any government entity, officer or authority
indicated an intention to conduct the same.
4.6 Consents and Approvals; No Violation. The execution and delivery of this
Agreement do not, and the consummation of the transactions contemplated hereby
and the performance by the Company of its obligations hereunder will not:
(a) subject to the obtaining of any requisite approvals of the Company's
stockholders as contemplated by Section 1.5 hereof, conflict with or violate
any provision of the Company's articles of incorporation or bylaws;
(b) require any consent, approval, order, authorization or permit of, or
registration, filing or notification to, any governmental or regulatory
authority or agency (a "Governmental Entity"), except for (i) the filing of a
premerger notification and report form by the Company under the Hart-Scott-
Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), (ii)
the filing with the SEC of (x) the Company Proxy Statement relating to the
approval and adoption by the Company's stockholders of the Merger and this
Agreement, if such approval and adoption is required by law, and (y) such
reports under Sections 13 and 16 of the Securities Exchange Act of 1934, as
amended ("Exchange Act"), as may be required in connection with this
Agreement, the Stockholder Agreements and the transactions contemplated hereby
and thereby, (iii) obtaining all necessary approvals under applicable Gaming
Laws, including those required by the Gaming Authorities, (iv) the filing of
the Articles of Merger with the Secretary of State of the State of Nevada, and
(v) such additional actions or filings which, if not taken or made, would not,
individually or in the aggregate, have a Company Material Adverse Effect;
(c) except as disclosed on Schedule 4.6(c), result in any conflict with or
violation of or the breach of or constitute a default (with notice or lapse of
time or both) under, or give rise to any right of termination, cancellation or
acceleration or guaranteed payments under or to a loss of a material benefit
under, any of the terms, conditions or provisions of any note, bond,
indenture, lease, mortgage, license, franchise, agreement or other instrument
or obligation to which the Company is a party or by which the Company or any
of its properties or assets may be bound, except for such conflicts,
violations, breaches, defaults, or rights of termination, cancellation or
acceleration, or losses as to which requisite waivers or consents have been
obtained or will be obtained prior to the Effective Time or which,
individually or in the aggregate, would not result in a Company Material
Adverse Effect;
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(d) violate the provisions of any order, writ, injunction, judgment, decree,
statute, rule or regulation applicable to the Company, in such a manner as to
result in a Company Material Adverse Effect; or
(e) result in the creation of any lien, charge or encumbrance upon any
shares of capital stock, properties or assets of the Company under any
agreement or instrument to which the Company is a party or by which the
Company is bound.
4.7 Assignment of MOU. The Company has consented (and hereby reaffirms such
consent) to the termination and release of any rights and obligations of the
Company under that certain Memorandum of Understanding, dated October 29, 1997
between, among others, the Company and Jacobs, Jacobs Entertainment Nevada,
Inc. and Diversified Opportunities Group Ltd.
4.8 SEC Reports; Financial Statements, Absence of Undisclosed Liabilities.
(a) The Company has filed all forms, reports and documents required to be
filed with the SEC since February 11, 1994. The Company has made available to
Parent, in the form filed with the SEC, the Company's (i) Annual Reports on
Form 10-KSB for the fiscal years ended September 30, 1996, 1995 and 1994, (ii)
all Quarterly Reports on Form 10-QSB filed by the Company with the SEC since
February 11, 1994, (iii) all proxy statements relating to meetings of the
Company's stockholders since February 11, 1994 and (iv) all Current Reports on
Form 8-K and registration statements and other forms, reports and documents,
filed by the Company with the SEC since February 11, 1994 (collectively and as
amended, the "SEC Reports"). As of their respective dates, the SEC Reports
complied in all material respects with all applicable requirements of the
Securities Act of 1933, as amended, and the rules and regulations promulgated
thereunder, and the Exchange Act, as the case may be, each as in effect on the
dates such SEC Reports were filed. As of their respective dates, none of the
SEC Reports, including, without limitation, any financial statements or
schedules included therein, contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading. The audited consolidated financial
statements and unaudited consolidated interim financial statements of the
Company included in the SEC Reports fairly present, in all material respects,
in conformity with GAAP (as defined below) applied on a consistent basis
(except as may be indicated in the notes thereto), the consolidated financial
position of the Company as of the dates thereof and its consolidated results
of operations and cash flows for the periods then ended (subject to normal
year-end adjustments in the case of any unaudited interim financial
statements). The Company has heretofore made available or promptly will make
available to Parent a complete and correct copy of any amendments or
modifications, which are required to be filed with the SEC but have not yet
been filed with the SEC, to the SEC Reports. As used in this Agreement, "GAAP"
means United States generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as approved by a significant segment of the accounting profession
in the United States as in effect on the date hereof.
(b) Except as set forth in Schedule 4.8(b) hereto, the Company has no
liabilities of any nature (whether accrued, absolute, contingent or
otherwise), except for (i) liabilities set forth in the balance sheet of the
Company dated September 30, 1997 or on the notes thereto, contained in the
Company's draft Annual Report on Form 10-KSB for the fiscal year ended
September 30, 1997 attached to Schedule 4.8(b) (the "Draft September 30, 1997
Form 10-KSB") (which balance sheet is subject to normal year end adjustments
which individually or in the aggregate will not be material) (the "Draft
September 30, 1997 Balance Sheet"), (ii) liabilities incurred in the ordinary
course of business consistent with past practice since September 30, 1997 and
(iii) liabilities to financial advisors in connection with the transactions
contemplated by this Agreement which, in the aggregate, do not and will not
exceed $600,000.
4.9 Absence of Certain Changes. Since October 1, 1996, except as set forth
in Schedule 4.9 hereto or as disclosed in the SEC Reports since that date or
as disclosed in the Draft September 30, 1997 Form 10-KSB, the Company has
conducted its business only in the ordinary course, and there has not been (i)
any declaration,
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setting aside or payment of any dividend or other distribution with respect to
its capital stock, (ii) any incurrence, assumption or guarantees by the
Company of any indebtedness for borrowed money other than in the ordinary
course of business, (iii) any making of any loan, advance or capital
contributions to, or investments in, any other person, (iv) any split,
combination or reclassification of any of its capital stock or any issuance or
the authorization of any issuance of any other securities in respect of, in
lieu of or in substitution for shares of its capital stock, (v) (x) any
granting by the Company to any officer of the Company of any increase in
compensation, except in the ordinary course of business consistent with past
practice or as was required under employment agreements in effect as of the
date of the most recent audited financial statements included in the SEC
Reports filed and publicly available prior to the date of this Agreement, (y)
any granting by the Company to any such officer of any increase in severance
or termination pay, except as part of a standard employment package to any
person promoted or hired, or as was required under employment, severance or
termination agreements in effect as of the date of the most recent audited
financial statements included in the SEC Reports filed and publicly available
prior to the date of this Agreement or (z) except termination arrangements in
the ordinary course of business consistent with past practice with employees
other than any executive officer of the Company, any entry by the Company into
any employment, severance or termination agreement with any such officer, (vi)
any damage, destruction or loss, whether or not covered by insurance, that
would be expected to have a Company Material Adverse Effect, (vii) any
transaction or commitment made, or any contract or agreement entered into, by
the Company relating to its assets or business (including without limitation
the acquisition or disposition of any assets), or any relinquishment by the
Company of any contractual or other right, in either case, material to the
Company, other than transactions and commitments in the ordinary course of
business and those contemplated by this Agreement, (viii) any change in
accounting methods, principles or practices by the Company materially
affecting its assets, liabilities or business, except insofar as may have been
required by a change in GAAP, (ix) any transaction, payment or commitment
made, or any contract or agreement entered into, by the Company with or to any
affiliate of the Company; (x) any transaction, payment or commitment made, or
any contract or agreement entered into, by the Company relating to the Merger
or the transactions contemplated by this Agreement or the negotiation thereof
(including without limitation obligations to pay any agent, broker, investment
banker, financial advisor or other firm or person any brokers' or finders' fee
or any other commission or similar fee) other than the obligations to the
Company's advisors described in Section 4.8(b)(iii) above, or (xi) any other
event, development or change which is reasonably likely to have a Company
Material Adverse Effect.
4.10 Company Proxy Statement. The Company Proxy Statement, including any
amendments or supplements thereto, shall not, at the time filed with the SEC,
as of the date mailed to the Company's stockholders or at the time of the
Special Meeting, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they
are made, not misleading. Notwithstanding the foregoing, the Company makes no
representation or warranty with respect to any information provided by Parent
or Merger Sub specifically for use in the Company Proxy Statement. The Company
Proxy Statement will comply as to form in all material respects with the
provisions of the Exchange Act.
4.11 Absence Of Litigation. Except as disclosed in Schedule 4.11 hereto,
since January 1, 1997, there has not been any action, suit, claim,
investigation or proceeding pending against, or to the knowledge of the
Company, threatened against, the Company or any of its directors or officers
(in their capacities as such) or properties, before any court or arbitrator or
any administrative, regulatory or governmental body, or any agency or official
which, individually or in the aggregate, if decided adversely, would have a
Company Material Adverse Effect. Except as disclosed in Schedule 4.11 hereto,
since January 1, 1997, there has not been any action, suit, claim,
investigation or proceeding pending against, or to the knowledge of the
Company, threatened against, the Company or any of its directors or officers
(in their capacities as such) or properties, before any court or arbitrator or
any administrative, regulatory or governmental body, or any agency or official
which (i) challenges or seeks to prevent, enjoin, alter or delay the Merger or
any of the other transactions contemplated hereby or (ii) alleges any criminal
action or inaction. Except as disclosed in Schedule 4.11 hereto, since January
1, 1997, neither the Company nor any of its properties has been subject to any
order, writ, judgment, injunction, decree,
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determination or award having, or which would have a Company Material Adverse
Effect or which would prevent or delay the consummation of the transactions
contemplated hereby.
4.12 Taxes. Except as set forth in Schedule 4.12 hereto:
(a) the Company has filed or sent, all material returns, material
declarations and reports and information returns and statements required to be
filed or sent by or relating to the Company relating to any Taxes (as defined
herein) with respect to any material income, properties or operations of the
Company (collectively, "Returns"); (b) as of the time of filing, the Returns
correctly reflected in all material respects the facts regarding the income,
business, assets, operations, activities and status of the Company and any
other material information required to be shown therein; (c) the Company has
timely paid or made provision for all material Taxes that have been shown as
due and payable on the Returns that have been filed; (d) the Company has made
or will make provision for all material Taxes payable for any periods that end
before the Effective Time for which no Returns have yet been filed and for any
periods that begin before the Effective Time and end after the Effective Time
to the extent such Taxes are attributable to the portion of any such period
ending at the Effective Time; (e) the charges, accruals and reserves for Taxes
reflected on the books of the Company are adequate under GAAP to cover the Tax
liabilities accruing or payable by the Company; (f) the Company is not
delinquent in the payment of any material Taxes and has requested any
extension of time within which to file or send any material Return (other than
extensions granted to the Company for the filing of its Returns as set forth
in Schedule 4.12), which Return has not since been filed or sent; (g) no
material deficiency for any Taxes has been proposed, asserted or assessed in
writing against the Company other than those Taxes being contested in good
faith by appropriate proceedings and set forth in Schedule 4.12 (which shall
set forth the nature of the proceeding, the type of return, the deficiencies
proposed, asserted or assessed and the amount thereof, and the taxable year in
question); (h) the Company has not granted any extension of the limitation
period applicable to any material Tax claims other than those Taxes being
contested in good faith by appropriate proceedings; and (i) the Company is not
subject to liability for Taxes of any person (other than the Company).
For purposes of this Agreement, "Tax" or "Taxes" means all 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, imposed by any Tax Authority. "Tax
Authority" means the Internal Revenue Service and any other domestic or
foreign governmental authority responsible for the administration of any
Taxes.
4.13 Employee Benefits.
(a) Existence Of Plans. For purposes of this Agreement, the term "Plans"
shall mean (i) all "Employee Benefit Plans" (as such term is defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA")), of which the Company or any member of the same controlled
group of businesses as the Company within the meaning of Section 4001(a)(14)
of ERISA (an "ERISA Affiliate") is or ever was a sponsor or participating
employer or as to which the Company or any of its ERISA Affiliates makes
contributions or is required to make contributions and (ii) any similar
employment, severance or other arrangement or policy of the Company or of any
of its ERISA Affiliates (whether written or oral) providing for insurance
coverage (including self- insured arrangements), workers' compensation,
disability benefits, supplemental unemployment benefits, vacation benefits or
retirement benefits, or for profit sharing, deferred compensation, bonuses,
stock options, stock appreciation or other forms of incentive compensation or
post-retirement insurance, compensation or benefits. Except as is disclosed on
Schedule 4.13, (i) neither the Company nor any of its ERISA Affiliates
maintains or sponsors (or ever maintained or sponsored), or makes or is
required to make contributions to, any Plans, (ii) none of the Plans is or was
a "multi-employer plan", as defined in Section 3(37) of ERISA, (iii) none of
the Plans is or was a "defined benefit pension plan" within the meaning of
Section 3(35) of ERISA, (iv) none of the Plans provides or provided post-
retirement medical or health benefits, (v) none of the Plans is or was a
"welfare benefit fund," as defined in Section 419(e) of the Internal Revenue
Code of 1986, as amended ("Code"), or an organization described in Sections
501(c)(9) or 501(c)(20) of the Code, (vi) neither the Company nor any of its
ERISA Affiliates is or was a party to any collective bargaining agreement, and
(vii) neither the Company nor any of its ERISA Affiliates has announced or
otherwise made any commitment to create
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or amend any Plan. Notwithstanding any statement or indication in this
Agreement to the contrary, there are no Plans (a) as to which Parent or Merger
Sub will be required to make any contributions or with respect to which Parent
or Merger Sub shall have any obligation or liability whatsoever, whether on
behalf of any of the current employees of the Company or on behalf of any
other Person, after the Closing, or (b) which Parent or Merger Sub will not be
able to terminate immediately after the Closing in accordance with their terms
and ERISA. With respect to each of such Plans, at the Closing there will be no
unrecorded liabilities with respect to the establishment, implementation,
operation, administration or termination of any such Plan, or the termination
of the participation in any such Plan by the Company or any of its ERISA
Affiliates. The Company has delivered/will deliver within five business days
of the date hereof to Parent true and complete copies of: (i) each of the
Plans and any related funding agreements thereto (including insurance
contracts) including all amendments, all of which are legally valid and
binding and in full force and effect and there are no defaults thereunder,
(ii) the currently effective Summary Plan Description pertaining to each of
the Plans, (iii) the three most recent annual reports for each of the Plans
(including all relevant schedules), (iv) the most recently filed PBGC Form 1
(if applicable), (v) the most recent Internal Revenue Service determination
letter for each Plan which is intended to constitute a qualified plan under
Section 401 of the Code and each amendment to each of the foregoing documents,
and (vi) for each funded Plan, financial statements consisting of (A) the
consolidated statement of assets and liabilities of such Plan as of its most
recent valuation date, and (B) the statement of changes in fund balance and in
financial position or the statement of changes in net assets available for
benefits under such Plan for the most recently-ended plan year, which such
financial statements shall fairly present the financial condition and the
results of operations of such Plan in accordance with GAAP as of such dates.
(b) Present Value Of Benefits. The present value of all accrued benefits
under any Plans subject to Title IV of ERISA shall not, as of the Closing
Date, exceed the value of the assets of such Plans allocated to such accrued
benefits, based upon the applicable provisions of the Code and ERISA, and each
such Plan shall be capable of being terminated as of the Closing Date in a
"standard termination" under Section 4041(b) of ERISA. With respect to each
Plan that is subject to Title IV of ERISA, (i) no amount is due or owing from
the Company or any of its ERISA Affiliates to the Pension Benefit Guaranty
Corporation or to any "multi-employer Plan" as defined in Section 3(37) of
ERISA on account of any withdrawal therefrom and (ii) no such Plan has been
terminated other than in accordance with ERISA or at a time when the plan was
not sufficiently funded. The transactions contemplated hereunder, including
without limitation the termination of the Plans at or prior to the Closing,
shall not result in any material such withdrawal or other liability under any
applicable Laws.
(c) Penalties; Reportable Events. Neither the Company nor any of its ERISA
Affiliates is subject to any material liability, tax or penalty whatsoever to
any Person or agency whomsoever as a result of engaging in a prohibited
transaction under ERISA or the Code, and neither the Company nor any of its
ERISA Affiliates has any knowledge of any circumstances which reasonably might
result in any material liability, tax or penalty, including, but not limited
to, a penalty under Section 502 of ERISA, as a result of a breach of any duty
under ERISA or under other Laws. Each Plan which is required to comply with
the provisions of Section 4980B of the Code has complied in all material
respects. No event has occurred which could subject any Plan to material tax
liability under Section 511 of the Code. None of the Plans subject to Title IV
of ERISA has, since September 2, 1974, been completely or partially terminated
nor has there been any "reportable event", as such term is defined in Section
4043(b) of ERISA, with respect to any of the Plans since the effective date of
ERISA nor has any notice of intent to terminate been filed or given with
respect to any such Plan. There has been no (i) withdrawal by the Company or
any of its ERISA Affiliates that is a substantial employer from a single-
employer plan which is a Plan and which has two or more contributing sponsors
at least two of whom are not under common control, as referred to in Section
4063(b) of ERISA, or (ii) cessation by the Company or any of its respective
ERISA Affiliates of operations at a facility causing more than 20% of Plan
participants to be separated from employment, as referred to in Section
4062(f) of ERISA. Neither the Company nor any of its ERISA Affiliates, nor any
other organization of which any of them are a successor or parent corporation
as defined in Section 4069(b) of ERISA, have engaged in any transaction
described in Section 4069(a) of ERISA.
(d) Deficiencies; Qualification. None of the Plans nor any trust created
thereunder has incurred any "accumulated funding deficiency" as such term is
defined in Section 412 of the Code, whether or not waived,
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since the effective date of such Section 412, and no condition has occurred or
exists which by the passage of time could be expected to result in an
accumulated funding deficiency as of the last day of the current plan year of
any such Plan. Furthermore, neither the Company nor any of its respective
ERISA Affiliates has any unfunded liability under ERISA in respect of any of
the Plans. Each of the Plans which is intended to be a qualified plan under
Section 401(a) of the Code has received a favorable determination letter from
the Internal Revenue Service, and has been operated in accordance with its
terms and with the provisions of the Code. All of the Plans have been
administered and maintained in substantial compliance with ERISA, the Code and
all other applicable Laws. All contributions required to be made to each of
the Plans under the terms of that Plan, ERISA, the Code or any other
applicable Laws have been timely made. Each Plan intended to meet the
requirements for tax-favored treatment under Subchapter B of Chapter 1 of the
Code meets such requirements. There are no liens against the property of the
Company (including the Transferred Assets) or any of its ERISA Affiliates
under Section 412(n) of the Code or Sections 302(f) or 4068 of ERISA. The
Financial Statements properly reflect all material amounts required to be
accrued as liabilities to date under each of the Plans. There is no contract,
agreement or benefit arrangement covering any employee of the Company which,
individually or collectively, could give rise to the payment of any amount
which would constitute an "excess parachute payment" (as defined in Section
280G of the Code). The execution and performance of this Agreement will not
(i) result in any obligation or liability (with respect to accrued benefits or
otherwise) of Parent or Merger Sub or any subsidiary of Parent to the PBGC,
any Plan, or any present or former employee of the Company, (ii) be a trigger
event under any Plan that will result in any material payment (whether of
severance pay or otherwise) becoming due to any present or former employee,
officer, director, stockholder, contractor, or consultant, or any of their
dependents, or (iii) accelerate the time of payment or vesting, or increase
the amount, of compensation due to any employee, officer, director,
stockholder, contractor, or consultant of the Company. With respect to any
insurance policy which provides, or has provided, funding for benefits under
any Plan, (A) there is and will be no material liability of the Company or
Parent or Merger Sub in the nature of a retroactive or retrospective rate
adjustment, loss sharing arrangement, or actual or contingent liability as of
the Closing Date, nor would there be any such liability if such insurance
policy were terminated as of the Closing Date, and (B) no insurance company
issuing any such policy is in receivership, conservatorship, bankruptcy,
liquidation, or similar proceeding, and, to the knowledge of the Company, no
such proceedings with respect to any insurer are imminent.
(e) Litigation. Other than routine claims for benefits under the Plans,
there are no pending, or, to the best knowledge of the Company, threatened,
investigations, proceedings, claims, lawsuits, disputes, actions, audits or
controversies involving the Plans, or the fiduciaries, administrators, or
trustees of any of the Plans or the Company or any of its ERISA Affiliates as
the employer or sponsor under any Plan, with any of the Internal Revenue
Service, the Department of Labor, the Pension Benefit Guaranty Corporation,
any participant in or beneficiary of any Plan or any other Person whomsoever.
The Company knows of no reasonable basis for any such claim, lawsuit, audit,
dispute, action or controversy.
4.14 Intellectual Property. Except as disclosed in the SEC Reports filed
prior to the date of this Agreement or as set forth in Schedule 4.14 hereto,
the Company owns, or is licensed or has the right to use (in each case, free
and clear of any security interests, liens, claims, pledges, charges, voting
agreements or other encumbrances of any nature whatsoever (collectively,
"Liens"), all Intellectual Property (as defined below) used in or necessary
for the conduct of its business substantially as currently conducted; to the
knowledge of the Company, the use of any Intellectual Property by the Company
does not infringe on or otherwise violate the rights of any person; and, to
the knowledge of the Company, no person is challenging, infringing on or
otherwise violating any right of the Company with respect to any Intellectual
Property owned by and/or licensed to the Company, except in each case for such
infringements or failures to own or be licensed as would not, individually or
in the aggregate, have a Company Material Adverse Effect. For purposes of this
Agreement, "Intellectual Property" means trademarks, service marks, brand
names, certification marks, trade dress, assumed names, trade names and other
indications of origin, the goodwill associated with the foregoing and any
registration in any jurisdiction of, and applications in any jurisdiction to
register, the foregoing, including any extension, modification or renewal of
any such registration or application; inventions, discoveries and ideas,
whether patentable or not in any jurisdiction; patents, applications for
patents (including without limitation divisions,
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continuations, continuations in part and renewal applications), and any
renewals, extensions or reissues thereof, in any jurisdiction; non-public
information, trade secrets and confidential information and rights in any
jurisdiction to limit the use or disclosure thereof by any person; writings
and other works, whether copyrightable or not in any jurisdiction;
registrations or applications for registration of copyrights in any
jurisdiction, and any renewals or extensions thereof; and any similar
intellectual property or proprietary rights. The Company has received no
notice from Holiday Inns Franchising, Inc. ("HIFI"), alleging any current or
uncured grounds for termination of the Company's License Agreement with HIFI,
and the Company has no knowledge of any currently-existing or anticipated
grounds for such termination other than HIFI's contractual right under the
License Agreement to approve a change of control of the Company.
4.15 Material Contracts. Except as set forth in Schedule 4.15 hereto, there
are no (i) agreements of the Company containing an unexpired covenant not to
compete or similar restriction applying to the Company, (ii) interest rate,
currency or commodity hedging, swap or similar derivative transactions to
which the Company is a party or (iii) other contracts or amendments thereto
that would be required to be filed and have not been filed as an exhibit to
the Company's Annual Report on Form 10-KSB for the fiscal year ended September
30, 1996 (the "1996 Form 10-KSB") and to the Company's SEC Reports filed
subsequent thereto and prior to the date of this Agreement (collectively,
along with agreements or contracts or amendments thereto filed as exhibits to
the 1996 Form 10-KSB and to such subsequently filed SEC Reports, the "Material
Contracts"). Assuming each Material Contract constitutes a valid and binding
obligation of each other party thereto, each Material Contract is a valid and
binding obligation of the Company. To the Company's knowledge, each Material
Contract is a valid and binding obligation of each other party thereto, and
each such Material Contract is in full force and effect and is enforceable by
the Company in accordance with its terms, except as such enforcement may be
limited by the Bankruptcy Exceptions and subject to the general principles of
equity. There are no existing defaults (or circumstances or events that, with
the giving of notice or lapse of time or both would become defaults) of the
Company (or, to the knowledge of the Company, any other party thereto) under
any of the Material Contracts except for defaults that would not, individually
or in the aggregate, have a Company Material Adverse Effect.
4.16 Insurance. The Company has obtained and maintained in full force and
effect insurance with responsible and reputable insurance companies or
associations in such amounts, on such terms and covering such risks, including
fire and other risks insured against by extended coverage, as is consistent
with industry practice for companies (i) engaged in similar businesses and
(ii) of at least similar size to that of the Company, and has maintained in
full force and effect public liability insurance, insuring against claims for
personal injury or death or property damage occurring in connection with any
of the activities of the Company or any of the properties owned, occupied or
controlled by the Company, in such amount as reasonably deemed necessary by
the Company. Schedule 4.16 hereto sets forth a complete and correct list of
all material insurance policies (including a brief summary of the nature and
terms thereof and any amounts paid or payable to the Company) providing
coverage in favor of the Company or any of its properties. Each such policy is
in full force and effect, no notice of termination, cancellation or
reservation of rights has been received with respect to any such policy, there
is no default with respect to any provision contained in any such policy, and
there has not been any failure to give any notice or present any claim under
any such policy in a timely fashion or in the manner or detail required by any
such policy, except for any such failures to be in full force and effect, any
such terminations, cancellations, reservations or defaults, or any such
failures to give notice or present claims which would not, individually or in
the aggregate, have a Company Material Adverse Effect.
4.17 Labor Matters.
(a) Except as set forth in Schedule 4.17(a) hereto, the Company is not a
party to any collective bargaining or other labor union contract applicable to
persons employed by the Company, no collective bargaining agreement is being
negotiated by the Company and the Company has no knowledge of any material
activities or proceedings (i) involving any unorganized employees of the
Company seeking to certify a collective bargaining unit or (ii) of any labor
union to organize any of the employees of the Company. There is no labor
dispute, strike or work stoppage against the Company pending or, to the
Company's knowledge, threatened which may interfere with the business
activities of the Company, except where such dispute, strike or work stoppage
would not have a Company Material Adverse Effect.
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(b) Except as set forth in Schedule 4.17(b) hereto, the Company has paid in
full, or fully accrued for in their financial statements, all wages, salaries,
commissions, bonuses, severance payments, vacation payments, holiday pay, sick
pay, pay in lieu of compensatory time and other compensation due or to become
due to all current and former employees of the Company for all services
performed by any of them on or prior to the date hereof. The Company is in
compliance in all material respects with all applicable federal, state, local
and foreign laws, rules and regulations relating to the employment of labor,
including without limitation, laws, rules and regulations relating to payment
of wages, employment and employment practices, terms and conditions of
employment, hours, immigration, discrimination, child labor, occupational
health and safety, collective bargaining and the payment and withholding of
Taxes and other sums required by governmental authorities.
4.18 Real Property.
(a) Schedule 4.18 identifies all real property owned by the Company (the
"Owned Property") and all real property leased or operated (or leased and
subleased) by the Company (the "Leased Property"). The Owned Property and the
Leased Property shall be referred to collectively as the "Real Property."
(b) The Company has good and marketable fee simple absolute title to the
Owned Property, and the right to use the Leased Property, free and clear of
any and all liens, encumbrances, easements, restrictions, leases, subleases,
concession agreements, options to purchase, options to lease, options to joint
venture or jointly develop, conditions, covenants, assessments, defects,
claims or exceptions, except for the exceptions described on Schedule 4.18 or
as shown on the policies of title insurance or preliminary title reports (if
more recent) attached as part of such schedule. Except as set forth on
Schedule 4.18(b) hereto, all leases, subleases and licenses on the Owned
Property or Leased Property, including renewal rights or other options, are
terminable by the Company without penalty on not more than 30 days notice.
(c) True and correct copies of the documents under which the Owned Property
and Leased Property is leased, subleased (to or by the Company or otherwise)
or operated (the "Lease Documents") have been delivered to Parent. The Lease
Documents are unmodified and in full force and effect, and there are no other
agreements, written or oral, between the Company and any third parties, or by
and amongst any third parties, claiming an interest in the interest of the
Company in the Owned Property, Leased Property or otherwise relating to the
use and occupancy of the Owned Property or Leased Property. Without limiting
the generality of the foregoing, except as set forth on Schedule 4.18, no
person or entity other than the Company has any right to occupancy, or right
to acquire any occupancy right, to any portion of the Real Property (whether
pursuant to a lease, sublease, license or otherwise) for any period of time
beyond June 30, 1998. Neither the Company nor any other party is in material
default under the Lease Documents, and no defaults (which have not been cured)
by the Company nor any other party have been asserted thereunder. To the best
knowledge of the Company, each landlord or other party (e.g., a subtenant or
concessionaire) named in any of the Lease Documents is not in material default
thereunder, and no material defaults (whether or not subsequently cured) by
such landlord or other parties have been alleged thereunder.
(d) Except as disclosed in Schedule 4.18, (i) the Real Property complies
with, and is operated in accordance with, all applicable laws (including
without limitation all Environmental Laws to the extent stated in Section
4.19) affecting the Real Property or the ownership, improvement, development,
possession, use, occupancy or operation thereof, and with any and all liens,
encumbrances, easements, agreements, covenants, conditions and restrictions
(collectively, "Restrictions") affecting the Real Property, except where the
failure to comply, individually or in the aggregate, would not result in a
Company Material Adverse Effect; (ii) to the best knowledge of the Company, no
land or property adjacent to the Real Property is in material violation of any
applicable laws, regulations or Restrictions, except for such violations
which, individually or in the aggregate, would not result in a Company
Material Adverse Effect; (iii) there are no material defects in the physical
condition of the Real Property or the improvements located on the Real
Property, except for defects which, individually or in the aggregate, would
not have a Company Material Adverse Effect; and (iv) the Company has not
received any notice from any governmental body (a) requiring it to make any
material repairs or changes to the Real Property or the improvements located
on the Real Property or (b) giving notice of any material
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governmental actions pending, except for such repairs, changes or actions
which, individually or in the aggregate, would not have a Company Material
Adverse Effect.
(e) Except as disclosed in Schedule 4.18, there is no action, proceeding or
litigation pending (or, to the best knowledge of the Company, contemplated or
threatened): (i) to take all or any portion of the Real Property, or any
interest therein, by eminent domain; (ii) to modify the zoning of, or other
governmental rules or restrictions applicable to, the Real Property or the use
or development thereof; (iii) for any street widening or changes in highway or
traffic lanes or patterns in the immediate vicinity of the Real Property; or
(iv) otherwise relating to the Real Property or the interests of the Company
therein, or which otherwise would interfere with the use, ownership,
improvement, development and/or operation of the Real Property.
(f) Except as disclosed in Schedule 4.18, no portion of the Real Property or
the roads immediately adjacent to the Real Property: (i) is situated in a
"Special Flood Hazard Area," as set forth on a Federal Emergency Management
Agency Flood Insurance Rate Map or Flood Hazard Boundary Map; (ii) to the best
knowledge of the Company, was the former site of any public or private
landfill, dump site, retention basin or settling pond; (iii) to the best
knowledge of the Company, was the former site of any oil or gas drilling
operations; (iv) to the best knowledge of the Company, was the former site of
any experimentation, processing, refining, reprocessing, recovery or
manufacturing operation for any petrochemicals; or (v) has any defect or
condition which would materially impair either (a) the current use of the Real
Property or (b) the use of the Real Property for gaming or other currently
contemplated activities, as applicable.
(g) The parcels constituting the Real Property are assessed separately from
all other adjacent property for purposes of real property taxes.
(h) Except as disclosed in Schedule 4.18, (i) all improvements on the Real
Property are in compliance with current building codes, to the extent
applicable and (ii) the Company has not received any written notices of any
material violations of any applicable building codes relating to the Real
Property which have not been remedied.
(i) The Real Property is connected to and serviced by adequate water, sewage
disposal, gas and electricity facilities in accordance with all applicable
laws, statutes, ordinances, rules and regulations of all public or quasi-
public authorities having or claiming jurisdiction there over. All material
systems (heating, air conditioning, electrical, plumbing and the like) for the
basic operation of the Real Property are operable and in good condition
(ordinary wear and tear excepted).
(j) There are no material commitments to or agreements with any governmental
authority or agency (federal, state or local) affecting the Real Property
which are not listed in Schedule 4.18 or described in the SEC Reports.
(k) Except as disclosed in Schedule 4.18 or as shown in the policies of
title insurance or preliminary title reports (if more recent) delivered
previously to Parent, there are no commitments, agreements, understandings or
other Restrictions materially adversely affecting Company's ability to utilize
the Real Property for its intended purposes or to improve or develop or effect
expansion of the Company's business on the Real Property.
(l) There are no contracts or other obligations outstanding for the sale,
exchange or transfer of any of the Real Property or any interest therein, or
any portion of it or the business operated thereon, except as disclosed on
Schedule 4.18.
4.19 Environmental Matters.
(a) "CERCLA" means the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended.
"CERCLIS" means the Comprehensive Environmental Response Compensation
Liability Information System List.
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"Environmental Claim" means, with respect to any Person, any written notice,
claim, demand or other communication (collectively, a "claim") by any other
Person alleging or asserting such Person's liability for investigatory costs,
cleanup costs, Governmental Authority response costs, damages to natural
resources or other property, personal injuries, fines or penalties arising out
of, based on or resulting from (a) the presence, or release into the
environment, of any Hazardous Material at any location, whether or not owned
by such Person, or (b) circumstances forming the basis of any violation, or
alleged violation, of any Environmental Law. The term "Environmental Claim"
shall include, without limitation, any claim by any Governmental Authority for
enforcement, cleanup, removal, response, remedial or other actions or damages
pursuant to any applicable Environmental Law, and any claim by any third party
(other than workers compensation claims arising from isolated incidents)
seeking damages, contribution, indemnification, cost recovery, compensation or
injunctive relief resulting from the presence of Hazardous Materials or
arising from alleged injury or threat of injury to health, safety or the
environment.
"Environmental Law" means any law, regulation or order relating to the
regulation or protection of human health, safety or the environment or to
emissions, discharges, releases or threatened releases of Hazardous Materials
into the environment (including without limitation ambient air, soil, surface
water, ground water, wetlands, land or subsurface strata), or otherwise
relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of Hazardous Materials.
"Governmental Authority" means any agency, authority, board, bureau,
commission, department, office or instrumentality of any nature whatsoever of
any governmental or quasi-governmental unit, whether federal, state, county,
district, city or other political subdivision, foreign or otherwise and
whether now or hereafter in existence, or any officer or official of any
thereof.
"Hazardous Materials" includes (a) any "hazardous substance", as defined by
CERCLA or any other similar substance or waste regulated pursuant to any
similar state or local law, regulation or ordinance; (b) any "waste" or
"hazardous waste", as defined by the Resource Conservation and Recovery Act,
as amended, or any other similar substance or waste regulated pursuant to any
similar state or local law, regulation or ordinance; (c) any pollutant,
contaminant, material, substance or waste regulated by the Clean Water Act, as
amended, or any other similar substance or waste regulated pursuant to any
similar state or local law, regulation or ordinance; (d) any pollutant,
contaminant, material, substance or waste regulated by the Clean Air Act, as
amended, or any other similar substance or waste regulated pursuant to any
similar state or local law, regulation or ordinance; (e) any petroleum
product; (f) any polychorinated biphenyls; or (g) any radioactive materials or
substances.
"Release" means release, spill, emission, leaking, pumping, injection,
deposit, disposal, discharge, dispersal, leaching or migration into the indoor
or outdoor environment or into or out of any real or personal property or any
fixture, including the movement of Hazardous Materials through or in the air,
soil, surface water or groundwater.
(b) Except as set forth in Schedule 4.19 (with paragraph references
corresponding to those set forth below):
(i) all facilities and property owned or leased by the Company at any
time have been, and continue to be, operated by the Company in material
compliance with all Environmental Laws;
(ii) there have been no past, and there are no pending or, to the best
knowledge of the Company, threatened (x) claims, complaints, notices,
requests for information or investigations with respect to any alleged
material violation of any Environmental Law by the Company, or (y)
complaints, notices or inquiries to or investigations of the Company
regarding potential liability under any Environmental Law by the Company;
(iii) there have not been, at any facilities or property presently or
formerly owned or leased by the Company, any Releases of Hazardous
Materials and there are no citations, notices or orders of noncompliance
issued and outstanding to the Company under any Environmental Law, except
as would not, individually or in the aggregate, be reasonably expected to
have a Company Material Adverse Effect;
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(iv) the Company has been issued and is in material compliance with all
permits, certificates, approvals, licenses and other governmental
authorizations relating to environmental matters and necessary for their
businesses, and no order has been issued, no Environmental Claim has been
made, no penalty has been assessed and no investigation or review has
occurred or is pending or, to the best knowledge of the Company,
threatened, by any Person with respect to any alleged failure by the
Company to have any license or permit required under applicable
Environmental Laws in connection with the conduct of its business or
operations or to comply with any Environmental Laws or with respect to any
generation, treatment, storage, recycling, transportation, discharge,
disposal or release of any Hazardous Material generated by the Company;
(v) neither any property now or previously owned or leased by the Company
nor any property to which wastes generated at any such property have been
disposed of, is listed or proposed for listing on the National Priorities
List pursuant to CERCLA, or on the CERCLIS or on any similar federal or
state list of sites requiring investigation or clean-up;
(vi) there are no underground storage tanks, active or abandoned,
including petroleum storage tanks, under any property now owned or leased
by the Company; and
(vii) there are no facts upon which the Company may reasonably be
expected to become liable under any Environmental Law in any material
respect.
4.20 Representations Complete. None of the representations or warranties
made by the Company herein or in any Schedule or Exhibit hereto contains or
will contain at the Effective Time any untrue statement of a material fact, or
omits or will omit at the Effective Time any material fact necessary in order
to make the statements contained herein or therein, in light of the
circumstances under which they are made, not misleading.
4.21 Disclosure Schedules. Disclosure of a matter on a Schedule called for
under one Section or subsection of this Article IV shall be deemed to be
disclosure for any other Schedule under another Section or subsection of this
Article IV provided that the statements in the Schedule relating to the matter
can be clearly identified as relating to the Schedule to be delivered under
such other Section or subsection. Notwithstanding the preceding sentence, the
listing of a security interest on a title report does not constitute
disclosure of the associated indebtedness or liability under a representation
and warranty where disclosure of such indebtedness or liability was required.
ARTICLE V
Representations and Warranties of Parent and Merger Sub
Parent and Merger Sub represent and warrant to the Company as follows:
5.1 Organization. Each of Parent and Merger Sub is a corporation duly
organized, validly existing and in good standing under the laws of their
jurisdiction of incorporation and has the requisite corporate power to carry
on its business. Merger Sub has made available to the Company a complete and
correct copy of its articles of incorporation and bylaws, each as amended to
date and as in full force and effect. Merger Sub is not in default in any
material respect in the performance, observation or fulfillment of any
provision of its articles of incorporation or bylaws.
5.2 Authority Relative To This Agreement. Each of Parent and Merger Sub has
all requisite corporate power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby on the part of Parent and Merger Sub have
been duly and validly authorized by the Boards of Directors of Parent and
Merger Sub and by Parent as the sole stockholder of Merger Sub and no other
corporate proceedings on the part of Parent and Merger Sub are necessary to
authorize this Agreement or to consummate the transactions contemplated
hereby, except as contemplated hereby. This Agreement has been duly and
validly executed and delivered by Parent and Merger Sub and, assuming this
Agreement constitutes a valid and binding
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obligation of the Company and the requisite approval of the Company's
stockholders has been obtained, this Agreement constitutes a valid and binding
agreement of Parent and Merger Sub, enforceable against each of them in
accordance with its terms, except (a) as such enforcement may be subject to
the Bankruptcy Exceptions, and (b) as the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to equitable
defenses and to the discretion of the court before which any proceeding
therefor may be brought.
5.3 Consent and Approvals; No Violation. Neither the execution and delivery
of this Agreement by Parent and Merger Sub, nor the consummation of the
transactions contemplated hereby, will:
(a) conflict with any provision of the respective articles of incorporation
or bylaws of Parent or Merger Sub;
(b) require any consent, approval, authorization or permit of, or filing
with or notification to, any governmental or regulatory authority, except (i)
the filing of a premerger notification and report form under the HSR Act, (ii)
the filing with the SEC of the Company Proxy Statement relating to the
approval and adoption by the Company's stockholders of the Merger and this
Agreement as contemplated by Section 1.5 of this Agreement, if such approval
is required by law, and such reports under Sections 13 and 16 of the Exchange
Act as may be required in connection with this Agreement, the Stockholder
Agreements and the transactions contemplated hereby and thereby, (iii)
obtaining all necessary approvals under the Gaming Laws, including those
required by the Gaming Authorities, (iv) the filing of the Articles of Merger
with the Secretary of State of the State of Nevada, and (v) where the failure
to obtain such consents, approvals, authorizations or permits or the failure
to make such filings or notifications would not have a material adverse effect
on the ability of Parent and Merger Sub to consummate the transactions
contemplated hereby; or
(c) conflict with or violate the provisions of any order, writ, injunction,
judgment, decree, statute, rule or regulation applicable to Parent or Merger
Sub, or any contract or agreement to which Parent or Merger Sub is a party, in
such a manner as to result in a material adverse effect on the ability of
Parent and Merger Sub to consummate the transactions contemplated hereby.
5.4 Information Supplied. None of the information supplied or to be supplied
by Parent or Merger Sub expressly for inclusion in the Company Proxy Statement
will, at the time filed with the SEC, as of the date mailed to the Company's
stockholders or at the time of the Special Meeting, contain any untrue
statement of a material fact or will omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances in which they are made, not misleading.
5.5 Merger Sub's Operations. Merger Sub was formed solely for the purpose of
engaging in the transactions contemplated hereby and has not engaged in any
business activities or conducted any operations other than in connection with
the transactions contemplated hereby.
5.6 Capitalization. The authorized capital stock of Merger Sub consists of
1,000 shares of common stock. All of the issued and outstanding shares of
Merger Sub's common stock have been duly and validly issued and are held of
record and beneficially by Parent.
5.7 Financing. Parent has available to it funds necessary to purchase all of
the Shares, to pay the Merger Consideration and to pay all of its fees and
expenses related to the transactions contemplated by this Agreement.
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ARTICLE VI
Conduct of Business By The CompanyPrior to Effective Date
The Company agrees, except (i) as expressly contemplated by this Agreement,
or (ii) as agreed in writing by Parent, from the date hereof and prior to the
Effective Time, as follows:
6.1 Ordinary Course. The Company shall carry on its business in the usual,
regular and ordinary course, in substantially the same manner as heretofore
conducted, and use its reasonable efforts consistent with past practice and
policies to preserve intact its present business organization, keep available
the services of its present officers and employees and preserve its existing
relationships with customers, suppliers, lessors, lessees, creditors and
others having business dealings with it. The Company will continue to maintain
a standard system of accounting established and administered in accordance
with GAAP.
6.2 Dividends; Changes In Stock. The Company shall not (a) declare, set
aside or pay any dividends on or make other distributions in respect of any
shares of its capital stock, (b) split, combine or reclassify any shares of
its capital stock or issue or authorize the issuance of any other securities
in respect of, in lieu of or in substitution for any shares of its capital
stock or (c) propose to do any of the foregoing.
6.3 Issuance, Repurchase or Repricing of Securities. The Company shall not
issue, pledge, deliver, sell or transfer or authorize or propose the issuance,
pledge, delivery, sale or transfer of, or repurchase, redeem or otherwise
acquire directly or indirectly, or propose the repurchase, redemption or other
acquisition of, any shares of capital stock of any class of the Company, or
any options, warrants or other rights exercisable for or securities
convertible into or exchangeable for, any such shares (or enter into any
agreements, arrangements, plans or understandings with respect to any of the
foregoing), other than pursuant to the exercise of outstanding options or
warrants pursuant to the terms thereof as of the date hereof or amend any of
the terms of any of such securities. The Company shall take no action to
reduce or alter the consideration to be paid to the Company upon the exercise
of any outstanding options, warrants or other rights exercisable for, or
securities convertible into or exchangeable for, any shares of the Company's
capital stock, nor shall it enter into any agreements, arrangements, plans or
understandings with respect to any such reduction or alteration.
6.4 Governing Documents; Board Of Directors. The Company shall not propose
or adopt any amendment to its articles of incorporation or bylaws (or similar
charter documents) or take any action to alter the size or composition of its
Board of Directors.
6.5 No Dispositions. The Company shall not transfer, sell, lease, license,
mortgage or otherwise dispose of or encumber any material assets, or enter
into any commitment to do any of the foregoing, other than in the ordinary and
usual course of business, consistent with past practice.
6.6 Indebtedness.
(a) The Company shall not incur, become subject to, or agree to incur any
debt for borrowed money or incur or become subject to any other obligation or
liability (absolute or contingent), except current liabilities incurred, and
obligations under contracts entered into, in the ordinary course of business
consistent with prior practice.
(b) The Company shall not pay or be liable for prepayment or other penalties
in connection with the early retirement of any Company indebtedness for
borrowed money.
6.7 Employees And Affiliates. The Company shall not make any change in the
compensation payable or to become payable to any of its officers, directors,
employees, agents, affiliates or consultants, enter into or amend any
employment, severance, termination or other agreement or make any loans to any
of its officers, directors, employees, agents, affiliates or consultants or
make any change in its existing borrowing or lending arrangements for or on
behalf of any of such persons, or otherwise enter into any transactions with
or make any
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payment to or for any affiliate of the Company, in each case whether
contingent on consummation of the Merger or otherwise, except for increases in
the compensation payable to non-management salaried employees in the ordinary
course of business and consistent with past practice.
6.8 Benefit Plans. The Company shall not, except as required by law, (a)
pay, agree to pay or make any accrual or arrangement for payment of any
pension, retirement allowance or other employee benefit pursuant to any
existing plan, agreement or arrangement to any officer, director or employee
except in the ordinary course of business and consistent with past practice or
as permitted by this Agreement; (b) pay or agree to pay or make any accrual or
arrangement for payment to any employees of the Company of any amount relating
to unused vacation days; (c) commit itself or themselves to adopt or pay,
grant, issue, accelerate or accrue salary or other payments or benefits
pursuant to any pension, profit-sharing, bonus, extra compensation, incentive,
deferred compensation, stock purchase, stock option, stock appreciation right,
group insurance, severance pay, retirement or other employee benefit plan,
agreement or arrangement, or any employment or consulting agreement with or
for the benefit of any director, officer, employee, agent or consultant,
whether past or present; or (d) amend in any material respect any such
existing plan, agreement or arrangement.
6.9 Taxes. The Company shall (i) properly prepare and file all material
reports or Tax Returns required by the Company to be filed with any
governmental or regulatory authorities with respect to its business,
operations, or affairs, and (ii) pay in full and when due all Taxes indicated
on such Tax Returns or otherwise levied or assessed upon the Company or any of
its assets and properties unless such Taxes are being contested in good faith
by appropriate proceedings and reasonable reserves therefor have been
established in accordance with GAAP. The preparation of any such Tax Returns
filed by the Company shall be subject to the timely review and approval of
Parent, which approval shall not be unreasonably withheld.
6.10 Consultation And Cooperation. The Company shall (i) report on a regular
basis, at reasonable times, to a representative designated by Parent regarding
material operational matters and financial matters (including monthly
unaudited financial information); (ii) promptly and regularly notify Parent of
any change in the normal course of operation of its business or its properties
and of any material development in the business or operations of the Company
(including without limitation any Company Material Adverse Effect or any
governmental or third party claims, complaints, investigations or hearings, or
communications indicating that the same may be forthcoming or contemplated);
and (iii) cooperate with Parent and its affiliates and representatives in
arranging for an orderly transition in connection with the transfer of control
of the Company.
6.11 Additional Matters. The Company shall not:
(a) enter into, amend or terminate any agreements, commitments or contracts
which, individually or in the aggregate, are material to the financial
condition, business, assets, properties or results of operations of the
Company, or waive, release, assign or relinquish any material rights or claims
thereunder, except in the ordinary course of business, consistent with past
practice;
(b) discharge or satisfy any lien or encumbrance or payment of any
obligation or liability (absolute or contingent) other than current
liabilities in the ordinary course of business;
(c) cancel or agree to cancel any material debts or claims, except in each
case in the ordinary course of business;
(d) waive any rights of substantial value;
(e) pay, discharge, satisfy or settle any litigation or other claims,
liabilities or obligations (absolute, accrued, asserted, unasserted,
contingent or otherwise) involving the payment by the Company of more than
$50,000;
(f) make any equity investments in third parties;
(g) create any subsidiaries;
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(h) (i) incur, pay, or be subject to any material obligation to make any
payment of, or in respect of, any Tax on or before the Effective Time, except
in the ordinary course of business consistent with past practice, (ii) settle
any material audit, make or change any material Tax election or file any
amended Tax Returns, or (iii) agree to extend or waive any statute of
limitations on the assessment or collection of Tax;
(i) adopt a plan of complete or partial liquidation, dissolution, merger,
consolidation, restructuring, recapitalization or other reorganization of the
Company (other than the Merger) or otherwise make any material change in the
conduct of the business or operations of the Company; or
(j) agree in writing or otherwise to take any of the foregoing actions or
any other action which would constitute a Company Material Adverse Effect in
any of the items and matters covered by the representations and warranties of
the Company set forth in Article IV, or make any representation or warranty of
the Company in this Agreement materially inaccurate in any respect.
6.12 Consent To Stockholder Agreements And Release.
(a) By the execution of this Agreement, the Company hereby consents to the
entry into the Stockholder Agreements by Diversified Opportunites Group Ltd.,
Jacobs Entertainment, Inc., Jacobs, and Jansen (collectively the "Memorandum
Parties") and to the termination and release of all of the rights, title and
interest of the Memorandum Parties under that certain Option and Proxy
Agreement (the "Option Agreement") dated September 24, 1996,and the Memorandum
of Understanding (the "Memorandum") dated as October 29, 1997.
(b) Effective at the Closing (and contingent on the occurrence of the
Closing), the Company terminates and releases any and all rights, title and
interest which it may have under or pursuant to that certain Purchase
Agreement dated as of September 24, 1996 ("Purchase Agreement"), the Option
Agreement, or the Memorandum, including any and all claims for breaches or
violations of those agreements that may have occurred on or prior to the date
of the Closing. The Company expressly agrees that, effective at the Closing,
the Purchase Agreement, the Option Agreement, and the Memorandum shall be
terminated and of no further force and effect. Effective at the Closing (and
contingent on the occurrence of the Closing), the Company releases the
Memorandum Parties from any and all obligations, charges or claims arising out
of or in connection with the Purchase Agreement, the Option Agreement, or the
Memorandum. The Memorandum Parties shall each be a third party beneficiary
with respect to the consents, releases, and agreements contained in this
Section 6.12.
ARTICLE VII
Additional Covenants
7.1 No Solicitation.
(a) The Company and its affiliates will not, and the Company and its
affiliates will use their reasonable efforts to ensure that their respective
officers, directors, employees, investment bankers, attorneys, accountants and
other representatives and agents do not, directly or indirectly, initiate,
solicit, encourage or participate in negotiations or discussions relating to,
or provide any information to any Person (as defined below) concerning, or
take any action to facilitate the making of, any offer or proposal which
constitutes or is reasonably likely to lead to any Acquisition Proposal (as
defined below) of the Company or any affiliate, or any inquiry with respect
thereto, or agree to approve or recommend any Acquisition Proposal. The
Company shall, and shall cause its affiliates, and their respective officers,
directors, employees, investment bankers, attorneys, accountants and other
agents to, immediately cease and cause to be terminated all existing
activities, discussions and negotiations, if any, with any parties conducted
heretofore with respect to any of the foregoing. Notwithstanding the
foregoing, the Company may, directly or indirectly, provide access and furnish
information concerning its business, properties or assets to any corporation,
partnership, person or other entity or group pursuant to an appropriate
confidentiality agreement, and may negotiate and participate in discussions
and negotiations with such entity or group concerning an Acquisition Proposal
if (x) such entity or group has submitted an unsolicited bona fide
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written proposal to the Board of Directors of the Company relating to an
Acquisition Proposal which contemplates the acquisition of all of the stock,
assets or business of the Company and (i) in which the offeror demonstrates
proof of its financial capability and authority to consummate the transactions
contemplated by such offer (including without limitation the payments required
by Section 10.1(b) hereof); and (ii) which provides for (x) net aggregate cash
proceeds to the Company or all of its stockholders in an amount greater than
that provided for hereunder, at a per Share purchase price greater than the
Merger Consideration (or, in the event the Merger Consideration has been
increased by Parent, such greater amount), (y) the Company's financial
advisers have advised the Board of Directors of the Company that such
Acquisition Proposal is more favorable to the Company's stockholders, from a
financial point of view, than the transactions contemplated hereby, and (z) in
the opinion of the Board of Directors of the Company, after consultation with
independent legal counsel to the Company, the failure to provide such
information or access or to engage in such discussions or negotiations would
result in a substantial risk of liability for a breach of fiduciary duties of
the members of the Board of Directors. Except with Parent's consent, the
Company shall not release any third party from, or waive any provisions of,
any confidentiality or standstill agreement to which the Company is a party.
(b) The Company shall immediately notify Parent of any such offers,
proposals or Acquisition Proposals (including without limitation the terms and
conditions thereof and the identity of the Person making it), and will keep
Parent apprised of all developments with respect to any such Acquisition
Proposal, including without limitation any modifications thereof.
(c) Nothing contained in this Section 7.1 shall prohibit the Company or its
Board of Directors from (i) taking and disclosing to the Company's
stockholders a position with respect to a tender offer by a third party
pursuant to Rules 14d-9 and 14e-2 promulgated under the Exchange Act, or (ii)
making such disclosure to the Company's stockholders which, in the opinion of
the Board of Directors of the Company, after consultation with independent
legal counsel to the Company, may be required under applicable law.
(d) As used in this Agreement, "Acquisition proposal" shall mean any tender
or exchange offer involving the Company or its securities, any proposal for a
merger, consolidation or other business combination involving the Company, any
proposal or offer to acquire in any manner a substantial equity interest in,
or a substantial portion of the business or assets of, the Company, any
proposal or offer with respect to any recapitalization or restructuring with
respect to the Company or any proposal or offer with respect to any other
transaction similar to any of the foregoing with respect to the Company;
provided, however, that, as used in this Agreement, the term "Acquisition
Proposal" shall not apply to (i) any transaction of the type described in this
subsection (d) involving Parent, Merger Sub or their affiliates.
(e) The Company shall continue to be obligated to hold the Special Meeting
notwithstanding the existence of an Acquisition Proposal and shall take all
further action in furtherance of the consummation of the transactions
contemplated under this Agreement.
7.2 Access to Information; Confidentiality.
(a) Between the date of this Agreement and the Effective Time, upon
reasonable notice the Company shall (i) give Parent, Merger Sub and their
respective officers, employees, accountants, counsel, financing sources and
other agents and representatives full access to all buildings, offices, and
other facilities and to all contracts, internal reports, data processing files
and records, Federal, state, local and foreign tax returns and records,
commitments, books, records and affairs of the Company, whether located on the
premises of the Company or at another location; (ii) furnish promptly to
Parent a copy of each report, schedule, registration statement and other
document filed or received by it during such period pursuant to the
requirements of Federal securities laws or regulations; (iii) permit Parent
and Merger Sub to make such inspections as they may require; (iv) cause its
officers to furnish Parent and Merger Sub such financial, operating, technical
and product data and other information with respect to the business and
properties of the Company as Parent and Merger Sub from time to time may
request, including without limitation financial statements and schedules; (v)
allow Parent and Merger Sub the opportunity to interview such employees and
other personnel and affiliates of the Company with the
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Company's prior written consent, which consent shall not be unreasonably
withheld; and (vi) assist and cooperate with Parent and Merger Sub in the
development of integration plans for implementation by Parent and the
Surviving Corporation following the Effective Time; provided, however, that no
investigation pursuant to this Section 7.2 shall affect or be deemed to modify
any representation or warranty made by the Company herein. Materials furnished
to Parent pursuant to this Section 7.2 may be used by Parent for strategic and
integration planning purposes relating to accomplishing the transactions
contemplated hereby.
(b) Except as otherwise provided below, until Parent or Merger Sub acquires
Shares pursuant to the Stockholder Agreements, Parent and Merger Sub shall,
and shall cause their affiliates, agents and representatives to, keep secret
and retain in confidence, and not use for the benefit of any such person or
others (other than in connection with this Agreement and the transactions
contemplated hereby), any confidential information of the Company which Parent
or Merger Sub obtained from the Company pursuant to this Section 7.2. The
restrictions on use and disclosure contained herein shall not apply if and to
the extent any such information (i) is publicly available or becomes publicly
available (through no action or fault of Parent or Merger Sub), (ii) was or is
obtained by Parent or Merger Sub from a third party, provided that to the
recipient's knowledge, such third party was not bound by a contractual, legal
or fiduciary obligation of confidentiality to the Company or any other party
with respect to such information or material, (iii) was already in the
possession of Parent or Merger Sub or known to Parent or Merger Sub prior to
being disclosed or provided to them by or on behalf of the Company, provided
that, to the recipient's knowledge, the source of such information or material
was not bound by a contractual, legal or fiduciary obligation of
confidentiality to the Company or any other party with respect thereto, or
(iv) is required to be disclosed in a legal proceeding or pursuant to
applicable law, gaming regulations or the rules or regulations of any national
securities exchange or over-the-counter market. In the event that Parent or
Merger Sub is requested or required (by oral questions, interrogatories,
request for information or documents in legal proceedings, subpoena, civil
investigative demand or other similar process) to disclose any of the
confidential information provided under this Section 7.2, such party shall
provide the Company with prompt written notice of any such request or
requirement so that the Company may seek a protective order or other
appropriate remedy and/or waive compliance with the provisions of this Section
7.2. If, in the absence of a protective order or other remedy or the receipt
of a waiver by the Company, Parent or Merger Sub is nonetheless, based on
advice of its counsel, legally compelled to disclose the confidential
information to any tribunal or else stand liable to contempt or suffer other
censure or penalty, such party may, without liability hereunder, disclose to
such tribunal only that portion of the confidential information which such
counsel advises such party is legally required to be disclosed, provided that
such party shall use its reasonable efforts to preserve the confidentiality of
the confidential information, including without limitation by cooperating with
the Company to obtain an appropriate protective order or other reliable
assurance that confidential treatment will be afforded the confidential
information by such tribunal. The restrictions on use and disclosure of
confidential information under this Section 7.2 shall expire three years from
the date hereof.
7.3 HSR Act. The Company and Parent shall take all reasonable actions
necessary to file as soon as practicable notifications under the HSR Act and
to respond as promptly as practicable to any inquiries received from the
Federal Trade Commission and the Antitrust Division of the Department of
Justice for additional information or documentation and to respond as promptly
as practicable to all inquiries and requests received from any state attorney
general or other Governmental Entity in connection with antitrust matters.
7.4 Consents and Approvals.
(a) The parties hereto shall cooperate with each other and use reasonable
best efforts (and, with respect to Gaming Laws, shall use reasonable best
efforts to cause their respective directors, officers and (if required)
stockholders to do so) to promptly prepare and file all necessary
documentation, to effect all applications, notices, petitions and filings, to
obtain as promptly as practicable all permits, consents, approvals and
authorizations of all third parties and Governmental Entities which are
necessary or advisable to consummate the transactions contemplated by this
Agreement (including without limitation the Merger) ("Governmental
Approvals"), and to comply (and, with respect to Gaming Laws, to cause their
respective directors, officers and (if required) stockholders to so comply)
with the terms and conditions of all such permits, consents, approvals and
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authorizations of all such Governmental Entities. Each of the parties hereto
and their respective officers, directors and affiliates shall use their
reasonable best efforts to file within 30 days after the date hereof, and in
all events shall file within 60 days after the date hereof, all required
initial applications and documents in connection with obtaining the
Governmental Approvals (including without limitation under applicable Gaming
Laws) and shall act reasonably and promptly thereafter in responding to
additional requests in connection therewith; and each party will use its
reasonable best efforts to secure such Governmental Approvals as expeditiously
as practicable. Parent and the Company shall have the right to review in
advance, and to the extent practicable each will consult the other on, in each
case subject to applicable laws relating to the exchange of information, all
the information relating to Parent or the Company, as the case may be, and any
of their respective subsidiaries, directors, officers and stockholders which
appear in any filing made with, or written materials submitted to, any third
party or any Governmental Entity in connection with the transactions
contemplated by this Agreement. Without limiting the foregoing, each of Parent
and the Company (the "Notifying Party") will notify the other promptly of the
receipt of comments or requests from Governmental Entities relating to
Governmental Approvals, and will supply the other party with copies of all
correspondence between the Notifying Party or any of its representatives and
Governmental Entities with respect to Governmental Approvals; provided,
however, that it shall not be required to supply the other party with copies
of correspondence relating to the personal applications of individual
applicants except for evidence of filing.
(b) Parent and the Company shall promptly advise each other upon receiving
any communication from any Governmental Entity whose consent or approval is
required for consummation of the transactions contemplated by this Agreement
which causes such party to believe that there is a reasonable likelihood that
any Requisite Regulatory Approval (as defined below) will not be obtained or
that the receipt of any such approval will be materially delayed.
7.5 Closing of Stockholder Agreements; Parent Obligation to Effect Merger
Once Stockholder Agreements Fully Consummated. To the extent the Stockholder
Agreements otherwise permit Parent to do so, Parent shall not waive the
condition to its closing obligation in the Stockholder Agreement(s) with one
Selling Stockholder that the Stockholder Agreement(s) with the other Selling
Stockholder shall have been consummated or consummated concurrently. In the
event the transactions contemplated by the Stockholder Agreements are fully
consummated, including without limitation the acquisition by Parent of the
Shares owned by the Selling Stockholders and the purchase of Jansen's real
estate contemplated thereunder, then all of the conditions to Parent's
obligations to effect the Merger under Sections 8.1 and 8.2 shall be deemed
satisfied or waived.
7.6 Notification of Certain Matters. The Company will give prompt notice to
Parent of (a) any notice of default received by it subsequent to the date of
this Agreement and prior to the Effective Time under any material instrument
or material agreement to which it is a party or by which it is bound, which
default would, if not remedied, result in a Company Material Adverse Effect or
which would render materially incomplete or untrue any representation or
warranty made herein, (b) any suit, action or proceeding instituted or, to the
knowledge of the Company, threatened against or affecting the Company
subsequent to the date of this Agreement and prior to the Effective Time
which, if adversely determined, would have a Company Material Adverse Effect
or which would render materially incorrect any representation or warranty made
herein and (c) any material breach of the Company's covenants hereunder or the
occurrence of any event that is reasonably likely to cause any of its
representations and warranties hereunder to become incomplete or untrue in any
material respect.
7.7 Additional Actions. Subject to the terms and conditions of this
Agreement, each of the parties hereto agrees to use all reasonable efforts to
take, or cause to be taken, all action and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations,
or to remove any injunctions or other impediments or delays, to consummate and
make effective the Merger and the other transactions contemplated by this
Agreement, subject, however, to the appropriate vote of stockholders of the
Company required so to vote as described in Section 1.5 hereof. In case at any
time after the Effective Time any further action is necessary or desirable to
carry out the purposes of this Agreement or to vest the Surviving Corporation
with full title to all properties, assets, rights, approvals, immunities and
franchises of either of Merger Sub or the Company, the
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proper officers and directors of each corporation which is a party to this
Agreement shall take all such necessary action.
7.8 Interference with Transactions. The Company, prior to the Effective Date
shall not (a) take any action which, in the reasonable judgment of Parent,
would impede, interfere with or attempt to discourage the transactions
contemplated by this Agreement or the Stockholder Agreements, (b) amend,
revoke, withdraw or modify the approval of Parent's and Merger Sub's
acquisition of the Company Common Stock, the Merger and the other transactions
contemplated hereby so as to render the prohibitions contained in Sections
78.411 to 78.444 of the NRS applicable to the Merger or the other transactions
contemplated hereby as a result of the failure to satisfy the requirements of
Section 78.438 or 78.439 thereof, or (c) without limiting the generality of
Section 6.4, amend, revoke, repeal, withdraw, restrict or modify the Control
Share Opt-Out Bylaw for any reason whatsoever, or permit (whether by action of
the Company's Board of Directors or stockholders or otherwise) the Control
Share Opt-Out Bylaw to be amended, revoked, repealed, withdrawn, restricted or
modified for any reason whatsoever, or take any other action which might be
expected to render the provisions of NRS Sections 78.378 through 78.3793
applicable to the Company or which would otherwise jeopardize the right of
Parent and Merger Sub to exercise all voting and other rights with respect to
Shares acquired by them.
7.9 Publicity. So long as this Agreement is in effect and subject to Section
7.1 hereof, neither the Company nor any of its affiliates shall issue or cause
the publication of any press release or other announcement with respect to the
Merger, this Agreement or the other transactions contemplated hereby without
prior consultation with Parent, except as may be required by law or by any
listing agreement with a national securities exchange.
7.10 Opinion of Company Counsel. Prior to the Effective Time, the Company
shall cause to be delivered to Parent an opinion, dated the Closing Date, of
Jones Vargas, counsel for the Company, with respect to matters customarily
covered in legal opinions in transactions of this type, in form and substance
reasonably satisfactory to Parent and its counsel.
7.11 Resignation of Directors. Prior to the Effective Time, the Company
shall deliver to Parent evidence satisfactory to Parent of the resignation of
such directors of the Company as Parent shall specify, which resignations
shall be effective at the Effective Time.
7.12 Parent Consent to Merger. Parent, in its capacity as holder of all of
the Company's 16.5% First Mortgage Notes Due March 31, 2005 (the "First
Mortgage Notes") (and as holder of that certain Convertible Subordinated Note
dated September 24, 1996, originally made by the Company in favor of
Diversified Opportunities Group Ltd. when it acquires such Convertible Note
pursuant to the Stockholder Agreement with Jacobs), hereby consents to the
Merger and the other transactions contemplated hereby, all subject to the
terms set forth herein.
7.13 Parent Consent To Deferral Of March Interest Payment On First Mortgage
Notes. At the request of the Company, Parent, in its capacity as holder of all
the First Mortgage Notes hereby agrees that the Company may, at its option,
defer payment of all or any portion of the March 31, 1998 interest payment
that will become due on the First Mortgage Notes (the "Deferred Interest");
provided, however that (i) the Deferred Interest will become due and payable
on September 30, 1998 along with the regular September 30, 1998 interest
payment and (ii) the Deferred Interest will accrue interest at the same rate
that interest accrues on the principal amount of the First Mortgage Notes and
such accrued interest on the Deferred Interest shall be due and payable on
September 30, 1998. The Company may pay the Deferred Interest and any interest
thereon at any time prior to September 30, 1998.
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ARTICLE VIII
Conditions
8.1 Conditions to each Party's Obligations to Effect the Merger. The
respective obligations of the parties to effect the Merger shall be subject to
the satisfaction or waiver, on or prior to the Closing Date, of the following
conditions:
(a) Regulatory Approvals. Other than the filing of the Articles of Merger in
accordance with the NRS, all licenses, permits, registrations, authorizations,
consents, waivers, orders or other approvals of Governmental Authorities
required to be obtained, and all filings, notices or declarations required to
be made by the parties and their subsidiaries, officers, directors and
affiliates in order to consummate the Merger and the transactions contemplated
by this Agreement, and in order to permit the Company to conduct its business
in the jurisdictions regulated by the Gaming Authorities after the Effective
Time in the same manner as conducted by the Company or its subsidiaries prior
to the Effective Time (all such approvals and the expiration of all such
waiting periods being referred to herein as the "Requisite Regulatory
Approvals") shall have been obtained or made, and no such approval shall
contain any conditions, limitations or restrictions which Parent reasonably
determines in good faith will have or reasonably be expected to have a Company
Material Adverse Effect.
(b) Legal Action. No temporary restraining order, preliminary injunction or
permanent injunction or other order precluding, restraining, enjoining,
preventing or prohibiting the consummation of the Merger shall have been
issued by any Federal, state or foreign court or other governmental or
regulatory authority and remain in effect.
(c) Statutes. No Federal, state, local or foreign statute, rule or
regulation shall have been enacted which prohibits, restrains, enjoins or
restricts the consummation of the Merger, would limit Surviving Corporation's
conduct of its business or would make the consummation of the Merger illegal.
(d) Stockholder Approval. Subject to Section 1.6, this Agreement and the
transactions contemplated hereby shall have been approved and adopted by the
requisite affirmative vote of the holders of the Company Common Stock as
described in Section 1.5, in accordance with applicable law.
(e) HSR Waiting Period. All waiting periods applicable to the consummation
of the Merger under the HSR Act shall have expired or been terminated.
(f) Parent To Fund Paying Agent. On or prior to the Effective Time, Parent
shall have deposited with the Paying Agent the funds to which holders of
Company Common Stock shall become entitled pursuant to Section 2.1(c) hereof.
8.2 Conditions to Obligations of Parent and Merger Sub to Effect the
Merger. The obligations of Parent and Merger Sub to effect the Merger shall be
subject to the fulfillment at or prior to the Effective Date of the additional
following conditions, unless waived by Parent:
(a) Representations and Warranties Accurate. The representations and
warranties of the Company set forth in this Agreement shall be true and
correct in all material respects (i) as of the date hereof and (ii) as of the
date of the Closing (provided that in the cases of clauses (i) and (ii) any
such representation and warranty made as of a specific date shall be true and
correct as of such specific date), and Parent and Merger Sub shall have
received a certificate signed by the president and the chief financial officer
of the Company to such effect.
(b) No Material Breach. The Company shall have performed in all material
respects all obligations and covenants required to be performed by it under
this Agreement prior to or as of the date of the Closing, and Parent and
Merger Sub shall have received a certificate signed by the president and the
chief financial officer of the Company to such effect.
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(c) No Material Adverse Change. There shall have been no material adverse
change in the business, assets (tangible or intangible), results of
operations, liabilities, prospects or financial condition of the Company after
the date hereof through the Effective Date.
(d) Consents Received. Parent and the Company shall have received all third-
party consents and approvals required to be obtained by the Company or Parent
in connection with the transactions contemplated hereby, under any contract to
which the Company or Parent (or any of their respective subsidiaries) may be a
party, except for such third-party consents and approvals as to which the
failure to obtain, either individually or in the aggregate, would not
reasonably be expected to result in a Company Material Adverse Effect.
(e) Consent Under Holiday Inn License Agreement. Without limiting the
generality of Section 8.2(d) hereof, within sixty (60) days of the date hereof
Parent shall have received the written consent to the Merger and the
transactions contemplated hereby (including without limitation Parent's
acquisition of Shares pursuant to the Stockholder Agreements) of the licensor
under that certain Holiday Inn Conversion License Agreement dated December 16,
1993, as amended, between HIFI and the Company, which consent shall be
obtained without any payment required of, or penalty imposed on, Parent,
Merger Sub or the Company.
(f) Termination of Options and Warrants. Parent shall be satisfied, in its
sole discretion, that, without payment made in respect thereof, all warrants,
options and other rights to purchase Company Securities either have been
terminated or will terminate at the Effective Time or will constitute only the
right to receive the Option/Warrant Spread, other than the Compensation
Options which will continue in accordance with their terms.
(g) Title Policy. Parent shall have obtained the unconditional commitment of
Nevada Title Company to issue its ALTA form of owner's policy of title
insurance with endorsements designated by Parent (the "Title Policy") in favor
of the Company and Parent insuring that the Company is the fee owner of the
Company Owned Property in the amount of $101 million, subject to no exceptions
or exclusions other than those (i) of the exceptions or exclusions shown on
Schedule 4.18 hereof which in the reasonable judgment of Parent do not
materially adversely affect the use or value of the Owned Properties, or (ii)
which are created subsequently to the date hereof with the consent of Parent,
or (iii) which are reflected as indebtedness of the Company on the Draft
September 30, 1997 Balance Sheet.
(h) No Breach of Stockholder Agreements. None of the other parties to either
of the Stockholder Agreements shall have breached any representation, warranty
or covenant set forth in such agreements.
(i) Maximum Number of Dissenting Shares. The number of shares of Company
Common Stock as to which the holders thereof have purported to exercise
dissenters' rights, if any, with respect to the Merger shall not exceed ten
percent (10%) of the total number of shares of Company Common Stock
outstanding as of the record date for the Special Meeting.
ARTICLE IX
Termination
9.1 Termination. Anything herein or elsewhere to the contrary
notwithstanding, this Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time, whether before or after
stockholder approval thereof:
(a) By Mutual Consent. By mutual consent of Parent and the Company.
(b) By any Party. By Parent or Merger Sub, or by the Board of Directors of
the Company:
(i) if the Merger shall not have been consummated on or prior to June 30,
1998; provided, however, that the right to terminate this Agreement under
this Section 9.1(b)(i) shall not be available to any party
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whose failure to fulfill any material obligation under this Agreement has
been the cause of, or resulted in, the failure of the Merger to be
consummated on or prior to such date; or
(ii) if a court of competent jurisdiction or other governmental or
regulatory authority shall have issued an order, decree or ruling or taken
any other action (which order, decree, ruling or other action the parties
hereto shall use their reasonable efforts to lift), in each case
permanently restraining, enjoining or otherwise prohibiting the
transactions contemplated by this Agreement and such order, decree, ruling
or other action shall have become final and non-appealable.
(c) By Parent Or Merger Sub. By Parent or Merger Sub:
(i) if neither Parent nor Merger Sub is in material breach of this Agreement
and the Board of Directors of the Company shall have withdrawn, modified or
changed in a manner adverse to Parent or Merger Sub its approval or
recommendation of this Agreement or the Merger or shall have approved or
recommended an Acquisition Proposal; or
(ii) if any approval of the stockholders of the Company contemplated by this
Agreement shall not have been obtained by reason of the failure to obtain the
required vote at the Special Meeting or at any adjournment or postponement
thereof; or
(iii) if any person or group (other than Parent or any of its affiliates)
acquires beneficial ownership (as such term is defined in Rule 13d- 3 under
the Exchange Act), or the right to acquire beneficial ownership, of 25% or
more of the outstanding Company Common Stock or the voting power of the
Company's equity securities, whether by purchase of outstanding shares from
third parties or by exercise of currently-existing or newly-issued options or
warrants; or
(iv) if the Company breaches or fails in any material respect to perform or
comply with any of its material covenants and agreements contained herein
(including without limitation the covenants in Article VII), or breaches any
of its representations or warranties contained herein, in any material
respect; or
(v) if the Control Share Opt-Out Bylaw is amended, revoked, repealed,
withdrawn, restricted or modified in any respect; or
(vi) if any of the other parties to either of the Stockholder Agreements
commits any material breach of, or fails in any material respect to perform or
comply with any of its material covenants and agreements contained in, such
agreement, or breaches any of its representations or warranties contained
therein in any material respect.
(d) By the Company. By the Company, if Parent or Merger Sub breaches or
fails in any material respect to perform or comply with any of their
respective material covenants and agreements contained herein, or breaches any
of their respective representations or warranties contained herein, in any
material respect, which breach shall not have been cured in the case of a
representation or warranty, prior to the Closing or, in the case of a covenant
or agreement, within ten (10) days following receipt by Parent of written
notice specifying such breach from the Company.
9.2 Effect of Termination. In the event of termination of this Agreement as
provided in Section 9.1 above, written notice thereof shall forthwith be given
to the other party or parties specifying the provision hereof pursuant to
which such termination is made, and this Agreement shall forthwith become null
and void and there shall be no liability or obligation on the part of Parent
and Merger Sub, or either of them, or the Company, or their respective
officers, directors or employees, except (a) for fraud or for willful material
breach of this Agreement and (b) as set forth in this Section 9.2 and in
Sections 7.2(b) and 10.1 hereof.
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ARTICLE X
General Provisions
10.1 Fees and Expenses.
(a) Except as contemplated by this Agreement, including Section 10.1(b) and
(c) hereof, all costs and expenses incurred in connection with this Agreement
and the consummation of the transactions contemplated hereby shall be paid by
the party incurring such expenses.
(b) If Parent or Merger Sub shall terminate this Agreement pursuant to
Section 9.1(c)(iii) or 9.1(c)(iv) hereof, then (i) the Company shall pay or
cause to be paid to Parent a fee in the amount equal to One Million Dollars
($1,000,000); provided, however, that if Parent or Merger Sub terminate this
Agreement pursuant to Section 9.1(c)(iv) by reason of a breach of the
representation and warranty contained in Section 4.2(c) and there remain
outstanding warrants, options (other than Compensation Options) and other
rights to purchase not more than 500,000 shares of Company Common Stock which
have not been terminated or otherwise constitute only the right to receive the
Option/Warrant Spread, then Parent shall not be entitled to the payment
described in this Section 10.1(b).
(c) If Parent or Merger Sub shall terminate this Agreement:
(x) pursuant to Section 9.1(c)(ii), 9.1(c)(iii) or 9.1(c)(iv) hereof and
any of the following events (a "Subsequent Transaction") occur prior to the
date which is nine (9) months after the termination of this Agreement: any
person or group (other than Parent) shall have entered into a definitive
agreement or agreement in principle with the Company or any person holding
at least ten percent (10%) of the Company's then outstanding voting
securities with respect to an Acquisition Proposal or other business
combination with the Company (including a transaction in which the then
outstanding shares of the Company Common Stock would, after such business
combination, represent less than a majority of the then outstanding common
shares of the Company) or any person or group (other than Parent) shall
have acquired beneficial ownership (as such terms is defined in Rule 13d-3
under the Exchange Act) of a majority of the voting power of the Company's
equity securities, or
(y) pursuant to Section 9.1(c)(i) or 9.1(c)(v) hereof, then (i) the
Company shall pay or cause to be paid to Parent an amount equal to Two
Million Dollars ($2,000,000) plus all costs and expenses of Parent and
Merger Sub relating to this Agreement and the transactions contemplated
hereby (including without limitation fees and expenses of Parent's counsel,
accountants and financial advisors). In the event that Parent shall have
terminated this Agreement pursuant to Section 9.1(c)(iii) or 9.1(c)(iv)
hereof and become entitled to receive the $1,000,000 payment described in
Section 10.1(b) hereof, and a Subsequent Transaction occurs prior to the
date which is nine (9) months after the termination of this Agreement, then
Parent shall be entitled to the payment described in this Section 10.1(c),
less any amounts received pursuant to Section 10.1(b) hereof.
(d) Any payments to which Parent may become entitled pursuant to Section
10.1(b) hereof shall be payable in equal quarterly installments with the first
installment being due three months following the relevant triggering event;
provided, however, that, in the event the Company issues shares of capital
stock following the date hereof (whether through private placements, public
offerings, the exercise of Company Securities or otherwise), the Company shall
make additional payments of the fee described in Section 10.1(b) hereof equal
to the net cash proceeds of such issuance to Parent within two business days
after the later of such issuance or such triggering event and such payment
shall be credited against the installment payments due hereunder in reverse
order of maturity. Any payments to which Parent may become entitled pursuant
to Section 10.1(c) hereof shall be payable by the Company within two business
days after the relevant triggering event.
10.2 Amendment and Modification. Subject to applicable law, this Agreement
may be amended, modified and supplemented in any and all respects, whether
before or after any vote of the stockholders of the
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Company contemplated hereby, by written agreement of the parties hereto, by
action taken by their respective Boards of Directors (which in the case of the
Company shall include approvals as contemplated in Section 4.3 hereof), at any
time prior to the Closing Date with respect to any of the terms contained
herein; provided, however, that after the approval of this Agreement by the
stockholders of the Company, no such amendment, modification or supplement
shall reduce or change the Merger Consideration.
10.3 Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Agreement shall survive the Effective
Time.
10.4 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given upon personal delivery, facsimile
transmission (which is confirmed), telex or delivery by an overnight express
courier service (delivery, postage or freight charges prepaid), or on the
fourth day following deposit in the United States mail (if sent by registered
or certified mail, return receipt requested, delivery, postage or freight
charges prepaid), addressed to the parties at the following addresses (or at
such other address for a party as shall be specified by like notice):
(a) if to Parent or Merger Sub, to:
Mirage Resorts, Incorporated
3400 Las Vegas Boulevard South
Las Vegas, Nevada 89109
Telecopy No.: (702) 792-7268
Attn: Daniel Lee and Bruce Levin, Esq.
with a copy to:
Irell & Manella LLP
1800 Avenue of the Stars, Suite 900
Los Angeles, California 90067
Telecopy No.: (310) 203-7199
Attention: C. Kevin McGeehan, Esq.
and
Bruce A. Leslie, Esq.
Bernhard & Leslie, Chtd.
3980 Howard Hughes Parkway--Suite 550
Las Vegas, Nevada 89109
Telecopy No.: (702) 650-2995
(b) if to the Company, to:
Boardwalk Casino, Inc.
3750 Las Vegas Boulevard South
Las Vegas, Nevada 89109
Attention: Forrest J. Woodward
Telecopy No: (702) 739-7918
with a copy to:
Jones Vargas
3773 Howard Hughes Parkway, 3rd Floor South
Las Vegas, Nevada 89109
Attention: Gary Goodheart, Esq. and Douglas G. Crosby, Esq.
Telecopy No.: (702) 737-7705
10.5 Definitions; Interpretation. As used in this Agreement, the term
"Affiliate(s)" shall have the meaning set forth in Rule 12b-2 under the
Exchange Act. When a reference is made in this Agreement to an
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Article, Section, Exhibit or Schedule, such reference shall be to an Article,
Section, Exhibit or Schedule to this Agreement unless otherwise indicated. The
words "include," "includes" and "including" when used herein shall be deemed
in each case to be followed by the words "without limitation." The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement.
10.6 Specific Performance. The parties hereto agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached.
It is accordingly agreed that the parties shall be entitled to an injunction
or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof (including without limitation
Section 7.1(e) hereof) in any court of the United States or any state having
jurisdiction, this being in addition to any other remedy to which they are
entitled at law or in equity.
10.7 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each
of the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
10.8 Entire Agreement; No Third Party Beneficiaries. This Agreement
(including the documents and the instruments referred to herein and therein)
(a) constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof, and (b) is not intended to confer upon any person other
than the parties hereto any rights or remedies hereunder.
10.9 No Control of the Company by Parent Under Gaming Laws. Notwithstanding
any provision contained in this Agreement, Parent shall not have the power,
directly or indirectly, to direct or cause the direction of the management and
policies of the Company until Parent receives all Requisite Regulatory
Approvals under applicable Gaming Laws to acquire control of the Company
pursuant to the terms of this Agreement. To the extent that any provision
contained in this Agreement would purport to give Parent such power prior to
the receipt of all such Requisite Regulatory Approvals, such provision shall
be deemed amended to the extent necessary, but only to the extent necessary,
so as not to give Parent such power.
10.10 Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction or other authority to
be invalid, void, unenforceable or against its regulatory policy, the
remainder of the terms, provisions, covenants and restrictions of this
Agreement shall remain in full force and effect and shall in no way be
affected, impaired or invalidated.
10.11 Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Nevada (without giving effect to the
principles of conflicts of law thereof).
10.12 Assignment. Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any of the parties hereto (whether
by operation of law or otherwise) without the prior written consent of the
other parties, except that Merger Sub may assign, in its sole discretion, any
or all of its rights, interests and obligations hereunder to Parent or to any
direct or indirect subsidiary of Parent. Subject to the preceding sentence,
this Agreement will be binding upon, inure to the benefit of and be
enforceable by, the parties and their respective successors and assigns.
10.13 No Prior Agreements. Each of the parties hereto acknowledges and
agrees that, prior to the execution of this Agreement on the date hereof,
there was no agreement, arrangement or understanding among the parties with
respect to the acquisition, disposition, holding or voting of Company Common
Stock.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, Parent, Merger Sub and the Company have caused this
Agreement to be signed by their respective officers thereunto duly authorized
as of the date first written above.
COMPANY:
PARENT:
Boardwalk Casino, Inc. Mirage Resorts, Incorporated
/s/ Forrest J. Woodward, II /s/ Daniel Lee
_____________________________________ _____________________________________
Name: Forrest J. Woodward, IITitle: Name: Daniel LeeTitle: Chief
President Financial Officer
MERGER SUB:
Mirage Acquisition Sub, Inc.
/s/ Daniel Lee
_____________________________________
Name: Daniel LeeTitle: Chief
Financial Officer
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ANNEX B
AGREEMENT OF PURCHASE AND
SALE AND JOINT ESCROW INSTRUCTIONS
THIS AGREEMENT OF PURCHASE AND SALE AND JOINT ESCROW INSTRUCTIONS
("Agreement") is made as of December 22, 1997, by and between Restaurant
Ventures of Nevada, Inc. a Nevada corporation ("Buyer") and Avis Jansen, as
sole trustee of the Norbert W. Jansen and Avis Jansen Family Trust dated July
14, 1993 ("Seller") upon the terms and conditions set forth below with
reference to the following facts and circumstances:
A. Seller owns the Property (as hereinafter defined).
B. Concurrently herewith, Mirage Resorts, Incorporated, a Nevada corporation
("Parent") which is an affiliate of Buyer, is entering into an Agreement and
Plan of Merger (the "Merger Agreement") with Mirage Acquisition Merger Sub,
Inc., a Nevada corporation (the "Merger Sub"), and Boardwalk Casino, Inc. a
Nevada corporation (the "Company"), pursuant to which Parent will acquire the
Company, on the terms and subject to the conditions set forth in the Merger
Agreement, by means of a merger (the "Merger") of Merger Sub into the Company.
C. Seller is a shareholder of the Company. As a material inducement to
Parent to acquire the Company, and as a condition to Parent's willingness to
enter into the Merger Agreement and consummate the transactions contemplated
thereby, Parent has required that Seller agree, and the Seller has agreed, to
sell the Property (as hereinafter defined) to Buyer.
NOW THEREFORE, in consideration of the premises and other good and valuable
consideration, the receipt of which is hereby acknowledged, the parties agree
as follows:
1. Purchase and Sale of Real Property. Seller hereby agrees to sell, and
Buyer hereby agrees to purchase, upon the terms and conditions herein stated,
that certain real property in Clark County (the "County"), State of Nevada,
consisting of approximately 1.08 acres of land and improvements thereon,
commonly known as assessors parcel numbers 162-20-701-005 and 162-20-701-017
and more particularly described on Exhibit "A" hereto, including the land,
buildings and other improvements and all water, oil and mineral rights
appurtenant thereto and all other rights, privileges and easements which are
appurtenant to such real property (collectively, the "Property"). The Property
includes any and all strips, gores, licenses, accretions, abandonments, and
real property adjacent to the land described in Exhibit A which was at any
time owned by, or is hereinafter acquired by, Seller and/or Norbert W. Jansen
and/or Avis Jansen, unless now owned by the Company. "Property" includes any
and all right, title and interest which the Seller holds or has claim to in
fixtures, furniture, furnishings, fittings, equipment, machinery, apparatus,
appliances, vehicles and other articles of personal property (including
expendable and consumable items) located at or upon or used in connection with
the real property referenced in this Section 1 other than those items of
personal property specifically listed on Exhibit D hereto, but only to the
extent owned by the Seller, which shall be removed by Seller prior to Closing
(as hereinafter defined).
2. Purchase Price. The purchase price for the Property (the "Purchase
Price") shall be Seven Million Three Hundred Eighty Two Thousand and no/100s
Dollars ($7,382,380.00). The Purchase Price shall be payable through Escrow
(as defined below) upon the "Closing" (as defined below) in cash or
immediately available funds.
3. Survey. Within five (5) days following mutual execution of this
Agreement, Buyer shall order a certified ALTA survey of the Property at
Buyer's sole expense (the "Survey"). Seller shall provide to Buyer within five
(5) days after opening of escrow any existing surveys within Seller's
possession or notify Buyer of any existing surveys which Seller believes
exists which Seller does not have a copy of.
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<PAGE>
4. Buyer's Approvals.
(a) Preliminary Title Report.
(1) Buyer has already received a preliminary title report dated December
11, 1997, escrow number 97-12-1221 RWC from Nevada Title Company. Seller
shall request Nevada Title Company, Attn: Troy Lochhead (the "Title
Company"), to provide an updated preliminary title report with respect to
the Property setting forth the legal description of the Property and
containing such exceptions as the Title Company would specify in an
American Land Title Association ("ALTA") form of owner's policy of title
insurance and to deliver within 5 days after the Opening of Escrow (as
defined below) said updated preliminary title report to Buyer and Seller
and, in addition, to deliver to Buyer and Seller legible copies of all
documents of record or in its possession identified as exceptions in said
preliminary title report (such preliminary title report and legible copies
of documents are hereinafter collectively referred to as the "Preliminary
Title Report").
(2) Buyer may, not later than fifteen (15) days following the receipt of:
(i) the Title Report together with legible copies of all documents referred
to therein as exceptions (and within fifteen (15) days following the date
of any supplemental Preliminary Title Report modifying the legal
description of the Property or containing exceptions not contained in the
original Preliminary Title Report, together with legible copies of all
documents identified as additional exceptions and (ii) a current ALTA
survey by a surveyor approved by Buyer (the survey and any others
subsequently completed being "Surveys")), give written notice to Seller
reasonably disapproving any items shown in the Surveys or specified or
identified in said Preliminary Title Report or any supplemental Preliminary
Title Report, and identifying the items reasonably disapproved; provided,
however, that Buyer hereby disapproves any mortgages, deeds of trust or
liens for monetary obligations (or alleged monetary obligations) other than
special assessments shown on the Preliminary Title Report (all of which
(other than special assessments) shall be removed by Seller at or prior to
the Closing Date). If Buyer does not timely give notice of disapproval as
aforesaid, then Buyer shall be deemed to have approved all items on the
Surveys, Preliminary Title Report and any supplemental Preliminary Title
Report, as the case may be. Buyer will expeditiously obtain the Survey so
that Buyer shall complete its review of title (including the Survey) and
give nay notice of disapproval to Seller prior to the Inspection Cutoff
provided in Section 4(c) hereof. Prior to the Inspection Cutoff, Buyer
shall also satisfy itself as to the availability of any title policy
endorsements Buyer may require and the availability of any such
endorsements shall be an item of disapproval to be included in Buyer's
title notice.
It is the intent of the parties that the defined term Property shall
include all of the real property owned at any time by Seller and/or Norbert
W. Jansen and/or Avis Jansen individually within the description set forth
in the Exhibit A or adjacent thereto such that the Property is contiguous
on the north, west and east with property owned by Buyer (or Las Vegas
Boulevard on the east in the case of the parcel having direct access to the
Boulevard) and on the south with property owned by the Company, and that
Buyer and/or its affiliates can obtain endorsements from the Title Company
assuring that Buyer and its affiliated entities collectively have good and
marketable title to the entire contiguous area.
(3) If Buyer shall timely give notice of disapproval as aforesaid, then
Seller, for a period of ten (10) days following receipt of such notice, or
such longer period as may be specified in writing by Buyer, in no event to
exceed thirty (30) days, (the "Title Cure Period"), shall use its
commercially reasonable efforts to remove (or otherwise modify or cure in a
manner satisfactory to Buyer) said disapproved item or items. If Seller
fails to cure such disapproved items within such 5 days, then except for
(A) those items that exist because of intentional or negligent actions of
Seller (excluding any items on the December 11 preliminary title report to
the extent they have not been disapproved as of the execution hereof) or
(B) those items which by the terms of Section 4 (a) (2) (such as all deeds
of trust) which Seller is obligated to remove, or (C) items which remain
because of Seller's failure to exercise commercially reasonable efforts to
avoid or remove, as to which all such excepted items all remedies shall
remain, Buyer's sole remedy shall be to either (i) waive Buyer's
disapproval, or (ii) to terminate this Agreement by delivering written
termination notice to Seller not later than ten (10) days following the
expiration of the Title Cure Period. In such event, neither party shall
have any further obligations to the other hereunder, except as otherwise
specified herein.
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(b) Examination of Reports.
Within five (5) days after the Opening of Escrow, Seller shall use all
reasonable efforts and make all reasonable inquiries to locate and deliver to
Buyer true, full and correct copies of all data, reports, studies, plans and
other written materials in Seller's possession, or prepared for or at the
request of Seller or (if presently known to Seller) prepared by or at the
request of third parties (including but not limited to any Federal, state or
local governmental authority) and known to Seller to exist after due inquiry,
pertaining to the Property, including but not limited to such data, reports,
studies, plans and other written materials relating to: (i) geological
conditions, including earthquake faults, underground aquifers, soil
compaction, subsidence problems and slope analysis studies, (ii) the actual or
possible presence of any "Hazardous Substance" (as defined below) at, on, in,
under or in the vicinity of the Property, including without limitation any and
all environmental investigation and/or assessment reports and including
without limitation any and all notices from or correspondence with any
governmental authority or any third party concerning "Hazardous Substances"
and (iii) inspections or investigations similar to the Inspections and
Investigations which Buyer has the right to perform pursuant to Paragraph 4(c)
hereof (all of the foregoing being collectively referred to for purposes of
this Agreement as the "Reports"). Buyer hereby acknowledges that copies of
materials referenced in Exhibit C were delivered to Buyer prior to its
execution hereof.
(c) Inspections and Investigations. Buyer, and its engineers, contractors,
other qualified professionals and agents, shall, in addition to having the
right to review the Reports delivered pursuant to paragraph 4(b), supra, shall
also have the right to conduct, at Buyer's sole expense, tests, appraisals,
surveys, other studies, inspections, investigations and interviews regarding
the Property (including, without limitation, regarding structures, wells,
septic tanks, and underground storage tanks on the Property, soils, drainage,
seismic, geologic and topographical matters, utility lines and systems,
Hazardous Substances and other possible environmental issues, compliance of
the Property and with applicable zoning ordinances, subdivision laws and other
land use laws and regulations) (all of the foregoing being collectively
referred to for purposes of this Agreement as the "Inspections and
Investigations"). Buyer may at any time not later than sixty (60) days after
the execution hereof give written notice to Seller disapproving the results of
the Inspections and Investigations ("Inspection Cutoff"). Buyer will provide
Seller with copies of written reports prepared by Consultants as part of such
investigation and (unless this Agreement is terminated by Buyer) Seller agrees
to maintain such reports on a confidential basis and not disclose any of the
contents thereof.
In the event Buyer gives notice of such disapproval, this Agreement shall
terminate and neither party shall have any further obligations to the other
hereunder, except as otherwise specified herein. If Buyer does not give notice
of such disapproval, then Buyer shall be deemed to have approved the results
of the Inspections and Investigations.
(d) Disapproval Rights. Any right of disapproval granted to Buyer pursuant
to this Paragraph 4 may be exercised by Buyer in its subjective good faith
discretion. In the event that Buyer receives information or documents subject
to Buyer's approval pursuant to this Paragraph 4 prior to the date of mutual
execution of this Agreement, the time period for Buyer's disapproval thereof
shall be computed as if Buyer had received such information or documents on
the day following the date of mutual execution of this Agreement, rather than
on the date of Buyer's actual receipt of such information or documents.
5. Representations, Warranties, Covenants, and Acknowledgments.
(a) Authority. Seller represents and warrants that Seller is the sole fee
simple absolute owner of the Property with good and marketable title thereto
and that Seller has full right, power and authority to enter into this
Agreement and to sell, convey and transfer the Property to Buyer free and
clear of any and all liens and encumbrances other than those property taxes,
special assessments, easements, patents and other matters (excluding monetary
encumbrances other than assessments) shown on the current preliminary title
report delivered to Buyer prior to the date hereof, and/or on the updated
title report contemplated by Section 4(a)(1)
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hereof, or as listed on Exhibit B or C and to carry out Seller's obligations
hereunder without the consent or approval of any other person or entity. Each
person executing this Agreement on behalf of Seller represents and warrants
that such person is duly authorized to act on behalf of Seller in executing
this Agreement without the further consent of any other person or entity or
any judicial or other governmental authority, and that this Agreement
constitutes a valid and legally binding obligation of Seller enforceable
against Seller in accordance with its terms.
(b) Off-Record Matters. Seller represents and warrants that except as set
forth on Exhibit B hereto the Property is free and clear of all prescriptive
(other than possible prescriptive rights of the Company and/or Buyer as the
owners of adjacent properties) and similar rights and any unrecorded
instruments affecting title to or otherwise granting interests in or rights
with respect to the Property.
(c) Condition of Property. Seller represents and warrants that (1) to the
best of Seller's knowledge and without any specific independent investigation
the Property complies with in all material respects, and is operated in
accordance with in all material respects, all applicable ordinances, laws,
rules, regulations, statutes, codes and orders (collectively referred to for
purposes of this Agreement as "Applicable Laws," which term shall also
include, without limitation, all Applicable Laws relating to Hazardous
Substances as defined in Section 5(e), infra, affecting the Property or the
possession, use, occupancy or operation thereof promulgated or issued by any
governmental or quasi-governmental body, agency or entity) and with any and
all liens, encumbrances, agreements, easements, covenants, conditions and
restrictions (collectively referred to for purposes of this Agreement as
"Restrictions") affecting Seller or the Property, (2) to the best of Seller's
knowledge and without any specific independent investigation, there are no
material defects in the physical condition of the Property or the
improvements, if any, located on the Property, and (3) Seller has received no
notice from any governmental body requiring Seller to make any repairs or
changes to the Property or the improvements, if any, located on the Property,
except for notices with which Seller has fully complied.
(d) Reports. Seller represents and warrants that it is not aware of the
existence of any Reports relating to the Property other than those delivered
to Buyer pursuant to Paragraph 4(b) hereof, and that to the best of Seller's
knowledge the Reports so delivered are true, accurate and complete.
(e) Hazardous Substances. Seller represents and warrants that (1) to the
best of Seller's knowledge without specific investigation, and except as
otherwise disclosed in writing by Seller to Buyer prior to the date of mutual
execution of this Agreement the Property (including, without limitation, the
subsurface soil and the ground water thereunder) does not contain any
Hazardous Substance, or any active or abandoned underground storage tank, (2)
to the best of Seller's knowledge without specific investigation, and except
as otherwise disclosed in writing by Seller to Buyer prior to the date of
mutual execution of this Agreement there has been no generation,
transportation, storage, treatment, or disposal of any Hazardous Substance on
the Property and no off-site disposal of any Hazardous Substance, and (3)
there have been no communications or agreements (other than those, if any, of
which Seller has heretofore delivered true, correct and complete copies to
Buyer) with any governmental authority or agency (Federal, state or local) or
any private person or entity (including, without limitation, any prior owner
of the Property and any present or former occupant of the Property), or any
actual or, to Seller's knowledge, threatened investigation, litigation or
administrative proceedings, relating in any way to the presence, release,
threat of release, placement on or in the Property, or the generation,
transportation, storage, treatment, or disposal at or from the Property, of
any Hazardous Substance.
For purposes of this Agreement, "Hazardous Substance(s)" shall mean and
include any and all hazardous, toxic, harmful or regulated substances,
materials or wastes including without limitation (1) a "hazardous substance"
under CERCLA, (2) a hazardous waste or waste under RCRA, (3) a "pollutant"
under the Clean Water Act, (4) any other matter regulated pursuant to any
other federal environmental law or state environmental law (including, without
limitation, any radioactive substance, methane gas, crude oil, petroleum, or
any fraction thereof, polychlorinated biphenyls, chlorinated or other
solvents, metals or asbestos) or any other matter which
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could cause a detriment to, or impair the beneficial use of, the Property, or
constitute a health, safety or environmental risk to tenants, occupants or
patrons of the Property or surrounding areas.
(f) Leases and Other Agreements. Seller represents and warrants that, except
as set forth in any Exhibit hereto, there are no off record matters, including
without limitation any liens, encumbrances, easements, restrictions, title
defects or exceptions, conditions, covenants, assessments, leases, subleases,
concessionaire agreements, licenses, options to purchase, options to lease,
options to joint venture or jointly develop, or other agreements, relating to
the possession, use or occupancy of any portion of the Property, and that
there are no service, maintenance, security or other agreements or commitments
relating to or affecting the Property. The Company is not in default as to any
of its obligations under the Company Lease and has paid all rent and monetary
obligations due through the date hereof other than $40,000 per month which has
accrued for each of the months of November and December, 1997, under the
M.O.U. (as hereinafter defined). Notwithstanding the prior sentence, there are
certain rent payment arrearages owed Seller by the Company, which Seller
agrees to waive in favor of, or to assign without any claim for proration to,
Buyer at Closing.
(g) "Foreign Person" Status. Seller represents and warrants that it is not a
"foreign person" within the meaning of (S)1445 of the Internal Revenue Code of
1986, as amended (the "Internal Revenue Code").
(h) Eminent Domain; Zoning; Street Changes; Other Litigation. Seller
represents and warrants that except as otherwise disclosed by Seller to Buyer
in writing prior to the mutual execution of this Agreement, there are no
actions, litigation or proceedings pending (or, to Seller's knowledge,
contemplated or threatened): (1) to take all or any portion of the Property,
or any interest therein, by eminent domain, (2) to modify the zoning of, or
other governmental rules or restrictions applicable to the Property, (3) for
any street widening or changes in highway or traffic patterns in the vicinity
of the Property or (4) which would otherwise inhibit Buyer from obtaining good
and marketable title to the Property or interfere with Seller's use of the
Property.
(i) Flood Zone/Earthquake/Dumpsite/Petrochemicals. Seller represents and
warrants that to Seller's knowledge without conducting any specific
investigation, except as otherwise disclosed by Seller to Buyer in writing
prior to the date of mutual execution of this Agreement, no portion of the
Property (1) is or was the site of any public or private landfill, dumpsite,
retention basin or settling pond, or (2) is or was the site of any oil or gas
drilling operations, or (3) is or was the former site of any experimentation,
processing, refining, reprocessing, recovery or manufacturing operation for
any petrochemicals or other manufacturing operation, or (4) has been listed or
proposed for listing under the Comprehensive Environmental Response,
Compensation and Liability Act as amended ("CERCLA") or has been listed or
proposed for listing under any other database or list of sites which are or
may have had releases of Hazardous Substances.
(j) No Employees. Seller represents that it has no employees or advisors who
are employed or engaged primarily to perform duties in connection with the
Property.
(k) Indemnity. Seller hereby indemnifies and covenants and agrees to defend,
protect and hold Buyer harmless from and against any and all claims, demands,
losses, liabilities, costs and expenses (including attorneys' fees and costs,
and including interest, at the maximum rate permitted by law, on the amount of
all expenditures and costs for which Buyer is entitled to be indemnified
hereunder, computed from the time such expenditures and costs are made or
incurred by Buyer) arising as a result of or relating to (1) the inaccuracy of
any representations or warranties made herein, (2) the omission of any fact or
document necessary to make the representations and warranties made herein, (3)
any transactions or occurrences upon, or relating to, the Property prior to
the Closing Date, and (4) any liabilities to the extent based upon acts or
omissions that occurred prior to the Closing Date.
(l) "As Is" Purchase. Except and subject to any representation, warranty or
other provision contained herein, the sale of the Property as provided for
herein is made on an "AS IS" basis, and Buyer expressly
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acknowledges that, in consideration of the agreements of Seller herein, except
as provided herein, SELLER MAKES NO WARRANTY OR REPRESENTATION CONCERNING THE
PHYSICAL CONDITION OF THE PROPERTY, INCLUDING BUT IN NO WAY LIMITED TO, ANY
WARRANTY OF CONDITION, HABITABILITY, MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE.
(m) Survival. The representations and warranties contained in this Paragraph
5 are made as of the date this Agreement is executed by Seller and shall be
deemed to be remade as of the Closing Date. The covenants, representations and
warranties of Buyer and Seller contained herein shall survive the Close of
Escrow, and recordation of the grant deed conveying fee title to the Property.
Written notice to Seller of any claims under Sections 5(c), 5(h), 5(i) and
5(j) must be made within one year after Closing (as hereinafter defined) in
order to be valid claims. All other claims shall be governed by statutory
provisions of limitation.
(n) Knowledge. The knowledge of Seller shall only be deemed to include the
actual knowledge of Avis Jansen and any beneficiaries of Seller and Esther
Gallegher. To the extent Buyer or any of its affiliates acquires knowledge of
any matters prior to the Inspection Cutoff, such matters shall be deemed to
have been disclosed to Buyer in this Agreement, and Seller shall have no
liability to Buyer with respect to a breach of any such applicable
representation.
6. The Closing.
(a) The Closing Date. The consummation of the purchase and sale of the
Property (the "Closing") shall occur within 1 business day after the date when
all of the conditions in this Section 6 have been satisfied or waived (by the
party which such conditions benefit) but in no event later than June 30, 1998.
If the Closing Date of June 30, 1998, in the Merger Agreement is extended for
any reason, then the June 30, 1998, date in this paragraph shall be extended
without further action of the parties to the new closing date of the Merger
Agreement, but in such case not later than December 31, 1998. If the Merger
Agreement is terminated by Parent or the Merger Agreement is terminated by a
final binding judgment (after the passage of all available appeals) this
Agreement shall terminate. The date upon which the Closing shall occur is
sometimes referred to in this Agreement as the "Closing Date." Closing shall
occur through Escrow upon recordation of the Grant Deed (as defined below) and
in the customary manner for the consummation of real estate transactions in
the County. Seller shall deliver possession of the Property to Buyer on the
Closing Date, free and clear of all liens and encumbrances and matters of
record (except as permitted by this Agreement).
(b) Conditions to Closing. The failure of a condition for the benefit of a
Party shall excuse such party's performance. The Closing is subject to and
conditioned upon the satisfaction of the following conditions, in addition to
any others expressly set forth in this Agreement, by the date specified in the
first sentence of subparagraph (a) of this Paragraph 6, as the same may be
extended pursuant to the express provisions of this Agreement:
(1) As a condition to Buyer's obligation, Buyer shall have obtained the
unconditional commitment of the Title Company to issue its ALTA form of
owner's policy of title insurance (the "Title Policy") in favor of Buyer
insuring Buyer as the fee owner of the Property in the amount of
$9,000,000, subject to no exceptions except (A) the exceptions approved by
Buyer pursuant to Paragraph 4(a) hereof (excluding, however, all deeds of
trust, mortgages and liens of any kind for monetary obligations (whether or
not any amounts are, in fact, owed), all of which shall be removed by
Seller at or prior to the Closing Date), (B) property taxes for the current
fiscal year not yet payable and special assessments not delinquent,
(C) such other exceptions as may have been approved in writing by Buyer or
imposed upon the Property by Buyer, together with such endorsements as
Buyer is entitled to receive pursuant to Section 4(a)(2), with reinsurance
and direct access agreements as (specified prior to the Inspection Cutoff)
required by Buyer.
(2) As a condition to Buyer's obligation, each and all of the
representations and warranties made by Seller in Paragraph 5 hereof shall
be true and correct as of the Closing Date in all material respects.
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(3) As a condition to Buyer's obligation, Seller shall have fully
performed in all material respects all of the covenants which Seller,
pursuant to the terms of this Agreement, has agreed to perform on or prior
to the Closing Date.
(4) As a condition to Seller's obligation, Buyer shall have fully
performed in all material respects all of the covenants which Buyer,
pursuant to the terms of this Agreement, has agreed to perform on or prior
to the Closing Date.
(5) As a condition to Buyer's and Seller's obligation, the Merger shall
have become effective.
(6) As a condition to Buyer's and Seller's obligation, either (i) Buyer
shall have acquired all of the rights of Diversified Opportunities Group
Ltd. and Jacobs Entertainment Nevada, Inc. under that certain memorandum of
understanding dated October 29, 1997 (the "M.O.U.") or (ii) the M.O.U.
shall have been terminated.
(7) As a condition to Seller's obligation, at Closing Buyer shall either
obtain a release of Avis Jansen and the Estate of Norbert Jansens guarantee
of the Company's obligations (i) under the License Agreement dated December
16, 1993 with Holiday Inn Franchising, Inc., and (ii) the GIAC Leasing
Corporation Master Lease Agreement dated January 9, 1996 in the initial
amount of $1,750,000.00 and with the current balance of not greater than
$1,200,000.00, or cause Mirage Resorts, Inc. to indemnify such guarantors
in a document reasonably satisfactory to Seller against liabilities under
such License Agreement and Master Lease Agreement.
(c) Deliveries at Closing. Seller and Buyer shall each deliver to the other
through Escrow such instruments and funds as are necessary to consummate the
purchase and sale of the Property, including the following:
(1) Buyer shall deliver to Seller:
(A) the Purchase Price as specified in Paragraph 2 hereof,
(2) Seller shall deliver to Buyer:
(A) a duly executed and acknowledged grant, bargain and sale deed
(the "Grant Deed"), sufficient to invoke Nevada's statutory warranties,
and sufficient to convey fee title to the Property to Buyer as required
herein,
(B) a certificate executed by Seller dated the Closing Date,
confirming the accuracy, as of the Closing Date, of each of the
representations and warranties made by Seller pursuant to Paragraph 5
hereof, except as otherwise discovered by Buyer prior to the Inspection
Cutoff.
(C) an affidavit directed to Buyer giving Seller's taxpayer
identification number and confirming that Seller is not a "foreign
person".
(D) a bill of sale in form and substance acceptable to Buyer
sufficient to convey Seller's interest in any personal property
included within the Property.
(E) certified copies of appropriate instruments as designated by
Buyer at least 15 days prior to the Inspection Cutoff in form
reasonably acceptable to Buyer including copies of the leases,
subleases, concession agreements, agreements and commitments referenced
in exhibits to this Agreement, and estoppel certificates (to the extent
obtained prior to the Inspection Cutoff) in form satisfactory to Buyer
executed by all of the parties to any leases, subleases, concession
agreements, contracts or other commitments referenced in exhibits to
this Agreement certifying that such instruments are complete and in
full force and effect, attaching complete sets of relevant
documentation, confirming the absence of any material defaults, and
such other matters as may be reasonably requested by Buyer.
(F) such other instruments and documents as may be reasonably
required for Seller to perform its obligations hereunder (including
without limitation documents of assignment) or as may be reasonably
required by Escrow Holder or the Title Company.
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(d) Simultaneous Delivery; Conditions Concurrent. All documents and other
items to be delivered at the Closing shall be deemed to have been delivered
simultaneously, and no delivery shall be effective until all such items have
been delivered.
(e) Failure of Condition. Either party may waive, in writing, any condition
to Closing which is for the benefit of such party. If a condition to Closing
is not satisfied or waived, the party whose obligation was subject to such
condition may cancel this Agreement, in which case neither party shall have
any further obligations to the other hereunder, except as otherwise specified
herein; provided, however, that notwithstanding anything to the contrary
herein, such cancellation shall be without prejudice to the canceling party's
other rights and remedies if the failure of condition was due to the other
party's breach of this Agreement.
7. Buyer's Access.
Buyer and its authorized agents shall have full and complete access to the
Property at all reasonable times (but in a manner to minimize disruption)
prior to the Closing for any lawful purpose, including without limitation, in
order to make (at Buyer's sole cost and expense) such inspections,
investigations, inquiries, surveys, studies, tests, borings, wells, soil gas
surveys, site analyses and tests, and to erect such signs, as Buyer, in its
sole and absolute discretion, shall deem necessary or appropriate. Buyer shall
indemnify, defend and hold harmless Seller and the Property from and against
any loss, liability, claim or expense (including reasonable attorneys' fees
and court costs) for property damage, death, or personal injury to the extent
caused by Buyer's exercise of such access rights. In the event that Buyer's
investigation requires any investigation beneath the surface of the ground or
the use of heavy machinery, Buyer will name Seller as an additional insured on
a $2,000,000 liability policy in commercially reasonable form as selected by
Buyer.
8. Condemnation and Casualty. Seller shall promptly notify Buyer of any
condemnation proceeding filed or any casualty to the Property occur
(a) Condemnation. If any condemnation proceeding filed prior to the Closing
may result in the loss of all or more than 10% of the land area of the
Property, then this Agreement and the Escrow shall, at Buyer's sole election,
either (i) continue in effect without modification of the terms thereof, in
which event, upon the close of Escrow, Buyer shall be entitled to any
compensation, awards, or other payments or relief resulting from such
condemnation proceeding, or (ii) terminate by Buyer's written notice to Seller
and Escrow Agent delivered within five (5) days after receipt by Buyer of
notice of such condemnation, and all obligations, duties, rights and
entitlement of Seller and Buyer shall terminate. If the condemnation is 10% or
less of the land area, Seller shall assign all condemnation proceeds to Buyer
at Closing.
(b) Casualty. In the event of fire, casualty or any other damage of any kind
whatsoever (insured or uninsured) to the Property which costs Two Million
Dollars ($2,000,000.00) or more to repair, replace or remediate, Buyer may
upon written notice to Seller and Escrow Agent terminate this Agreement and
Escrow and all obligations, duties, rights and entitlement of Seller and Buyer
shall terminate. If any such occurrence costs less than Two Million Dollars
($2,000,000.00) to repair, replace or remediate, or if Buyer does not elect to
terminate this Agreement and the Escrow, then Seller shall assign all
available insurance proceeds to Buyer (and Buyer shall receive a credit
against the Purchase Price for any such proceeds that are received and
retained by any creditor of Seller and for the amount of any deductible and
any uninsured or underinsured loss), and the parties shall proceed to the
Closing pursuant to the terms and conditions hereof, without modification of
the terms of this Agreement. Upon execution of this Agreement Seller shall
obtain the proper indorsements to all existing policies insuring the above
described risks naming Buyer as an additional insured.
9. Costs and Prorations.
Costs. Costs of the Closing and Escrow shall be allocated as follows:
Seller shall Pay: (1) the costs of preparing and recording the Grant Deed
and all other documents to be recorded at the Closing, (2) all Federal, state
and local documentary transfer, stamp, excise, sales and other taxes,
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if any, imposed in connection with the transfer of the Property, (3) all
trustee's and other fees in connection with any deeds of trust which shall be
reconveyed at Closing, and any other expenses of placing title in proper
condition, (4) the cost of the title insurance examination and the premiums
for the CLTA premium portion of an ALTA Owner's Title Policy in the amount of
$9,000,000, and (5) one-half of the fee, if any, of the Escrow Holder and one-
half of the costs of the Escrow.
Buyer shall Pay: (1) one-half of the fee, if any, of the Escrow Holder and
the one-half of the costs of Escrow, (2) the cost of the updated Survey, and
(3) that portion of the ALTA title policy fee in excess of the cost of CLTA
coverages and the cost of endorsements thereto.
All other costs, if any, shall be apportioned in the customary manner for
real estate transactions in the County.
Prorations. Property taxes, security deposits, special improvement district
charges and special assessments and utility charges and rents (excluding rents
on those leases and licenses for which the Company has collected rents for the
past 6 months, but including rent under the lease with the Company which under
the M.O.U. is deferred, but that prorated deferral shall not exceed $40,000
per month in the period of November 1, 1997 through Closing, which Buyer shall
cause the Company to pay at Closing if it occurs) shall be prorated between
Buyer and Seller as of the Closing Date. Said prorations shall be based on a
thirty (30) day month and a three hundred sixty (360) day year. In the event
that the actual property taxes payable in respect of the Property are not
ascertainable as of the Closing Date, then the parties will prorate such taxes
on the basis of the latest available tax bill and will make such post-Closing
adjustment as may be necessary when the actual taxes are determined. All taxes
relating to periods prior to the Closing shall be paid by Seller. Seller shall
pay any supplemental tax bills or taxes or assessments levied by the taxing
authorities or received subsequent to the Closing Date to the extent
applicable to periods or attributable to facts or circumstances arising prior
to the Closing Date, or which are otherwise excepted from coverage under the
Title Policy, and Seller hereby indemnifies and agrees to defend, protect and
hold Buyer harmless from any such supplemental assessments or taxes and any
late charges or penalties associated therewith. Assessments and bonds, either
general or special, for improvements completed prior to the Closing, and other
governmental charges, whether matured or unmatured, shall be paid current and
prorated as of the Closing. Seller shall deliver to Buyer, or grant a credit
to Buyer at Closing, the amount of all security deposits received from
tenants, occupants and licensees by Seller under any agreement with respect to
the Property. Although the parties hereto do not believe that any termination
consideration is payable to the tenant under the lease referenced in item 1 to
Exhibit B hereto, in the event that a payment is required to be made pursuant
to the terms of Section 6 of such lease to the tenant thereunder, Seller shall
at the option of Buyer either reimburse Buyer upon demand of Buyer for such
amount or make such payment directly to such tenant.
10. Operation of the Property Prior to Closing. During the period from the
date of this Agreement to the Closing Date (the "Interim Period") Seller
shall, at its expense, comply with all Applicable Laws and Restrictions
respecting the Property or the possession, use, occupancy or operation thereof
except to the extent maintenance and repairs are the responsibility of the
Company under its lease of portions of the Property. Seller shall deliver the
Property to Buyer free of all occupants and of any known claims to possession
other than those listed on Exhibit C hereto and in condition at least
equivalent in quality to that existing as of Buyer's execution hereof, less
reasonable wear and tear, and except to the extent maintenance and repairs are
the responsibility of the Company under its lease of portions of the Property.
Notwithstanding anything to the contrary herein, during the Interim Period
Seller shall not: (i) enter into any new lease or occupancy agreement, or any
other agreement or contract relating to the Property, or modify any of the
foregoing agreements or other contracts which now exist or (ii) permit or
acquiesce in any prescriptive or similar right in or to the Property, or (iii)
cause, permit or suffer any encumbrance, easement or other matter affecting
the Property to become of record, in each case without the prior written
consent of Buyer.
11. The Escrow.
(a) Opening of Escrow. Within five (5) days after mutual execution of this
Agreement, the parties shall open an escrow (the "Escrow") with Nevada Title
Company, Attention: Troy Lochhead ("Escrow Holder").
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The Opening of Escrow shall be deemed to have occurred when Buyer and Seller
have delivered a signed copy of this Agreement to the Escrow Holder.
(b) Additional Provisions. The Escrow Holder's rights and obligations shall
be further specified by such additional terms and provisions acceptable to
Buyer and Seller as said Escrow Holder customarily requires in real property
escrows administered by it. In the event of any inconsistency between this
Agreement and any additional escrow instructions executed by the parties, this
Agreement shall be controlling. The failure of any party to execute any
additional instructions shall in no way diminish or invalidate the
enforceability of this Agreement.
12. Defaults. If Seller breaches or fails to perform fully the terms of this
Agreement, Buyer may, at its option, exercise every right and remedy available
at law, in equity, or hereunder, including but not limited to the right to:
(i) cancel this Agreement and recover from Seller any and all reasonable
expenses paid or incurred by Buyer in connection with this Agreement, (ii)
proceed with the Closing hereunder, reserving all of Buyer's rights to
thereafter recover actual and consequential damages arising from Seller's
breach, or (iii) enforce Buyer's right to specific performance of Seller's
obligations hereunder and related injunctive relief, and to record a lis
pendens against the Property in connection therewith. Seller acknowledges that
Buyer has rigorous internal guidelines regarding the suitability of a site and
that Buyer has selected the Property as a potential site after careful
analysis of a number of factors, including, without limitation, the geographic
location, and ingress and egress. Accordingly, Seller acknowledges and agrees
that the Property is unique for Buyer's purposes, that monetary damages alone
would not adequately compensate Buyer for Seller's breach of its obligation to
convey the Property to Buyer hereunder, and that if Buyer seeks specific
performance of this Agreement, Buyer shall be entitled to an order of the
court enforcing this Agreement without any need to make a further showing that
the Property is unique or that Buyer's damages are liquidated and not
speculative, or that other remedies are impracticable, unavailable,
ineffective or inadequate. Seller acknowledges that if Buyer seeks injunctive
relief, the same may be fashioned in a mandatory or prohibitive manner, and
Seller hereby waives any right, at law or in equity, to demand the posting of
a bond or other security by Buyer as a condition to the continuation, of
record, of any lis pendens which Buyer may file.
13. Miscellaneous.
(a) Assignability. Buyer shall have the absolute and unconditional right at
any time and from time to time to assign any and all of its rights hereunder
to any person or entity, but no such assignment shall relieve Buyer of its
obligations hereunder.
(b) Entire Agreement. This Agreement together with the exhibits hereto
embodies the entire agreement between the parties relative to the subject
matter hereof, and there are no oral or parol agreements existing between
Seller and Buyer relative to the subject matter hereof which are not expressly
set forth herein or therein and covered hereby or thereby.
(c) Headings/Construction. The headings contained in this Agreement are for
reference purposes only and shall not in any way affect the meaning or
interpretation hereof. Unless otherwise expressly provided, the words
"herein," "hereof," "hereunder" and other similar compounds of the word "here"
when used in this Agreement shall refer to the entire Agreement and not to any
particular provision or section. This Agreement has been the subject of
negotiation between the parties hereto, and shall be deemed to have been
jointly prepared by the parties. Accordingly, this Agreement shall be
construed simply and in accordance with its fair meaning, and not strictly for
or against either of the parties.
(d) Pronouns. All pronouns and any variations thereof shall be deemed to
refer to the masculine, feminine or neuter, singular or plural, as the
identity of the parties may require.
(e) Notice. Any notice required or permitted to be delivered hereunder shall
be in writing and shall be deemed received upon personal delivery to the
address set forth below of the party to whom the notice is directed or, if
sent by mail, three (3) business days following its deposit in the United
States mail, postage prepaid,
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certified or registered mail, return receipt requested, addressed to the
address set forth below of the party to whom the notice is directed or by
facsimile properly addressed and sent to the facsimile numbers set forth
below. Notice by facsimile shall be deemed received when delivery is
electronically confirmed. The respective addresses for notice of the parties
are:
Buyer:
Restaurant Ventures of Nevada, Inc.
ATTN: Bruce A. Leslie, President
BERNHARD & LESLIE, CHTD.
3980 Howard Hughes Parkway, Suite 550
Las Vegas, NV 89019
Facsimile: (702) 650-2995
copy to:
Daniel R. Lee
P.O. Box 7777
Las Vegas, NV 89177
Facsimile: (702) 792-7628
additional copy to:
Irell & Manella LLP
1800 Avenue of the Stars, Suite 900
Los Angeles, California 90067
Facsimile: (310) 203-7199
Attention: C. Kevin McGeehan
Seller:
Avis Jansen, Trustee
978 Bel Air Circle
Las Vegas, NV 89109
(FAX)
copy to:
Barry S. Goold, Esq.
GOOLD, PATTERSON,
DeVORE & RONDEAU
4496 S. Pecos Road
Las Vegas, NV 89121
Facsimile: (702) 436-2650
Any party or other person to whom notice is to be given hereunder may change
its address for notice by notice given pursuant to this subparagraph (e).
(f) Brokers. Buyer and Seller each represent and warrant to the other that
they have not used the services of any broker or finder who may be owed a
commission in connection with this transaction.
(g) Nevada Law. Except to the extent otherwise expressly agreed in writing
in any other document executed by Buyer and Seller, this Agreement shall be
governed by, and construed in accordance with, the laws of the State of Nevada
applicable to agreements made between Nevada domiciliaries to be performed
wholly within the State of Nevada.
(h) General. If any one or more of the provisions contained in this
Agreement (other than provisions going to the essence hereof) shall for any
reason be held to be invalid, illegal or unenforceable in any respect,
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such invalidity, illegality or unenforceability shall not affect any other
provision hereof, and the remainder of the provisions of this Agreement shall
continue in full force and effect without impairment. Time is of the essence
in this Agreement. No waiver of any covenant, condition or provision of this
Agreement shall be valid unless in writing and duly executed by the party to
be charged therewith. The waiver by either party of a breach of any provision
of this Agreement shall not be deemed a waiver of any subsequent breach
whether of the same or another provision of this Agreement. This Agreement may
be executed in any number of counterparts, each of which shall be deemed an
original, but all of which shall constitute one and the same instrument. This
Agreement shall be binding upon, and inure to the benefit of, the parties
hereto and their respective heirs, administrators, executors, assigns and
successors in interest and without limiting the generality of the foregoing,
upon the making of distributions by or from the Trust (and only to the extent
of such distributions) all obligations of Seller hereunder shall be binding
upon all beneficiaries of Seller. The provisions of this Agreement may not be
amended or altered except by a written instrument duly executed by each of the
parties hereto.
(i) Further Assurances. Each of the parties shall execute such other and
further documents and do such further acts as may be reasonably required to
effectuate the intent of the parties and carry out the terms of this
Agreement. The provisions of this subparagraph (i) shall survive the Closing
and the termination of this Agreement. Within 5 days after the request of
Buyer, the parties will execute and acknowledge in form reasonably
satisfactory to Buyer a memorandum of this Agreement for recordation.
(j) Attorneys' Fees. In the event that either party hereto brings any action
or files any proceeding to determine or enforce its rights under this
Agreement or as a consequence of any breach by the other party hereto of its
obligations hereunder, or in connection with any other matter relating to the
transaction which is the subject matter hereof, the prevailing party in such
action or proceeding shall, in addition to any other relief to which it may be
entitled, recover from the losing party all of the prevailing party's
reasonable attorneys' fees and costs and expenditures (including, without
limitation, experts' and consultants' professional fees) incurred in each and
every such proceeding or other action, including any and all new trials,
appeals, petitions and subsequent proceedings. The provisions of this
subparagraph (j) shall survive the Closing and the termination of this
Agreement.
(k) Time Periods. As used in this Agreement, (1) a "day" is a calendar day
and (2) a "business day" is a calendar day other than a Saturday or Sunday
upon which (A) the Office of the County Recorder of the County is open and
accepting documents for recording, (B) the United States Postal Service is
delivering first class mail, and (C) banks in the County are generally open
for business. If, pursuant to this Agreement, a party must act by a particular
time, or an act is effective only if done by a particular time, and the last
date for the doing or effectiveness of such act falls upon a day other than a
business day, the time for the doing or effectiveness of such act shall be
extended to the next succeeding business day.
(l) Confidentiality. Except to the extent disclosure is made by Buyer, or
required to be made by any party under securities, gaming or other applicable
laws, the Seller agrees to keep the terms of this Agreement confidential.
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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the date first above set forth.
"Buyer"
RESTAURANT VENTURES OF NEVADA, INC.,
a Nevada corporation
/s/ Bruce A. Leslie
By: _________________________________
Bruce A. Leslie, President
"Seller"
AVIS JANSEN, as sole trustee of the
Norbert W. Jansen and Avis Jansen
Family Trust Dated July 14, 1993
/s/ Avis Jansen
By: _________________________________
Avis Jansen, Trustee
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Avis Jansen, as an individual, joins in with "Seller" agreeing to sell to
Buyer on the terms of the above Agreement (all of which terms are hereby
incorporated by reference, including the representations and warranties
therein as to when she joins in individually) and agrees to transfer and
convey on such terms the interest, if any, she holds, or in the future may
hold, in any of the Property as defined in the Agreement. Further, if at any
time an interest to the Property is owned or claimed by the Estate of Norbert
W. Jansen (the "Estate"), Avis Jansen as Executrix of the Estate shall take
all actions as are necessary to transfer that interest to the Buyer without
additional cost or expense to Buyer.
/s/ Avis Jansen
_____________________________________
Avis Jansen, as an individual and
asExecutrix of the Estate of Norbert
W. Jansen
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GUARANTY UNDER THE AGREEMENT OF PURCHASE AND SALE AND JOINT ESCROW
INSTRUCTIONS DATED DECEMBER 22, 1997 ("AGREEMENT") BETWEEN AVIS JANSEN AS SOLE
TRUSTEE (AND INDIVIDUALLY) ("SELLER") AND RESTAURANT VENTURE OF NEVADA, INC.
Mirage Resorts, Incorporated, a Nevada corporation, at the request of
Seller, hereby guarantees to Seller the performance of all of the obligations
of the Buyer to the Seller under the Agreement. This guaranty shall
automatically and contemporanously terminate as Buyer's obligations or
performances under the Agreement cease or are excused, but in no event later
than December 31, 1998. This guaranty shall be personal to Seller and may not
be transferred or assigned.
MIRAGE RESORTS, INCORPORATED
/s/ Daniel R. Lee
By: _________________________________
Daniel R. Lee
Its: Chief Financial Officer
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ANNEX C
AGREEMENT
This Agreement (the "Agreement") is made this 22nd day of December, 1997
between Mirage Resorts, Incorporated, a Nevada corporation ("Parent"), and
Avis P. Jansen, a Nevada resident, individually (in this capacity, "Jansen"),
as executrix of the Estate of Norbert W. Jansen (the "Estate"), and as Trustee
for the Jansen Family Trust (the "Trust") under an Agreement dated July 14,
1993 (in all such capacities, "Seller") with reference to the following facts:
A. The Trust is the record owner of 2,750,000 shares of the common stock,
$.001 par value (the "Common Stock"), of Boardwalk Casino, Inc., a Nevada
corporation (the "Company") (the "Shares"). The beneficiaries of the Trust are
Linda Tijerina and Judy Anderson. The Shares include 1,734,620 shares (the
"Optioned Shares") as to which Seller has granted a purchase option (the
"Common Stock Option") to Diversified Opportunities Group Ltd., an Ohio
limited liability company ("Diversified"), or its nominee pursuant to that
certain Option and Proxy Agreement dated September 24, 1996 among the Company,
Diversified and Norbert W. Jansen, individually and as trustee under the Trust
(as amended by that certain Memorandum of Understanding (the "Memorandum")
dated as of October 29, 1997 among the Company, Diversified, Jacobs
Entertainment Nevada, Inc., a Nevada corporation ("Jacobs") or its nominee and
Seller (the "Option Agreement"). All of the rights of Jacobs under the Option
Agreement and the Memorandum have been or will be assigned to Diversified
before the closing of the transfers hereunder.
B. Jansen is the owner of 600 shares (the "Preferred Stock") of Series A 6%
Non-Voting Cumulative Preferred Shares (the "Preferred Shares") of the
Company.
C. Seller is the owner of a parcel of land located at 3734 Las Vegas Blvd.
South, Las Vegas, Nevada (the "Real Property").
D. Concurrently herewith, Parent is entering into an Agreement and Plan of
Merger (the "Merger Agreement") with Mirage Acquisition Sub Inc., a Nevada
corporation and wholly-owned subsidiary of Parent ("Merger Sub"), and the
Company, pursuant to which Parent will acquire the Company, on the terms and
subject to the conditions set forth in the Merger Agreement, by means of a
merger of Merger Sub into the Company (the "Merger").
E. As an inducement to Parent to seek to acquire the Company, and as a
condition to Parent's willingness to enter into the Merger Agreement, Parent
has required that the Seller agree, and the Seller has agreed, (i) to sell to
Parent or one of its designees the Shares at $5.00 per share and the Preferred
Stock; (ii) to vote the Shares in favor of the Merger and grant to Parent or
its designee an irrevocable proxy; (iii) to sell the Real Property to a
subsidiary of Parent; and (iv) to amend the term of that certain lease
agreement between Norbert W. Jansen, in his individual capacity and as trustee
of the Trust, and the Company, effective as of October 1, 1996, which permits
Mr. Jansen and the Trust to operate a gift shop upon the Company's premises
(the "Gift Shop Lease"), to a month-to-month arrangement and to make certain
other modifications thereto.
F. Parent has agreed to purchase from Diversified Opportunities Group, Ltd.
("Diversified") 1,071,429 shares of Common Stock (the "Jacobs Shares")
pursuant to an agreement dated as of the date hereof among Parent,
Diversified, Jacobs Entertainment Nevada, Inc. and Jeffrey P. Jacobs (the
"Jacobs Stock Purchase Agreement").
G. On December 18, 1997, the Board of Directors of the Company, pursuant to
notice duly given or waived, held a meeting at which the Board approved the
acquisition by Parent and Merger Sub of the Shares for purposes of the Nevada
Business Combination Statute, and adopted a bylaw providing that the Company
is not subject to the provisions of the Nevada Control Share Statute.
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H. On December 22, 1997 the Board of Directors of the Company, pursuant to
notice duly given or waived, held a meeting at which the Board approved the
Merger Agreement, the Merger and the transactions contemplated thereby.
In consideration of the foregoing premises and the mutual covenants and
promises contained herein, Parent and Seller hereby agree as follows:
1. Sale of Real Property. Seller agrees concurrently herewith to enter into
an Agreement of Purchase and Sale and Joint Escrow Instructions (the
"Agreement of Sale") with Restaurant Ventures of Nevada, Inc., a Nevada
corporation ("Properties Corporation"), pursuant to which Seller will agree to
sell, transfer and convey the Real Property to Properties Corporation on the
terms and subject to the conditions set forth therein.
2. Purchase and Sale of Shares.
2.1 Sale of Shares. Subject to the conditions to closing set forth in
Sections 2.3 and 2.4 below, Seller shall sell, transfer and convey the Shares
to Parent (or its designee) and Parent (or its designee) shall purchase the
Shares at a purchase price of $5.00 per share in cash for a total aggregate
purchase price of $13,750,000, in the manner set forth in Section 2.2. Subject
to the conditions to closing set forth in Sections 2.3 and 2.4 below, Seller
shall sell, transfer and convey the Preferred Stock to Parent (or its
designee) and Parent (or its designee) shall purchase the Preferred Stock at a
purchase price equal to $600,000, plus any accumulated but unpaid dividends on
the Preferred Stock as of the date of payment, in the manner set forth in
Section 2.2.
2.2 Closing. The closing (the "Closing") will take place at Jones Vargas,
3773 Howard Hughes Parkway, Las Vegas, Nevada, on such date as specified by
Parent within three business days after the latest to occur of (i) receipt by
Parent of all necessary approvals under the regulations and statutes
regulating the active gaming operations of Parent and/or the Company ("Gaming
Approvals") and other necessary government and regulatory approvals, if any,
(ii) expiration or early termination of the waiting period under the Hart-
Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act")
with respect to the acquisition of Shares by Parent, and (iii) satisfaction or
waiver of all material conditions precedent to Parent's obligation to
consummate the Merger, or such other date and place as the parties may specify
(the "Closing Date"). At the Closing, Parent (or its designee) shall purchase
from Seller, and Seller shall sell to Parent (or its designee), the Shares and
the Preferred Stock. Seller shall deliver to Parent (or its designee) stock
certificates representing the Shares and the Preferred Stock duly endorsed or
accompanied by stock powers duly executed in blank sufficient to permit the
Shares and the Preferred Stock to be transferred without restrictive legends
other than with regard to the Securities Act of 1933, as amended, and Parent
(or its designee) shall pay to Seller the aggregate purchase price for the
Shares and the Preferred Stock by cash or certified check drawn on a banking
institution domiciled in the United States.
2.3 Parent's Conditions to Closing. The obligation of Parent to consummate
the purchase of the Shares and the Preferred Stock pursuant to Section 2.2 is
subject to the following conditions, any of which may be waived by Parent in
its sole discretion:
(a) Parent shall have obtained all necessary Gaming Approvals and other
necessary approvals of other governmental or regulatory authorities, if any;
(b) The representations and warranties of Seller set forth in Section 4
hereof shall be true and correct in all material respects on the Closing Date
with the same effect as if made on and as of such date;
(c) Seller shall have performed and complied with all agreements and
covenants required to be performed and complied with by Seller prior to the
Closing Date;
(d) All waiting periods under the HSR Act applicable to the transaction
provided for herein shall have expired or been terminated;
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(e) Parent shall have consummated or shall concurrently consummate the
purchase of the Jacobs Shares pursuant to the Jacobs Stock Purchase Agreement;
(f) All material conditions precedent to Parent's obligation to consummate
the Merger shall have been satisfied or waived;
(g) On the Closing Date, Parent shall not have terminated the Merger
Agreement due to a breach by the Company or the Company's failure to comply
with its obligations thereunder;
(h) On the Closing Date, there shall not be in effect any injunction, writ
or temporary restraining order or any other order of any nature issued by a
court or agency of competent jurisdiction directing that the transaction
provided for herein not be consummated as herein provided nor shall there be
any litigation or proceeding pending or threatened in respect of the
transactions contemplated hereby;
(i) Seller shall sell and convey the Real Property to Properties Corporation
pursuant to the Agreement of Sale concurrently with the Closing under this
Agreement;
(j) Seller shall have delivered to Parent instruments of transfer which vest
in Parent (or its designee) good and marketable title to the Shares and the
Preferred Stock as required herein, and shall have delivered all other
instruments, certificates and other documents required to be delivered hereby;
(k) Jansen shall deliver letters testamentary dated not more than 10 days
earlier than the Closing verifying that she is the sole executrix of the
Estate;
(l) Jansen shall deliver an opinion of Jeffrey Burr, counsel for the Estate
and the Trust, satisfactory in form and substance to Parent, to the effect
that as sole executrix of the Estate and as sole Trustee of the Trust, Jansen
can execute, deliver, and perform this Agreement, without court approval (or
that such court approval has been obtained); and
(m) The Company's bylaw provision which provides in substance that the
Company shall not be subject to the provisions of the Nevada Control Share
Statute shall not have been amended, revoked, repealed, withdrawn, restricted
or modified in any respect.
2.4 Seller's Conditions to Closing. The obligation of Seller to consummate
the sale of the Shares and the Preferred Stock pursuant to Section 2.2 is
subject to the following conditions, any of which may be waived by Seller in
its sole discretion:
(a) All waiting periods under the HSR Act applicable to the transaction
provided for herein shall have expired or been terminated;
(b) Seller shall sell and convey the Real Property to Properties Corporation
and Properties Corporation shall purchase the Real Property pursuant to the
Agreement of Sale concurrently with the Closing under this Agreement;
(c) Parent shall have paid the aggregate purchase price for the Shares and
the Preferred Stock;
(d) All material conditions precedent to the consummation of the Merger
shall have been satisfied or waived by Parent;
(e) The representations and warranties of Parent set forth in this Agreement
shall be true and correct in all material respects on the Closing Date with
the same effect as if made on and as of such date;
(f) On the Closing Date, the Company shall not have terminated the Merger
Agreement due to a material breach by Parent or Parent's failure to comply
with a material obligation thereunder;
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(g) On the Closing Date, there shall not be in effect any injunction, writ
or order issued by a court or agency of competent jurisdiction directing that
the transactions provided herein not be consummated; and
(h) On the Closing Date, the releases of Seller with respect to the Purchase
Agreement, the Option Agreement and the Memorandum given by the Company in the
Merger Agreement and by Diversified, Jacobs, and Jeffrey Jacobs in the Jacobs
Stock Purchase Agreement shall have become effective in accordance with their
terms.
3. Amendments to Gift Shop Lease. Seller and Holiday Gifts, Inc. ("Lessee")
agree that upon the Closing, the Gift Shop Lease shall be deemed to be
automatically amended to (i) be a month-to-month lease terminable without
cause and without the payment of any consideration upon sixty (60) days'
notice by either lessee or lessor under the Gift Shop Lease and (ii) provide
for the additional modifications set forth on Exhibit B hereto. Concurrently
with the Closing, Seller and Lessee shall execute and deliver to the Company
an amendment to the Gift Shop Lease and such other agreements as may be
necessary or advisable to implement such amendments. Seller and Lessee agree
that such amendment of the Gift Shop Lease will be in consideration of payment
of $268,000 by Parent or one of its designees to the Seller concurrently with
the Closing. Seller and Lessee will execute any additional documentation
necessary, in Parent's reasonable judgment, to perfect this amendment, or
record a memorandum of the amended Gift Shop Lease.
4. Representations and Warranties of Seller.
As a material inducement to Parent to enter into this Agreement, Seller
(jointly and severally) represents and warrants to Parent that as of the date
hereof and as of the Closing Date:
4.1 Sole Ownership of Shares; No Encumbrances. On the date hereof, the Trust
is the record and beneficial owner of 2,750,000 Shares, and, on the date
hereof, such Shares together constitute all of the shares of Common Stock
owned of record or beneficially by Seller. On the date hereof, Jansen is the
record and beneficial owner of the Preferred Stock, and, on the date hereof,
such Preferred Stock constitutes all of the Preferred Stock owned of record or
beneficially by Seller. The sole beneficiaries of the Trust are Linda Tijerina
and Judy Anderson. Seller has sole voting power, sole power of disposition and
sole power to agree to all of the matters set forth in this Agreement with
respect to all of the Shares and Preferred Stock, with no limitations,
qualifications or restrictions on such rights, and the Shares and the
Preferred Stock are the only shares of Common Stock or Preferred Shares over
which Seller has any of such powers. The Shares and the Preferred Stock and
the certificates representing such Shares and the Preferred Stock are now, and
at all times during the term hereof will be, held by Seller free and clear of
all liens, claims, security interests, proxies, voting trusts or agreements,
understandings or arrangements or any other encumbrances whatsoever, except
for any such encumbrances or proxies arising under the Option Agreement and
the Memorandum and hereunder. The Estate has no interest in any debt or equity
security of the Company (except for options that are released pursuant to
Section 5.7, below) or the any assets of the Company or in the Real Property
and neither Seller nor the Estate has assigned any such rights except under
the Option Agreement and the Memorandum.
4.2 Validity; Binding Effect; No Conflict. This Agreement has been duly and
validly authorized, executed and delivered by Seller and constitutes the valid
and binding obligation of Seller enforceable against Seller in accordance with
its terms, except as such enforcement may be subject to principles of equity
and to bankruptcy, insolvency or similar laws now or hereafter in effect
relating to creditors' rights generally. Jansen is the sole Trustee under the
Trust, has the full power and authority (without further action) under the
Trust documents to execute and deliver this Agreement, and to perform the
obligations of the Trust under this Agreement. A true, correct and complete
copy of the Trust Agreement has been provided by Seller to Parent prior to the
execution of this Agreement. Jansen is the sole executrix of the Estate, has
the full power and authority to execute and deliver the Agreement and to
perform the obligations of the Estate under this Agreement, and no action or
approval by the probate court (or any other court exercising similar authority
over the Estate) is required. The execution and delivery of this Agreement
does not and, subject to receipt of all requisite governmental or other
consents or approvals, the consummation of the transactions contemplated
hereby
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will not, (i) violate or conflict with any law, ordinance, rule, regulations,
orders, judgment, or decree to which Seller is subject or by which Seller is
bound; or (ii) violate or conflict with or constitute a default (or an event
which, with notice or the lapse of time, or both, would constitute a default)
under, or result in the termination of, or accelerate the performance required
by or result in the creation of any lien, security interest, charge or
encumbrance upon any of the properties or assets under, any term or provision
of any contract, commitment, understanding, arrangement, agreement or
restriction of any kind or character to which Seller is a party or by which
any of Seller's assets may be bound or affected, except under the Option
Agreement and the Memorandum. Except for the Gaming Approvals and the
expiration of any waiting periods under the HSR Act, no consent, approval,
authorization or action by or any filings with any federal, state or local
governmental agency or any other third party are required in connection with
the execution and delivery by Seller of this Agreement and the other documents
and instruments to be executed and delivered by Seller pursuant hereto or the
consummation by Seller of the transactions contemplated hereby.
4.3 Brokerage. No investment banker, broker, financial advisor, finder or
other person is entitled to a commission or fee from Parent or the Company in
respect of this Agreement, the Merger or the transactions contemplated hereby
based upon any arrangement or agreement made by or on behalf of Seller.
4.4 SEC Reports. To the actual knowledge of Seller without obligation of
independent investigation, (a) the Company has filed all forms, reports and
documents required to be filed with the Securities and Exchange Commission
("SEC") since February 11, 1994, including without limitation Annual Reports
on Form 10-KSB, Quarterly Reports on Form 10-QSB and proxy statements
(collectively and as amended as required, the "SEC Reports") and (b) as of
their respective dates, none of the SEC Reports, including, without
limitation, any financial statements or schedules included therein, contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
5. Covenants of Seller
5.1 Voting. (a) The Seller hereby agrees that (for as long as the Merger
Agreement is in effect), at any meeting of the holders of Common Stock,
however called, or in connection with any written consent of the holders of
Common Stock, Seller shall vote (or cause to be voted) the Shares (a) in favor
of the Merger, the execution and delivery by the Company of the Merger
Agreement and the approval of the terms thereof and each of the other actions
contemplated by the Merger Agreement and this Agreement and any actions
required in furtherance thereof and hereof; (b) against any action or
agreement that would result in a breach in any respect of any covenant,
representation or warranty or any other obligation or agreement of the Company
under the Merger Agreement or this Agreement; and (c) except as otherwise
agreed to in writing in advance by Parent, against any of the following
actions or agreements (other than the Merger Agreement or the transactions
contemplated thereby): (i) any action or agreement that is intended, or might
reasonably be expected, to impede, interfere with, delay, postpone or attempt
to discourage or adversely affect the Merger and the transactions contemplated
by this Agreement and the Merger Agreement; (ii) any extraordinary corporate
transaction, such as a merger, consolidation or other business combination
involving the Company or any of its subsidiaries; (iii) a sale, lease or
transfer of a material amount of assets of the Company and any of its
subsidiaries or a reorganization, recapitalization, dissolution or liquidation
of the Company or any of its subsidiaries; (iv) any change in the management
or Board of Directors of the Company; (v) any change in the present
capitalization or dividend policy of the Company; (vi) any amendment of the
Company's articles of incorporation or bylaws; or (vii) any other material
change in the Company's corporate structure or business. Any such vote or
consent shall be given in accordance with such procedures relating thereto as
shall ensure that it is duly counted for purposes of determining that a quorum
is present and for purposes of recording the results of such vote or consent.
Notwithstanding anything to the contrary contained in this Agreement, Jansen
shall be free to act in her capacity as a member of the Board of Directors of
the Company and to discharge her fiduciary duties as such.
(b) In order to secure Seller's obligation to vote the Shares in accordance
with the provisions of Section 5.1(a), Seller hereby appoints Parent as
Seller's true and lawful proxy and attorney-in-fact, with full power of
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substitution, to vote all of the Shares on all matters set forth in Section
5.1(a). Parent may exercise the irrevocable proxy granted to it hereunder at
any time Seller fails to comply with the provisions of this Agreement, subject
to the receipt of necessary Gaming Approvals, if any. The proxy and powers
granted by Seller pursuant to this Section 5.1(b) are coupled with an interest
and are given to secure the performance of Seller's obligations to Parent
under this Agreement. Such proxy and powers shall be irrevocable and shall
survive the death, incompetency, disability, bankruptcy or dissolution of
Seller and the subsequent holders of the Shares.
5.2 Restriction on Transfer, Proxies and Non-Transference; Stop Transfer
Order; Legend.
(a) Seller hereby agrees, while this Agreement is in effect, and except as
specifically contemplated hereby, not to (i) offer for sale, sell, transfer,
tender, pledge, encumber, assign or otherwise dispose of, or enter into any
contract, option or other arrangement or otherwise dispose of, or enter into
any contract, option or other arrangement or understanding with respect to the
offer for sale, sale, transfer, tender, pledge, encumbrance, assignment or
other disposition of, any of the Shares or the Preferred Stock or any interest
therein, (ii) grant any proxies or powers of attorney, deposit any Shares into
a voting trust or enter into a voting agreement with respect to any Shares or
(iii) take any action that would make any representation or warranty of Seller
contained herein untrue or incorrect or have the effect of preventing or
disabling Seller from performing Seller's obligations under this Agreement.
(b) In furtherance of the provisions of Section 5.2(a) hereof, concurrently
herewith the Seller shall and hereby does (i) authorize the Company's counsel
to notify the Company's transfer agent that there is a stop transfer order
with respect to all of the Shares (and that this Agreement places limits on
the voting and transfer of such shares) and (ii) agree that a legend in
substantially the following form shall be placed on each certificate
representing the Shares:
"The securities represented by this certificate are subject to the
conditions, restrictions and obligations specified in the Agreement
dated December 22, 1997, and as amended and modified from time to time,
between Mirage Resorts, Incorporated., a Nevada corporation, and Avis
P. Jansen, a Nevada resident, Individually, as Executrix of the Estate
of Norbert W. Jansen and as Trustee for the Jansen Family Trust under
an Agreement dated July 14, 1993, and the Company reserves the right to
refuse the transfer of such securities until such conditions,
restrictions and obligations have been fulfilled with respect to such
transfer or said Agreement has been terminated in accordance with its
terms."
Seller shall deliver all certificates representing the Shares and the Company
shall or shall cause its transfer agent to imprint such legend on all such
certificates.
5.3 No Additional Purchases. Seller hereby agrees not to acquire any
additional securities of the Company from and after the date hereof.
5.4 No Inconsistent Agreements. Seller shall not enter into any agreement or
understanding with any person or entity the effect of which would be
inconsistent or violative of the provisions of this Agreement or which could
interfere with Parent's efforts to acquire the Company by Merger.
5.5 Further Assurances. From time to time, at the other party's request and
without further consideration, each party hereto shall execute and deliver
such additional documents and take all such further action as may be necessary
or desirable to consummate and make effective, in the most expeditious manner
practicable, the transactions contemplated by this Agreement.
5.6 No Indemnity Claims. Seller shall not, either before or after the
Closing, assert any claim against the Company or any officer, director,
employee or agent of the Company or its affiliates as to which the Company may
have any obligation of indemnity, either under the Companys bylaws, by
contract or otherwise. All such named persons are third party beneficiaries of
this provision and may enforce the provisions hereof. Seller further agrees
that if it should secure a judgment against any such indemnified person who
asserts a claim for indemnity against the Company, then the amount of such
judgment shall automatically be reduced by and to the extent of such indemnity
right.
C-6
<PAGE>
5.7 Stock Option. At the Closing, without consideration, Seller shall
release the Company from any obligation under any options to acquire Common
Shares or Preferred Shares held by Seller under the Company's 1994 Stock
Compensation Plan or the Outside Directors Stock Option Plan or otherwise.
5.8 Consent and Release.
(a) By the execution of this Agreement, each Seller hereby consents to the
termination and release by Diversified of all of its rights, title and
interest under the Option Agreement and the Memorandum.
(b) Effective at the Closing (and contingent on the occurrence of the
Closing), the Seller terminates and releases any and all rights, title and
interest which they may have under or pursuant to that certain Purchase
Agreement dated as of September 24, 1996 ("Purchase Agreement"), the Option
Agreement, or the Memorandum, including any and all claims for breaches or
violations of those agreements that may have occurred on or prior to the date
of the Closing. The Seller expressly agrees that, effective on the Closing
Date (and contingent on the occurrence of the Closing), the Purchase
Agreement, the Option Agreement, and the Memorandum shall be terminated and of
no further force and effect. Effective on the Closing Date (and contingent on
the occurrence of the Closing), each of Seller releases the Company,
Diversified, Jacobs, and Mr. Jeffrey Jacobs from any and all obligations,
charges or claims arising out of or in connection with the Purchase Agreement,
the Option Agreement, or the Memorandum. Diversified, Jacobs, and Mr. Jeffrey
Jacobs shall each be a third party beneficiary with respect to the consents,
releases, and agreements contained in this Section 5.8.
6. Indemnity.
Each party (the "Indemnifying Party") shall and hereby does indemnify and
hold harmless the other (the "Indemnitee") from and against and in respect of
any and all loss, damage and expense incurred by the Indemnitee resulting
from, arising out of, attributable to, or in any manner connected with:
(i) Any matter in respect of which the Indemnifying Party shall have made
any misrepresentation, breached any warranty made pursuant to this
Agreement or failed to fulfill any covenant or agreement on the part of the
Indemnifying Party contained in this Agreement; and
(ii) Any and all actions, suits, proceedings, demands, assessments or
judgments, costs and expenses (including legal and accounting fees and
investigation costs) incident to the foregoing and the enforcement thereof.
If any event shall occur or any circumstance arise which might give rise to
a claim in respect of any matter against which the Indemnifying Party has
indemnified the Indemnitee hereunder, the Indemnitee shall give notice thereof
to the Indemnifying Party. If the matter as to which indemnification may be
sought is a claim by a third party, such notice shall be given within thirty
(30) days after said claim shall have been presented to the Indemnitee;
otherwise, such notice shall be given promptly after the Indemnitee shall
determine that the matter is one as to which indemnification is sought.
Failure to give notice within the required time shall have no effect if the
lack of notice by Indemnitee is not materially prejudicial to the rights of
the Indemnifying Party. Unless the parties otherwise agree in writing, the
Indemnifying Party shall defend against all such third-party claims or
otherwise satisfy such claims, at its sole cost and expense, through counsel
and accountants designated by it and approved by the Indemnitee, which
approval shall not be withheld unreasonably. The Indemnitee shall have the
right to participate with the Indemnifying Party in the defense of any such
matter and shall fully cooperate with and make available to the Indemnifying
Party the business records of the Indemnitee for said purpose. If the
Indemnifying Party, after receipt of notification from Indemnitee of a third-
party claim, fails to protest, defend or settle any such third-party claim,
demand, suit or proceeding promptly, diligently and in good faith, Indemnitee
shall have the right at its discretion to settle, defend or pay the same, in
which event, the obligations of the Indemnifying Party shall extend to and
include the amounts of said settlement or payment and/or the costs of legal
expenses of such defense.
7. Miscellaneous.
C-7
<PAGE>
7.1 Survival of Representations, Warranties and Agreements. All
representations, warranties and agreements made by Seller or Parent pursuant
hereto shall survive the Closing of this transaction regardless of any
investigation by Parent, except that the representations and warranties made
by Seller to Parent in Section 4.5 shall terminate upon purchase of all of
Seller's Shares hereunder.
7.2 Binding Agreement; Assignments; Third-Party Beneficiaries. All of the
terms and provisions of this Agreement shall inure to the benefit of, be
enforceable by and be binding upon and enforceable against the parties hereto
and their respective heirs and personal representatives, successors and
assigns; provided, however, that except for an assignment by Parent to one of
its affiliates (which may be done in whole or in part), neither of the parties
hereto may assign its rights or duties hereunder. If Parent assigns this
Agreement to one of its affiliates, Parent shall remain liable for the
performance of its obligations hereunder. Nothing contained in this Agreement
shall confer any rights or remedies upon any other person, firm or corporation
(except those persons benefitting from the covenant not to sue in Section 5.6,
above).
7.3 Obligations Joint and Several. The obligations of Jansen, the Trust, and
the Estate under this Agreement are joint and several as to each other.
7.4 Waiver of Provisions. The terms, covenants, representations, warranties
and conditions of this Agreement may be waived only by a written instrument
executed by the party waiving compliance. The failure of any party at any time
or times to require performance of any provision of this Agreement shall in no
manner affect the right at a later date to enforce the same. No waiver by any
party of any condition or the breach of any provision, term, covenant,
representation or warranty contained in this Agreement, whether by conduct or
otherwise, in any one or more instances shall be deemed to be or construed as
further or continuing waiver of any such condition or of the breach of any
other provision, term, covenant, representation or warranty of this Agreement.
7.5 Specific Performance. Each of the parties hereto recognizes and
acknowledges that a breach by it of any covenants or agreements contained in
this Agreement will cause the other party to sustain damages for which it
would not have an adequate remedy at law for money damages, and therefore each
of the parties hereto agrees that in the event of any such breach the
aggrieved party shall be entitled to the remedy of specific performance of
such covenants and agreements and injunctive and other equitable relief in
addition to any other remedy to which it may be entitled, at law or in equity.
7.6 Notices.
Any notice or other communication required or permitted hereunder shall be
expressed in writing and delivered in person or sent by certified or
registered mail, return receipt requested, or sent by overnight courier
service such as Federal Express and confirmed by certified or registered mail,
return receipt requested, or sent by facsimile (receipt confirmed) to the
respective parties at the following addresses, or at such other addresses as
the parties shall designate by written notice to the other:
If to Seller at: If to Parent at:
Avis P. Jansen Mirage Resorts, Incorporated
978 Bel Air Circle 3400 Las Vegas Boulevard South
Las Vegas, NV 89109 Las Vegas, Nevada 89109
Attn: Daniel Lee and Bruce Levin,
Esq.
Fax No.: (702) 792-7268
Fax No.: (702) 791-5787
with a copy to: with a copy to:
Barry Goold, Esq. C. Kevin McGeehan, Esq.
4496 S. Pecos Road Irell & Manella LLP
Las Vegas, NV 89120 1800 Avenue of the Stars, Suite 900
Fax No.: (702) 436-2650 Los Angeles, California 90067
Fax No.: (310) 203-7199
C-8
<PAGE>
All notices shall be deemed received on the third business day after mailing
or the first business day after delivery to the overnight courier service or
the same business day if personally delivered or sent by facsimile.
7.7 Cooperation. Each party shall cooperate and use its best efforts to
consummate the transactions contemplated herein. In addition, each party shall
cooperate and take such action and execute such other and further documents as
reasonably may be requested by any other party from time to time after the
consummation of the transactions contemplated herein to carry out the terms
and provisions and intent of this Agreement.
7.8 Interpretation. When a reference is made in this Agreement to Section,
such reference shall be to a Section in this Agreement unless otherwise
indicated. The words "include," "includes" and "including" when used herein
shall be deemed in each case to be followed by the words "without limitation."
The descriptive headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
7.9 Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction or other authority to
be invalid, void, unenforceable or against its regulatory policy, the
remainder of the terms, provisions, covenants and restrictions of this
Agreement shall remain in full force and effect and shall in no way be
affected, impaired or invalidated.
7.10 Entire Agreement; Modification. This Agreement contains the entire
agreement between the parties and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof. This Agreement may be amended, modified and
supplemented in any and all respects by written agreement of the parties
hereto.
7.11 Governing Law. The Agreement shall be governed by and construed under
the laws of the State of Nevada.
7.12 Counterparts. This Agreement may be executed in one or more
counterparts, all of which taken together shall constitute one instrument.
7.13 Release of the Company. Effective as of the Closing (and contingent on
the occurrence of the Closing), each Seller releases the Company from any and
all claims, debts or obligations of the Company to such Seller other than any
obligation of the Company to indemnify or defend such Seller against claims
made against such Seller resulting from or related to such Seller having been
a director or officer of the Company and other than the obligation to pay
deferred rent for the period of November 1, 1997, through the Closing to the
extent provided in Section 9 of the Agreement of Sale executed concurrently
herewith.
7.14 Termination with Merger Agreement. If the Merger Agreement terminates
in accordance with its terms without the Merger having occurred, then this
Agreement and the obligations of the parties hereunder shall terminate on the
same day as the termination of the Merger Agreement.
7.15 Contingency on Consent by Diversified, Jacobs, and Jeffrey Jacobs. This
Agreement shall not become effective until Diversified, Jacobs, and Jeffrey
Jacobs shall have consented to Seller entering into this Agreement. The
execution of the Jacobs Stock Purchase Agreement by each of Diversified,
Jacobs, and Jeffrey Jacobs, if such agreement contains a provision in the form
previously reviewed and approved by counsel for Seller, shall cause this
Agreement to become effective.
7.16 No Prior Agreements. Each of the parties hereto acknowledges and agrees
that, prior to the execution of this Agreement on the date hereof, there was
no agreement, arrangement or understanding among the parties with respect to
the acquisition, disposition, holding or voting of the Shares.
7.17 Guarantee Remains in Place. Parent covenants and agrees not to revoke
its guaranty of the obligations of Properties Corporation under the Agreement
of Sale, unless and until this Agreement or the Agreement of Sale is
terminated according to their respective terms
[SIGNATURE PAGE FOLLOWS]
C-9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the date first above set forth.
SELLER:
/s/ Avis P. Jansen
_____________________________________
Avis P. Jansen, a Nevada resident,
Individually, as executrix of the
Estate of Norbert W. Jansen, and as
Trustee for the Jansen Family Trust
under an Agreement dated July 14,
1993
PARENT:
MIRAGE RESORTS, INCORPORATED
a Nevada corporation
/s/ Daniel Lee
By: _________________________________
Daniel Lee
Chief Financial Officer
Holiday Gifts, Inc., a Nevada corporation, hereby joins in and agrees to be
bound by the provisions of Section 3 hereof.
HOLIDAY GIFTS, INC.
a Nevada corporation
/s/ Avis P. Jansen
By: _________________________________
Avis P. Jansen,
President
C-10
<PAGE>
EXHIBIT B
ADDITIONAL MODIFICATIONS TO GIFT SHOP LEASE
(1) Lessee shall only operate a gift shop on the Gift Shop premises. Lessee
shall maintain the same quality of the merchandise and operations as Lessee
now provides in the Gift Shop at the date of this Agreement.
(2) Lessee shall not transfer the Lease, and the Lease shall terminate
immediately if a controlling interest in Lessee is transferred.
(3) Lessee shall not have exclusive rights to sell T-shirts with a design or
logo including the words "Las Vegas." Lessee's exclusive rights to sell
merchandise shall extend only to the specific building in which the Gift Shop
premises are located.
C-11
<PAGE>
FIRST AMENDMENT TO JANSEN AGREEMENT
This amendment (the "Amendment") to that certain Agreement (the "Agreement")
dated December 22, 1997 between Mirage Resorts, Incorporated, a Nevada
corporation ("Parent"), and Avis P. Jansen, a Nevada resident, individually,
as executrix of the Estate of Norbert W. Jansen, and as Trustee for the Jansen
Family Trust (the "Trust") under an Agreement dated July 14, 1993 (in all such
capacities, "Seller"), is entered into as of this 29th day of January, 1998
between Parent and Seller with reference to the following fact:
A. The Trust, rather than Jansen, is the record and beneficial owner of 600
shares of Series A 6% Non-Voting Cumulative Preferred Shares of the Company.
In consideration of the foregoing premise, Parent and Seller hereby agree to
amend the Agreement as follows:
1. The first sentence of Recital B of the Agreement shall be deleted in
its entirety and shall be replaced by the following:
"The Trust is the owner of 600 shares (the "Preferred Stock") of Series
A 6% Non-Voting Cumulative Preferred Shares (the "Preferred Shares") of
the Company."
2. The second sentence of Section 4.1 of the Agreement shall be deleted
in its entirety and shall be replaced by the following:
"On the date hereof, the Trust is the record and beneficial owner of
the Preferred Stock, and, on the date hereof, such Preferred Stock
constitutes all of the Preferred Stock owned of record or beneficially
by Seller."
IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment as
of the date first above set forth.
PARENT: SELLER:
MIRAGE RESORTS, INCORPORATED /s/ Avis P. Jansen
a Nevada corporation _____________________________________
Avis P. Jansen, a Nevada resident,
Individually,as executrix of the
Estate of Norbert W. Jansen,and as
Trustee for the Jansen Family
Trustunder an Agreement dated July
14, 1993
/s/ Daniel R. Lee
By: _________________________________
Daniel R. Lee
Chief Financial Officer
C-12
<PAGE>
SECOND AMENDMENT TO JANSEN AGREEMENT
This second amendment (the "Second Amendment") to that certain Agreement
(the "Agreement") dated December 22, 1997 between Mirage Resorts,
Incorporated, a Nevada corporation ("Parent"), and Avis P. Jansen, a Nevada
resident, individually, as executrix of the Estate of Norbert W. Jansen, and
as Trustee for the Jansen Family Trust (the "Trust") under an Agreement dated
July 14, 1993 (in all such capacities, "Seller"), as first amended in January,
1998, is entered into as of this 13th day of March, 1998 between Parent and
Seller with reference to the following fact:
A. The definition of "Gift Shop Lease" contained in Recital E of the
Agreement inadvertently describes the wrong lease.
In consideration of the foregoing premise, Parent and Seller hereby amend
the Agreement as follows:
1. Clause (iv) in Recital E of the Agreement is hereby deleted in its
entirety and shall be replaced by the following:
"to amend the term of that certain lease agreement between
Boardwalk Casino, Inc. as Landlord and Holiday Gifts, Inc., as
Tenant, dated September 1, 1996, which permits Holiday Gifts,
Inc. to operate a gift shop upon the Company's premises (the
"Gift Shop Lease"), to a month-to-month arrangement and to
make certain other modifications thereto."
2. The third sentence of Section 3 of the Agreement is hereby amended by the
deletion of the phrase "to the Seller" therein and the substitution of the
phrase "to the Lessee" in lieu thereof.
3. Except as expressly amended hereby, the Agreement and First Amendment
thereto remain in full force and effect, as by their terms set forth.
IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment as
of the date first above set forth.
PARENT:
SELLER:
MIRAGE RESORTS, INCORPORATED /s/ Avis P. Jansen
a Nevada corporation ----------------------------
Avis P Jansen, a Nevada
By: /s/ Daniel R. Lee resident,
------------------------ Individually, as executrix
Daniel R. Lee of the Estate of
Chief Financial Officer Norbert W. Jansen, and as
Trustee for the
Jansen Family Trust under an
Agreement
dated July 14, 1993
C-13
<PAGE>
ANNEX D
AGREEMENT
This Agreement (the "Agreement") is made this 22nd day of December, 1997, by
and among Mirage Resorts, Incorporated, a Nevada corporation ("Parent"), on
the one hand, and Diversified Opportunities Group Ltd., an Ohio limited
liability company ("Diversified"), Jacobs Entertainment Nevada, Inc., a Nevada
corporation ("Jacobs Entertainment"), and Jeffrey P. Jacobs, an individual
("Jacobs") (Diversified, Jacobs Entertainment and Jacobs are collectively
referred to as the "Sellers"), with reference to the following facts:
A. Diversified entered into that certain Purchase Agreement dated as of
September 24, 1996 (the "Purchase Agreement"), by and among Diversified,
Norbert W. Jansen, a Nevada resident, Individually ("Mr. Jansen") and as
Trustee for the Jansen Family Trust (the "Trust") under an Agreement dated
July 14, 1993, and Boardwalk Casino, Inc., a Nevada corporation (the
"Company"), pursuant to which Diversified acquired (i) an aggregate of 571,429
shares of the common stock, $.001 par value, of the Company ("Common Stock");
and (ii) a $5 Million Convertible Subordinated Note (together with the Deed of
Trust and any other associated documents, the "Note").
B. Concurrently with the Purchase Agreement, Diversified, the Company, and
Mr. Jansen, Individually and as Trustee for the Trust, entered into that
certain Option and Proxy Agreement dated September 24, 1996 (as amended by the
Memorandum (as defined below), the "Option Agreement"), pursuant to which
Diversified acquired 500,000 shares of Common Stock from Mr. Jansen and
obtained an option to acquire an additional 1,000,000 shares of Common Stock
owned by Mr. Jansen, individually and in his capacity as Trustee for the
Trust, and a right of first refusal with respect to other shares of Common
Stock owned by Mr. Jansen, individually and in his capacity as Trustee for the
Trust (the "Common Stock Option").
C. On October 29, 1997, the Company, Diversified, Jacobs Entertainment and
Avis P. Jansen, a Nevada resident, Individually, as Executrix of the Estate of
Norbert W. Jansen and as Trustee for the Trust (in all such capacities,
"Jansen"), entered into that certain Memorandum of Understanding (the
"Memorandum") pursuant to which (i) Jacobs Entertainment purchased 2,650
shares (the "Preferred Shares") of Series A 6% Non-Voting Cumulative Preferred
Shares (the "Preferred Stock") from the Company; (ii) Diversified relinquished
the convertibility provision of the Note; (iii) the Company granted Jacobs
Entertainment an option to acquire an additional 15,000 shares of Preferred
Stock (the "Preferred Stock Option"); (iv) Jansen granted to Jacobs
Entertainment an option (the "Land Option") to purchase the premises (the
"Land") leased under that certain Lease Agreement effective as of October 1,
1996, between the Company, as Lessee, and Mr. Jansen and the Trust, as
Lessors; (v) the number of optioned shares of Common Stock covered by the
Common Stock Option was increased to 1,734,620 and the exercise price was
reduced to $4.00 per share; and (vi) Jacobs Entertainment agreed to undertake
a feasibility study of a $20 million development on the Land (the "Project"),
with a termination fee (the "Termination Fee") of $2 million payable to Jacobs
Entertainment by the Company upon the occurrence of certain events which
interfere with or negatively impact the Project.
D. Jacobs Entertainment has assigned to Diversified its Preferred Shares and
all of its rights under the Memorandum and otherwise with respect to the
Company.
E. As of the date hereof, Diversified is the record and beneficial owner of
1,071,429 shares of Common Stock (the "Shares"), and Jacobs Entertainment and
Jacobs own no shares of Common Stock or other securities of the Company. In
addition, Diversified owns the rights of Jacobs Entertainment under the
Memorandum, and owns 2,650 Preferred Shares.
F. Parent has agreed to purchase from Jansen, and Jansen has agreed to sell
to Parent, 2,750,000 shares of Common Stock owned by Jansen (the "Jansen
Shares") pursuant to an agreement dated as of the date hereof between Parent
and Jansen (the "Jansen Stock Agreement").
D-1
<PAGE>
G. Concurrently herewith, Parent is entering into an Agreement and Plan of
Merger (the "Merger Agreement") with Mirage Acquisition Sub Inc., a Nevada
corporation and wholly-owned subsidiary of Parent ("Merger Sub"), and the
Company, pursuant to which Parent will acquire the Company, on the terms and
subject to the conditions set forth in the Merger Agreement, by means of a
merger of Merger Sub into the Company (the "Merger").
H. On December 18, 1997, the Board of Directors of the Company, pursuant to
notice duly given or waived, held a meeting at which the Board approved the
acquisition by Parent or Merger Sub of the Shares for purposes of the Nevada
Business Combination Statute, and adopted a bylaw providing that the Company
is not subject to the provisions of the Nevada Control Share Statute.
I. On December 22, 1997, the Board of Directors of the Company, pursuant to
notice duly given or waived, held a meeting at which the Board approved the
Merger Agreement, the Merger, and the transactions contemplated thereby.
In consideration of the foregoing premises and the mutual covenants and
promises contained herein, and such other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
1. Purchase and Sale of Shares.
1.1 Sale of Shares. Subject to the conditions to closing set forth in
Section 1.3 and 1.4 below, Diversified shall sell, transfer and convey the
Shares to Parent (or its designee) and Parent (or its designee) shall purchase
the Shares at a purchase price of $5.00 per share in cash for a total
aggregate purchase price of $5,357,145, in the manner set forth in Section
1.2.
1.2 Closing. The closing (the "Closing") will take place at the offices of
Jones Vargas, 3773 Howard Hughes Parkway, 3rd Floor, Las Vegas, Nevada on such
date as specified by Parent within three business days after the latest to
occur of (i) receipt by Parent of all necessary approvals under the
regulations and statutes regulating the active gaming operations of Parent
and/or the Company ("Gaming Approvals") and other necessary government and
regulatory approvals, if any, (ii) expiration or early termination of the
waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended (the "HSR Act"), and (iii) satisfaction or waiver of all material
conditions precedent to the consummation of the Merger, or such other date and
place as the parties may specify (the "Closing Date"). At the Closing, Parent
(or its designee) shall purchase from Diversified, and Diversified shall sell
to Parent (or its designee), the Shares. Diversified shall deliver to Parent
(or its designee) stock certificates representing the Shares duly endorsed or
accompanied by stock powers duly executed in blank sufficient to permit the
Shares to be transferred without restrictive legends other than with regard to
the Securities Act of 1933, as amended, and Parent (or its designee) shall pay
to Diversified the aggregate purchase price for the Shares by cash or
certified check drawn on a banking institution domiciled in the United States.
1.3 Parent's Conditions to Closing. The obligations of Parent to consummate
the purchase of the Shares pursuant to Section 1.2 is subject to the following
conditions, any of which may be waived by Parent in its sole discretion:
(a) Parent shall have obtained all necessary Gaming Approvals and other
necessary approvals of other governmental or regulatory authorities, if any;
(b) The representations and warranties of the Sellers set forth in Section 4
hereof shall be true and correct in all material respects on the Closing Date
with the same effect as if made on and as of such date;
(c) The Sellers shall have performed and complied with all agreements and
covenants required to be performed and complied with by the Sellers prior to
the Closing Date;
D-2
<PAGE>
(d) All waiting periods under the HSR Act applicable to the transaction
provided for herein shall have expired or been terminated;
(e) Parent shall have consummated or shall concurrently consummate the
purchase of the Jansen Shares pursuant to the Jansen Stock Agreement;
(f) All material conditions precedent to Parent's obligation to consummate
the Merger shall have been satisfied or waived;
(g) On the Closing Date, Parent shall not have terminated the Merger
Agreement due to a breach by the Company or the Company's failure to comply
with its obligations thereunder;
(h) On the Closing Date, there shall not be in effect any injunction, writ
or temporary restraining order or any other order of any nature issued by a
court or agency of competent jurisdiction directing that the transaction
provided for herein not be consummated as herein provided nor shall there be
any litigation or proceeding pending or threatened in respect of the
transactions contemplated hereby;
(i) Diversified shall have delivered to Parent (or its designee) instruments
of transfer which vest in Parent (or its designee) good and marketable title
to the Shares as required herein, and shall have delivered all other
instruments, certificates and other documents required to be delivered hereby;
and
(j) Section IX of the Company's bylaws, which provides in substance that the
Company shall not be subject to the provisions of the Nevada Control Share
Statute, shall not have been amended, revoked, repealed, withdrawn, restricted
or modified in any respect.
1.4 Diversified's Conditions to Closing. The obligations of Diversified to
consummate the sale of the Shares pursuant to Section 1.2 is subject to the
following conditions, any of which may be waived by the Sellers in their sole
discretion:
(a) All waiting periods under the HSR Act applicable to the transaction
provided for herein shall have expired or been terminated;
(b) Parent (or its designee) shall have paid the aggregate purchase price
for the Shares;
(c) The closing of the Jansen Stock Purchase Agreement shall have occurred
or shall be closed concurrently with the Closing, and prior to or concurrently
with the Closing, Jansen shall convey the real property located at 3734 Las
Vegas Boulevard South, Las Vegas, Nevada, pusuant to the Agreement of Sale;
(d) The representations and warranties of Parent set forth in this Agreement
shall be true and correct in all material respects on the Closing Date with
the same effect as if made on and as of such date;
(e) On the Closing Date, the Company shall not have terminated the Merger
Agreement due to a material breach by Parent or Parent's failure to comply
with a material obligation thereunder; all material conditions precedent to
the consummation of the Merger shall have been satisfied or waived by Parent;
(f) On the Closing Date, there shall not be in effect any injunction, writ
or order issued by a court or agency of competent jurisdiction directing that
the transaction provided herein not be consummated; and
(g) On the Closing Date, the releases of the Sellers with respect to the
Purchase Agreement, the Option Agreement and the Memorandum given by the
Company in the Merger Agreement and by Jansen in the Jansen Agreement shall
have become effective in accordance with their terms.
2. Purchase and Sale of Preferred Shares and Note. (a) On the later of (i)
the eleventh day after the date hereof or (ii) January 5, 1998, and assuming
the conditions in Section 2(d) below have been met, Diversified
D-3
<PAGE>
shall sell, transfer and convey all of the Preferred Shares to Parent (or its
designee) and Parent (or its designee) shall purchase the Preferred Shares.
Diversified shall deliver to Parent (or its designee) concurrently and
therewith stock certificates representing the Preferred Shares duly endorsed
or accompanied by stock powers duly executed in blank sufficient to permit the
Preferred Shares to be transferred without restrictive legends other than with
regard to the Securities Act of 1933, as amended.
(b) On the later of (i) the eleventh day after the date hereof, or (ii)
January 5, 1998, and assuming the conditions in Section 2(d) below have been
met, Diversified shall sell, transfer and convey the Note to Parent (or its
designee) and Parent (or its designee) shall purchase the Note. Diversified
shall deliver to Parent (or its designee) (A) the Note, duly endorsed or
accompanied by bond powers duly executed in blank sufficient to permit the
Note to be transferred without restrictive legends other than with regard to
the Securities Act of 1933, as amended, (B) an assignment and transfer in
recordable form of the Deed of Trust, Fixture Filing and Security Agreement,
dated September 24, 1996, and (C) an assignment of any security agreements,
UCC filings and other security instruments securing the Note.
(c) In full payment for the Preferred Shares and the Note, Parent (or its
designee) shall pay to Diversified the sum of (a) $2,650,000 plus any accrued
and accumulated but unpaid dividends on the Preferred Stock as of the date of
payment, and (b) $5,000,000 plus accrued but unpaid interest on the Note to
the date of payment (the "Note and Preferred Stock Purchase Price")
concurrently with the deliveries contemplated in clauses (a) and (b) above.
The allocation of the Note and Preferred Stock Purchase Price as between the
Note and the Preferred Shares shall be the responsibility of the Sellers and
any such division shall in no way affect the validity of the sale of the Note
and the Preferred Shares to Parent (or its designee).
(d) Parent's obligation to purchase the Preferred Shares and the Note shall
be subject to each of the conditions contained in Section 1.3(b), (c), (g),
(i) and (j) being satisfied as of such date, any of which may be waived by
Parent in its sole discretion.
(e) Parent agrees that after the acquisition of the Preferred Stock and the
Note, Parent will not sell or transfer the Preferred Stock or the Note until
the earlier of (i) the Closing of the acquisition of the Shares, or (ii) the
termination of this Agreement; provided, however, that nothing in this
provision shall prevent Parent from enforcing any provision of the Preferred
Stock or the Note. If this Agreement is terminated without the Closing having
occurred, other than as a result of a breach by Diversified or Diversified's
failure to comply with any of its obligations hereunder, Diversified shall
have an option for a period of ten (10) days after such termination to
repurchase the Preferred Shares and the Note for the Note and Preferred Stock
Purchase Price (increased by the amount of any additional accumulated but
unpaid dividends on the Preferred Shares and any accrued but unpaid interest
on the Note). This option shall be exercised by tendering the Note and
Preferred Stock Purchase Price (increased as described above) to Parent in
same day funds.
3. Termination and Release; Assignment. Effective at the Closing (and
contingent upon the occurrence of the Closing), the Sellers terminate and
release any and all rights, title and interest which they may have under or
pursuant to the Purchase Agreement, the Common Stock Option, the Option
Agreement, or the Memorandum, including any rights in and with respect to the
Company, any of its assets, its Common Stock or Preferred Stock, the
Termination Fee, and the land owned by Jansen, including any and all claims
for breaches or violations of those agreements that may have occurred on or
prior to the date hereof. The Sellers expressly agree that, effective at the
Closing (and contingent upon the occurrence of the Closing), the Purchase
Agreement, the Common Stock Option, the Option Agreement, the Memorandum, and
the Termination Fee shall be terminated and be of no further force and effect.
Effective at the Closing (and contingent upon the occurrence of the Closing),
the Sellers also release the Company, Jansen, the Trust, and the estate of
Norbert W. Jansen (the "Estate") from any and all obligations, charges or
claims arising out of or in connection with the Purchase Agreement, the Common
Stock Option, the Option Agreement, or the Memorandum. Jansen, the Trust, and
the Estate shall each be a third party beneficiary with respect to the
Sellers' agreements contained in this Section 3. The consideration for the
terminations, releases and assignments granted pursuant to this Section 3
shall be a payment of $3,735,000 (the
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"Termination Payment") by Parent to the Sellers at the Closing. The division
of the Termination Payment as between the Sellers shall be the responsibility
of the Sellers and any such division shall in no way affect or limit the
terminations, releases and assignments granted hereunder.
3.1 Standstill with Respect to Option Agreement and Memorandum. Sellers
agree that until the earlier of the Closing or the termination of the Merger
Agreement in accordance with its terms, Sellers will take no action to enforce
any of Sellers' rights or exercise any of Sellers' powers under the Option
Agreement or the Memorandum. Jansen, the Trust, and the Estate are express
third party beneficiaries of this Section 3.1.
3.2 Consent with respect to Jansen Agreements. By execution of this
Agreement, each of the Sellers consents to Jansen, the Trust, and the Estate
entering into the Jansen Stock Agreement and the Agreement of Purchase and
Sale and Joint Escrow Instructions between Avis Jansen, Trustee, and
Restaurant Ventures of Nevada, Inc. Jansen, the Trust, and the Estate are
express third party beneficiaries of this section 3.1.
4. Representations and Warranties. As a material inducement to Parent to
enter into this Agreement, the Sellers, jointly and severally, represent and
warrant to Parent that as of the date hereof and as of the Closing Date:
4.1 Sole Ownership of Securities; No Encumbrances. Diversified is the record
and beneficial owner of 1,071,429 Shares, the Preferred Shares, and the Note
which constitute all of the shares of Common Stock or Preferred Stock or other
debt or equity securities of the Company owned of record or beneficially by
any of the Sellers or their affiliates (except for the shares of Common Stock
owned by Jansen subject to the Common Stock Option which may be deemed to be
beneficially owned by Diversified until termination of Diversified's rights
under the Option Agreement and the Common Stock Option). Diversified has sole
voting power, sole power of disposition and sole power to agree to all of the
matters set forth in this Agreement with respect to all of the Shares or
Preferred Shares owned of record by it, with no limitations, qualifications or
restrictions on such rights, and the Shares and the Preferred Shares are the
only shares of Common Stock or Preferred Stock over which the Sellers have any
of such powers. The Shares, the Preferred Shares and the Note and the
certificates representing such securities are now, and at all times during the
term hereof will be, held of record and beneficially by the Sellers free and
clear of all liens, claims, security interests, proxies, voting trusts or
agreements, understandings or arrangements or any other encumbrances
whatsoever, except for any such encumbrances or proxies arising hereunder.
4.2 Non-Assignment of Rights. Sellers have not assigned, transferred, or
otherwise encumbered or disposed of any of their rights under the Purchase
Agreement or the Assigned Agreements, except as provided in this Agreement.
4.3 Validity; Binding Effect; No Conflict. This Agreement has been duly and
validly authorized, executed and delivered by each of the Sellers and
constitutes the valid and binding obligation of each of them enforceable
against them in accordance with its terms, except as such enforcement may be
subject to principles of equity and to bankruptcy, insolvency or similar laws
now or hereafter in effect relating to creditors rights generally. Jacobs has
full power and authority to execute and deliver this Agreement on behalf of
Diversified and Jacobs Entertainment. The execution and delivery of this
Agreement and consummation of the transactions contemplated hereby does not
and, subject to receipt of all requisite governmental or other consents or
approvals, the consummation of the transactions contemplated hereby will not,
(i) violate or conflict with any law, ordinance, rule, regulations, orders,
judgment, or decree to which any of the Sellers is subject or by which any of
the Sellers is bound; or (ii) violate or conflict with or constitute a default
(or an event which, with notice or the lapse of time, or both, would
constitute a default) under, or will result in the termination of, or
accelerate the performance required by or result in the creation of any lien,
security interest, charge or encumbrance upon any of the properties or assets
under, any term or provision of any contract, commitment, understanding,
arrangement, agreement or restriction of any kind or character to which any of
the Sellers is a party or by which any of their respective assets may be bound
or affected. Except for the Gaming Approvals and expiration of any waiting
periods under the HSR Act, no consent, approval, authorization or action by or
any filings with any
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federal, state or local governmental agency or any other third party are
required in connection with the execution and delivery by the Sellers of this
Agreement and the other documents and instruments to be executed and delivered
by the Sellers pursuant hereto or the consummation by the Sellers of the
transactions contemplated hereby.
4.4 Brokerage. Except as expressly contemplated in the Merger Agreement, no
investment banker, broker, financial advisor, finder or other person is
entitled to a commission or fee from Parent or the Company in respect of this
Agreement, the Merger or the transactions contemplated hereby based upon any
arrangement or agreement made by or on behalf of the Sellers.
4.5 SEC Reports. To the actual knowledge of the Sellers without any
obligation of independent investigation, (a) the Company has filed all forms,
reports and documents required to be filed with the Securities and Exchange
Commission ("SEC") since February 11, 1994, including without limitation
Annual Reports on Form 10-KSB, Quarterly reports on Form 10-QSB and proxy
statements (collectively and as amended as required, the "SEC Reports") and
(b) as of their respective dates, none of the SEC Reports, including, without
limitation, any financial statements or schedules included therein, contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
5. Covenants of the Sellers. The Sellers hereby covenant and agree as
follows:
5.1 Voting. (a) The Sellers hereby agree that (for as long as the Merger
Agreement is in effect), at any meeting of the holders of Common Stock,
however called, or in connection with any written consent of the holders of
Common Stock, the Sellers shall vote (or cause to be voted) the Shares (a) in
favor of the Merger, the execution and delivery by the Company of the Merger
Agreement and the approval of the terms thereof and each of the other actions
contemplated by the Merger Agreement and this Agreement and any actions
required in furtherance thereof and hereof; (b) against any action or
agreement that would result in a breach in any respect of any covenant,
representation or warranty or any other obligation or agreement of the Company
under the Merger Agreement or this Agreement; and (c) except as otherwise
agreed to in writing in advance by Parent, against any of the following
actions or agreements (other than the Merger Agreement or the transactions
contemplated thereby): (i) any action or agreement that is intended, or might
reasonably be expected, to impede, interfere with, delay, postpone or attempt
to discourage or adversely affect the Merger and the transactions contemplated
by this Agreement and the Merger Agreement; (ii) any extraordinary corporate
transaction, such as a merger, consolidation or other business combination
involving the Company or any of its subsidiaries; (iii) a sale, lease or
transfer of a material amount of assets of the Company and any of its
subsidiaries or a reorganization, recapitalization, dissolution or liquidation
of the Company or any of its subsidiaries; (iv) any change in the management
or Board of Directors of the Company; (v) any change in the present
capitalization or dividend policy of the Company; (vi) any amendment of the
Company's articles of incorporation or bylaws; or (vii) any other material
change in the Company's corporate structure or business. Any such vote or
consent shall be given in accordance with such procedures relating thereto as
shall ensure that it is duly counted for purposes of determining that a quorum
is present and for purposes of recording the results of such vote or consent.
Notwithstanding anything to the contrary contained in this Agreement, Jeffrey
Jacobs shall be free to act in his capacity as a member of the Board of
Directors of the Company and to discharge his fiduciary duties as such.
(b) In order to secure each of the Sellers' obligation to vote the Shares in
accordance with the provisions of Section 5.1(a), each of the Sellers hereby
appoints Parent as such Sellers' true and lawful proxy and attorney-in-fact,
with full power of substitution, to vote all of the Shares on all matters set
forth in Section 5.1(a). Parent may exercise the irrevocable proxy granted to
it hereunder at any time any of the Sellers fails to comply with the
provisions of this Agreement, subject to the receipt of necessary Gaming
Approvals, if any. The proxy and powers granted by the Sellers pursuant to
this Section 5.1(b) are coupled with an interest and are given to secure the
performance of the Sellers' obligations to Parent under this Agreement. Such
proxies and powers shall be irrevocable and shall survive the death,
incompetency, disability, bankruptcy or dissolution of the applicable Sellers
and the subsequent holders of the Shares.
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5.2 Restriction on Transfer, Proxies and Non-Transference; Stop Transfer
Order; Legend.
(a) The Sellers hereby agree, while this Agreement is in effect, and except
as specifically contemplated hereby, not to (i) offer for sale, sell,
transfer, tender, pledge, encumber, assign or otherwise dispose of, or enter
into any contract, option or other arrangement or otherwise dispose of, or
enter into any contract, option or other arrangement or understanding with
respect to the offer for sale, sale, transfer, tender, pledge, encumbrance,
assignment or other disposition of, any of the Shares or any interest therein,
(ii) grant any proxies or powers of attorney, deposit any Shares into a voting
trust or enter into a voting agreement with respect to any Shares or (iii)
take any action that would make any representation or warranty of the Sellers
contained herein untrue or incorrect or have the effect of preventing or
disabling the Sellers from performing their obligations under this Agreement.
(b) In furtherance of the provisions of Section 5.2(a) hereof, concurrently
herewith the Sellers shall and hereby do (i) authorize the Company's counsel
to notify the Company's transfer agent that there is a stop transfer order
with respect to all of the Shares (and that this Agreement places limits on
the voting and transfer of such shares) and (ii) agree that a legend in
substantially the following form shall be placed on each certificate
representing the Shares:
"The securities represented by this certificate are subject to the
conditions, restrictions and obligations specified in the Agreement dated
as of December 22, 1997, and as amended and modified from time to time,
between Mirage Resorts, Incorporated, a Nevada corporation, Diversified
Opportunities Group Ltd., an Ohio limited liability company, Jacobs
Entertainment Nevada, Inc., a Nevada corporation, and Jeffrey P. Jacobs, an
individual, and the Company reserves the right to refuse the transfer of
such securities until such conditions, restrictions and obligations have
been fulfilled with respect to such transfer or said Agreement has been
terminated in accordance with its terms."
The Sellers shall deliver all certificates representing the Shares and the
Company shall or shall cause its transfer agent to imprint such legend on all
such certificates.
5.3 No Additional Purchases. The Sellers hereby agree not to acquire any
additional securities of the Company from and after the date hereof.
5.4 No Inconsistent Agreements. The Sellers shall not enter into any
agreement or understanding with any person or entity the effect of which would
be inconsistent or violative of the provisions of this Agreement or which
could interfere with Parent's efforts to acquire the Company by merger.
5.5 Further Assurances. From time to time, at the other party's request and
without further consideration, each party hereto shall execute and deliver
such additional documents and take all such further action as may be necessary
or desirable to consummate and make effective, in the most expeditious manner
practicable, the transactions contemplated by this Agreement.
5.6 No Indemnity Claims. Sellers shall not, either before or after the
Closing, assert any claim against the Company or any officer, director,
employee or agent of the Company or its affiliates as to which the Company may
have any obligations of indemnity, either under the Company's bylaws, by
contract or otherwise. All such named persons are third party beneficiaries of
this provision and may enforce the provisions hereof. Seller further agrees
that if it should secure a judgment against any such indemnified person who
asserts a claim for indemnity against the Company, then the amount of such
judgment shall automatically be reduced by and to the extent of such indemnity
right.
6. Covenant and Representations of Parent.
6.1 Gaming Approvals; HSR Filing. Parent shall promptly prepare and file
such applications and other filings as are necessary to secure required Gaming
Approvals and to comply with the filing requirements of the HSR and will use
its reasonable best efforts (consistent with its other gaming operations) to
secure such Gaming Approvals. Parent has no actual knowledge of a reason why
the Gaming Approvals will not be granted.
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6.2 Validity; Binding Effect; No Conflict. This Agreement has been duly and
validly authorized, executed and delivered by Parent and constitutes the valid
and binding obligation of Parent enforceable in accordance with its terms,
except as such enforcement may be subject to principles of equity and
bankruptcy, insolvency or similar laws now or hereafter in effect relating to
creditors rights generally. The execution and delivery of this Agreement and
consummation of the transactions contemplated hereby does not and, subject to
receipt of all requisite governmental or other consents or approvals, the
consummation of the transactions contemplated hereby will not, (i) violate or
conflict with any law, ordinance, rule, regulations, orders, judgment, or
decree to which Parent is subject or by which Parent is bound; or (ii) violate
or conflict with or constitute a default (or an event which, with notice or
the lapse of time, or both, would constitute a default) under, or result in
the termination of, or accelerate the performance required by or result in the
creation of any lien, security interest, change or encumbrance upon any of the
properties or assets under, any term or provision of any contract, commitment,
understanding, arrangement, agreement or restriction of any kind or character
to which Parent is a party or by which its respective assets may be bound or
affected. Except for the Gaming Approvals and expiration of any waiting
periods under the HSR Act, no consent, approval, authorization or action by or
any filings with any federal, state or local governmental agency or any other
third party are required in connection with the execution and delivery by
Parent of this Agreement and the other documents and instruments to be
executed and delivered by Parent pursuant hereto or the consummation by Parent
of the transactions contemplated hereby.
7. Indemnity.
Parent, on the one hand, and the Sellers, on the other hand (in either case,
the "Indemnifying Party") shall and hereby do indemnify and hold harmless the
other (in either case, the "Indemnitee") from and against and in respect of
any and all loss, damage and expense incurred by the Indemnitee resulting
from, arising out of, attributable to, or in any manner connected with:
(i) Any matter in respect of which the Indemnifying Party shall have made
any misrepresentation, breached any warranty made pursuant to this
Agreement or failed to fulfill any covenant or agreement on the part of the
Indemnifying Party contained in this Agreement;
(ii) Any and all actions, suits, proceedings, demands, assessments or
judgments, costs and expenses (including legal and accounting fees and
investigation costs) incident to the foregoing and the enforcement thereof.
If any event shall occur or any circumstance arise which might give rise to
a claim in respect of any matter against which the Indemnifying Party have
indemnified the Indemnitee hereunder, the Indemnitee shall give notice thereof
to the Indemnifying Party. If the matter as to which indemnification may be
sought is a claim by a third party, such notice shall be given within thirty
(30) days after said claim shall have been presented to the Indemnitee;
otherwise, such notice shall be given promptly after the Indemnitee shall
determine that the matter is one as to which indemnification is sought.
Failure to give notice within the required time shall have no effect if the
lack of notice by Indemnitee is not materially prejudicial to the rights of
the Indemnifying Party. Unless the parties otherwise agree in writing, the
Indemnifying Party shall defend against all such third-party claims or
otherwise satisfy such claims, at their sole cost and expense, through counsel
and accountants designated by them and approved by the Indemnitee, which
approval shall not be withheld unreasonably. The Indemnitee shall have the
right to participate with the Indemnifying Party in the defense of any such
matter and shall fully cooperate with and make available to the Indemnifying
Party the business records of the Indemnitee for said purpose. If the
Indemnifying Party, after receipt of notification from Indemnitee of a third-
party claim, fails to protest, defend or settle any such third-party claim,
demand suit or proceeding promptly, diligently and in good faith, Indemnitee
shall have the right at its discretion to settle, defend or pay the same, in
which event, the obligations of the Indemnifying Party shall extend to and
include the amounts of said settlement or payment and/or the costs of legal
expenses of such defense.
8. Miscellaneous.
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8.1 Survival of Representations, Warranties and Agreements. All
representations, warranties and agreements made by the Sellers or Parent
pursuant hereto shall survive the Closing of this transaction regardless of
any investigation by Parent or Sellers, except that the representations and
warranties made by the Sellers to Parent in Section 4.5 shall terminate upon
purchase of all of Sellers' Shares hereunder.
8.2 Binding Agreement; Assignments; Third-Party Beneficiaries. All of the
terms and provisions of this Agreement shall inure to the benefit of, be
enforceable by and be binding upon and enforceable against the parties hereto
and their respective heirs and personal representatives, successors and
assigns; provided, however, that except for an assignment by Parent to one of
its affiliates (which may be done in whole or in part), neither of the parties
hereto may assign its rights or duties hereunder. If Parent assigns this
Agreement to one of its affiliates, Parent shall remain liable for the
performance of its obligations hereunder. Nothing contained in this Agreement
shall confer any rights or remedies upon any other person, firm or corporation
(except as otherwise provided in Section 3 hereof with respect to Jansen, the
Trust, the Estate, and those persons benefitted from the covenant not to sue
in Section 5.7, above).
8.3 Obligations Joint and Several. The obligations of Diversified, Jacobs
Entertainment and Jacobs under this Agreement are joint and several as to each
other.
8.4 Waiver of Provisions. The terms, covenants, representations, warranties
and conditions of this Agreement may be waived only by a written instrument
executed by the party waiving compliance. The failure of any party at any time
or times to require performance of any provision of this Agreement shall in no
manner affect the right at a later date to enforce the same. No waiver by any
party of any condition or the breach of any provision, term, covenant,
representation or warranty contained in this Agreement, whether by conduct or
otherwise, in any one or more instances shall be deemed to be or construed as
further or continuing waiver of any such condition or of the breach of any
other provision, term, covenant, representation or warranty of this Agreement.
8.5 Specific Performance. Each of the parties hereto recognizes and
acknowledges that a breach by it of any covenants or agreements contained in
this Agreement will cause the other party to sustain damages for which it
would not have an adequate remedy at law for money damages, and therefore each
of the parties hereto agrees that in the event of any such breach the
aggrieved party shall be entitled to the remedy of specific performance of
such covenants and agreements and injunctive and other equitable relief in
addition to any other remedy to which it may be entitled, at law or in equity.
8.6 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given upon personal delivery, facsimile
transmission (which is confirmed), telex or delivery by an overnight express
courier service (delivery, postage or freight charges prepaid), or on the
fourth day following deposit in the United States mail (if sent by registered
or certified mail, return receipt requested, delivery, postage or freight
charges prepaid), addressed to the parties at the following addresses (or at
such other address for a party as shall be specified by like notice):
If to the Sellers at: If to Parent at:
Diversified, Jacobs Entertainment or Mirage Resorts, Incorporated
Jacobs 3400 Las Vegas Boulevard South
c/o Jacobs Entertainment Ltd. Las Vegas, Nevada 89109
1231 Main Avenue Attn: Daniel Lee and Bruce Levin,
Cleveland, OH 44113 Esq.
Attn: Jeffrey P. Jacobs Fax No.: (702) 792-7268
Fax No.: (216) 861-6315 Fax No: (702) 791-5787
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with a copy to: with a copy to:
Hahn Loeser & Parks C. Kevin McGeehan, Esq.
3300 BP America Building Irell & Manella LLP
200 Public Square 1800 Avenue of the Stars, Suite
Cleveland, OH 44114 900
Attn: Stephen P. Owendoff, Esq. Los Angeles, California 90067
Fax No.: (216) 241-2824 Fax No.: (310) 203-7199
All notices shall be deemed received on the third business day after mailing
or the first business day after delivery to the overnight courier service or
the same business day if personally delivered or sent by facsimile.
8.7 Interpretation. When a reference is made in this Agreement to Section,
such reference shall be to a Section in this Agreement unless otherwise
indicated. The words "include," "includes" and "including" when used herein
shall be deemed in each case to be followed by the words "without limitation."
The descriptive headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
8.8 Cooperation. Each party shall cooperate and use its best efforts to
consummate the transaction contemplated herein. In addition, each party shall
cooperate and take such action and execute such other and further documents as
reasonably may be requested by any other party from time to time after the
consummation of the transactions contemplated herein to carry out the terms
and provisions and intent of this Agreement.
8.9 Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction or other authority to
be invalid, void, unenforceable or against its regulatory policy, the
remainder of the terms, provisions, covenants and restrictions of this
Agreement shall remain in full force and effect and shall in no way be
affected, impaired or invalidated.
8.10 Entire Agreement; Modification. This Agreement contains the entire
agreement between the parties and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof. This Agreement may be amended, modified and
supplemented in any and all respects by written agreement of the parties
hereto.
8.11 Governing Law. The Agreement shall be governed by and construed under
the laws of the State of Nevada.
8.12 Counterparts. This Agreement may be executed in one or more
counterparts, all of which taken together shall constitute one instrument.
8.13 Release of the Company. Effective as of the Closing (and contingent on
the occurrence of the Closing), each of Sellers releases the Company from any
and all claims, debts or obligations of the Company to Sellers other than any
obligation of the Company to indemnify or defend any of the Sellers against
claims made against the Sellers resulting from or related to any of Sellers
having been a director or officer of the Company.
8.14 Termination with Merger Agreement. If the Merger Agreement terminates
in accordance with its terms without the Merger having occurred, then this
Agreement and the obligations of the parties hereunder shall terminate on the
same day as the termination of the Merger Agreement, except that Section 2(e)
(only as it relates to the option granted to Diversified) shall remain in
effect.
8.15 No Prior Agreements. Each of the parties hereto acknowledges and agrees
that, prior to the execution of this Agreement on the date hereof, there was
no agreement, arrangement or understanding among the parties with respect to
the acquisition, disposition, holding or voting of the Shares.
8.16 Facsimile Signatures. Facsimile signatures shall have the same force
and effect as if the parties had delivered such signatures in person.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the date first above set forth.
PARENT: DIVERSIFIED:
Mirage Resorts, Incorporated Diversified Opportunities Group
a Nevada corporation Ltd.,
an Ohio limited liability company
/s/ Daniel R. Lee
By: _________________________________ Jacobs Entertainment Ltd., its
Daniel R. Lee manager
Its: Chief Financial Officer By: _________________________________
/s/ Jeffrey P. Jacobs
By: _________________________________
Jeffrey P. Jacobs
Its: President
JACOBS ENTERTAINMENT:
Jacobs Entertainment Nevada, Inc.,
a Nevada corporation
/s/ Jeffrey P. Jacobs
By: _________________________________
Jeffrey P. Jacobs
Its: President
/s/ Jeffrey P. Jacobs
_____________________________________
Jeffrey P. Jacobs, an individual
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ANNEX E
[LOGO OF ROBERTS & GREEN APPEARS HERE]
80 CUTTERMILL ROAD, SUITE 410, GREAT NECK, NY 11021-3108
516-829-9600, FAX 516-829-9707
E-MAIL [email protected]
December 22, 1997
The Board of Directors
Boardwalk Casino, Inc.
Avis P. Jansen, Chairman
3750 Las Vegas Boulevard South
Las Vegas, NV 89109
Gentlepersons;
You have requested our opinion as to the fairness, from a financial point of
view, to Boardwalk Casino, Inc. ("Boardwalk") and its existing shareholders of
the consideration to be paid in the proposed merger of Boardwalk with, and
into, a wholly-owned subsidiary of Mirage Resorts, Incorporated (the
"Transaction").
The Agreement and Plan of Merger by and among Boardwalk, Mirage, and Mirage
Acquisition Subsidiary, Inc. (the "Merger Agreement") dated December 22, 1997
provides that at the closing of the Transaction, Mirage will purchase all of
Boardwalk's outstanding common stock for $5.00 per share in cash.
In arriving at our opinion herein, and as the basis therefor, we have
performed the following: (1) reviewed the fiscal 1995 and 1996 historical,
audited financial statements and certain public SEC filings of Boardwalk; (2)
reviewed interim unaudited financial data of Boardwalk as applicable; (3)
reviewed supplemental financial analyses and forecasts prepared by Boardwalk's
management; (4) reviewed the Merger Agreement; (5) interviewed management of
Boardwalk concerning Boardwalk's historical and projected operating
performance; (6) analyzed acquisition data for comparable public companies and
valuation multiples for comparable public companies; (7) reviewed the
historical market prices and trading activity of the common stock of
Boardwalk; and (8) conducted such other analyses and investigations and
considered such other financial, economic and market criteria as we deemed
appropriate for purposes of the opinion herein.
In rendering our opinion we have assumed and relied upon the accuracy and
completeness of all financial and other information provided to us by
Boardwalk and Mirage and have not independently verified any such information.
We have neither made nor obtained any independent evaluations or appraisals of
the assets of Boardwalk. We have assumed that financial analyses and forecasts
provided to, or discussed with, us have been reasonably prepared on bases
reflecting the best currently available estimates and judgments of the
management of Boardwalk as to the future financial performance of the Company.
Our opinion is based on market, economic, financial and other conditions as
they exist and can be evaluated on the date hereof.
Roberts & Green, Inc. ("R&G") has been engaged by Boardwalk as its exclusive
financial advisor with respect to the Transaction, in connection with which
R&G will receive a fee for its services, a substantial portion of which is
contingent upon the consummation of the Transaction or other events related
thereto.
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<PAGE>
This opinion has been prepared solely for the use of Boardwalk's Board of
Directors and is not rendered on behalf of, and is not intended to confer
rights or remedies upon, any holder of securities of Boardwalk or Mirage or
any person other than Boardwalk's Board of Directors. Our opinion may not be
published, reproduced, summarized, described or referred to or given to any
other person without our prior written consent except as may be required by
statute or government regulations.
On the basis of, and subject to the foregoing and such other factors as we
deem relevant and our assessment of general economic conditions, it is our
opinion that as of the date of this letter, the consideration to be paid by
Mirage in the Transaction is fair, from a financial point of view, to
Boardwalk and its shareholders.
Very truly yours,
ROBERTS & GREEN, INC.
/s/ James Scibelli
By: _________________________________
James Scibelli
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ANNEX F
NEVADA REVISED STATUTES
CHAPTER 92A
RIGHTS OF DISSENTING OWNERS
NRS 92A.300 DEFINITIONS.
NRS 92A.305 "BENEFICIAL STOCKHOLDER" DEFINED.
NRS 92A.310 "CORPORATE ACTION" DEFINED.
NRS 92A.315 "DISSENTER" DEFINED.
NRS 92A.320 "FAIR VALUE" DEFINED.
NRS 92A.325 "STOCKHOLDER" DEFINED.
NRS 92A.330 "STOCKHOLDER OF RECORD" DEFINED.
NRS 92A.335 "SUBJECT CORPORATION" DEFINED.
NRS 92A.340 COMPUTATION OF INTEREST.
NRS 92A.350 RIGHTS OF DISSENTING PARTNER OF DOMESTIC LIMITED PARTNERSHIP.
NRS 92A.360 RIGHTS OF DISSENTING MEMBER OF DOMESTIC LIMITED-LIABILITY
COMPANY.
NRS 92A.370 RIGHTS OF DISSENTING MEMBER OF DOMESTIC NONPROFIT CORPORATION.
NRS 92A.380 RIGHT OF STOCKHOLDER TO DISSENT FROM CERTAIN CORPORATE ACTIONS
AND TO OBTAIN PAYMENT FOR SHARES.
NRS 92A.390 LIMITATIONS ON RIGHT OF DISSENT: STOCKHOLDERS OF CERTAIN CLASSES
OR SERIES; ACTION OF STOCKHOLDERS NOT REQUIRED FOR PLAN OF MERGER.
NRS 92A.400 LIMITATIONS ON RIGHT OF DISSENT: ASSERTION AS TO PORTIONS ONLY
TO SHARES REGISTERED TO STOCKHOLDER; ASSERTION BY BENEFICIAL STOCKHOLDER.
NRS 92A.410 NOTIFICATION OF STOCKHOLDERS REGARDING RIGHT OF DISSENT.
NRS 92A.420 PREREQUISITES TO DEMAND FOR PAYMENT FOR SHARES.
NRS 92A.430 DISSENTER'S NOTICE: DELIVERY TO STOCKHOLDERS ENTITLED TO ASSERT
RIGHTS; CONTENTS.
NRS 92A.440 DEMAND FOR PAYMENT AND DEPOSIT OF CERTIFICATES; RETENTION OF
RIGHTS OF STOCKHOLDER.
NRS 92A.450 UNCERTIFICATED SHARES: AUTHORITY TO RESTRICT TRANSFER AFTER
DEMAND FOR PAYMENT; RETENTION OF RIGHTS OF STOCKHOLDER.
NRS 92A.460 PAYMENT FOR SHARES: GENERAL REQUIREMENTS.
NRS 92A.470 PAYMENT FOR SHARES: SHARES ACQUIRED ON OR AFTER DATE OF
DISSENTER'S NOTICE.
NRS 92A.480 DISSENTER'S ESTIMATE OF FAIR VALUE: NOTIFICATION OF SUBJECT
CORPORATION; DEMAND FOR PAYMENT OF ESTIMATE.
NRS 92A.490 LEGAL PROCEEDING TO DETERMINE FAIR VALUE: DUTIES OF SUBJECT
CORPORATION; POWERS OF COURT; RIGHTS OF DISSENTER.
NRS 92A.500 LEGAL PROCEEDING TO DETERMINE FAIR VALUE: ASSESSMENT OF COSTS
AND FEES.
NRS 92A.300 DEFINITIONS. As used in NRS 92A.300 to 92A.500, inclusive,
unless the context otherwise requires, the words and terms defined in NRS
92A.305 to 92A.335, inclusive, have the meanings ascribed to them in those
sections.
NRS 92A.305 "BENEFICIAL STOCKHOLDER" DEFINED. "Beneficial stockholder" means
a person who is a beneficial owner of shares held in a voting trust or by a
nominee as the stockholder of record.
NRS 92A.310 "CORPORATE ACTION" DEFINED. "Corporate action" means the action
of a domestic corporation.
NRS 92A.315 "DISSENTER" DEFINED. "Dissenter" means a stockholder who is
entitled to dissent from a domestic corporation's action under NRS 92A.380 and
who exercises that right when and in the manner required by NRS 92A.410 to
92A.480, inclusive.
NRS 92A.320 "FAIR VALUE" DEFINED. "Fair value," with respect to a
dissenter's shares, means the value of the shares immediately before the
effectuation of the corporate action to which he objects, excluding any
appreciation or depreciation in anticipation of the corporate action unless
exclusion would be inequitable.
F-1
<PAGE>
NRS 92A.325 "STOCKHOLDER" DEFINED. "Stockholder" means a stockholder of
record or a beneficial stockholder of a domestic corporation.
NRS 92A.330 "STOCKHOLDER OF RECORD" DEFINED. "Stockholder of record" means
the person in whose name shares are registered in the records of a domestic
corporation or the beneficial owner of shares to the extent of the rights
granted by a nominee's certificate on file with the domestic corporation.
NRS 92A.335 "SUBJECT CORPORATION" DEFINED. "Subject corporation" means the
domestic corporation which is the issuer of the shares held by a dissenter
before the corporate action creating the dissenter's rights becomes effective
or the surviving or acquiring entity of that issuer after the corporate action
becomes effective.
NRS 92A.340 COMPUTATION OF INTEREST. Interest payable pursuant to NRS
92A.300 to 92A.500, inclusive, must be computed from the effective date of the
action until the date of payment, at the average rate currently paid by the
entity on its principal bank loans or, if it has no bank loans, at a rate that
is fair and equitable under all of the circumstances.
NRS 92A.350 RIGHTS OF DISSENTING PARTNER OF DOMESTIC LIMITED PARTNERSHIP. A
partnership agreement of a domestic limited partnership or, unless otherwise
provided in the partnership agreement, an agreement of merger or exchange, may
provide that contractual rights with respect to the partnership interest of a
dissenting general or limited partner of a domestic limited partnership are
available for any class or group of partnership interests in connection with
any merger or exchange in which the domestic limited partnership is a
constituent entity.
NRS 92A.360 RIGHTS OF DISSENTING MEMBER OF DOMESTIC LIMITED-LIABILITY
COMPANY. The articles of organization or operating agreement of a domestic
limited-liability company or, unless otherwise provided in the articles of
organization or operating agreement, an agreement of merger or exchange, may
provide that contractual rights with respect to the interest of a dissenting
member are available in connection with any merger or exchange in which the
domestic limited-liability company is a constituent entity.
NRS 92A.370 RIGHTS OF DISSENTING MEMBER OF DOMESTIC NONPROFIT CORPORATION.
1. Except as otherwise provided in subsection 2, and unless otherwise provided
in the articles or bylaws, any member of any constituent domestic nonprofit
corporation who voted against the merger may, without prior notice, but within
30 days after the effective date of the merger, resign from membership and is
thereby excused from all contractual obligations to the constituent or
surviving corporations which did not occur before his resignation and is
thereby entitled to those rights, if any, which would have existed if there
had been no merger and the membership had been terminated or the member had
been expelled.
2. Unless otherwise provided in its articles of incorporation or bylaws, no
member of a domestic nonprofit corporation, including, but not limited to, a
cooperative corporation, which supplies services described in chapter 704 of
NRS to its members only, and no person who is a member of a domestic nonprofit
corporation as a condition of or by reason of the ownership of an interest in
real property, may resign and dissent pursuant to subsection 1.
NRS 92A.380 RIGHT OF STOCKHOLDER TO DISSENT FROM CERTAIN CORPORATE ACTIONS
AND TO OBTAIN PAYMENT FOR SHARES.
1. Except as otherwise provided in NRS 92A.370 and 92A.390, a stockholder is
entitled to dissent from, and obtain payment of the fair value of his shares
in the event of any of the following corporate actions:
(a) Consummation of a plan of merger to which the domestic corporation is a
party:
(1) If approval by the stockholders is required for the merger by NRS
92A.120 to 92A.160, inclusive, or the articles of incorporation and he is
entitled to vote on the merger; or
(2) If the domestic corporation is a subsidiary and is merged with its
parent under NRS 92A.180.
F-2
<PAGE>
(b) Consummation of a plan of exchange to which the domestic corporation is
a party as the corporation whose subject owner's interests will be acquired,
if he is entitled to vote on the plan.
(c) Any corporate action taken pursuant to a vote of the stockholders to the
event that the articles of incorporation, bylaws or a resolution of the board
of directors provides that voting or nonvoting stockholders are entitled to
dissent and obtain payment for their shares.
2. A stockholder who is entitled to dissent and obtain payment under NRS
92A.300 to 92A.500, inclusive, may not challenge the corporate action creating
his entitlement unless the action is unlawful or fraudulent with respect to
him or the domestic corporation.
NRS 92A.390 LIMITATIONS ON RIGHT OF DISSENT: STOCKHOLDERS OF CERTAIN CLASSES
OR SERIES; ACTION OF STOCKHOLDERS NOT REQUIRED FOR PLAN OF MERGER.
1. There is no right of dissent with respect to a plan of merger or exchange
in favor of stockholders of any class or series which, at the record date
fixed to determine the stockholders entitled to receive notice of and to vote
at the meeting at which the plan of merger or exchange is to be acted on, were
either listed on a national securities exchange, included in the national
market system by the National Association of Securities Dealers, Inc., or held
by at least 2,000 stockholders of record, unless:
(a) The articles of incorporation of the corporation issuing the shares
provide otherwise; or
(b) The holders of the class or series are required under the plan of merger
or exchange to accept for the shares anything except:
(1) Cash, owner's interests or owner's interests and cash in lieu of
fractional owner's interests of:
(I) The surviving or acquiring entity; or
(II) Any other entity which, at the effective date of the plan of
merger or exchange, were either listed on a national securities
exchange, included in the national market system by the National
Association of Securities Dealers, Inc., or held of record by a least
2,000 holders of owner's interests of record; or
(2) A combination of cash and owner's interests of the kind described in
sub-subparagraphs (I) and (II) of subparagraph (1) of paragraph (b).
2. There is no right of dissent for any holders of stock of the surviving
domestic corporation if the plan of merger does not require action of the
stockholders of the surviving domestic corporation under NRS 92A.130.
NRS 92A.400 LIMITATIONS ON RIGHT OF DISSENT: ASSERTION AS TO PORTIONS ONLY
TO SHARES REGISTERED TO STOCKHOLDER; ASSERTION BY BENEFICIAL STOCKHOLDER.
1. A stockholder of record may assert dissenter's rights as to fewer than
all of the shares registered in his name only if he dissents with respect to
all shares beneficially owned by any one person and notifies the subject
corporation in writing of the name and address of each person on whose behalf
he asserts dissenter's rights. The rights of a partial dissenter under this
subsection are determined as if the shares as to which he dissents and his
other shares were registered in the names of different stockholders.
2. A beneficial stockholder may assert dissenter's rights as to shares held
on his behalf only if:
(a) He submits to the subject corporation the written consent of the
stockholder of record to the dissent not later than the time the beneficial
stockholder asserts dissenter's rights; and
(b) He does so with respect to all shares of which he is the beneficial
stockholder or over which he has power to direct the vote.
F-3
<PAGE>
NRS 92A.410 NOTIFICATION OF STOCKHOLDERS REGARDING RIGHT OF DISSENT.
1. If a proposed corporate action creating dissenters' rights is submitted
to a vote at a stockholders' meeting, the notice of the meeting must state
that stockholders are or may be entitled to assert dissenters' rights under
NRS 92A.300 to 92A.500, inclusive, and be accompanied by a copy of those
sections.
2. If the corporate action creating dissenters' rights is taken by written
consent of the stockholders or without a vote of the stockholders, the
domestic corporation shall notify in writing all stockholders entitled to
assert dissenters' rights that the action was taken and send them the
dissenter's notice described in NRS 92A.430.
NRS 92A.420 PREREQUISITES TO DEMAND FOR PAYMENT FOR SHARES.
1. If a proposed corporate action creating dissenters' rights is submitted
to a vote at a stockholders' meeting, a stockholder who wishes to assert
dissenter's rights:
(a) Must deliver to the subject corporation, before the vote is taken,
written notice of his intent to demand payment for his shares if the
proposed action is effectuated; and
(b) Must not vote his shares in favor of the proposed action.
2. A stockholder who does not satisfy the requirements of subsection 1 is
not entitled to payment for his shares under this chapter.
NRS 92A.430 DISSENTER'S NOTICE: DELIVERY TO STOCKHOLDERS ENTITLED TO ASSERT
RIGHTS; CONTENTS.
1. If a proposed corporate action creating dissenters' rights is authorized
at a stockholders' meeting, the subject corporation shall deliver a written
dissenter's notice to all stockholders who satisfied the requirements to
assert those rights.
2. The dissenter's notice must be sent no later than 10 days after the
effectuation of the corporate action, and must:
(a) State where the demand for payment must be sent and where and when
certificates, if any, for shares must be deposited;
(b) Inform the holders of shares not represented by certificates to what
extent the transfer of the shares will be restricted after the demand for
payment is received;
(c) Supply a form for demanding payment that includes the date of the
first announcement to the news media or to the stockholders of the terms of
the proposed action and requires that the person asserting dissenter's
rights certify whether or not he acquired beneficial ownership of the
shares before that date;
(d) Set a date by which the subject corporation must receive the demand
for payment, which may not be less than 30 nor more than 60 days after the
date the notice is delivered; and
(e) Be accompanied by a copy of NRS 92A.300 to 92A.500, inclusive.
NRS 92A.440 DEMAND FOR PAYMENT AND DEPOSIT OF CERTIFICATES; RETENTION OF
RIGHTS OF STOCKHOLDER.
1. A stockholder to whom a dissenter's notice is sent must:
(a) Demand payment;
(b) Certify whether he acquired beneficial ownership of the shares before
the date required to be set forth in the dissenter's notice for this
certification; and
(c) Deposit his certificates, if any, in accordance with the terms of the
notice.
2. The stockholder who demands payment and deposits his certificates, if
any, before the proposed corporate action is taken retains all other rights of
a stockholder until those rights are canceled or modified by the taking of the
proposed corporate action.
F-4
<PAGE>
3. The stockholder who does not demand payment or deposit his certificates
where required, each by the date set forth in the dissenter's notice, is not
entitled to payment for his shares under this chapter.
NRS 92A.450 UNCERTIFICATED SHARES: AUTHORITY TO RESTRICT TRANSFER AFTER
DEMAND FOR PAYMENT; RETENTION OF RIGHTS OF STOCKHOLDER.
1. The subject corporation may restrict the transfer of shares not
represented by a certificate from the date the demand for their payment is
received.
2. The person for whom dissenter's rights are asserted as to shares not
represented by a certificate retains all other rights of a stockholder until
those rights are canceled or modified by the taking of the proposed corporate
action.
NRS 92A.460 PAYMENT FOR SHARES: GENERAL REQUIREMENTS.
1. Except as otherwise provided in NRS 92A.470, within 30 days after receipt
of a demand for payment, the subject corporation shall pay each dissenter who
complied with NRS 92A.440 the amount the subject corporation estimates to be
the fair value of his shares, plus accrued interest. The obligation of the
subject corporation under this subsection may be enforced by the district
court:
(a) Of the county where the corporation's registered office is located;
or
(b) At the election of any dissenter residing or having its registered
office in this state, of the county where the dissenter resides or has its
registered office. The court shall dispose of the complaint promptly.
2. The payment must be accompanied by:
(a) The subject corporation's balance sheet as of the end of a fiscal
year ending not more than 16 months before the date of payment, a statement
of income for that year, a statement of changes in the stockholders' equity
for that year and the latest available interim financial statements, if
any;
(b) A statement of the subject corporation's estimate of the fair value
of the shares;
(c) An explanation of how the interest was calculated;
(d) A statement of the dissenter's rights to demand payment under NRS
92A.480; and
(e) A copy of NRS 92A.300 to 92A.500, inclusive.
NRS 92A.470 PAYMENT FOR SHARES: SHARES ACQUIRED ON OR AFTER DATE OF
DISSENTER'S NOTICE.
1. A subject corporation may elect to withhold payment from a dissenter
unless he was the beneficial owner of the shares before the date set forth in
the dissenter's notice as the date of the first announcement to the news media
or to the stockholders of the terms of the proposed action.
2. To the extent the subject corporation elects to withhold payment, after
taking the proposed action, it shall estimate the fair value of the shares,
plus accrued interest, and shall offer to pay this amount to each dissenter
who agrees to accept it in full satisfaction of his demand. The subject
corporation shall send with its offer a statement of its estimate of the fair
value of the shares, an explanation of how the interest was calculated, and a
statement of the dissenters' right to demand payment pursuant to NRS 92A.480.
NRS 92A.480 DISSENTER'S ESTIMATE OF FAIR VALUE: NOTIFICATION OF SUBJECT
CORPORATION; DEMAND FOR PAYMENT OF ESTIMATE.
1. A dissenter may notify the subject corporation in writing of his own
estimate of the fair value of his shares and the amount of interest due, and
demand payment of his estimate, less any payment pursuant to NRS 92A.460, or
reject the offer pursuant to NRS 92A.470 and demand payment of the fair value
of his shares and interest due, if he believes that the amount paid pursuant
to NRS 92A.460 or offered pursuant to NRS 92A.470 is less than the fair value
of his shares or that the interest due is incorrectly calculated.
F-5
<PAGE>
2. A dissenter waives his right to demand payment pursuant to this section
unless he notifies the subject corporation of his demand in writing within 30
days after the subject corporation made or offered payment for his shares.
NRS 92A.490 LEGAL PROCEEDING TO DETERMINE FAIR VALUE: DUTIES OF SUBJECT
CORPORATION; POWERS OF COURT; RIGHTS OF DISSENTER.
1. If a demand for payment remains unsettled, the subject corporation shall
commence a proceeding within 60 days after receiving the demand and petition
the court to determine the fair value of the shares and accrued interest. If
the subject corporation does not commence the proceeding within the 60-day
period, it shall pay each dissenter whose demand remains unsettled the amount
demanded.
2. A subject corporation shall commence the proceeding in the district court
of the county where its registered office is located. If the subject
corporation is a foreign entity without a resident agent in the state, it
shall commence the proceeding in the county where the registered office of the
domestic corporation merged with or whose shares were acquired by the foreign
entity was located.
3. The subject corporation shall make all dissenters, whether or not
residents of Nevada, whose demands remain unsettled, parties to the proceeding
as in an action against their shares. All parties must be served with a copy
of the petition. Nonresidents may be served by registered or certified mail or
by publication as provided by law.
4. The jurisdiction of the court in which the proceeding is commenced under
subsection 2 is plenary and exclusive. The court may appoint one or more
persons as appraisers to receive evidence and recommend a decision on the
question of fair value. The appraisers have the powers described in the order
appointing them, or any amendment thereto. The dissenters are entitled to the
same discovery rights as parties in other civil proceedings.
5. Each dissenter who is made a party to the proceeding is entitled to a
judgment:
(a) For the amount, if any, by which the court finds the fair value of
his shares, plus interest, exceeds the amount paid by the subject
corporation; or
(b) For the fair value, plus accrued interest, of his after-acquired
shares for which the subject corporation elected to withhold payment
pursuant to NRS 92A.470.
NRS 92A.500 LEGAL PROCEEDING TO DETERMINE FAIR VALUE: ASSESSMENT OF COSTS
AND FEES.
1. The court in a proceeding to determine fair value shall determine all of
the costs of the proceeding, including the reasonable compensation and
expenses of any appraisers appointed by the court. The court shall assess the
costs against the subject corporation, except that the court may assess costs
against all or some of the dissenters, in amounts the court finds equitable,
to the extent the court finds the dissenters acted arbitrarily, vexatiously or
not in good faith in demanding payment.
2. The court may also assess the fees and expenses of the counsel and
experts for the respective parties, in amounts the court finds equitable:
(a) Against the subject corporation and in favor of all dissenters if the
court finds the subject corporation did not substantially comply with the
requirements of NRS 92A.300 to 92A.500, inclusive; or
(b) Against either the subject corporation or a dissenter in favor of any
other party, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously or not in good faith
with respect to the rights provided by NRS 92A.300 to 92A.500, inclusive.
3. If the court finds that the services of counsel for any dissenter were of
substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the subject
F-6
<PAGE>
corporation, the court may award to those counsel reasonable fees to be paid
out of the amounts awarded to the dissenters who were benefited.
4. In a proceeding commenced pursuant to NRS 92A.460, the court may assess
the costs against the subject corporation, except that the court may assess
costs against all or some of the dissenters who are parties to the proceeding,
in amounts the court finds equitable, to the extent the court finds that such
parties did not act in good faith in instituting the proceeding.
5. This section does not preclude any party in a proceeding commenced
pursuant to NRS 92A.460 or 92A.490 from applying the provisions of N.R.C.P. 68
or NRS 17.115.
F-7
<PAGE>
ANNEX G
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR QUARTER ENDED: DECEMBER 31, 1997
COMMISSION FILE NUMBER 1-12780
BOARDWALK CASINO, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
STATE OF NEVADA 88-0304201
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
3750 LAS VEGAS BOULEVARD SOUTH, LAS 89109
VEGAS, NEVADA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (702) 735-2400
______________________________________________________
FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST
REPORT.
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 the number of shares outstanding of each of the issuer's classes of
common stock, as the close of the period covered by this report:
<TABLE>
<CAPTION>
CLASS OUTSTANDING AT DECEMBER 31, 1997
--------------------- --------------------------------
<S> <C>
Common Stock, $.001 par value 7,179,429
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
G-1
<PAGE>
BOARDWALK CASINO, INC.
BALANCE SHEETS
PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1997
------------ -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................ $ 1,972,100 $ 2,236,018
Receivables, net of allowance for doubtful
accounts of $13,276 and $8,276.................. 1,306,443 1,258,170
Inventory........................................ 191,945 130,436
Prepaid expenses................................. 650,900 746,965
------------ ------------
Total current assets........................... 4,121,388 4,371,589
------------ ------------
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $9,750,112 and $8,885,392......... 56,532,818 57,305,457
------------ ------------
OTHER ASSETS:
Deferred costs, net of accumulated amortization
of $721,589 and $583,158........................ 1,278,330 1,416,761
Restricted cash.................................. 173,385 173,385
Other............................................ 100,968 100,969
------------ ------------
Total other assets............................. 1,552,683 1,691,115
------------ ------------
Total assets................................... $ 62,206,889 $ 63,368,161
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................. $ 1,378,595 $ 1,520,268
Construction accounts payable.................... 39,390 461,126
Accrued expenses................................. 3,177,770 3,224,525
Accrued interest expense......................... 1,723,493 3,426,870
Related party payables........................... 500,000 400,000
Notes payable.................................... -- 600,000
Current portion of obligations under capital
leases.......................................... 2,073,304 2,517,920
Term debt classified as current, net of original
issue discount of $3,815,476 and $3,875,773..... 41,184,524 41,124,227
------------ ------------
Total current liabilities...................... 50,077,076 53,274,936
------------ ------------
Obligations under capital leases, less current
portion......................................... 1,457,403 1,833,477
------------ ------------
Total liabilities.............................. 51,534,479 55,108,413
------------ ------------
COMMITMENTS AND CONTINGENCIES
Series A Redeemable Preferred stock, par value
$.001, authorized 18,250 shares; 3,250 shares
issued and outstanding.......................... 3,250,000 --
------------ ------------
SHAREHOLDERS' EQUITY:
Preferred stock, $.001 par value; 14,981,750
shares authorized, none issued.................. -- --
Common stock, $.001 par value; 50,000,000 shares
authorized; 7,179,429 issued and outstanding.... 7,179 7,179
Additional paid-in capital....................... 22,405,083 22,435,083
Accumulated deficit.............................. (14,989,852) (14,182,514)
------------ ------------
Total shareholders' equity..................... 7,422,410 8,259,748
------------ ------------
Total liabilities and shareholders' equity..... $ 62,206,889 $ 63,368,161
============ ============
</TABLE>
See notes to financial statements.
G-2
<PAGE>
BOARDWALK CASINO, INC.
STATEMENTS OF INCOME (LOSS) (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
------------------------
1997 1996
----------- -----------
<S> <C> <C>
REVENUES:
Casino.............................................. $ 6,395,768 $ 5,219,626
Rooms............................................... 3,145,440 3,278,229
Food and beverage................................... 1,657,166 1,484,656
Other............................................... 433,338 476,186
----------- -----------
Gross revenue..................................... 11,631,712 10,458,697
----------- -----------
Less promotional allowances........................... (467,732) (513,845)
----------- -----------
11,163,980 9,944,852
COSTS AND EXPENSES:
Casino.............................................. 4,151,173 3,145,333
Rooms............................................... 1,254,340 1,205,274
Food and beverage................................... 1,661,358 1,519,699
Other............................................... 67,464 76,416
Selling, general and administrative................. 1,796,198 1,668,680
Depreciation and amortization....................... 1,003,150 823,204
----------- -----------
9,933,683 8,438,606
----------- -----------
Income (loss) from operations......................... 1,230,297 1,506,246
----------- -----------
OTHER (INCOME) EXPENSE:
Interest income..................................... (326) (41,101)
Interest expense.................................... 2,004,303 1,964,157
Interest capitalized................................ -- (192,286)
----------- -----------
2,003,977 1,730,770
----------- -----------
Income (loss) before income taxes..................... (773,680) (224,524)
Income tax provision.................................. -- --
----------- -----------
Net income (loss)..................................... (773,680) (224,524)
Preferred stock dividends............................. (33,658) --
----------- -----------
Net income (loss) applicable to common stock.......... $ (807,338) $ (224,524)
=========== ===========
BASIC EARNINGS PER COMMON SHARE:
Net income (loss)................................... (.11) (.11)
Net income (loss) applicable to common stock ....... (.11) (.11)
DILUTED EARNINGS PER COMMON SHARE:
Net income (loss)................................... (.11) (.11)
Net income (loss) applicable to common stock ....... (.11) (.11)
=========== ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING............ 7,179,429 7,179,429
----------- -----------
</TABLE>
See notes to financial statements.
G-3
<PAGE>
BOARDWALK CASINO, INC.
STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
------------------------
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................................. $ (773,680) $ (224,524)
----------- -----------
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities:
Depreciation and amortization..................... 1,003,150 823,204
Provision for doubtful accounts................... 5,000 --
Amortization of original issue discount........... 60,297 49,194
Changes in operating assets and liabilities
(Increase) decrease in receivables............... (53,273) (357,968)
(Increase) decrease in inventory................. (61,509) (15,897)
(Increase) decrease in prepaid expenses.......... 96,065 (145,072)
Increase (decrease) in payables and accrued
expenses........................................ (2,347,197) 1,616,847
----------- -----------
Net cash provided (used) by operating activities... (2,071,147) 1,745,784
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............................. (92,081) (1,091,843)
(Increase) decrease in deferred costs............ -- (2,788)
----------- -----------
Net cash provided (used) by investing activities... (92,081) (1,094,631)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of notes and contracts
payable......................................... (600,000) (421,540)
Related party payables........................... 100,000 --
Principal payments of capital lease obligations.. (820,690) (207,797)
Issuance of preferred stock, net of issuance
costs........................................... 3,220,000 --
----------- -----------
Net cash provided (used) by financing activities... 1,899,310 (629,337)
----------- -----------
Net increase (decrease) in cash...................... (263,918) 21,816
Cash and equivalents, beginning of period............ 2,236,018 4,772,549
----------- -----------
Cash and equivalents, end of period.................. $ 1,972,100 $ 4,794,365
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest............................. $ 3,647,382 $ 155,874
SCHEDULE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Property and equipment acquisitions financed by
contracts payable................................. $ -- $ 92,832
</TABLE>
See notes to financial statements.
G-4
<PAGE>
BOARDWALK CASINO, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Nature of Operations
Boardwalk Casino, Inc. ("BCI") was formed in July 1993 for the purpose of
operating a casino and a hotel (the "Boardwalk Hotel and Casino") in Las
Vegas, Nevada.
The accompanying unaudited condensed financial statements have been
prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. Although
management believes that the disclosures are adequate to make the
information presented not misleading, it is suggested that these interim
condensed financial statements be read in conjunction with the Company's
most recent audited financial statements and notes thereto included in the
Company's 10-KSB for the fiscal year ended September 30, 1997. In the
opinion of management, all adjustments (which include only normal recurring
adjustments) necessary for a fair presentation of the financial position,
results of operations and cash flows for the interim period presented have
been made. Operating results for the period ended December 31, 1997, are
not necessarily indicative of the results that may be expected for the
fiscal year ending September 30, 1998.
Promotional Allowances
The retail value of hotel accommodations, food and beverage provided to
customers without charge is included in gross revenues and then deducted as
promotional allowances to arrive at net revenues. The estimated costs of
providing such promotional allowances have been classified as gaming
expenses through interdepartmental allocation.
Reclassifications
Certain amounts in the quarter ended December 31, 1996 financial statements
have been reclassified to conform with the quarter ended December 31, 1997.
2.ACQUISITION AGREEMENT, GOING CONCERN AND MEMORANDUM OF UNDERSTANDING:
On December 22, 1997, the Company entered into a merger and acquisition
agreement (the "Acquisition Agreement") with Mirage Resorts, Incorporated
("Mirage") where the Company agreed to be acquired by Mirage Resorts. In
connection with the Acquisition Agreement, Mirage has entered into separate
purchase agreements (the "Stock Agreements") with certain selling
shareholders of the Company to purchase their respective shares of common
and preferred stock. The Stock Agreements, which are subject to regulatory
approval, provide Mirage with an approximate 53% interest in the Company.
The Acquisition Agreement also authorizes Mirage to purchase all of the
remaining outstanding shares (the remaining 47% interest) of the Company's
common stock for $5.00 per share (the closing price of the Company's common
stock on the day prior to the execution of the Acquisition Agreement was
$4.16). Completion of the Acquisition Agreement is subject to regulatory
approval and approval of a majority of the Company's shareholders and is to
be completed by no later than June 30, 1998 or the Acquisition Agreement is
subject to termination and the Company will become liable to Mirage for
$1,000,000. Under the terms of the Stock Agreements, the selling
shareholders have agreed with Mirage to vote in favor of the Acquisition
Agreement, should such vote take place prior to the closing of Stock
Agreements.
Under the terms of the Acquisition Agreement, all issued and outstanding
warrants and stock options (other than options issued under the Company's
1994 Stock Compensation Plan or Outside Director's Plan) will
G-5
<PAGE>
BOARDWALK CASINO, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
terminate or constitute only the right to receive the excess, if any, of
the per share Merger consideration ($5.00) over the per share exercise
price of such warrant or option.
As part of the Stock Agreements, Mirage (i) purchased from one of the
selling shareholders the $5,000,000 note payable by the Company and due on
September 30, 1998 and (ii) acquired a land parcel from one of the selling
stockholders which is adjacent to the Company's hotel-casino and currently
under lease to the Company. One of the selling shareholders has agreed to
terminate rights granted under the Memorandum of Understanding executed in
October 1997, for consideration of approximately $3,700,000 from Mirage.
During fiscal 1997, and prior to the execution of the Acquisition Agreement
and the Stock Agreements, Mirage acquired the $40,000,000 First Mortgage
Notes (the "BCI Notes") from the previous noteholder in a private placement
transaction. In connection with the Acquisition Agreement, Mirage has
agreed to defer the March 31, 1998 interest payment on the BCI Notes until
September 30, 1998, at the Company's option (the "Deferral Option").
Interest will accrue on the deferred interest at the same rate as the BCI
Notes (16.5%) and will also be due and payable on September 30, 1998. On
March 26, 1998, the Company exercised its Deferral Option in the amount of
$2,000,000. Mirage also waived its redemption rights under the BCI Notes
which become effective upon a change in control.
Notwithstanding the Deferral Option, management of the Company believes
that the combination of existing cash and cash flows from operations will
not be sufficient to meet the Company's obligations as they become due
during fiscal 1998. These obligations include scheduled interest payments
on the BCI Notes (approximately $6,600,000 for the year) and the scheduled
interest and principal repayment on the $5,000,000 note payable due
September 30, 1998. Management expects that the need for cash will be
significantly relieved upon completion of the Acquisition Agreement and
merger with Mirage. However, as more fully described above, the Acquisition
Agreement is subject to certain conditions, including regulatory and
shareholder approvals. Should the Acquisition Agreement not be approved, or
should the closing be delayed, the Company would not have sufficient
resources to pay interest and scheduled principal of the indebtedness
acquired by Mirage, without modification of the terms of such indebtedness.
There is no assurance that the Acquisition Agreement will be approved, that
such approval would be received on a timely basis, nor that modifications
to the terms of the indebtedness would be obtained, if necessary.
Accordingly, these matters raise substantial doubt about the ability of the
Company to continue as a going concern. The final outcome of these matters
is not presently determinable and the December 31, 1997 financial
statements of the Company do not include any adjustment that might result
from the outcome of this uncertainty.
Memorandum of Understanding and Sale of Redeemable Preferred Stock
On October 27, 1997, the Company entered into a Memorandum of Understanding
(the "Memorandum"). A major shareholder had previously lent the Company
$5,000,000 under a note payable due September 23, 1998. Under the terms of
the Memorandum, the shareholder purchased preferred stock of the Company
and acquired a right to purchase additional shares of preferred stock. The
Memorandum called for the Company to issue 3,250 shares of $.001 par value,
6% non-voting, cumulative redeemable preferred stock, series A ("Preferred
Stock") at a price of $1,000 per share to certain related parties. The
offering generated proceeds of $3,250,000, before deducting offering costs
of $30,000 paid by the Company, from the preferred stock issuance which
were used to make the Company's September 30, 1997 interest payment in
relation to the BCI Notes and retire a $600,000 uncollateralized note
payable.
The Preferred Stock has a liquidation preference over the Company's common
stock in the event of liquidation and the Company shall be permitted to
redeem the Preferred Stock upon the written request of any holder thereof
on or after April 1, 2005 at a price of $1,000 per share, plus all accrued
and unpaid dividends.
G-6
<PAGE>
BOARDWALK CASINO, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
The Memorandum includes an option issued to one of the above related
parties to purchase up to an additional 15,000 shares of Preferred Stock at
a purchase price of $1,000 per share. The option expires on September 29,
1999. The Memorandum also restricts the Company from modifying, extending
or changing the strike price of the terms of any of the warrants to
purchase common stock outstanding as of the date of the Memorandum.
The shareholder also agreed to undertake a feasibility study of a $20
million development on the land (the "Project"), with a termination fee of
$2 million payable by the Company to the shareholder upon the occurrence of
certain events which interfere with or negatively impact the Project.
On December 22, 1997, the shareholder agreed to terminate all rights
granted under the Memorandum for consideration of approximately $3,700,000
from Mirage.
3.EARNING PER COMMON SHARE:
Earnings per share is based on the weighted average number of shares of
common stock outstanding during each period. Warrants and options to
purchase common stock which were issued in 1994 through 1996 were excluded
from the calculation of earnings (loss) per share, as their inclusion would
have been anti-dilutive (by reducing the loss per share).
4.COMMITMENTS AND CONTINGENCIES:
The Company has pending certain legal actions and claims incurred in the
normal course of business and is actively pursuing the defense thereof. In
the opinion of management, these actions and claims are either without
merit or are covered by insurance or will not have a material adverse
effect on the Company's financial position or results of operation or cash
flows.
G-7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain information included in
this Form 10-Q and other materials filed or to be filed by the Company with
the Securities and Exchange Commission (as well as information included in
oral statements or other written statements made or to be made by the
Company) contains statements that are forward-looking, such as statements
relating to plans for future expansion and other business development
activities as well as other capital spending, financing sources and the
effects of regulation (including gaming and tax regulation) and
competition. Such forward-looking information involves important risks and
uncertainties that could significantly affect anticipated results in the
future and, accordingly, such results may differ from those expressed in
any forward-looking statements made by or on behalf of the Company. These
risks and uncertainties include, but are not limited to, those relating to
development and construction activities, dependence on existing management,
debt service (including sensitivity to fluctuations in interest rates),
domestic or global economic conditions, changes in federal or state tax
laws or the administration of such laws and changes in gaming laws or
regulations (including the legalization of gaming in certain
jurisdictions).
Results of Operations
Income from operations has decreased $275,949 or 18.3% to $1,230,297 for
the three months ended December 31, 1997 compared to income from operations
of $1,506,246 for the three months ended December 31, 1996. The results of
operations for the first quarter ended December 31, 1997 reflects the
increased competition with hotel room rates and the effects of an increase
in the minimum wage rate, non reoccurring legal fees of $139,000 and
depreciation expense increased approximately $180,000.
Three Months Ended December 31, 1997 Compared to Three Months Ended
December 31, 1996
The Company had income from operations of $1,230,297 in the first quarter
of 1998 compared to income from operations of $1,506,246 in the first
quarter of prior year, a decrease of $275,949.
The $275,949 decrease in operating income was primarily due to a greater
increase in expenses than the associated increase in revenues. The first
quarter net revenues were $11,163,980 compared to $9,844,852 for the same
period in fiscal 1997, an increase of 12.3% ($1,219,128). Total costs and
expenses increased 17.7% ($1,495,077) to $9,933,683 for the first quarter
in fiscal 1998, from $8,438,606 during the same period in fiscal 1997.
Casino Operations
Gaming revenues increased 22.5% ($1,176,142) to $6,395,768 for the first
quarter in fiscal 1998, from $5,219,626 when compared to the same period in
fiscal 1997. The increase was due to: (i) increased race and sports book
activity that generated an additional $940,504 (47.8%) to $2,906,548 in
revenue for the current quarter from $1,966,044 for the first quarter last
year, (ii) increased slot machine revenue of $282,978 (11.9%) to $2,665,999
for the current quarter from $2,383,021 for the first quarter last year and
(iii) table game revenues decreased $47,340 (5.4%).
Casino expenses increased $1,005,840 (32.0%) to $4,151,173 for first
quarter in fiscal 1998 from $3,145,333 for the same period of 1997. The
increase in casino expenses were due to: (i) additional race wire fees of
$527,484 (ii) additional labor costs of $155,320, (iii) additional slot
participation fees of $138,205, (iv) costs of providing promotional
expenses increased by $117,234 and (v) an increase in supplies of $41,827.
Room Operations
Gross room revenues decreased $132,789 or 4.1%, to $3,145,440 for the first
quarter 1998 from $3,278,229 for the comparable quarter in fiscal 1997.
G-8
<PAGE>
Room nights available were 58,437 for the current quarter and the same
period of last year. Room nights occupied increased 3.58% to 46,642 room
nights occupied for the first quarter of fiscal year 1998 from 45,747 for
the same period of 1997. The occupancy percentage increased to 79.8% for
the first quarter of 1998 compared to 76.4% for the same period of fiscal
1997. The average room rate decreased $4.22 to $67.44 for the current
period.
Promotional allowance for rooms increased $25,717 (33.6%) to $102,263 for
the current period compared to $76,546 for the same period of 1997. Net
room revenues decreased $158,506 or 5.0% to $3,043,177 for the first
quarter of fiscal 1998 from $3,201,683 for the same period of 1997.
Hotel expenses increased $49,066 or 4.1%, to $1,254,340 for first quarter
1998 from $1,205,274 for the same period of 1997. The sales department and
promotional programs account for the increase in expenses.
Food and Beverage Operations
Gross food and beverage revenues increased $172,510 or 11.6%, to $1,657,166
for the first quarter 1998 from $1,484,656 for the comparable quarter in
fiscal 1997. The increase in gross food and beverage revenues was primarily
attributable to the opening of the second floor buffet in the later part of
the second quarter 1997.
Promotional allowance for food and beverage decreased $71,831 (16.4%) to
$365,468 for the current period compared to $437,299 for the same period of
1997. Net food and beverage revenues increased $244,341 or 23.3% to
$1,291,698 for the first quarter of fiscal 1998 from $1,047,357 for the
same period of 1997.
Food and beverage expenses increased $141,659, or 9.3%, to $1,661,358 for
first quarter 1998 from $1,519,699 for the same period of fiscal 1997. This
is the direct result of increased cost of sales and additional wages and
benefits resulting from the opening of the second floor buffet.
Other Revenues and Expenses
Other revenues decreased $42,848, or 9.0%, to $433,338 for the first
quarter 1998 from $476,186 for the same period of fiscal 1997. The decrease
of other revenues consists principally from the conversion of previous
rental space to gaming space.
Other expenses decreased $8,952, or 11.7%, to $67,464 for the first quarter
1998 from $76,416 for the same period of fiscal 1997.
Selling, General and Administrative
Selling, general and administrative expenses increased $127,518, or 7.6%,
to $1,796,198 for first quarter 1998 from $1,668,680 for the same period of
fiscal 1997. Advertising expense increased $139,639 in conjunction with the
opening of the second floor buffet.
Depreciation and Amortization
Depreciation and amortization totaled $1,003,150 in the first quarter in
fiscal 1998, reflecting a $179,946 (21.9%) increase over the first quarter
in fiscal 1997 amount of $823,204 due to the depreciable costs associated
with the completed second floor buffet and meeting rooms.
Other Income and Expenses
Interest income decreased $40,775 to $326 in the first quarter of fiscal
1998 compared to $41,101 for the first quarter of 1997. Interest income
relates to the Company's investments in marketable securities, principally
U.S. treasury securities and short-term corporate commercial paper.
G-9
<PAGE>
Interest expense increased to $2,004,303 in the first quarter of fiscal
1998 from $1,964,157 in the first quarter of fiscal 1997. Approximately
$192,286 of interest was capitalized in the first quarter of fiscal year
1997 in connection with the Expansion, compared to none for the same period
of 1998. The expenditures of the second floor buffet and meeting rooms gave
rise to the interest capitalized in the first quarter fiscal 1997.
Income Tax Provision
No income tax benefit was recorded. The Company has incurred losses and
cannot carryback such loss to offset taxable income in prior years and
therefore has a net operating loss carryforward.
Liquidity and Capital Resources
The Company had unrestricted cash assets of $1,972,100 (3.2% of total
assets) at December 31, 1997 compared to $2,236,018 (3.5% of total assets)
at September 30, 1997. The ratio of current assets to current liabilities
was .082 to 1 at December 31, 1997 and .082 to 1 September 30, 1997.
The Company's operations generated a negative cash flow of approximately
$2,071,141, due primarily to the October 29, 1997 payment of $3,300,000 in
interest payable September 30, 1997.
Investing activities for fiscal 1997 used approximately $92,081 for various
equipment and improvements to the physical buildings.
Financing activities provided approximately $1,899,310 from the issuance of
preferred stock which raised $3,220,000 and $100,000 from a related party.
Such proceeds were offset by $1,420,690 of principal payments on long-term
debt notes payable and capital leases during fiscal 1997.
On December 22, 1997, the Company entered into a merger and acquisition
agreement (the "Acquisition Agreement") with Mirage Resorts, Incorporated
("Mirage") where the Company agreed to be acquired by and merge into
Mirage. In connection with the Acquisition Agreement, Mirage has entered
into separate purchase agreements (the "Stockholder Agreements") with
certain selling shareholders of the Company to purchase their respective
shares of common and preferred stock. The Stockholder Agreements, which are
subject to regulatory approval, provide Mirage with an approximate 53%
interest in the Company. The Acquisition Agreement also authorizes Mirage
to purchase all of the remaining outstanding shares (the remaining 47%
interest) of the Company's common stock for $5.00 per share (the closing
price of the Company's common stock on the day prior to the execution of
the Acquisition Agreement was $4.16). Completion of the Acquisition
Agreement is subject to regulatory approval and approval of a majority of
the Company's shareholders and is to be completed by no later than June 30,
1998 or the Acquisition Agreement is subject to termination and the Company
will become liable to Mirage for $1,000,000. Under the terms of the
Stockholder Agreements, the selling shareholders have agreed with Mirage to
vote in favor of the Acquisition Agreement, should such vote take place
prior to the closing of Stock Agreements.
As part of the Stockholders Agreements, Mirage (i) on January 5, 1998
purchased from one of the selling shareholders the $5,000,000 note payable
by the Company which is due on September 30, 1998, and (ii) did acquire a
land parcel from one of the selling stockholders which is adjacent to the
Company's hotel-casino and currently under lease to the Company. One of the
selling shareholders has agreed to terminate rights granted under the
Memorandum of Understanding executed in October 1997, for consideration of
approximately $3,700,000 from the Mirage.
During fiscal 1997, and prior to the execution of the Acquisition Agreement
and the Stock Agreements, Mirage acquired the $40,000,000 First Mortgage
Notes (the "BCI Notes") from the previous noteholder in a private placement
transaction. In connection with the Acquisition Agreement, Mirage has
agreed to defer the March 31, 1998 interest payment on the BCI Notes until
September 30, 1998, at the Company's option (the "Deferral Option").
Interest will accrue on the deferred interest at the same rate as the BCI
Notes (16.5%) and will also be due and payable on September 30, 1998. On
March 26, 1998, the Company exercised its Deferral Option in the amount of
$2,000,000. Mirage also waived its redemption rights under the BCI Notes
which becomes effective upon a change in control.
G-10
<PAGE>
Notwithstanding the Deferral Option, management of the Company believes
that the combination of existing cash and cash flows from operations will
not be sufficient to meet the Company's obligations as they become due
during fiscal 1998. These obligations include scheduled interest payments
on the BCI Notes (approximately $6,600,000 for the year) and the scheduled
interest and principal repayment on the $5,000,000 note payable due
September 30, 1998 amounting to approximately $5,400,000 and current
maturities of short term notes and lease obligations amounting to
$2,073,000. Management expects that the need for cash will be significantly
relieved upon completion of the Acquisition Agreement and merger with
Mirage. However, as more fully described above, the Acquisition Agreement
is subject to certain conditions, including regulatory and shareholder
approvals. Should the Acquisition Agreement not be approved, or should the
closing be delayed, the Company would not have sufficient resources to pay
interest and scheduled principal of the indebtedness acquired by Mirage,
without modification of the terms of such indebtedness.
There is no assurance that the Acquisition Agreement will be approved, that
such approval would be received on a timely basis, nor that modifications
to the terms of the indebtedness would be obtained, if necessary.
Accordingly, these matters raise substantial doubt about the ability of the
Company to continue as a going concern. The final outcome of these matters
is not presently determinable and the December 31, 1997 financial
statements of the Company do not include any adjustments that might result
from the outcome of this uncertainty.
CERTAIN ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"),
which establishes standards for reporting and display of comprehensive
income and its components. SFAS 130 requires a separate statement to report
components of comprehensive income for each period presented. The
provisions of SFAS 130 are effective for fiscal years beginning after
December 15, 1997. Management believes that they currently do not have
items that would require presentation in a separate statement of
comprehensive income.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131"), which supersedes FASB
Statement No. 14, "Financial Reporting for Segments of a Business
Enterprise." SFAS 131 establishes standards for the way that public
business enterprises report information about operating segments in annual
financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. SFAS 131 is effective for fiscal years beginning after
December 15, 1997 and requires restatement of earlier periods presented.
SFAS 131 will not have a material effect on the Company's financial
statements as the required information is either currently being presented
by the Company or it is not applicable to the Company.
G-11
<PAGE>
BOARDWALK CASINO, INC.
PART II--OTHER INFORMATION
Item 1. Legal Proceedings--None
Item 2. Changes in Securities--None
Item 3. Defaults Upon Senior Securities--None
Item 4. Submission of Matters to a Vote of Security Holders--None
Item 5. Other Information--None
Item 6. Exhibits and Reports on Form 8-K
On December 22, 1997, the Registrant filed a Report on Form 8-K
reporting in Item 5 that the Registrant and Mirage Resorts,
Incorporated issued a press release, a copy of which was attached
thereto as Exhibit (c)(20).
G-12
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
BOARDWALK CASINO, INC.
_____________________________________
Registrant
Date 04/09/98 /s/ Forrest Woodward, II
_________________________
President and Chief
Operating Officer
Date 04/09/98 /s/ Louis J. Sposato
_________________________
Chief Financial
Officer
G-13
<PAGE>
BOARDWALK CASINO, INC.
3750 LAS VEGAS BOULEVARD SOUTH, LAS VEGAS, NEVADA 89109
PROXY FOR SPECIAL MEETING OF STOCKHOLDERS ON MAY 27, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF BOARDWALK
CASINO, INC.
The undersigned hereby appoints Avis P. Jansen and Louis J. Sposato as
proxies, each with the power to appoint his substitute, and hereby authorizes
them to represent and to vote, as designated below, all the shares of common
stock, par value $.001 per Share (the "Shares"), of Boardwalk Casino, Inc.
(the "Company") held of record by the undersigned on April 29, 1998 at the
Special Meeting of Stockholders (the "Special Meeting") to be held at 11 a.m.
local time on May 27, 1998 or any adjournments or postponements thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO INSTRUCTIONS ARE INDICATED
HEREIN, THIS PROXY WILL BE TREATED AS A GRANT OF AUTHORITY TO VOTE "FOR"
PROPOSAL 1.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF PROPOSAL 1.
____________________________
1. PROPOSAL TO APPROVE THE MERGER OF MIRAGE ACQUISITION SUB., INC. WITH AND
INTO BOARDWALK CASINO, INC. PURSUANT TO THE TERMS OF THE AGREEMENT AND PLAN
OF MERGER DATED DECEMBER 22, 1997 AMONG MIRAGE RESORTS, INCORPORATED,
MIRAGE ACQUISITION SUB., INC. AND BOARDWALK CASINO, INC. (THE "MERGER
AGREEMENT") AND TO APPROVE AND ADOPT THE MERGER AGREEMENT.
[_] FOR [_] AGAINST [_] ABSTAIN
2. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.
<PAGE>
The undersigned acknowledges receipt of the copy of the Notice of Special
Meeting and Proxy Statement (with all enclosures and attachments) relating to
the Special Meeting. THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT YOU
SIGN, DATE AND MAIL THE PROXY CARD TODAY.
Dated: ______________________________________ , 1998
____________________________________________________
SIGNATURE (TITLE, IF ANY)
____________________________________________________
SIGNATURE, IF HELD JOINTLY
____________________________________________________
PRINT NAME OF STOCKHOLDER AS IT APPEARS HEREON
PRINT AND SIGN YOUR NAME BELOW EXACTLY AS IT AP-
PEARS HEREON. WHEN SHARES ARE REGISTERED IN THE
NAME OF MORE THAN ONE PERSON, THIS PROXY CARD MUST
BE SIGNED BY ALL NAMED HOLDERS. WHEN SIGNING AS AT-
TORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE OR GUARD-
IAN, PLEASE GIVE FULL TITLE, AS SUCH. IF A CORPORA-
TION, PLEASE SIGN AS FULL CORPORATE NAME BY PRESI-
DENT OR AUTHORIZED OFFICER. IF A PARTNERSHIP,
PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PER-
SON.
